星空传媒

01 / Introduction

Part 2 of Davis Langdon鈥檚 Cost Update reviews projects in the private sector. Sectors such as residential and commercial have previously been an industry powerhouse, but the recession has seen a steep fall in activity in most aspects of the private sector. The slump was led by the residential and industrial sectors in 2007, with commercial opportunities also drying up in the second half of 2008.

Opportunities for developers are constrained by a lack of demand for space, poor viability and a lack of available project finance. On a brighter note, some retailers are continuing to roll-out formats, even if this is at a slower rate than in previous years.

02 / Investing and delivering value

Downward pressure on capital values will make affordability a key challenge when recovery finally comes. The lower prices being offered by contractors may not in the long run be sufficient to make projects viable should the investment market continue to be subdued.

As a result, client and funder requirements will change and all capital and revenue expenditure will need to be carefully prioritised. In this situation, clients, consultants and contractors will need to collaborate effectively to define and deliver creative and cost-effective solutions which offer a lean response to end user needs. Although 鈥渋conic design鈥� will probably be less common than has been the case in the last five years, project teams will have to ensure that schemes designed to tighter budgets and specifications still deliver long-term performance and value.

At the highest level of project definition, value management has an important role where the objectives and value drivers of a project are subject to change or reprioritisation.

Value management can be used to examine the client鈥檚 fundamental project objectives and the business case, which will help the client team to redefine what value means in the face of changing circumstances.

It also supports the introduction of intelligent changes to project selection, design and delivery in order to achieve the optimum levels of capital and lifecycle cost.

Value engineering also has an important part to play in a tough market. Its aim is to ensure that projects are delivered cost-effectively, that unnecessary cost is eliminated and the best value for the money is obtained. Value engineering is also hugely valuable when used as a tool to help the team understand the full implications of proposed changes.

Once a project鈥檚 scope and objectives have been established, there are further opportunities to lock in value through the management of design teams. This is aimed at delivering the right information at the right time.

Project risk can be increased by unclear briefing information, together with a lack of understanding of how design teams function. Effective, innovative design also needs to be backed up by clear design management procedures.

03 / Maximising the value of development incentives

Capital allowances represent a significant source of cost recovery for an owner, and can boost a project鈥檚 capital value.

Research has shown that the integration of tax planning into design and procurement can lead to an enhancement of the recovery of allowances by up to 20%. With changes to the operation of the UK鈥檚 capital allowances system introduced in April 2008, the cash flow of allowances has slowed, but there are more grey areas where a well advised client could secure an advantageous settlement.

The key issue involves determining what qualifies as 鈥渋ntegral features鈥�, on which recovery is calculated on a 10% reducing basis, and what qualifies as 鈥済eneral plant and machinery鈥�, on which allowances are calculated on a faster and therefore more valuable 20% reducing basis. Increasing investment in low energy and low water-use systems is creating more opportunity to take advantage of 100% year-one tax recovery through the Enhanced Capital Allowances (ECA) scheme.

Historically, the review of capital allowances has often been undertaken at the completion