Building standards - compliance plan manager role: cost benefit analysis

Executive Summary

Introduction

1. The building standards system in Scotland is intended to ensure that building work on both new and existing buildings results in buildings that meet reasonable standards. The building standards system is pre-emptive and operates in two phases – design and construction. Applications for building warrants are made at the design stage and the granting of the warrant confirms that the proposed building meets the current building regulations. On completion of the building work, the owner/developer makes a completion certificate submission confirming that the work is complete and complies with the approved building warrant and the building regulations.

2. In recent years, a number of events have focused awareness on how buildings are designed, constructed and procured. These include:

• The Grenfell Tower fire in London in 2017.
• The collapse of part of an external wall in Oxgangs primary school in Edinburgh in 2016 and the subsequent discovery of similar defects in 16 other schools.
• The closure of the DG One leisure centre in Dumfries in 2014 following identification of a range of defects arising throughout the building.

3. Following the Grenfell Tower fire, a Ministerial Working Group (MWG) on Compliance and Enforcement was established and it concluded that compliance needs to be considered from the inception of a project to its completion.

Compliance Plan and Compliance Plan Manager

4. A Compliance Plan (CP) for complex and high-risk public buildings is being introduced to reduce the risk of non-compliance by improving oversight and identifying how the project will be carried out to minimise the risk of non-compliance. A Compliance Plan Manager (CPM) will be appointed to monitor and gather evidence to provide the necessary assurances that the buildings, as constructed and completed, are compliant with the approved building warrant and the building regulations.

Study Aims and Approach

5. The aim of the research is to undertake a cost-benefit assessment of the CPM role on high-risk building types. For the purpose of the research, high-risk buildings were defined as residential buildings with any storey at a height of more than 11 metres above ground, educational establishments, community/sports centres (including buildings under local authority control or where the local authority has an interest in the building), hospitals and residential care buildings.

6. The cost-benefit analysis drew on a literature review and stakeholder engagement to identify possible costs and benefits and understand the current compliance processes and how this would change with the CPM role.

Literature Review

7. The cost-benefit analysis must identify all costs and benefits associated with the introduction of the CPM role. The benefits are essentially “avoided costs” i.e. the benefit of increased compliance should result in fewer building failures and the consequent costs associated with these failures.

8. The literature review was divided into two parts. The first part was a general review of articles/research on the costs of rework on construction, primarily from academic papers. The second part was a targeted review of articles published with respect to costs incurred in relation to specific building failures.

9. The general literature found that, at completion of the construction phase, the direct costs of rework (having to do something at least one extra time) were estimated to be in the range 1.7% to 9.3% of contact value. Although not quantified as frequently as direct costs, indirect costs could be in the range 2.75% to 5.6% of contract value. It is suggested that rework can be considered a normal part of operations which appears to derive from an environment which puts emphasis on making good non-conformances rather than preventing them from arising in the first place.

10. A range of building failures were examined in the various high-risk building categories and found that the actual costs incurred in addressing the failure are very specific to the particular failure. When fire is the cause of failure, the chance of injury/fatality appears to be significantly higher and where there is a need to provide alternative housing, the consequential costs of the building failure are higher.

Stakeholder Engagement

11. It is usually the joint responsibility of the design team and contractor to ensure compliance with the building regulations, but the obligation is on sub-contractors to monitor their own work and ensure that, at handover, it is compliant. At present, the compliance management role tends to be part of other roles and is not fully focussed on ensuring compliance with the approved plans and building regulations. The cost of compliance is usually built into the contract price.

12. The increase in Design and Build contracts over past few decades appears to have led to a reduction in the level independent oversight on-site. The role of the clerk of works appears diminished with only a few public sector projects using a clerk of works. The more traditional type of contract has more independent oversight, but these contracts are not used so much on high-risk buildings.

13. The role of the CPM would not necessarily be a full-time role, but that would depend on the complexity and nature of the project. The role was broadly welcomed for high-risk buildings as a means of improving compliance through independent professional scrutiny of the build quality.

14. The main area of concern over the CPM role was the issue of professional indemnity insurance and the ease with which it could be secured at an appropriate cost.

Cost Benefit Framework

15. The cost-benefit analysis compares the following two options:

• Option 1: Existing situation with respect to compliance management.
• Option 2: Introduction of a CPM.

16. The cost benefit analysis quantifies in monetary terms as many of the costs and benefits as is feasible. The analysis shows the present value of costs and benefits and calculates the benefit cost ratio (BCR). A BCR above one indicates that the benefits are greater than the costs.

17. The review of specific building failures suggests that the consequent costs associated with buildings not being available varies by building type. Hence, the analysis is undertaken for a “typical” building in the following categories:

• High-rise Residential.
• Schools.
• Hospitals.
• Residential Care.
• Leisure Centres.

18. The main cost to be quantified is the cost incurred with the introduction of the CPM role.

19. The benefits likely to arise from the introduction of the CPM role are essentially avoided costs and fall into two main categories:

• Costs incurred during construction of the building as a result of rework which should be reduced with the CPM. These include:
  • Direct costs of rectifying non-compliance issues.
  • Indirect costs of rectifying non-compliance issues.
• Consequential costs of non-compliance associated with building failure in the post construction period. These costs should be avoided or substantially reduced with the CPM and typically fall into the following categories:
  • Costs of rectifying the building failure.
  • Injury and fatality costs.
  • Consequential costs associated with the building not being available.
  • Other social or community costs.

Cost Benefit Results

20. The costs and benefits identified above were estimated for each of the high-risk building types with the results shown in Table 1. The present value of costs are in the range £0.1 to £0.4 million with the present value of benefits substantially more across all building types. The BCR is in the range 3.5 to 8.2 and shows that there are net benefits to be obtained from the introduction of the CPM role across all building types.

21. A number of benefits were identified which could not be given a monetary value and these are shown in Table 2. The extent of most of these benefits will vary depending on the nature of the building failure and the severity of the building and would arise in addition to the benefits in Table 1.

22. Sensitivity analysis was undertaken to test the robustness of the results to the assumptions made. Given that the BCRs in Table 1 are all greater than one, there is no need to test the sensitivity of benefits to any changes in assumptions which would increase the value of benefits as this would only increase the BCR further. The focus of all the sensitivity test was on reducing the value of benefits.

23. A number of sensitivity tests were undertaken for each building category and all tests for every building type returned a BCR which was greater than one.

Conclusions

24. Across all building types, the analysis shows that the benefits of introducing the CPM role exceed the costs and often by a substantial amount. There are also a number of non-monetised benefits to be gained from the CPM role including social benefits such as reduced stress and anxiety. Depending on the nature and severity of the building failure, there could also be benefits associated with reduced costs for the emergency services, other investigative work and public inquiry/legal costs.

25. The sensitivity of the results to the key assumptions has been tested. Across all building types, the sensitivity tests all returned a BCR in excess of one. For all high-risk building types modelled in this analysis, the CPM role offers substantial net benefits.