By Patrick Murphy,2014-12-28 14:09
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    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design


    This paper discusses the role of the Quantity Surveyor in costing Environmentally Sustainable Design (ESD), and the use of Life Cycle Costing (LCC) techniques in evaluating the economic viability of various ESD options.

    The author of this paper was the co-author of the Sustainable Energy Authority‟s QS Energy Reference, and much of this paper is based on the contents of that document.

    The author wishes to acknowledge the assistance of the SEAV in preparation of this paper.

The Role of the QS in Construction

    The QS provides advice on the capital and recurrent costs of construction. The name “Quantity Surveyor” dates back to England a couple of centuries ago. In those days, all the QS did was measure and calculate the quantities of materials required to construct a building. They were, in fact, surveyors of quantities, therefore the title Quantity Surveyor.

    Over time, the QS also developed skills in estimating building costs, and analysing them to enable the costs of buildings to be estimated, or cost planned, during the design process. This has become our core skill, and the service most valued by our clients. Measurement of quantities is still carried out on projects, but this is a secondary task.

    In recent times, our services have extended into the area of recurrent costs as well as capital costs.

    In America, we are called Cost Engineers, which is perhaps a better description of our role.

The Role of the QS in LCC

    Life Cycle Costing, or the analysis of the total cost of a building, or a component of a building over its life, is an integral part of the services we provide.

    This does not just relate to ESD or environmental issues. Sometimes it is used to evaluate different building options from the perspective of future


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    maintenance costs, or to evaluate two different development options of a complete project.

    For example, the Department of Treasury and Finance require an analysis called an Investment Evaluation on every major project submitted to Treasury for funding. An integral part of this report is the LCC analysis of various development options. For example, it might include an analysis of the difference between building a new building and refurbishing an existing building. The new building would usually have a higher capital cost and lower recurrent costs, and an LCC analysis is used to determine which option is the best, usually over 20 years.

The Role of the QS in ESD

    In most cases, the decision whether of not to incorporate ESD options in a building are evaluated primarily on economic grounds.

    Will it cost more, and will the savings justify the additional costs?

It is usually the QS who answers these questions.

    In recognition of this, The Sustainable Energy Authority Victoria (SEAV) has collaborated with the Australian Institute of Quantity Surveyors (AIQS) to produce a QS Energy Reference to assist quantity surveyors assess energy efficiency opportunities within the capital/recurrent/life cycle budgets. Getting quantity surveyors involved in the process of producing low energy buildings, particularly in the area of analysis of capital and recurring costs, is pivotal in the evaluation of energy efficiency options

    This demonstrates how important the QS is in evaluating ESD options. The SEAV believes that it is often a lack of will and knowledge that limits the incorporation of ESD options, rather than economic viability.

Their QS Energy Reference states

    “Environmental sustainability relies on us using what we have differently. It is how we are using Australia‟s natural resources that is clearly not

    sustainable; all we seem to be lacking, in many instances, is the will and know-how.”


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

What is currently happening in the QS industry?

    A survey was distributed to quantity surveying practices in early June 2001. The results of this survey show the following:

; Number of life cycle calculations undertaken A fairly low

    percentage of total projects have undertaken life cycle


; Importance of life cycle calculations Quantity surveying firms

    considered life cycle calculations to be an important service.

; Clients‟ perceptions Quantity surveying firms reported that

    clients generally perceive that life cycle calculations are a low

    priority, and will therefore need encouragement and educating on

    the value of this service.

; Methods of life cycle calculations Most quantity surveying firms

    used the discounted cash flow analysis in preference to the

    simple payback calculation.

; Payback periods Clients‟ commonly expected pay back period

    for energy efficiency design options to be between five and 15

    years. This is shorter than the Department of Treasury and

    Finance Investment Evaluation Guidelines that recommend 20

    years. As most energy efficient options require increase in

    capital costs, offset by a saving in recurrent costs, clients and

    their quantity surveyors should be encouraged to consider longer

    payback periods.

What should be happening in the industry?

    A team-based approach is an essential element of energy efficiency design, and this approach should involve all stakeholders from the very beginning of the project

    For quantity surveyors, this means an understanding of the energy efficiency techniques involved, as well as the capital and recurrent costs that result.

    It is important that the team is fully committed to the concept of ESD. Simply preparing an LCC analysis when asked to will not get ESD off the laboratory benches and into real buildings.


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    As an example of this, the author is involved in two similar government projects, both in the early design phases, in which ESD principles have been identified as a desirable outcome.

    On one project, this has been embraced enthusiastically by the client and the design team, and the outcome will be a showcase for ESD, with recurrent cost savings and improved occupant comfort. On the other project, the client and the consultant team have yet to address the ESD options as fully, and the result (so far) is a couple of paragraphs in a Master Plan report. Clearly, there is still work to be done in this instance, and unfortunately this tends to be the norm rather than the exception.

Does it cost more?

    A question that is often asked is, “How much extra does an energy efficient building cost?”. It‟s a difficult question to answer, because the question misses the point. The energy performance of a building is a project priority like any other - and like any other priority, it needs to be managed within the budget.

    Many things can be managed within the global budget without compromising other priorities (with intelligent design). Some things may need budgets allocated from some other priority , and other things may require additional budget allowances if a compromise can‟t be managed within the existing global budget for the project.

It‟s not about developing a standard building, then simply „greening‟ it - it‟s

    about developing low energy buildings from the outset.

    Sometimes low energy buildings come in under budget and sometimes they come in over budget. This has more to do with the project management than the building design.

    The energy efficiencies that come from harvesting multiple benefits from a single building element can also generate financial efficiencies. For example, attention to glazing design and shading strategies can provide improved day-lighting, reduce glare and air-conditioning loads - and at the same time reduce the size and cost of lighting systems and HVAC plant.

    Low energy design may cost more, yet this cost could be recovered within a few years by reduced operating costs. However, the increased capital cost


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    for some opportunities could be zero, provided that energy efficiency is incorporated at the very beginning of the project.

    Those designers who ask “How much more does it cost?” are often the same people that ask “What‟s it going to cost to put a few PVs around the place so

    we can green it up?”.

    A certain level of energy efficiency can be achieved with no additional cost. For example, a 3 star rating can be achieved with good basic design principles. The additional design elements required to achieve a 4 or 5 star rating may require some additional capital cost; these need to be evaluated against their specific cost savings, rather that incorporated or excluded.

    This often makes it difficult to convince clients to consider these options, as there is a natural reluctance to commit initial capital, sometimes regardless of the recurrent savings offered.

    Also, different clients have different expectations when it comes to long term recurrent cost savings. A developer who intends selling a building as soon as it is completed, is probably going to be less interested in energy efficient options unless it gives some added marketing edge. On the other hand, for government funded projects, the Department of Treasury and Finance Investment Evaluation Guidelines recommends a Discounted Cash Flow Analysis over 20 years. Obviously, analysis over a 20 year period is more likely to be able to justify the additional expense of energy efficient design options against recurrent cost savings.

    All clients should be encouraged to take a long term view of energy efficient design options. Also, where the design option being evaluated is inherent in the design of the building rather than being, say, a piece of plant that has a finite life, the recurrent cost savings could be assessed for the life of the building.

    When taking into consideration the additional capital cost, the drivers for better energy design should include:

; Improved building amenity, occupant satisfaction and


    ; Improved environmental performance and corporate image;

    ; Operating cost savings.


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

Government Policy

Australian Government

    Greenhouse gas emissions from Australia‟s commercial building sector are set to double by 2010. Commercial buildings produce nearly 15% of the national greenhouse emissions and could double by 2010 if no action is taken. Hence, the Australian Government has a major part to play in meeting Australia‟s international greenhouse obligations. This is a serious issue, and one the Australian Government is committed to.

    Although Australia has committed to limit the increase of its greenhouse emissions by 8% above its 1990 levels to meet its Kyoto Protocol commitments, current projections indicate that greenhouse gas emissions produced by energy will increase 1by 40 percent above the 1990 levels.

    Hence, the building Code of Australia (BCA) is currently being reviewed with the aim of introducing mandatory energy performance standards. The Australian Greenhouse Office (AGO) is also undertaking many energy and greenhouse gas saving initiatives. These can be referenced at .

Victoria Government

    Based on the Australian Government‟s commitment, the Victorian Government will implement a Whole of Government Energy Policy. The New Energy Efficient

    Government Buildings Policy will introduce a 15% reduction in energy use in

    Victorian Government buildings by 2005 via yearly incremental reduction. The 15% reduction in energy use will be without an increase in greenhouse gas emissions.

    The issues of sustainable energy and climate change are also taken seriously, with about $100 million currently spent on energy each year. Adoption of energy efficient measures could save up to 25% of these costs.

    The Victorian Government „s commitment to more environmentally sensitive design in the commercial building industry is a key criteria in all future developments.

Sustainable Energy Authority Victoria

    In line with its charter, the Sustainable Energy Authority has introduced the Energy Smart Government program to assist departments and agencies to achieve cost savings and environmental benefits. The objective of Energy Smart Government is to provide real solutions that will enhance the effective use of assets.

     1 Australian Energy, Market Development & Projections to 2014/2015. ABARE Research Report, 1999.4.


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    The Sustainable Energy Authority will work in partnership with Government departments to pursue savings through more efficient use of energy and will provide assistance to meet the 15% energy reduction by 2005.

    The SEAV has rebate schemes available for domestic solar hot water as well as photovoltaic systems. For details, refer to

The Building Greenhouse Rating Scheme

    The Building Greenhouse Rating Scheme, originally developed by the NSW Government‟s Sustainable Energy Development Authority (SEDA), assists owners

    and tenants to reduce energy use, reduce energy costs and reduce greenhouse emissions. It is endorsed by the Property Council of Australia and supported by other major industry associations and property owners.

    The Building Greenhouse Rating Scheme was launched in Victoria by Minister Brood in October 2000. Currently, the scheme is a marketing tool and a design tool, but work is in hand to change this. It benchmarks greenhouse performance that is normalised for floor area, operating hours, internal loads and climate. It can assess the base building, the tenancy, or the whole building. It can be self-assessed or an accredited rating. It is a performance based rating and can be used as a diagnostic tool. More details are available at

Mandated Renewable Energy Target (MRET)

    The Federal Government has legislated that from April 1 2001, wholesale electricity purchases will need to source an additional 9500 GWh year of new renewable energy by 2010. Eligible renewable energy generators will create Renewable Energy Certificates (RECs) worth 1Mwh each, and those may be traded. Only generators installed after January 1 1997 are eligible.

    In Victorian there is a total additional potential of 1300 MW of renewable power that could come from wind (500Mw), crop waste (500 Mw), forestry waste (180 Mw) and hydro (50Mw).

A penalty of $40/Mwh will apply to any shortfall.

Insurance Industry Perspective

    In February 2001, Dr. Gerhard Berg, from the largest re-insurance company in the world, reported that losses from natural disasters had risen from $60 billion in the 1960s to $500 billion in the 1990s, and predicted to rise tenfold


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

to $600 billion per annum by 2050. (All figures are at today‟s prices.) Risk

    managers are now changing investment criteria to reflect this change, and much of this change is due to environmental factors.

Investment perspective

Andersons Legal (Property Australia, May 2001, pp 32-36) notes that

    mortgagees should be mindful that inefficient buildings will lose value over the long-term and have higher operating costs. Conversely, buildings that are energy efficient and able to source some or all of their power from low emission sources, will be seen as attractive properties by the commercial leasing market and have a corresponding effect on building values. AMP has launched a new prospectus AMP Sustainable Future Funds that focuses on

    socially responsible funds (

Emissions trading and carbon credit

    An emerging concept is that if an emissions trading system were introduced, it would be based on a permit that authorises the holder to emit a specified amount of greenhouse gas. If unable to achieve those targets, the holder could purchase credits from traders who have carbon sinks (such as forests) where CO is locked away in vegetation. See 2 for further details.

Workplace productivity

    In North America and Europe, there is a growing body of research and case studies that suggest there are demonstrable productivity and satisfaction gains to be realised by providing better built environments.

    Obviously, this is extremely difficult to quantify. However, building owners need to be made aware of the potential benefits, particularly as future tenants will be looking for buildings which offer them increased productivity and staff satisfaction.

Costing of Building Services

    Almost all of the recurrent costs associated with a building are related to the building services. Electricity, gas, water these become significant costs

    over the life of a building, and can be the difference between a successful, sustainable building project, and a white elephant. Also, most of the greenhouse emissions resulting from the running of a building come from these utilities.


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    The best way to reduce these recurrent costs is to design a very efficient building fabric that requires very little energy to heat, cool, ventilate and light. After this initial step, efficient energy design will further reduce the loads that are required to be satisfied.

    The design of these services has always been, and will continue to be, the responsibility of the services engineers. Also, these engineers are generally responsible for the capital and recurrent cost estimates relating to these services.

    Both here and overseas, quantity surveyors have ventured into the cost planning of these services, but this has not yet become the norm. Some firms have established specialist cost planning groups within their organizations to provide cost planning on these services, and in spite of a high standard of output being maintained, inertia within the industry has meant that most of the cost advice relating to these services is still being provided by the design engineers.

    There are also some engineering consultancies that specialise in costing of the services components of buildings.

    There is no question that the engineers are best able to incorporate ESD concepts into new building designs. What is also needed is close co-operation between the engineers and the quantity surveyors to ensure that the energy saving opportunities are identified, understood and fully evaluated.

    Already there is the need for a close working relationship between the quantity surveyor and the engineer to ensure that the engineer‟s estimates are incorporated into the overall capital cost plan. Now we also need a similar level of co-operation with regards to recurrent costs, and the opportunities for energy savings.

Incorporating ESD into the Design

    As with any new design concept, it is imperative that ESD options are incorporated as early as possible. Standard building components, which can be taken for granted by the client and design team, can be incorporated later in the design as the budget and project scope already include them. However, if the item is new or non-standard to either the client or the design team, it must be evaluated as early as possible in the design process to avoid costly abortive work or re-design.


    ESD, LCC and the Quantity Surveyor

     Cost Engineers Environmentally Sustainable Design

    The budget must include sufficient allowance for any additional capital costs that may be involved, or a component of the budget must be partitioned off specifically for energy efficient design components. Also, an allowance should be made in the budget for the energy advisor‟s fees.

Contractual Methods

    It is the nature of the building industry that there will always be new and varied forms of building delivery systems being used, together with various contractual methods.

These could include:

    ; Traditional lump sum

    ; Design and construct

    ; Novated

    ; BOOT schemes

    ; Performance Contracts

    All of these methods have various benefits in different situations, and it is beyond the scope of these notes to explore the different options available. However, it is important to consider the effect that each may have on the evaluation and implementation of energy saving design options.

In contractual methods like traditional lump sum, the client retains control

    over the consultant team throughout the project, and therefore can influence the design to incorporate these options. However, in other options, such as design and construct, novated and BOOT, this control is weakened, or only

    exists for some of the early phases of the design.

    This makes it more difficult to influence the design in the usual way; it then becomes necessary to provide building energy design concepts and energy targets into the performance based specifications that these forms of building delivery are often based on.

    This does not change the relative merits of the energy saving design options; it only changes the way that they are evaluated and specified.

    The BOOT system encourages developers to consider energy efficiency more seriously, as they are required to pay for the running costs of the building for some time before transferring it back to the final owner.

    Another emerging trend in Australia is „chauffage‟ or „delivered energy sources‟ (DES). In this system, a service provider sells you conditioner air,


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