Construction costs vary enormously from country to country. Five industry figures discuss why the international standards movement is turning its attention to the issue.
25 September 2017
Like many industries, construction is now a globalised business. And it has been a long time since this traffic was one way, as can be seen in the growing appetite for Western markets displayed by Asian companies. Architects, contractors and developers will often seek to import their own tried and trusted supply chains, helping to explain the spate of recent mergers in the consultancy and engineering fields.
But although the industry is becoming more internationalised, the way it measures costs is often still determined by the markets in which work is carried out. Such inconsistency in standards can breed misunderstanding and uncertainty, which the industry is now seeking to remedy.
Established on 17 July 2015, the International Construction Measurement Standards Coalition, an umbrella group consisting of more than 40 professional bodies is developing and implementing a new international construction measurement standard (ICMS).
Why do our panel think such a standard is important, and what do they hope its introduction will achieve?
Roger Flanagan FRICS: It’s a worldwide business now. Take a company such as Skanska, where I used to be a non-executive director. It’s now the number-two firm in the United States, so the board in Stockholm, Sweden is driven by an international agenda. There’s a huge cross-fertilisation of ideas in design and procurement. I go to China a lot, and their biggest focus now is how to internationalise the supply chain. Building steel to Chinese standards won’t help, you have to build it to the very highest international standard.
Tolis Chatzisymeon: We started our business more than 10 years ago, but now we have customers from all over the world, including several multinational companies. Although our primary market is the UK, 65%-70% of our operations are around the world, and we are getting more and more work overseas.
KC Tang: Most Hong Kong-based quantity surveying firms have a global partner. Clients have been coming to Hong Kong for a long time from the US, Japan, Australia and the UK. But now people are talking about going to places such as Vietnam and Cambodia.
KC Tang: Trying to get international work can be difficult because there are many different standards. People trying to invest in a foreign country do not know how their money would be spent.
Martin Darley: We have to be totally transparent. Large corporations will publish their results on the New York Stock Exchange. Everything they do is out there in the market – and stakeholders want to see what’s going on. You can’t operate in a global environment without that sort of transparency.
Julie dela Cruz FRICS: When we work on a particular project, a certain standard method of measurement is required. On the next project, in another country, we might have to use another method and have to learn different measurement standards. Efficiency is affected because we are on a learning curve all the time.
KC Tang: Most clients appear to be rather receptive to the Hong Kong method of working. Those from a Commonwealth background are very well used to Commonwealth standards. Even those from the US, which has its own standards, accept the Hong Kong way of delivering projects. It gets more difficult in mainland China and Macau. We have to follow their standards and their way of working, which causes some difficulties as it takes time to learn them.
Where standards are different, “ordinary quality” will have a different meaning. We may find it difficult to explain to the client why the building is more expensive because we are building to a higher classification of quality. Standards will be quite different, so there will be apparent inconsistencies in costs/m2 between country A and country B.
Julie dela Cruz FRICS: Using another method of definition creates an additional expense. We cannot do a comparison for cost analysis because you cannot compare like with like.
Roger Flanagan FRICS: To bring all these standards together, you have to conduct a high-level review and translate all these different definitions into a common platform. People are making very expensive mistakes because they don’t understand the basis of measurement.
Roger Flanagan FRICS: It’s hugely important. If we could reduce construction costs by 3%, you could probably build around 200 new schools in the UK.
Martin Darley: There’s enormous scope for improving the industry and how we invest capital. The construction sector is a huge part of any country’s GDP. If you are doing that inefficiently, it’s not good. The only way to improve that is with better information. If you can define your cost elements, you will have confidence in what you are doing. If you don’t know what you are doing, you cannot improve it.
If standards are inconsistent, you will undermine confidence in the ability of the organisation.
Julie dela Cruz FRICS: This is a major issue. If one standard is used, it will have a significant impact on the spread of BIM.
KC Tang: Clients are keen to use the BIM platform, but when they come to costing, it’s a headache [to use], which is limiting its spread. Because of the openness of sharing in BIM, some form of standardisation in terms of cost classification is very important.
Martin Darley: BIM gives you lots of data. You can do plenty with it, but if you are not using it in a consistent manner, you are not actually adding any value.
Julie dela Cruz FRICS: It will help Arcadis. We operate globally, but our businesses are working on different standards, so you can imagine the value of having a consistent standard. The process will be more efficient because we will all be looking at the same standard.
KC Tang: In an international marketplace, not having a common language and culture brings difficulties, because people work in different ways. With ICMS, we won’t have to spend so much time and effort localising the project because people will know that it’s compliant.
The standard will help professionals communicate with each other, and it’s going to reduce the time that people spend investigating markets. We are coming up with a new toolkit for cost benchmarking and forecasting, which people will be able to use anywhere in the world. It also means that construction professionals will be able to work in other countries, as well as their own. If we have a standard like ICMS, the time and effort spent understanding and explaining will be much diminished, which will be very useful.
Julie dela Cruz FRICS: In time, companies should adhere to ICMS because they will see the value of it. When we launch this year , it will only address high-level definitions for the time being. The first stage should be the definition of terms and exclusions and what is included in the cost estimate. Later on, it can include volumes. We will have the high-level standard and then businesses can adapt whatever local standards they have.
KC Tang: We are trying to establish a simple standard that everybody can follow in parallel with the local standard, which can be very detailed and specific to allow for the variation in construction methods and policies in each market. ICMS is going to give a high-level standard so that you can easily compare one project against another. We are not trying to replace the local standards, we are trying to provide a simple way of comparing costs.
Martin Darley: Integrity of information is important – the better the information, the better the quality of the decision. Any decision made on a significant investment is based on the quality of the data. ICMS would improve the quality of project information.
Roger Flanagan FRICS: We report in very different ways and ICMS is about trying to bring some consistency. If I am building housing in Hong Kong, I am very interested in what housing costs in Rio or London. I use the comparison of financial reporting, which the accountancy profession has very carefully tried to shape to global standards. This is an attempt to bring a similar discipline to the way we report cost information.
KC Tang: Ensuring the data can be rolled up into a consistent format is going to help a lot. With ICMS, we are trying to describe the major features consistently so that we can compare country A with country B. Without this consistency, we are always talking about apples and oranges, so would spend a lot of time searching for the inconsistencies. We cannot afford to miss any costs that go into the total cost report, so it’s very important. Once you classify costs in a systemic way, any differences in local practice would be ironed out.
Also, if any country doesn’t have a local standard of its own, ICMS can be a good reference. Once we have an international standard that everybody follows, we won’t have to spend so much time explaining. Life will be a lot easier and happier.
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