Why Australian developers can count on a Bill of Quantities

Ask anyone in Australia’s construction industry in 2023, and the answer will be a similar variation of the same tune: “Construction is a risky business.”

The pipeline of work across the industry has pushed out to a record $224 billion, construction insolvencies are currently double the rate of other industries and profit margins have fallen to below one per cent, prompting the Australian Constructors Association to label the market “all risk, no reward”.

While costs have come off their white-hot pace of 2022, Altus Group’s Australian Construction Material Price Outlook for Q3 2023 finds any gains have been eroded by increasing labour costs.

At the same time, Australia is on a net zero trajectory and the largest asset owners are starting to scrutinise embodied carbon emissions.

Developers eyeing off their next project may not know that one simple tool can help them balance the risk and reward equation: a Bill of Quantities.

What is a Bill of Quantities?

A Bill of Quantities (BoQ) itemises the quantities of all the materials, components, labour and services required to complete a construction project.

Traditionally the quantities in a BoQ are prepared in accordance with the Australian and New Zealand Standard Method of Measurement of Building Works and, as a result, everyone with the BoQ knows they are working to the same standard measurements.

The BoQ supports accurate cost estimation, bidding and pricing, as well as fair and transparent procurement processes. Armed with a clear breakdown of all the project components everyone – contractors, subcontractors, suppliers and project managers – have a clear understanding of the scope of work and can allocate resources efficiently.

Back to the future with BoQs

Fifty years ago, almost all projects started with a BoQ. But over time, their use has declined in favour of other methods of tendering, such as design-and-construct contracts.

The Australian Institute of Quantity Surveyors (AIQS) has recently called for the return of BoQs to improve the efficiency and transparency of the tendering process and to reduce risk.

Before we unpack the benefits of BoQs, it is worth putting the current practice under the microscope.

Most builders will be handed a set of drawings and asked to bid on a job. They then send those same drawings to their subcontractors. The form workers and steel fabricators assess the materials needed for foundations and framing, the concrete contractors consider the cubic metres, the electrical contractors estimate the amount of cabling and conduit... and so on.

Sometimes, a group of builders will band together to pay for a BoQ to better understand the job. But in most cases, an inefficient tendering process involves dozens of trades making their own calculations based on drawings, guesswork and gut feel. Explained this way, the benefits of a BoQ are self-evident.

Why count on a Bill of Quantities?

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Transparent tendering

A BoQ allows tenderers to assess the size and scope of a project at speed, accelerating the tendering process. The Australian Institute of Quantity Surveyors estimates that, by providing a BoQ to builders and trades, “the hours required for measurement can be reduced by 60-80%”.

A BoQ produces more accurate tenders with less spread so we can make comparisons on a like-for-like basis. Clients can more easily compare bids from different contractors and trades to ensure they are getting the best possible price. In a wildly fluctuating market, the BoQ gets everyone on the same page with an estimate that allows each trade to understand what the job entails and provide like-for-like comparisons.

Cost containment

A BoQ does a lot of heavy lifting for subcontractors and suppliers, who are not required to interpret quantities from drawings or infer meaning from design briefs. Without a BoQ, contractors often submit a conservative cover price. At the same time, a BoQ often reveals value engineering opportunities from the outset. With the detail of what’s behind each trade, a quantity surveyor can advise (with a high degree of accuracy) where alternative specifications or materials could be adopted for value engineering. Furthermore, this is often the first time that the errors or omissions in the documents are highlighted, therefore producing a clearer tender set and reducing confusion.

Collaborative contracting

A BoQ encourages discipline and supports documentation of a higher standard. It can also act as a buffer against adversarial contracting relationships. Costs are always a point of tension, and errors in pricing jobs are often where the first cracks appear. As Consult Australia notes, current tendering practices are “compounding adversarial behaviours, particularly when risks are not properly priced or catered for”.

When variations from expectations are identified at the earliest stages, a BoQ can be a good conversation starter. As quantity surveyors, we often ask trades to share with us why they think something will be more costly to deliver than what we’ve anticipated. Armed with this insight, our client can make changes to specifications before it’s too late.

Risk resilience

The BoQ is a powerful risk mitigation tool that supports accurate progress payments and cashflow. With a clear understanding of the price breakdown, it is easier to assess the progress of works. A BoQ can circumvent “front loaded” contracts – the practice of allocating a disproportionate sum to the initial stages of a project – which means, in the event of a contractor insolvency, the developer isn’t left with a serious shortfall in the cost to complete.

Reducing the time to start work

If alternative delivery methods for fast-track construction are considered, the BoQ becomes an integral part of the procurement process. When documentation is still being developed, a BoQ of approximate quantities becomes a schedule of rates that is remeasured from the as-built documentation.

Raising quality standards

A well-prepared BoQ will provide accurate and detailed information about the materials and construction methodology to be used. This level of clarity will help to ensure that there is no ambiguity in the project specifications, and reduce the likelihood of misunderstandings or alternatives that could compromise quality. A BoQ typically references industry standards and specifications for materials and construction methodology, which promotes adherence to recognized quality standards, ensuring that the construction will meet or exceed industry norms. The BoQ can be used as a basis for quality control and inspections during construction. It can serve as a reference document to ensure that the materials and workmanship used are in line with the specified standards. In summary, a well-prepared BoQ can significantly contribute to raising the quality standards in buildings by providing clarity, standardization and a basis for quality control throughout the construction process. It helps ensure that the project adheres to industry standards and specifications and facilitates competitive bidding that considers both cost and quality.

Elevating sustainability

As the industry moves towards net zero, and as a price on carbon changes the valuation of assets, a BoQ is an ally that can quantify embodied carbon emissions. NABERS is proposing to use BoQ data to inform the development of its standard for embodied carbon emissions. As NABERS’ consultation paper notes, a BoQ “includes all the building elements that the NABERS embodied emissions tool would require to calculate embodied emissions”.

In August, the Australian Financial Review reported that the industry workbook – as measured by the estimated cost to complete work already started – had risen to a record $46.4 billion in the March quarter for non-residential work alone. In a crowded market, builders and subcontractors can pick and choose.

How do you make it easier for tenderers to price a job? And how do you make it easier for clients to make the right decisions about who they choose? At a time when tendering costs are increasing, one solution can take us back to the future: the Bill of Quantities.