This article and video is about the importance of a scope of work and how this can assist committees to manage rising costs when carrying out remedial repairs on a strata building.
Sedgwick has an article in the March 2022 edition of Australian Strata Magazines titled How owners can regain control of remedial repairs. Carrying out remedial repairs cost effectively goes beyond selecting the cheapest option from a handful of quotes. Strata repairs can be complex, with many factors to consider to ensure the challenges and underlying causes are addressed. That’s why taking the time to investigate the root cause of the damage is necessary, and prepare a detailed scope of work. We’re joined by James McIntosh, Daniel McCullagh and Werner Preller from Sedgwick.
Over the past few months, we’ve seen many news articles about the rising costs of inflation and how this will specifically affect the construction industry. This situation has been worsened by the flooding and water damage on the East Coast in early 2022.
What is the biggest issues facing the construction industry in relation to inflation prices?
Daniel McCullagh: The biggest issue at the moment is the volatility in supply chains. Whether that’s trade shortage or material shortages, we are seeing it across the board. Issues with regards to trying to get materials into the country, slower to manufacture, increases in demand. This has all been driven by a number of different things, namely, around the back of COVID.
Australians are spending more money locally as opposed to investing in holidays. They are taking the opportunity to renovate and carry out extensions. Further, the government stepped in to kickstart our economy by issuing grants for new construction. That approach has been seen globally by most major nations, and so demand is being mirrored in a number of other countries.
We’re seeing around a 41% increase in terms of building approvals over the last 12 months. Couple that with what we’re seeing in terms of weather events and that is definitely reducing the availability of trades, and certainly further availability of materials. It is increasingly difficult to get works completed. You are having to pay a premium to get projects completed in a timely fashion. Ultimately, contracts are going to have greater provisional sums or prime costs, which is unknown costs or costs that are going to fluctuate. Something that everyone, including the strata managers and committee members, need to be aware of, is fluctuating costs that you can expect during a repair itself.
How is this impacting remedial repairs in the strata space specifically? What should strata managers and committees be looking for?
Daniel McCullagh: Being aware of timeframes is going to be the big component here. Whilst you may be getting what appears to be a reasonable price, continue to shop around. Make sure you’re getting the right price. But during that process, be aware of the financial stability of that particular contractor and the terms and conditions of their quote and the contract they provide. There may be a provisional sum included which is essentially a flexible cost that’s agreed to upfront, but may change during the course of construction.
Be aware you may be up for additional costs during the repair, despite there being a contract in place. Be aware that the timeframes are not going to be anywhere near what we were seeing in 2020 or 2019, with some construction taking two to three times longer than it did previously.
What is the industry doing to try and resolve these challenges in terms of supply and demand issues that are impacting pricing?
Daniel McCullagh: Through the clients and the customers we engage with, we are taking an approach of engaging with a number of manufacturer’s supply chains to understand what those impacts look like and keeping a close watch on what’s happening in the industry.
The issues we’re facing aren’t going away anytime soon. We’re seeing the same issues starting to roll out in other industries such as technology with shortages of microchips, etc. Throughout the course of 2022, I think we’re going to see this issue continuing, certainly with the change in weather events adding more stress or strain to that supply chain. I think the biggest focus at the moment needs to be on managing expectations. There is very limited availability for the industry to make any significant change, certainly given that this is an issue that’s being faced globally. Unfortunately, it’s not as simple as just changing your supply chain.
For committees, what are some of the biggest risks and issues that are faced in strata buildings when it comes to addressing remedial repairs?
James McIntosh: With the engagement of any contractor, the owner of that building will need to enter into a form of agreement. For larger, scheduled works, that would be a building contract. For any contracted party, the biggest risk will always be workplace health and safety. Everyone needs to go home safe. With most strata buildings we can appreciate that remedial works and post construction works are often high risk and that risk is often worn by the contractor. That’s the nature of the works. You’re often performing works at heights, there are often confined space elements.
You’re working in live environments. There are people residing in the property that we need to be cognizant of. There are often commercial retail suites within a strata building on the ground floor, there are often vehicle movements in the car spaces, the roadways, the driveway, that sort of thing. Workplace Health and Safety is something that has to be managed. Whilst those contractors are ultimately the most at risk, the owners of that contractor party also have that obligation to continue to be vigilant about workplace health and safety.
In most cases, this will require that the owners actively request Workplace Health and Safety documentation from the contractors, and most importantly, a workplace health and safety management plan. That management plan will identify the actions, the steps, the responsibilities of that contractor in performing those works. As a body corporate or an owners corporation, by requesting this from the contractor, you’re holding that contractor accountable to maintain workplace health and safety operations.
The other risk common to owners cooperations is that they often authorise works that don’t address the root cause of an issue in a property, especially in a remedial sense. Rather, what they often address is a set of symptoms that are presenting and often to the layperson, a set of symptoms that are appearing on the surface. Those works don’t necessarily go far enough to address the root cause. We see it all the time where a body corporate engages a single trade contractor to go out and perform repairs in an effort to mitigate further damage. We can appreciate that’s a priority at that point in time. But often works don’t go any further. There’s no further investigation into the actual root cause.
Often, where a set of symptoms are presenting, the root cause could be on a different floor, it could be in a different lot property, it could be coming from an exposed balcony on a different floor, for instance, and that needs to be thoroughly investigated, post those initial make safe activities. There are going to be investigation costs to find that root cause. Owners should be prepared for this.
When it comes to managing costs, what can the owners corporation do? What are the main ways that an owners corporation or body corporate can control costs?
Werner Preller: There is a tried and tested process that can be followed. Even though buildings have become more complicated, the process has not changed. Prevention is the key. The aim is always to address small issues before they become real problems.
Anytime when you have volatile prices and market fluctuations, the best thing a body corporate can do is to revisit the prevention and planning tools. You need to have a very in-depth understanding of your building fabric and all the services inside it. This forms the basis for everything going forward. Once you know exactly what’s going on in the building and the condition, you can update your capital works funds to respond to necessary repairs and ensure you have enough capital to pay for it. This eliminates the risks of paying for works multiple times. If you know the condition, you won’t make the mistake of fixing problems superficially.
In order to save costs, we can summarise four very easy steps:
- Know the condition of your building and every aspect of it.
- Ensure there’s an easy way for owners to report on damage or issues, whether it’s a phone app or some other system available.
- Make sure when you undertake capital works funds, it represents the condition of the building. These days buildings are far too complicated to simply update capital works funds or sinking plans just on a yearly or three year basis. Your consultant needs to engage with the committee. They need to go and spend time at the building, really understand the condition and every aspect of it.
- If you have to undertake repairs, make sure you have a detailed scope of works. Undertake the repairs in a planned and structured way and not in a haphazard way or as an emergency repair.
Many owners corporations have remedial repairs, capital works or maintenance that they need to carry out on their buildings. Can you provide a high level overview of the process committee should follow to ensure the best outcomes?
James McIntosh: Once you’ve identified that you’ve got a set of symptoms or issues at a property, there are four key categories:
- Identification investigation
- Preparation of a scope of works
- Tender management process
- Fulfilment where you perform project management of those works being conducted.
1. Identification Investigation
Often identification investigation requires a certain skill set, a forensic building consultant or engineer, that will go through a series of testing and often invasive investigations and if required, they will make a recommendation for other skill sets, other professionals such as hydraulic, fire, mechanical specialists to get involved.
Often it does become that process of elimination, where we’ll go through all possible causes. We consider them, test them, validate them before we ultimately arrive at that proximate cause of what is causing an issue. It’s only at that time that we are prepared to move forward with a detailed scope of work.
2. Scope of Works
We’ve done our investigation, we know what the issue is, we know the result and damages. We can now move forward and prepare that scope of work. A scope of works describes what needs to be done and in what quantity that will ultimately remedy the issue, as well as any of that consequential damage that exists. Once we’ve established that scope of works, we can then move forward with tender management and certainly not before. For large scale remedial works, we shouldn’t be jumping straight through to tender management because we’ve got no we’re got no control of the outcome. That scope of works will be that source of truth ultimately that multiple tenders can then review and provide a costing. Without that scope of work, you will receive tenders that are not comparable. They will be lacking in detail and the range of costs will be broad, and you’ll leave yourself open to costly variations down the track if you haven’t got that detailed scope of works to rely upon.
Tendering of those works is not just as simple as going out to the open market. We need to vet the most suitable contractors for that scope of work to ensure they are both experienced and licenced in performing those works. We see it all the time, where contractors are being presented to us to tender on works but they have no actual experience in that scope of works. However, they sit on an approved panel with Strata managers, and that’s why they’re being put forward.
In our experience, a detailed tender is a good tender and often the cheapest tender is the less detailed because that contractor just hasn’t taken the time to prepare an accurate tender. Detailed tenders result in fewer variations and are more cost effective in the long run.
Then we move forward to the fulfilment stage and there is a great benefit in a project manager. This is a third party acting on behalf of the owners corporation or body corporate to act in their best interest. We can provide services that add value to the contract review process. When the contract is presented to the body corporate, we make sure it is reasonable and achievable. We also make sure there are steps within that contract that enable us to fulfil our engagement to the best of our ability. Owners are rarely equipt with the experience to oversee a contractor execute the works.
A great tip Sedgwick offer in project management for remedial works in strata buildings is utilising hold points in the programme. Those hold points allow for critical testing and inspection of those stages throughout the project, in particular waterproofing. That’s one example where a third party quality check can drastically improve the success of the overall works. Managing progress claims closely is another area where a third party project manager can add value. Those progress claims are presented to contractors.
We ensure you only release money reflective of the stage of works that have been completed and in context of the quality of those works that have been completed. One of the other big risks to owners is releasing that money prematurely. It puts both the contractor and the other contracted party, the owners corporation, at risk because for that builder it starts to affect their cash flow, and it affects their ability to be able to fulfil the overall project.
What is the scope of works and what are the benefits of investigating a defined scope of works?
James McIntosh: The scope of works is a document that describes the works necessary to address the issue, including consequential damages to finishes. The scope includes quantities, which ultimately provides clarity and can be used for forecasting costs via a quantity surveyor. It is utilised in tendering practices and it also manages the appointed contractor who ultimately wins the work to conduct the works as contracted to do so. It’s that single source of truth.
The scope of works ensures that only reasonable and or latent variations are raised by the contractor because everything that could be reasonably foreseen has been documented prior to entering into that contract.
What services does Sedgwick offer to assists committees in managing costs for large and complex remedial repairs?
Werner Preller: At Sedgwick, we offer everything from a phone call, initial advice, consultations, to a review of capital works plans or full turnkey solutions and project management. Our main specialisation is our understanding of building and how it affects the different components of it. We do in depth condition assessments and very detailed scope of works, which forms the basis for everything and will provide long term savings in the future. Other services we offer are forensic and engineering investigations, cost estimates, planning, remedial scope of works and advice.
For smaller, less complex matters how can Sedgwick assist? How does your desktop cost verification validation service work and what are the benefits to a lot owners and committees?
Daniel McCullagh: We have our building review team and this team has been providing our insurance clients with their service for the past six years. We’ve seen some massive outcomes coming from this particular service and a lot of feedback coming from our clients around the value add and the savings it has generated.
We’ve taken the position of now offering this particular service to owners corps and body corporate with regards to this desktop validation service, so essentially our BRT or building review team consists of highly experienced experts with extensive construction expertise and numerous trade qualifications. They are all either ex builders, roofers, carpenters, brickies, a wide range of experience to be able to essentially use their detailed knowledge of building and the requirements of Australian standards for us to call into question building repair methodology and construction costs.
The intention of what the BRT do, is to essentially take quotations from industry and review them to make sure they are fair and reasonable for the scope in which they are subscribing to complete and that it is in alignment with current market rates. We are operating this service nationally and so we do have a very good grip on what’s happening in the industry, certainly around the impact of cost, labour, etc.
We essentially make sure a quality, cost effective solution is provided that will, coupled with a scope of works, will ultimately resolve the building issues that have been presented. In terms of some very key stats, we typically undertake around 1,200 of these reviews every month and some of the savings, range from anywhere between $900 through to $3,000 or $4,000 on any given review. Larger jobs obviously have a great opportunity to bring costs back into alignment. Smaller jobs, obviously yielding a smaller return. However, we typically see that for an average cost of between $300 or $400 and we would usually generate a yield of at least $900 in terms of saving back to our client.
James McIntosh is the National Manager – Technical Services, Building Consultancy Division.
Daniel McCulluch – Senior Manager, Repair Solutions
Werner Preller – Principal Quantity Surveyor
Have a question about scope of works or managing rising costs or something to add to the article? Leave a comment below.
This article is not intended to be personal advice and you should not rely on it as a substitute for any form of advice.
- WA: Dealing With and Selecting Contractors for Your Strata Building
- NSW: Q&A Capital Works Fund – What Do We Need To Do Now?
- VIC: Q&A Seeking an Order for Works to Proceed