Review of Terminal 2 Non-Construction Costs: A Report by Rogerson Reddan & Associates Ltd., Study notes of Aviation

Download Review of Terminal 2 Non-Construction Costs: A Report by Rogerson Reddan & Associates Ltd. and more Study notes Aviation in PDF only on Docsity! Review of Dublin Airport Authority Capital Expenditure Programme (CIP 04) For The Commission for Aviation Regulation Report No. 2 – Review of Terminal 2 Non Construction Costs 10th May 2007 Review of Dublin Airport Authority Capital Expenditure Programme (CIP 04) For The Commission for Aviation Regulation Report No. 2 – Review of Terminal 2 Non Construction Costs 10th May 2007 Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 1 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] CONTENTS Page Nr. 1. Introduction / Basis of Report 2-3 2. Executive Summary 4 3. Scope of Review 5 4. Review of T2 Non construction Costs 6-12 Appendix A – DLPKS Cost Plan Summary Appendix B – Risk Register Note: This document has been prepared by Rogerson Reddan & Associates Ltd, in conjunction with Vector Management Ltd., (RR&V), in accordance with the terms of RR&V’s appointment to the Commission for Aviation Regulation. This document is prepared for the sole use and reliance of the Commission for Aviation Regulation. RR&V accepts no liability for any use of this document other than by it’s Client, and only for the purposes for which it was prepared. Job Nr. Rev Status Date Issued Drafted Team Leader Changes since previous revision Issued to 0651 1 Issued 10th May 2007 PW JH None CAR Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 1 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] CONTENTS Page Nr. 1. Introduction / Basis of Report 2-3 2. Executive Summary 4 3. Scope of Review 5 4. Review of T2 Non construction Costs 6-12 Appendix A – DLPKS Cost Plan Summary Appendix B – Risk Register Note: This document has been prepared by Rogerson Reddan & Associates Ltd, in conjunction with Vector Management Ltd., (RR&V), in accordance with the terms of RR&V’s appointment to the Commission for Aviation Regulation. This document is prepared for the sole use and reliance of the Commission for Aviation Regulation. RR&V accepts no liability for any use of this document other than by it’s Client, and only for the purposes for which it was prepared. Job Nr. Rev Status Date Issued Drafted Team Leader Changes since previous revision Issued to 0651 1 Issued 10th May 2007 PW JH None CAR Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 4 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 2. Executive Summary: This report is based on a high level review of the non construction elements of the Terminal 2 cost plan. Our main findings can be summarised as follows: 1. Enabling Works, Site Logistics & Phasing/ Temporary Works: Where the information was of sufficient detail to allow a review of the costs under this heading, the costs appeared realistic. In relation to services diversions however it was not possible to definitively verify costs with the information provided. 2. Public Art: The costs included against this item do not appear excessive. 3. Other..Costs ...... 4. Planning & Design Fees @ 10%: The overall fee level is likely to increase to c. 15% to include for site supervision. This level of fee is relatively high. Verification was not provided due to considerations of commercial sensitivity. CAR may review further additional information in this regard. 5. Capital Contributions @ €114/ Sq M of new building: Generally reasonable, further clarification may be sought from the DAA in relation to an apparent minor anomaly in these costs. 6. Project Contingency: The overall amount included for contingency appears high relative to project stage. An independent risk review may verify the appropriateness or otherwise of this level of contingency. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 4 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 2. Executive Summary: This report is based on a high level review of the non construction elements of the Terminal 2 cost plan. Our main findings can be summarised as follows: 1. Enabling Works, Site Logistics & Phasing/ Temporary Works: Where the information was of sufficient detail to allow a review of the costs under this heading, the costs appeared realistic. In relation to services diversions however it was not possible to definitively verify costs with the information provided. 2. Public Art: The costs included against this item do not appear excessive. 3. Asset Write off: No costs included against this item, nor would RR&V expect to see costs included against this item within a Cost Plan for construction works. 4. Planning & Design Fees @ 10%: The overall fee level is likely to increase to c. 15% to include for site supervision. This level of fee is relatively high. Verification was not provided due to considerations of commercial sensitivity. CAR may review further additional information in this regard. 5. Capital Contributions @ €114/ Sq M of new building: Generally reasonable, further clarification may be sought from the DAA in relation to an apparent minor anomaly in these costs. 6. Project Contingency: The overall amount included for contingency appears high relative to project stage. An independent risk review may verify the appropriateness or otherwise of this level of contingency. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 5 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 3. Scope of Review: The RR&V brief included a review of T2 non construction costs. This review is based on a review of the DLPKS Cost Plan No.1, titled “Terminal 2 and Pier E, Dublin Airport”, and dated 1st September 2006. We would define the relevant costs to be examined as costs which are not directly associated with the construction costs of T2 and Pier E buildings, but which are ancillary but necessary for the provision of these facilities. The overall cost plan summary for T2 is contained in Appendix A to this report. The elements of this cost plan which are the subject of this review are as follows: Total Cost Excl. VAT 1. Enabling Works, Site Logistics & Phasing/ Temporary Works €5,546,760 2. Public Art €70,000 3. Planning & Design Fees @ 10% of construction cost €47,446,092 4. Other Costs €1,500,000 5. Capital Contributions @ €114/ Sq M of new building €11,768,334 6. Project Contingency €74,119,000 _____________ Total value to be reviewed €140,450,186 The value to be reviewed in this report represents 23% of the overall cost plan total. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 5 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 3. Scope of Review: The RR&V brief included a review of T2 non construction costs. This review is based on a review of the DLPKS Cost Plan No.1, titled “Terminal 2 and Pier E, Dublin Airport”, and dated 1st September 2006. We would define the relevant costs to be examined as costs which are not directly associated with the construction costs of T2 and Pier E buildings, but which are ancillary but necessary for the provision of these facilities. The overall cost plan summary for T2 is contained in Appendix A to this report. The elements of this cost plan which are the subject of this review are as follows: Total Cost Excl. VAT 1. Enabling Works, Site Logistics & Phasing/ Temporary Works a. Archaeological Survey works in connection with Corballis House, Castle foundations, & other survey works €1,000,000 b. Services diversions on Terminal and Pier E site €2,700,000 c. Removal of existing tarmacadam roadways €746,760 d. Temporary roads €800,000 e. Diversion of existing 450mm foul sewer €300,000 2. Public Art €70,000 3. Planning & Design Fees @ 10% of construction cost €47,446,092 4. Other Costs €1,500,000 5. Capital Contributions @ €114/ Sq M of new building €11,768,334 6. Project Contingency €74,119,000 _____________ Total value to be reviewed €140,450,186 The value to be reviewed in this report represents 23% of the overall cost plan total. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 6 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 4. Review of Costs The approach adopted in compiling this report was to undertake a high level review of the relevant cost elements, with a view to determining whether the costs stated by the DAA would be considered reasonable for a project as described. Generally, this comprised a review and verification, where possible, of the scope and extent of the works included, and a comparison with the estimated cost for these works, relative to what would be expected on a project such as this. Our findings, in relation to each element of cost reviewed, are set out hereunder: Enabling Works, Site Logistics & Phasing/ Temporary Works: This section can be subdivided as follows: a. Survey Works An amount of €... is included within the current cost plan for all survey works. This amount was queried and a detailed breakdown of all anticipated surveys was provided by DAA. This detailed survey list includes all potential surveys which were suggested by the design team. Surveys to the value of €..... are either complete, appointed, or deemed an absolute necessity. Further surveys for which the scope and likelihood of their requirements were not known at October 06 are also included on the survey list. These additional surveys have potential estimated cost in the range of €...... - ...... which brings the overall potential cost of surveys to a range of €.......- ........ . Following a review of the full list of surveys, we understand the T2 design team decided to include an overall allowance of €...... for all surveys associated with T2, including the surveys completed, appointed, and deemed an absolute necessity. We would acknowledge the difficulty in accurately estimating cost for works of this nature, however the process carried out in the estimation of the surveys required and their costs appears to be logical, and the overall cost allowance of €....... for all survey works does not appear excessive. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 6 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] 4. Review of Costs The approach adopted in compiling this report was to undertake a high level review of the relevant cost elements, with a view to determining whether the costs stated by the DAA would be considered reasonable for a project as described. Generally, this comprised a review and verification, where possible, of the scope and extent of the works included, and a comparison with the estimated cost for these works, relative to what would be expected on a project such as this. Our findings, in relation to each element of cost reviewed, are set out hereunder: Enabling Works, Site Logistics & Phasing/ Temporary Works: This section can be subdivided as follows: a. Survey Works An amount of €1,000,000 is included within the current cost plan for all survey works. This amount was queried and a detailed breakdown of all anticipated surveys was provided by DAA. This detailed survey list includes all potential surveys which were suggested by the design team. Surveys to the value of €635,915 are either complete, appointed, or deemed an absolute necessity. Further surveys for which the scope and likelihood of their requirements were not known at October 06 are also included on the survey list. These additional surveys have potential estimated cost in the range of €1,350,000 - €1,650,000 which brings the overall potential cost of surveys to a range of €1,985,915 - €2,285,915. Following a review of the full list of surveys, we understand the T2 design team decided to include an overall allowance of €1,000,000 for all surveys associated with T2, including the surveys completed, appointed, and deemed an absolute necessity. We would acknowledge the difficulty in accurately estimating cost for works of this nature, however the process carried out in the estimation of the surveys required and their costs appears to be logical, and the overall cost allowance of €1,000,000 for all survey works does not appear excessive. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 9 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Design Fees @ 10% The planning and design fees contained within the cost plan are calculated at 10% of the construction cost, and amount to €47,446,092. RR&V requested supporting details for this total fee allowance. DAA provided a memo setting out the procedure followed in the appointment of design and cost consultancy services for T2. The tendering and appointment of design and cost consultancy services for T2 went through full open and competitive OJEU process which resulted in the appointment of a design team consortium lead by Arups, and separately DLPKS as cost consultants. The DAA advise the Design Team fee allowance of 10% is based on the outcome of this tendering process. Due to considerations of commercial sensitivity, DAA were not in a position to provide RR&V with details of the fee bids received. The DAA have committed to providing further backup and information in this regard directly to CAR if deemed necessary. RR&V have previously been provided with a document entitled “Terminal 2 Project Management & Design Commission Briefing Document”. This document requested that fee proposals for site supervision should be included as a separate cost as part of fee bids for T2. DAA advised that this site supervision fee was requested for information purposes only, and the above fee allowance of 10% does not include for site supervision. DAA advise that an additional 4.8% (c. €20M) for site supervision is included within the general preliminaries in respect of anticipated site supervision works by the design team. The CAR may wish to review any further detail that DAA can provide in relation to the fee bids received, and the additional costs in respect of site supervision. The combined fee % equates to c. 15% which seems high, having regard to the scale of the project. Due cognizance should also be given to the fact that there is a separate Programme Manager involved, on a separate and additional fee. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 9 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Design Fees @ 10% The planning and design fees contained within the cost plan are calculated at 10% of the construction cost, and amount to €47,446,092. RR&V requested supporting details for this total fee allowance. DAA provided a memo setting out the procedure followed in the appointment of design and cost consultancy services for T2. The tendering and appointment of design and cost consultancy services for T2 went through full open and competitive OJEU process which resulted in the appointment of a design team consortium lead by Arups, and separately DLPKS as cost consultants. The DAA advise the Design Team fee allowance of 10% is based on the outcome of this tendering process. Due to considerations of commercial sensitivity, DAA were not in a position to provide RR&V with details of the fee bids received. The DAA have committed to providing further backup and information in this regard directly to CAR if deemed necessary. RR&V have previously been provided with a document entitled “Terminal 2 Project Management & Design Commission Briefing Document”. This document requested that fee proposals for site supervision should be included as a separate cost as part of fee bids for T2. DAA advised that this site supervision fee was requested for information purposes only, and the above fee allowance of 10% does not include for site supervision. DAA advise that an additional 4.8% (c. €20M) for site supervision is included within the general preliminaries in respect of anticipated site supervision works by the design team. The CAR may wish to review any further detail that DAA can provide in relation to the fee bids received, and the additional costs in respect of site supervision. The combined fee % equates to c. 15% which seems high, having regard to the scale of the project. Due cognizance should also be given to the fact that there is a separate Programme Manager involved, on a separate and additional fee. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 10 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Capital Contributions The following is a summary of the information received and reviewed by RR&V. • The Cost plan provides for capital contribution of €11,768,334 (103,231 Sq M @ €114/ Sq M). This relates to the total new build area included within the cost plan of 103,231 Sq M. • The Fingal County Council Grant of Planning Permission included total Contributions of €12,674,240. This apparent anomaly was queried to the DAA. The DAA explained that the Cost Plan relates only to phase 1 of T2, whereas the planning application relates to both phase 1 and phase 2 and that this would explain part of the variance between the cost plan total and the planning condition. • From a review of the full development description published as part of the planning application detail on Fingal Co. Council website, it appears to note a total new build area of c. 121,150 Sq M for phase 1 & 2. On this basis the average rate/ Sq M applied in the planning permission would be €104.62 (€12,674,240/ 121,150 Sq M). If this assumption is correct, the proportion of the total contribution applicable to Phase 1 would be €10,800,027 (103,231 Sq M x €104.62). This is c. €1m less than the amount noted in the cost plan. Further clarification should be sought from DAA in relation to this apparent anomaly. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 10 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Capital Contributions The following is a summary of the information received and reviewed by RR&V. • The Cost plan provides for capital contribution of €11,768,334 (103,231 Sq M @ €114/ Sq M). This relates to the total new build area included within the cost plan of 103,231 Sq M. • The Fingal County Council Grant of Planning Permission included total Contributions of €12,674,240. This apparent anomaly was queried to the DAA. The DAA explained that the Cost Plan relates only to phase 1 of T2, whereas the planning application relates to both phase 1 and phase 2 and that this would explain part of the variance between the cost plan total and the planning condition. • From a review of the full development description published as part of the planning application detail on Fingal Co. Council website, it appears to note a total new build area of c. 121,150 Sq M for phase 1 & 2. On this basis the average rate/ Sq M applied in the planning permission would be €104.62 (€12,674,240/ 121,150 Sq M). If this assumption is correct, the proportion of the total contribution applicable to Phase 1 would be €10,800,027 (103,231 Sq M x €104.62). This is c. €1m less than the amount noted in the cost plan. Further clarification should be sought from DAA in relation to this apparent anomaly. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 11 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Project Contingency The current cost plan contains an overall project contingency of €74,119,000 amounting to 15.6% of the construction cost or 13.8% of the overall budget. In addition to this overall project contingency, general construction contingency of 5.2% (€24,646,944) is included within the measured work sections of the cost plan. This brings the overall level of contingency to €98,765,944 (20.8% of construction cost or 18.4% of the overall budget). The DAA have clarified in response to a query that the 5.2% contingency relates to “Design Development”, whereas the €74,119,000 contingency relates to specific DAA related risks such as programme, planning adjudication and enabling works. RR&V requested detail of the build-up of the project contingency amount of €74,119,000. DAA advised that risk workshops were established and a detailed risk assessment process undertaken by the DAA and the design team. During this process a risk register was established (see appendix B). We understand Risk analysis was carried out using the Latin Hypercube method, a commonly used quantitive risk analysis method. The 80th percentile probability level was adopted by the DAA (i.e. 80% chance that the contingency sum is sufficient, 20% chance that contingency sum is not sufficient) to produce the contingency amount of €74,119,000. The selection of the 80th percentile is common practice in analysis such as this. This process is a suitable and appropriate method of risk modeling. However the outcome of such a process is dependent on the approach adopted in relation to the identification of risks and the quantification of their impacts. We would note that RR&V are not risk analysis experts and to fully and scientifically review this procedure and calculation, it may be useful to undertake an independent risk review by an independent expert. An independent risk review may examine, for example, the following: • Validity of the inclusion of each risk and the logic behind its selection and inclusion on the risk register • The level of probability applied with each risk and the validity or otherwise of the probabilities • The validity and accuracy of the estimated costs applied to each risk. Review of DAA Capital Expenditure Programme – Report 2 17-May-07 3:49 PM ______________________________________________________________________________________________________________ Page 11 CAR - Report 2 - T2 Non Const - Redacted [17.05.07] Project Contingency The current cost plan contains an overall project contingency of €74,119,000 amounting to 15.6% of the construction cost or 13.8% of the overall budget. In addition to this overall project contingency, general construction contingency of 5.2% (€24,646,944) is included within the measured work sections of the cost plan. This brings the overall level of contingency to €98,765,944 (20.8% of construction cost or 18.4% of the overall budget). The DAA have clarified in response to a query that the 5.2% contingency relates to “Design Development”, whereas the €74,119,000 contingency relates to specific DAA related risks such as programme, planning adjudication and enabling works. RR&V requested detail of the build-up of the project contingency amount of €74,119,000. DAA advised that risk workshops were established and a detailed risk assessment process undertaken by the DAA and the design team. During this process a risk register was established (see appendix B). We understand Risk analysis was carried out using the Latin Hypercube method, a commonly used quantitive risk analysis method. The 80th percentile probability level was adopted by the DAA (i.e. 80% chance that the contingency sum is sufficient, 20% chance that contingency sum is not sufficient) to produce the contingency amount of €74,119,000. The selection of the 80th percentile is common practice in analysis such as this. This process is a suitable and appropriate method of risk modeling. However the outcome of such a process is dependent on the approach adopted in relation to the identification of risks and the quantification of their impacts. We would note that RR&V are not risk analysis experts and to fully and scientifically review this procedure and calculation, it may be useful to undertake an independent risk review by an independent expert. An independent risk review may examine, for example, the following: • Validity of the inclusion of each risk and the logic behind its selection and inclusion on the risk register • The level of probability applied with each risk and the validity or otherwise of the probabilities • The validity and accuracy of the estimated costs applied to each risk.