Influence of low fees on the construction and building industry
If you are one of those people who always base decisions on cost, you may be surprised to find out how badly this approach has impacted on the building and construction industry in Australia.
Ever since our competition authorities forced the industry to discard its compulsory fee scales in the 1980s, people and companies bidding for design work have focused on price rather than quality, value and capability. It is an accepted fact that as a direct result, project costs have risen by between 10% and 15%.
So how is this so?
It may not be obvious at first, but researchers have found that the low fees approach has had a huge, negative impact on the quality of project design documentation. The ripple effect has lead to what is described as an inefficient, non-competitive industry with high-stress levels and a growing loss of morale.
In the good old days, fee scales like the one established by the Association of Consulting Engineers Australia (ACEA) were able to maintain professional standards with minimum fees. In other words, skills and qualifications were rewarded at a set rate. After fee scales were abolished, it didn’t take long for people to notice a difference in terms of service and delivery.
Reports and Investigations
One of the first reports to identify problems was the so-called No Disputes report that was prepared by the National Public Works Conference (NPWC) and the National Building and Construction Council (NBCC) in the 1990’s. Amongst other things, this report identified the fact that architects often tendered on sketch plans and allowed builders to start building before all the drawings were ready. Problems, they said, were inevitable.
So be it. A few years later, the Construction Industry Development Association (CIDA), which is funded by the Australian Federal Government, did its own research and made similar findings.
Then in the early 2000s, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) introduced a federally sponsored Co-operative Research Centre’s Construction Innovation programme. This followed a CSIRO survey in 1999 that investigated the various factors thought to affect the quality of design and documentation as well as the impact of inferior design and design documentation on construction efficiency and construction costs.
CSIRO’s survey identified a direct relationship between construction documentation and both the time and cost of building. It also showed that the level of fees paid to architects and design consultants had an obvious affect on the quality of documentation supplied. The higher the fee, the better the documentation was.
The End Results for Consumers
Unfortunately, though, what they found was happening was that people were opting for lower fees – to save money – and ending up paying higher construction costs, often simply because the build took longer to complete. An example given in the CSIRO survey was a primary school project with a budget of $5-million and expected construction time of 12 months. By choosing a design consultant that was $100,000 cheaper than others, they would be able to reduce costs at that stage, but would probably end up paying more than $500,000 more for construction simply because the school would take several weeks longer to complete.
The bottom line, CSIRO said after analysing the survey, was that poor design and poor documentation quite simply hit project costs and increase them.
In 2001 and 2002, the Australian Procurement and Construction Council (APCC) and the Australian Industry Forum (ACIF) did another study. You guessed it – they came up with very similar results.
Then in 2005, an industry-wide task force prepared yet another report. Called Getting It Right the First Time, it was published by Engineers Australia and it examined the problem in Queensland. They noted that the quality of project design documentation in the building, engineering and construction industry had “declined significantly over the past 15 to 20 years”. They also noted that this had had a negative impact on “current practices” as well as resulting in “enormous cost penalties” within the industry.
In monetary terms, this report stated, Queensland alone was losing $2-billion a year. The researchers estimated that Australia as a whole was losing at least $12-billion every year. Now that really is something to worry about.
The Getting it Right report states that the situation is:
- eroding foundations of the industry,
- lessening opportunities for all,
- dampening innovation,
- damaging reputations, and
- deterring new recruits.
Following in the footsteps of the CSIRO researchers, they called for a qualification based selection of professional services instead of basing choice on the lowest bid. This, they hope will be a vision for the future that will result in new industry benchmarks for project documentation.
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