File Ref. : FIN P6/473

Introduction

In recent funding submissions for public works projects, Members of the Finance Committee (FC) and the Public Works Sub Committee (PWSC) have raised questions on the provision of works-related consultancy services. The purpose of this paper is to provide information on the circumstances under which the Government employs consultants to undertake public works projects; the way in which the cost of such services are estimated; and the procedures for selecting, appointing and remunerating such consultants.

Need to Employ Consultants

2. The Government employs consultants under public works projects for two principal reasons -

1. to supplement existing resources; and/or
   
   
2. to provide specialist expertise not currently available in a government department.

In the first instance, consultants may be used where existing departmental resources are fully committed on other projects, to cope with short term peaks in demand for resources or to accelerate the time scale of a project. With regard to specialist expertise, consultants are often deployed where an independent view or innovative solution is being sought, or where "leading edge" technology or expertise is required.

3. Funding for works-related consultancy services is normally provided under PWP projects approved by the PWSC and Finance Committee or, in the case of smaller projects or studies, from a suitable Block Allocation approved under delegated authority. Once a department has secured the necessary authorities and funding for employing consultants, a competitive tendering exercise will be undertaken and approval to appoint a particular consultant will be sought from the appropriate consultants selection board. [See paragraph 17 below].

Types of Consultancy Services Employed

4. Works-related consultancy services are divided into two main categories : building project consultancies and engineering project consultancies. For both categories the services required tend to be broadly similar, i.e., the preparation of feasibility studies, preliminary and detailed design work, preparation and assessment of tenders and construction supervision. However, due to intrinsic differences between building and engineering projects, the extent of consultant services required is different for the two categories of projects.

5. Building projects usually involve multiple disciplines such as architects, quantity surveyors, structural engineers, building services engineers, landscape architects and resident site staff. The extent to which each discipline is needed varies from project to project and is also affected by the amount of inputs to be provided from in-house staffing resources of the client department. By way of example, at the planning stage, projects which are built to standard designs may require little in the way of architectural design input. Also, the superstructure works in building projects tend to be less problematic in terms of unforeseen site conditions. For normal government building projects, therefore, on-site supervision during the construction stage are mostly carried out by technical staff (clerks of works). The involvement of resident professional site staff is normally limited to major projects of a complex nature.

6. The nature of engineering projects varies considerably, hence the professional and technical advisers required are unique to each project. The planning of civil engineering projects may require an intensive, multi-disciplinary approach involving professional engineers of various disciplines. The total manpower input in terms of time and levels of expertise vary depending on the complexity of the engineering conditions. At the construction stage, particularly for projects which involve underground works or complex civil engineering solutions, the continuous presence of professional engineers is required for site supervision. These requirements, along with the variable levels of input provided in-house by the client department, may lead to significant differences in consultants' costs for building projects and engineering projects and between different projects in the same category.

7. Because of the different variables, consultancy costs for the two categories of projects and for different projects in the same category are not directly comparable, particularly where these are expressed as a percentage of total project costs. Notwithstanding this, we have calculated at Enclosure 1 for indicative purposes only, the average costs of recent consultancy inputs for selected government building and engineering projects expressed as a percentage of total project costs.

Estimation of Consultancy Fees

8. To seek the necessary funding approval to employ consultants for a specific project, departments need to work out an estimation of the costs for providing such services. Since the purpose of employing consultants is to undertake work which would otherwise be carried out by departmental staff, works departments base their fee estimates on the cost of carrying out a project or study as if the work were to be done in-house. The same methodology is adopted for estimating the costs for building and engineering consultancies. The methodology requires the department to assess the number of staff needed to carry out the project, the level of professional or technical expertise required in each case (the rank of the individual team members) and the time taken by each person to complete his individual tasks.

(a) Manpower requirement

9. To assess the number of staff required, the department identifies the various tasks and duties to be carried out by the consultants. These are divided into a number of broad categories of work e.g. feasibility studies, preliminary and detailed design work, preparation of contract documents, tender assessment, contract administration and supervision of construction using resident site staff. These categories are further subdivided into smaller tasks and deliverables to enable the department to assess how much time is needed to accomplish each of the identified tasks under each category of work. The assessment is normally expressed in terms of man-months.

(b) Staffing costs

10. The department then assesses the appropriate level of professional and technical expertise required to carry out the individual tasks, i.e. which professional and technical grades of government staff would be deployed were the consultancy work to be done in-house. The level of expertise and experience required is related to the complexity of the task in hand and the qualitative standards expected with regard to the project deliverables. The department then relates the level of professional and technical grade staff required to the appropriate point on the Master Pay Scale (MPS)for the purpose of estimating the staffing costs. The relevant MPS points may vary from project to project depending on the complexity of the work involved. For ease of estimation departments tend to use median MPS points for larger consultancies which employ a range of professional and technical staff, i.e. MPS Point 40 and MPS Point 16 for professional and technical staff respectively. Departments may use higher or lower MPS scale points should the circumstances of a project so warrant. For small projects or studies employing only one or two people, departments may adjust the MPS points to reflect the specialist status of individual team members. Based on the assessment of the duties involved, the numbers and ranks of the individual team members, their appropriate MPS points and the time required for delivering the various categories of work, the department works out the estimate for the staffing costs of the required consultancy services.

(c) Overhead costs

11. In addition to staffing costs, departments must include the additional overhead costs to be met by the consultant, e.g. the provision of office accommodation, clerical and supporting staff, education, health and housing benefits and staff gratuities. Overhead costs are calculated in accordance with standard multiplier factors which are determined from time to time on the basis of actual tender prices bid by successful consultants. Until the change described in para. 15 below, the standard multipliers used are as follows -

3.0 for staff employed in the consultant's offices

2.5 for staff seconded to work in Government offices

2.1 for site staff supplied by the consultant

(d) Out of pocket expenses

12. Over and above the consultant's normal fees, departments sometimes have to pay for the costs of ancillary services necessary for the completion of the assignment, the scope and extent of which cannot be accurately identified at the bidding stage but only during the course of the assignment. These are referred to as out of pocket expenses and cover expenditure on items such as the purchase of computer software, special surveys, the construction of models or video presentations and detailed site investigation work. Such expenses are assessed separately by the relevant department and are paid to the consultant on a reimbursement basis.


(e) Total cost estimation

13. Having taken into account all of the above cost factors, a breakdown of the relevant costs for each category of work is then set out in the relevant PWSC submission or Cat. D paper in the case of consultancies approved under delegated authority. An example of the detailed breakdown of consultant's fees included in PWSC submissions and Cat. D papers is attached at Enclosure 2 for Members' information.

Review of the Current Methodology

14. We have carried out a review of the above methodology to see if it is still relevant in the light of current market conditions. We have concluded that, in general, the existing approach to cost estimation is appropriate and should be retained with the exception of the current standard multiplier factors (see paragraph 15 below). Conceptually, the cost estimates of consultancy services should reflect the inputs in terms of professional and technical expertise and experience the Government believes is required to provide the necessary services to a pre-determined qualitative standard. The quantitative element is addressed by computing the appropriate number of man-months required to deliver the necessary services and the qualitative element is addressed by establishing, in advance, the competence and experience (and hence the cost) of the staff required. We believe this methodology is a fair and equitable basis for estimation purposes only. We also believe the use of median MPS points for estimation purposes only is justified, where there is a range of professional and technical staff involved. We are also confident that a reimbursement approach to out of pocket expenses for ancillary services is valid and precludes the possibility of consultants claiming additional fees and profits for the provision of such services.

Proposed Changes to the Standard Multiplier Factors

15. We compare our estimation of consultancy costs with the actual tendered fees on a periodic basis. We have just completed an analysis of the winning bids of all the consultancies awarded in the last two years with our cost estimates. We observe there is a significant differential between the two. While some winning bids are lower than the relevant departmental estimates and some are higher, on average, winning bids for consultancy assignments tend to be some 20% lower than the departmental estimates. As the overall manpower input in these bids has not been significantly compromised when the winning consultants deliver the required services and the quality of the output remains generally satisfactory, we are of the view that the general decrease in tender prices reflects "market considerations" relating to staffing costs, overheads and profit margins specific to individual firms. Therefore, to reflect the current market situation more accurately, we intend to introduce, with immediate effect, the following revised standard multiplier factors for estimating consultancy fees -

2.4 for staff employed in the consultant's offices

2.0 for staff seconded to work in Government offices

1.7 for site staff employed by the consultant

The above changes will reduce the current differential between departmental estimates and the actual fees for providing consultancy services. They should lead to more realistic cost estimates in PWSC and FC funding submissions.

Actual Consultancy Fees

16. The figures for consultancy fees contained in PWSC and FC submissions are included for estimation and resource allocation purposes only. The actual fees for providing consultancy services are determined by open and competitive tender which reflects prevailing market forces. Recent experience suggests that current market conditions are extremely competitive in certain sectors and winning bids are often significantly lower than departmental estimates. The introduction of revised standard multiplier factors will assist in addressing this discrepancy.

Selection and Appointment of Consultants

17. Having secured funding to employ consultants, departments must enter into a competitive bidding exercise to select an individual consulting firm. Selection, appointment and remuneration of individual consultants for civil engineering and associated projects rests with the Engineering and Associated Consultants Selection Board (EACSB) which is chaired by the Director of Civil Engineering. The responsibility for architectural and associated consultancy projects rests with the Architectural and Associated Consultants Selection Board (AACSB) which is chaired by the Director of Architectural Services. EACSB and AACSB maintain a directory of consultants who have expressed an interest in providing works-related consultancy services to the Government or are qualified to provide such services. In line with approved procedures, departments select a "shortlist" of consultants from whom technical and fee proposals will be invited. Shortlisted consultants must then submit, in separate envelopes, a Technical Proposal and a Fee Proposal for the services required. The Technical Proposals are assessed first, using a pre-determined marking scheme and the technical bids are ranked in order of merit. At this stage a bidder may be disqualified from the tendering exercise on the ground that his bid is not technically competent. After the technical bids have been ranked, the Fee Proposals from bidders are opened. On the basis of a pre-determined system of evaluation and weighting, the Fee Proposals are then combined with the technical assessments to determine the winning bid. The relevant weightings accorded to the technical and fee components of a particular consultancy agreement depend upon the complexity of the services to be provided. For multi-disciplinary projects that require special emphasis on professional and technical inputs, the technical/fee weighting can be 80:20. In other words, the technical proposals relating to such consultancies are given four times as much weight as the fee proposal in deciding the eventual winning bid, i.e. the quality and quantity of manpower inputs are paramount in such cases. For less complex consultancy work the technical/fee weighting is normally 70/30. For non-complex, routine consultancy work a ratio of 60/40 may be applied. The particular weighting used in each case requires the approval of the relevant consultants selection board.

18. Consultants employed on Government works projects are generally remunerated by means of lump sum fees with provisions for inflation in assignments lasting more than 12 months. The lump sum fee is independent of the cost of the works involved. This system of employing consultants has been adopted by the EACSB since 1991 and the AACSB in 1995. Prior to this, consultants engaged on public works projects were remunerated on a scale fee basis whereby the fees payable to consultants were calculated as a percentage of the total cost of the works involved, adjusted against the complexity and size of the specific projects. In a small number of cases, scale fees may still be the most appropriate method for calculating cost estimates where the scope of the services required cannot be accurately quantified, (for example feasibility studies and works supervision for School Improvement Projects) but, in general, the "lump sum" approach is used as the basis for tendering works-related consultancy agreements.

Evaluation of Consultant's Performance

19. Having appointed a particular consultant the managing department must regularly assess the performance of the appointee. Performance appraisal reports on individual assignments are submitted to the EACSB and the AACSB at six-monthly and quarterly intervals respectively. The reporting period may be shortened in the event that a consultant is performing poorly and an "adverse" report is issued. Consultants who receive three consecutive adverse reports are not recommended for further work.

20. Members' views and comments on the above are welcome.


Finance Bureau
Works Bureau
January 1999

Enclosure 1

Building Projects 1		Civil Engineering Projects 3
	Recent tender result		Recent tender result
Discipline		Discipline
	%		%
Architectural 2	3.20	Various Engineering Disciplines	2.95
Structural Engineering 2	1.26
Building Services 2	2.05
Quantity Surveying 2	1.75
Landscaping 2	0.60
Resident Technical Site Staff	2.00	Resident Professional and Technical Site Staff	10.00 4
TOTAL	10.86		12.95

Note

1. These figures are based on a series of projects supervised by ArchSD, the average cost of which is $150 million.
   
   
2. Figures include on-site liaison and periodic site supervision by professional staff.
   
   
3. These figures are based on the average (weighted) fees applicable to projects ranging in cost from less than $500 million to more than $2 billion carried out by the five engineering departments, CED, DSD, HyD, TDD and WSD. They do not necessarily represent the average percentages for individual departments.
   
   
4. The costs for Resident Site Staff in engineering projects can range from 6% to 14% depending on the complexity of the project.