Construction Economics A New Approach
Nancy Benigar
Construction Economics provides students with the principles underlying the relationship between economic theory and the construction industry. Its new approach specifically examines the problems of securing sustainable construction and this fifth edition broadens the message to address the immediacy of the problems relating to the carbon-based world that we have constructed.
Embracing the whole process of the construction life cycle, the new edition discusses the economic impact of the Covid pandemic on the industry and the broader implications of the promise to build back better. It also includes new coverage of the opportunities offered by technology, the establishment of higher standards to achieve greater energy efficiency and wellbeing, the adoption of the principles of a circular economy, the retrofit of existing buildings and the recycling of materials. New sections also highlight the methodology of the subject to identify the boundaries of construction economics and clarify what to expect and what can be achieved.
This invaluable textbook is essential reading across a wide range of disciplines. It provides the economic context to the relevance of sustainability and debates about climate change, highlighting the vital contributions that surveyors, contractors, project managers, engineers, architects and developers can offer to take it forward.
Danny Myers is an experienced author who worked for many years as a researcher and lecturer at the University of Bath and UWE in Bristol. He is currently an associate tutor at the University College of Estate Management.
Construction economics is a core component of a wide range of undergraduate courses in the built environment. Consequently students need to quickly grasp the basic principles of economic theory and see how this relates to a unique and complex industry. It should be understood in a modern context and this new approach adopts the argument that economics is central to understanding the recent government initiatives concerning sustainable construction.
Construction Economics provides students with the principles underlying the relationship between economic theory and the construction industry. Its new approach specifically examines the problems of securing sustainable construction.
The new edition has been fully revised to provide an overview of the economy and construction markets since the global financial crisis. As such it examines the challenges of changing government policy, adapting to climate change, adopting BIM, and reducing costs. A new introduction along with new readings, data, examples, glossary items, government strategies, and references, revises this established core text and brings it up to the historic EU referendum. As with previous editions, it retains a tried and tested format:
Life-cycle cost analysis (LCCA) is a method for assessing the total cost of facility ownership. It takes into account all costs of acquiring, owning, and disposing of a building or building system. LCCA is especially useful when project alternatives that fulfill the same performance requirements, but differ with respect to initial costs and operating costs, have to be compared in order to select the one that maximizes net savings. For example, LCCA will help determine whether the incorporation of a high-performance HVAC or glazing system, which may increase initial cost but result in dramatically reduced operating and maintenance costs, is cost-effective or not. LCCA is not useful for budget allocation.
The purpose of an LCCA is to estimate the overall costs of project alternatives and to select the design that ensures the facility will provide the lowest overall cost of ownership consistent with its quality and function. The LCCA should be performed early in the design process while there is still a chance to refine the design to ensure a reduction in life-cycle costs (LCC).
The first and most challenging task of an LCCA, or any economic evaluation method, is to determine the economic effects of alternative designs of buildings and building systems and to quantify these effects and express them in dollar amounts.
Only those costs within each category that are relevant to the decision and significant in amount are needed to make a valid investment decision. Costs are relevant when they are different for one alternative compared with another; costs are significant when they are large enough to make a credible difference in the LCC of a project alternative. All costs are entered as base-year amounts in today's dollars; the LCCA method escalates all amounts to their future year of occurrence and discounts them back to the base date to convert them to present values.
Land acquisition costs need to be included in the initial cost estimate if they differ among design alternatives. This would be the case, for example, when comparing the cost of renovating an existing facility with new construction on purchased land.
Construction costs: Detailed estimates of construction costs are not necessary for preliminary economic analyses of alternative building designs or systems. Such estimates are usually not available until the design is quite advanced and the opportunity for cost-reducing design changes has been missed. LCCA can be repeated throughout the design process if more detailed cost information becomes available. Initially, construction costs are estimated by reference to historical data from similar facilities. Alternately, they can be determined from government or private-sector cost estimating guides and databases. The Tri-Services Parametric Estimating System (TPES) developed models of different facility types by determining the critical cost parameters (i.e., number of floors, area and volume, perimeter length) and relating these values through algebraic formulas to predict costs of a wide range of building systems, subsystems, and assemblies.
Detailed cost estimates are prepared at the submittal stages of design (typically at 30%, 60%, and 90%) based on quantity take-off calculations. These estimates rely on cost databases such as the Commercial Unit Price Book (C-UPB) or the R. S. Means Building Construction Cost Database.
Operational expenses for energy, water, and other utilities are based on consumption, current rates, and price projections. Because energy, and to some extent water consumption, and building configuration and building envelope are interdependent, energy and water costs are usually assessed for the building as a whole rather than for individual building systems or components.
When selecting a program, it is important to consider whether you need annual, monthly, or hourly energy consumption figures and whether the program adequately tracks savings in energy consumption when design changes or different efficiency levels are simulated.
Energy prices: Quotes of current energy prices from local suppliers should take into account the rate type, the rate structure, summer and winter differentials, block rates, and demand charges to obtain an estimate as close as possible to the actual energy cost.
Energy price projections: Energy prices are assumed to increase or decrease at a rate different from general price inflation. This differential energy price escalation needs to be taken into account when estimating future energy costs. Energy price projections can be obtained either from the supplier or from energy price escalation rates published annually on April 1 by DOE in Discount Factors for Life-Cycle Cost Analysis, Annual Supplement to NIST Handbook 135.
Water Costs: Water costs should be handled much like energy costs. There are usually two types of water costs: water usage costs and water disposal costs. DOE does not publish water price projections.
Non-fuel operating costs, and maintenance and repair (OM&R) costs are often more difficult to estimate than other building expenditures. Operating schedules and standards of maintenance vary from building to building; there is great variation in these costs even for buildings of the same type and age. It is therefore especially important to use engineering judgment when estimating these costs.
Supplier quotes and published estimating guides sometimes provide information on maintenance and repair costs. Some of the data estimation guides derive cost data from statistical relationships of historical data (Means, BOMA) and report, for example, average owning and operating costs per square foot, by age of building, geographic location, number of stories, and number of square feet in the building. The Whitestone Research Facility Maintenance and Repair Cost Reference gives annualized costs for building systems and elements as well as service life estimates for specific building components. The U.S. Army Corps of Engineers, Huntsville Division, provides access to a customized OM&R database for military construction.
The number and timing of capital replacements of building systems depend on the estimated life of the system and the length of the study period. Use the same sources that provide cost estimates for initial investments to obtain estimates of replacement costs and expected useful lives. A good starting point for estimating future replacement costs is to use their cost as of the base date. The LCCA method will escalate base-year amounts to their future time of occurrence.
The residual value of a system (or component) is its remaining value at the end of the study period, or at the time it is replaced during the study period. Residual values can be based on value in place, resale value, salvage value, or scrap value, net of any selling, conversion, or disposal costs. As a rule of thumb, the residual value of a system with remaining useful life in place can be calculated by linearly prorating its initial costs. For example, for a system with an expected useful life of 15 years, which was installed 5 years before the end of the study period, the residual value would be approximately 2/3 (=(15-10)/15) of its initial cost.
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