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  • Writer's pictureJohn Lowry

CESSM 3 Introduction - Martin Barnes




The following is the text of Martin Barnes introduction to the Institution of Civil Engineers (UK) "Civil Engineering Method of Measurement, Edition 3, 1992". Barnes was the inventor of the TCQ triangle, and known as the godfather of modern project management.


His words ring as true today as when they were written in 1991.


INTRODUCTION

Financial control means control of money changing hands. Since money almost always changes hands in the opposite direction from that in which goods or services are supplied, it can be considered as the control of who provides what and at what price. This thought establishes a priced bill of quantities as the central vehicle for the financial control of civil engineering contract. The Bill of Quantities is the agreed statement of the prices which will be paid for work done by the Contractor for the Employer and it shares with the Drawings and the Specification the responsibility for defining what has been agreed shall be done.


Control is usually based on a forecast. The difficulty of controlling something is proportional to the difficulty of predicting its behaviour. The points, finer and coarser, of the financial control of civil engineering contracts revol ve around the difficulty the Employer has in forecasting and defining to a Contractor precisely and immutably what he is required to do, and the difficulty the Contractor has in forecasting precisely what the work will cost. To achieve effective control it is necessary to limit these difficulties as much as possible within reasonable limits of practicality. This means using as much precision as possible in defining the work to the Contractor and in enabling him to forecast its cost as precisely as possible.


These are the essential functions of bills of quantities. It is the essential function of a method of measurement to define how bills of quantities should be compiled so that they serve these two essential functions. It is clear from this consideration that bill of quantities works best if it is a model in words and numbers of the work in a contract. Such a model could be large, intricately detailed and reproducing the workings of the real thing in an exact representation. Alternatively, it could be as simple as possible while still reproducing accurately those aspects of the behaviour of the original which are relevant to the purposes for which the model is constructed.


The first purpose of a bill of quantities is to facilitate the estimating of the cost of work by a contractor when tendering. Considered as a model, it should therefore comprise a list of carefully described parameters on which the cost of the work to be done can be expected to depend. Clearly these parameters should include the quantities of the work to be done in the course of the main construction operations. There is no point in listing those parameters whose influence on the total cost of the work is so small as to be masked by uncertainty in the forecasting of the cost of the major operations.


Other points of general application emerge from this principle of cost-significant parameters. The separation of design from construction in civil engineering contracts and the appointment of contractors on the basis of the lowest tender are the two features of the system which make it essential for a good set of parameters to be passed to contractors for pricing, and for a good set of priced parameters to be passed back to designers and employers. Only then can they design and plan with the benefit of realistic knowledge of how their decisions will affect construction costs. The less contractual pressures cause distortion of the form of the prices exchanged from the form of actual construction costs the better this object is served. It is very much in the interests of employers of the civil engineering industry, whether they are habitually or only occasionally in that role, that the distortion of actual cost parameters should be minimised in priced bills of quantities.

An employer's most important decision is whether to proceed to construction or not. This decision, if it is not to be taken wrongly, must be based on an accurate forecast of contract price. Only if a designer has a means of predicting likely construction cost can such a forecast be achieved. The absence of cost parameters which are sensitive to methods and timing of construction has probably caused as much waste of capital as any other characteristic of the civil engineering industry. It has sustained dependence on the view that quantity is the only cost-significant parameter long after the era when it had some veracity. Generations of contractors, facing drawings first when estimating, have found themselves marvelling at the construction complexity of some concrete shape which has apparently been designed with the object of carrying loads using the minimum volume of concrete. That it has required unnecessary expense in constructing the formwork, in bending and placing the reinforcement and in supporting the member until the concrete is cured often

appears to have been ignored.


A major aspect of financial control in civil engineering contracts is the control of the prices paid for work which has been varied. Varying work means varying what the Contractor will be required to do, not varying what has already been actually done. Having once been built, work is seldom varied by demolition and reconstruction; the difficulty of pricing variations arises because what gets built is not what the Contractor originally plans to build. If the work actually built were that shown on the original Drawings and measured in the original Bill of Quantities, the prices given would have to cover all the intricate combinations of costs which produce the total cost the Contractor will actually experience. This would include every hour of every man's paid time his good days, his bad days and the days when what he does is totally unforeseen. It would include every tonne or cubic metre of material and the unknown number of bricks which get trodden into the ground. It would include every hour of use of every piece of plant and the weeks when the least popular bulldozer is parked in a far corner of the Site with a track roller missing. The original estimate of the total cost of this varied and unpredictable series of activities could reasonably only be based on an attempt to foresee the level of resources required to finish the job, with many little overestimates balancing many little underestimates. Changes to the work from that originally planned may produce changes to total cost which are unrelated to changed quantities of work. They are less likely to produce changes in cost which are close to the changed valuation if value is taken to be purely proportional to quantity of the finished work. Where there are many variations to the work, the act of faith embodied in the original estimate and tender can be completely undermined. The Contractor may find himself living from day to day doing work the costs of which have no relationship to the pattern originally assumed.





That cost is difficult to predict must not be allowed to obscure the fact that financial control depends on prediction. If the content of the work cannot be predicted the conduct of the work cannot be planned. If the work cannot be planned its cost can only be recorded, not controlled. It must also be accepted that valuation of variations using only unit prices in bills of quantities is an unrealistic exercise for most work and does little to restore the heavily varied project to climate of effective financial control. Only for the few items of work whose costs are dominated by the cost of a freely available material is the quantity of work a realistic cost parameter. It follows that employers are well served by the civil engineering industry only if contractors are able to plan work effectively: to select and mobilise the plant and labour teams most appropriate to the scale and nature of the expected work and to apply experience and ingenuity to the choice of the most appropriate methods of construction and use of temporary works.

That this type of planning is often invalidated by variations and delays has blunted the incentive of contractors to plan in the interests of economy and profit. The use of over-simplified and unrealistic parameters for pricing variations has led to effort being applied to the pursuit of payment instead of to the pursuit of construction efficiency. In a climate of uncertainty brain power may be better applied to maximising payment than to minimising cost.


Mitigation of this problem lies in using better parameters of cost as the basis of prices in bills of quantities. It would be ideal if the items in a bill were set of parameters of total project cost which the Contractor had priced by forecasting the cost of each and then adding a uniform margin to allow for profit. Then, if parameters such as a quantity of work or a length of time were to change, the application of the new parameters to each of the prices would produce a new total price bearing the same relationship to the original estimated price as the new total cost bore to the original estimated cost. The Employer would then pay for variations at prices which were clearly related to tender prices and the derivation of the adjusted price could be wholly systematic and uncontentious. This ideal is unobtainable, but it is brought closer as bills of quantities are built up from increasingly realistic parameters of actual construction costs.





From the cash flow point of view there are also advantages in sticking to the principle of cost parameters. The closer the relationship between the pattern of the prices in a bill of quantities and the pattern of the construction costs, the closer the amount paid by the Employer to the Contractor each month is to the amount paid by the Contractor each month to his suppliers and sub-contractors. The Contractor's cash balance position is stabilised, only accumulating profit or loss when his operations are costing less or more than was estimated.


Since much of the Contractor's turnover is that of materials suppliers and sub-contractors with little added value, stability and predictability of cash flow has an importance often not appreciated by employers and engineers. Contractors are in business to achieve a return on their resources of management and working capital a return which is seldom related closely to profit on turnover. 


Predictability of the amount of working capital required is function of prompt cost-related payment from the Employer another benefit of pricing parameters closely related to parameters of construction.


In the detailed consideration of the financial control of engineering contracts and of the use for the purposes of control CESMM3 which follows in this book, the application of the set down here is recognised. It should not be thought that the attention to the affairs of contractors implied by this principle allows them a partisan advantage over employers.


An employer's interest is best served by a contractor who is able to base an accurate estimate on a reliable plan for constructing a clearly defined project, and who is able to carry out the work with a continuing incentive to build efficiently and economically despite the assaults of those unforeseen circumstances which characterise civil engineering work.


Confidence in being paid fully, promptly and fairly will lead to the prosperity of efficient contractors and to the demise of those whose success depends more on the vigour with which they pursue doubtful claims.


As Louis XIV's department of works was recommended in 1683, as a result of what may have been the first government enquiry into the financial control of civil engineering contracts: ‘In the name of God: re-establish good faith, give the quantities of the work and do not refuse a reasonable extra payment to the contractor who will fulfil his obligations".


Martin Barnes

Born on 18 January 1939, Barnes earned a civil engineering degree from the University of London and a PhD from the University of Manchester in 1971. His doctorate was awarded for research into improved methods of financial control for engineering projects. In the same year, shortly after completing his doctorate, he set up his own project management business, which merged in 1985 with what is now PricewaterhouseCoopers. Later, he worked as a consultant in project management. He was active from 1972 onwards in the International Project Management Association (IPMA), where he was a Fellow, board member and chairman of its Council of Representatives, and one of the creators of the original Civil Engineering Standard Method of Measurement(CESMM), which was published in 1976.

Barnes' contribution to the civil engineering profession is considered immense, especially for his invention of the classic Time/Cost/Quality triangle – known variously as the project management triangle, Iron Triangle or 'Barnes Triangle'. He himself considered that "this was a very significant step in the establishment of modern project management and my triangle diagram came to be used all over the world".

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