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There’s more than one way to FITOUT a workplace

Amicus’ attention was piqued recently by a piece written on LinkedIn Pulse by workplace project specialist David McEwen entitled The Seduction of an Integrated Fitout.


In it, McEwen warned how an unwary business planning to move into a brand new building could be tricked by its landlord into having to pay penalties for things they almost certainly didn’t factor in when they first contemplated moving.

At Amicus, this article rang a lot of bells, so we decided to talk to McEwen to amplify and add to his message, pairing it with the knowledge of our own co-founder Andrew Holder, in looking at the pros and cons of the key forms of fitout contract.

Regardless of building type, fitout size or industry, when a business is considering a commercial fitout, getting the right delivery method is imperative, to ensure that there is consistency in quality, service and value for money.
It is important for a delivery team to understand fully the objectives of that business so that the most appropriate method is selected to deliver the most effective and successful project.

Unlimited pitfalls certainly await the unwary.
There are different delivery method types in fitout, but each is a variation on three basic types:

  • Lump sum tender
  • Design and construct
  • Construction management

Time is money

Andrew Holder says, “There's usually a trifecta there, and design, budget and time are most commonly the three determining factors.

“Making commitments to hit certain financial targets and then missing them leaves people very red-faced if the job’s not been designed or procured properly.

“I think the biggest things our clients worry about are money and time.

“When there are lots of changes and problems, a lot of budgets get blown out, and when internal stakeholders have to go back for more money, it's very embarrassing.

“In regards to time, if dates aren't hit, people can't move in, and that creates massive problems.

“These days, through the people and culture consulting exercise we go through with clients, we're sometimes involved three years ahead of companies moving office.

“On a typical job for us, if a client has 200 staff, and they're leaving less than one year before their move to start organising themselves, it's generally too late for the most successful outcome.”
In The Seduction of an Integrated Fitout, McEwen wrote of a normal fitout process, “Typically, a new building will be constructed to a generic floor plan.

“The base building components include the structure (core, floors, facade and roof), a regular ceiling grid (including tiles, air conditioning equipment, strip lights, fire sprinklers, smoke detectors, and so on), and the developer's choice of carpet on the floor.

“Then, the tenant's builder comes in, rips up and replaces carpet for the occupants' choice of floor covering; puts up partition walls to divide meeting rooms, utilities zones and so on; and then needs to open up the ceilings to move sprinklers, lights, ducts and the like to suit the positioning of the walls; while also adding plumbing and wiring for kitchens, data and power.

“Potentially, they also cut a hole through a recently poured concrete floor slab to drop in a connecting staircase.”
Obviously, this sounds neither very efficient, nor, of course, very green.
McEwen says, “Then you've got the issue that happens on all projects, that a lot of business people aren't very good at conceiving a built space anyway.

“When the building hasn't been built, and there's no possibility of actually walking around it and seeing the angles and where the light comes in and where the views are and that sort of thing, it makes it even harder.”

The further out companies have to plan these, the greater the occupier’s problems become.
And, in times of great upheaval and rapid readjustment, change after that point is simply a fact of business life.

The integrated fitout

You might think that in an ideal world, the base building and fitout works would be staged concurrently for maximum efficiency and the works would supposedly be cheaper and quicker overall for the incoming tenant. On that basis, an integrated fitout certainly sounds seductive. But, despite its apparent appeal, David McEwen points to the integrated form of fitout as being potentially problematic for clients. But, he says, “The terminology I would use is that you're combining the base building with the fitout under a contract, and normally from the tenant's point of view they're dealing with a developer.

“The developer will have appointed a builder to build the building. Then they expanded the builder's scope to incorporate the fitout for the incoming tenant.”

“One of the things with an integrated fitout is that you are forced to submit your plans early, and then you should get a guarantee back on the price at that point. The uncontrollable aspect is when several years have lapsed since you put those plans in and got that guaranteed maximum price, and then your business has changed substantially and so your requirements have changed and, therefore, you have to go back and submit a number of design variations. That's the opportunity the builder has to exploit their position.

“ The other aspect is that, when you're going into the initial deal you will need to understand the builder's margin that's being applied. You'll understand the subcontractors they're using, and whether they're first-tier subcontractors, in which case they're probably going to charge more substantial margins than second- or third-tier subcontractors.

“Given that, if it's a substantial price building, then most likely they'll be using a first-tier head contractor. That head contractor will want first-tier suppliers. So, you're paying for those margins for a first-tier team, whether or not your fitout demands that level of capability.

“On a big building, the plans are probably going to be locked in a minimum of two years prior to occupation. Which means, they'll still be pouring slabs on the lower floors at the time that they're locking in fitout plans for the upper floors.

“From the tenant's point of view, I think the biggest concern is this delay between having to decide their designs and actually getting to experience the building.

“The problem is that the tenant organisations, at the best of times, have a lot of trouble pinning their people down on their requirements. You can imagine that trying to pin a business person down on requirements two or three years out when the design needs to begin, and they go, ‘Hang on. What are you coming and asking me about this now for? We're not moving in for another three years.’

“It becomes very difficult for a business person to actually think that far ahead, in a lot of cases.
Holder concurs, “As the building's coming out of the ground, often you need to get past the third or fourth level before you can start a fitout from the ground level, and follow on quickly.

“About 40 percent of the cost of any fitout is attributed to air conditioning, lighting, electrical, services, and under the full control of the main builder, you're going to get a better solution because you're generally dealing with one project, one set of consultants and one builder.

“This means you don't get one air conditioning engineer arguing with another about an air conditioning solution, so you're taking a holistic view around energy distribution through the building, air conditioning, that sort of thing.

“You'd probably get a more efficient building, I'd say.

“You might end up with one consultant arguing with another but then [their] independence is often good as well.

“Unfortunately, how it plays out in reality is that there's little contestability on price, since you're locked into the developer's builder and sub-contractors.

“Often, these things are hidden but with integrated fitouts they're often based on decisions made off the back of incentives that were agreed through the lease.

“So if you're signing a 10-year lease, you might get a 20 per cent incentive, which will probably fund your fitout.

“At 20 per cent of the period of the lease, two years out of ten is basically free for the client.

“Clients are lured into this concept of two years rent-free, or the rent-free money being used for the fitout, but then they have no control over that amount of money because it's integrated, meaning the builder is then able to do just whatever they want to do with that money.

“On face value, it would seem like they're getting a good deal, but then there's no accountability, whether the pricing from subcontractors and the head contractors has been fully tested, even whether the materials that have been used are even going to hold up for the 10-year lease.

“Most materials, chairs, carpets are bought on a five-year warranty, so shortcuts are regularly taken.

“Any costing is not quite there for benefit of the client.”

All is not as it appears

And then, McEwen explains, there are straight-out rip-offs. “There was a project I worked on many years ago where it was rumoured that the builder's team had four lawyers working on the job, whose role was to create opportunities to submit extension of time requests. Because the first building was late, they didn't want to provide any financial concessions to the incoming tenant.

“I think they were aiming to deflect delays on the base building from being their financial problem and burdens to the tenant's problem, by creating excuses for tenant delay as opposed to base-building delays.

“We also had one example where we were sitting in the tenant's old offices, and we could see the progress at the base building. We were comparing it with the program that had been provided as part of the contract.

“We could clearly see that the building was a couple of months behind schedule, and yet the builder was insisting that, ‘No, no, no, it's very much on time. That program was just indicative and dah, dah, dah.’ By the way, they were hitting us up for a two-month delay for something that should have taken them a week to build.”

Holder says, “It's very unusual that a client would have chosen a building, fully designed, or the consultants or their stakeholders would fully design something to the nth degree before a building’s bricks even come out of the ground.

“You've got to be very well organised to get that agreement in place that early. But, because it's just not possible, you end up in a situation where the jobs then half fall through, when that integrated fitout's been agreed, which then opens up the client to a later risk because there's an assumption from the builder-developer-owner that they have to do something to fit out a building a certain way. But if the detail hasn't been agreed up front, they're then going to come back and ask for more money.

“It depends on the deal that's been signed, but if it's all clean and it's fully designed and the builder is doing its thing and then the tenant just turns up on the day to move in, there’s no problem.

“But delays in completion of the layout of the building can be attributed back to the tenant, and that is where it gets tricky.

“But, if the tenant wants a few things changed then all of a sudden, the guy who has to build the building as well may start charging rent if the job's finishing late.”

Shell and core

David McEwen writes of “shell and core” as being what he believes an effective alternative contractual approach less frequently seen in the Australian office market, but which he suggests can offer the best of both worlds.

He concedes that this method may be innovative only in Australia, as it has been in operation more widely in, for example, the United Kingdom for more than 30 years.

“It's much more common abroad than it's ever been in Australia, and I'm purely speculating, perhaps the industry has resisted it because the industry players feel that it's not necessarily in their interests.”

In the shell and core scenario, he writes, “on a typical office floor, the base builder constructs the lift and services cores, bathrooms, floors, facade, and installs central services, which are capped off in the risers.

“The tenantable area is left as a shell, with concrete floors and an exposed ceiling.

“An astute tenant may negotiate a deal where the landlord provides an extended rent-free fitout period and a contribution that covers what the base builder would have normally provided: installation of a standard ceiling grid with lighting, mechanical, fire and other services; and a standard floor finish (with or without an access floor depending on the design of the building).

“In this scenario, the tenant's builder has a bit of extra work to do, and there may be some additional commissioning complexity and additional design risk.

“Choice of certain sub-contractors (such as mechanical) may still be restricted by the landlord.

“However, the tenant can finalise its plans a lot later than they would need to in an integrated fitout scenario.

“As with a non-integrated fitout, the tenant can also select a builder through a competitive tender rather than being locked into the developer's team, which may lead to a better commercial outcome for the fitout costs.

“It should be said that even in a shell and core scenario, if the developer’s contractor is still running the site the risk of demarcation disputes remains.

“And delays to the completion of base building commissioning may still affect your fitout contractor’s program, which can lead to additional costs.”

Holder says, “We do about 75 jobs a year, about half of them will be over 2000 square metres and that's where this sort of concept comes into play.

Traditional contract form: Lump sum tenders

Holder says, “Lump sum tenders generally come from the prehistoric real estate industry where the big old firms, the CBREs, the Jones Lang LaSalles, the Colliers, all the big names that have been around for hundreds of years, have professional sales teams that promote that model because they've been around them for a hundred years.

“It's a very traditional way of construction. If you go back in the annals of time, that would be the way Australia's been built, so it's got a lot of legacy behind it.

“Therefore, to try to get that out of the system and on a new-generation pathway is quite tricky.

“The negative side of it from our point of view is whether it delivers the value and quality.

“By the very nature, if the market's very tight and all the builders and contractors are not making any money, margins tend to fall, so what you find is these head contractors are often going at silly, even negative margins, just to make up revenue to make their business survive.

“So you end up with a very attritional supply chain.

“You've got a project manager working alongside an independent designer working alongside an independent builder, so there are all those links in the chain that can break and everyone blames each other.

“When it's cheapest price wins, subcontractors on the contracting side take a dog-eat-dog approach to tendering, which gives rise to a lot of subcontractors colluding with each other to make sure one wins the job.

“When cheapest price wins, you might find yourself dealing with a subcontractor or head contractor that's just about to go bust.

“Making margins work for the price at which the main contractor sold the job to the client can mean they have to pick the cheapest subcontractors, not knowing their background, not knowing whether they're strong or weak, or even whether they're on the brink of bankruptcy.

“There are a number of cases in which they go bust after they’ve been paid deposit checks for joinery, for timber, or for finishes, and so on.

“If the client, say, wants budget certainty and has a lot of time, then that traditional path may be the best way.

“Generally it's quite bizarre that people would want the cheapest price to get the cheapest result, but that's the way the world works.

Getting design right

“In that situation, the project manager would employ the designer and the designer then fully document the job to every nut and bolt, and then go to the market, and the builders fully to document it and make it risk-free, especially for the client.

“If budget is less important, and it's more about the design solution, then there's more of an iterative design journey whereby the client might want to take a different path.

“There might be a difficult design journey in terms of getting internal stakeholders to buy it on design documentation.

“If there's a lot of integrity behind the design, there should not be any variations or cost overruns, and if it has been documented well and designed properly, there's a lot of certainty there that comes through.

“There's individual accountability for the design firm to perform on the project, whereas in a design and construct world [see below], there's one entity that's responsible for design and construction success and accountability through those individual components.

Drawbacks of lump sum

“For the previous several years, one contractor we know of had been trading with this lump sum tender methodology at low margins.

“The reason that business had kept going was they just kept pricing to win the work, so that proved their ultimate brick wall.

“That was a 12 million dollar project, I think, they could not fund, because of the negative balance sheet they were carrying through that period.

“In that situation, what you'll find is the people building that particular job don't actually suffer because generally what happens is the building goes bust and the proprietor, the owner of the building then takes over the subcontracts and gets the job finished.

“The real people who suffer are those that all paid for the jobs that happened before, whose money is being used to build that job.

“I think, in the particular case of that contractor, there was a six million dollar deficit in their accounts, which meant subcontractors and suppliers - the painters, and so on, people who live hand to mouth, do their estimating home on the weekends, and are then on the site, on the job during the week - they didn't get paid.

“Then, through the knock-on effect through the supply chain, a lot of people would have gone bust.”

Design and construct

The fastest growing delivery method is known as design and construct (D&C). In this approach, the designer and head contractor are hired as a team under a single contract with the client. One appeal of design and construct is that the traditional conflicts between the designer and head contractor are greatly reduced. Holder says, “With design and construct, the assumption is that all members of the fitout team will benefit from good communication.”

The improved communications between the design and fitout portions of the project typically result in a more streamlined process that can accommodate changes in the work fairly easily.

Under design and construct, the fitout team may be hired in different ways, but the most common is for several potential bidders to negotiate with the client.

Selection is made on a variety of factors including overhead and profit, timeframe and proposed team members.
Design and construct projects do not necessarily have final budgets at the time the fitout team is engaged, which allows the selected team to work together to bring the right solutions and budget to the table for the client.

Note that with design and construct, the client has only one contract with a single company that does both design and the fitout. The head contractor engages the design consultants and enters into agreements with the subcontractors. Because the head contractor and designer work closely together, communication is generally better than on a lump sum delivery method. It also results in faster turnaround of questions and changes to the work. Ideally, design and construct is a smooth and streamlined way of delivering a fitout.

Holder says, “For us, notable characteristics of design and construct are about early engagement so we're involved right at the front end, ideally after helping the client with due diligence on building selection.

These days, tenant representatives typically work with clients, looking at buildings trying to find the right location for their clients.

“We've had a number of situations over the years where those tenant advisors might have given the correct financial advice about a building, but not necessarily the right technical advice.

“We did a big job in Melbourne for Nokia five or six years ago now and it had a big computer lab that required a hefty rising main in the building, so it needed more power to be delivered to the floor.

“The lease deal did not address that need for power.

“So, the deal was signed, and we went in to start the job, but, because we were brought in late in that particular situation, and there wasn't enough power feed to the floor, and Nokia had to spend half a million dollars on a sub-main in the basement to enhance the power on that floor.

“That wasn't identified by the tenant rep.

“Likewise, we’ve got other examples with integrated fitouts, where if the building is brand new, often you get a bit of rubble and dust that goes through the air conditioning filters, which affects the air conditioning performance.

“The first thing when we go to look at in conducting due diligence for a floor is to test the air flows through the air conditioning infrastructure.

“The buildings generally come with a fitout guide that gives all the design criteria for that, say, it'll call for 10 litres per second per person on the floor in terms of fresh air.

“It'll talk about the air conditioning providing plus or minus two degrees against a 21-degree design criteria, so we'll go and test all those things, document it in the fitout guide, our sort of building manual.

“Then we'll advise the client if the building needs modification or if the floor's not quite what the manual says it should be.

“As the lead consultant, we're responsible for delivering on all the design, project management and construction, which makes the client's life easier.

“Where under lump sum tender, the design would be very detailed and finished, the designers don't make much money, and if they get the joinery wrong by a couple millimetres or they design something incorrectly, that has a massive financial impact.

“Generally, the client can't go back to the designer, saying, ‘Reduce your fee, because you got the joinery wrong or you got the carpet wrong.’

“There will be a clause in the designer's contract that says they can't do that, so if mistakes are made, it gets very expensive for the client, whereas in the design-construct model, if the contractor breaks those things, they wear the cost of it.

“With design and construct, the hallmarks of success are similar to lump sum tender, about certainty of design, certainty of budget and certainty of time.”

But, Holder says, “Probably the most important thing in design and construct is that you've got only one backside to kick.”

Construction management

Construction management often works well in a number of scenarios. In the lump sum world, the head contractor is just delivering a solution and the client doesn't care which painter or which air conditioning firm is chosen. Holder says, “The negative side of lump sum would be, if in that scenario they found a flaw in a contract, the builder would have a right to go back to the client saying this wasn't documented, we didn't price for the hole in the wall and the hole in the ceiling and the air conditioning not working. “Just from that, they're subjected to risk.

“Construction management is more like a progressive tendering process, which means that the client gets the benefit of moving through each of the stages sequentially rather than being in that lump sum world.

“In such a construction management model, you can iron those things out as you go.

“It also gives more control over subcontractors, as you can jointly agree with the client about the subcontractors you're going to go to put on the project, so there might be three partitioners, three air conditioning firms, three painters.

“Particularly on larger projects, we need to make sure the people we're selecting to price work have the capacity and the experience to do that type of work.

“They would either be recommended by us because we vetted them already, which means we have to look at their financials, we have to vet their credentials in terms of addressing what would be the effect on their workload of working with us, and when they can take the project on.

“A client might recommend them from a previous life, or, say, there might be a friendly electrician they've used before.

“They can be involved in that tendering process as well, which gives you direct control over the integrity of that supply chain.

“It just gives us more control and the client gets transparency as well.

“Then you arrive at a contract sum.

“Everything's been priced by these stable sets of contractors, all their numbers are set and you arrive at a package price.

“What should then happen, our recommendation, is that, because all the risk has been taken out of the job and all the subcontractors are safe ...

“A lot of time is taken up front so all that transparency should reach and arrive at a contract sum, which then becomes the vehicle to move forward with the client with that contract sum.

“What that does is it wraps up, it pauses the process.

“The head consultant's happy because we've tendered it to the market.

“We've got the subcontractors we want to be involved, we haven't picked the cheapest, but those that can do the job and have the credentials and financial experience.

“The client gets the benefit of knowing that the whole job's been tendered properly, so we're happy and they're happy to move forward on that sum.

“Often, construction management is a great way of arriving at a contract sum.

“You've selected your supply chain, you've worked with this progressive kind of testing of the budgets as the design's evolving.

“There's an open-ended risk applied because if the subcontractor comes back and says sorry I've missed something or sorry I need to charge you more, if transparency runs all the way through, traditional construction management means that extra bill will be presented to the client.”

Other safeguards

If the client wants it, the benefit of the traditional construction management form of contract is it continues through a project so all the invoices get shown.

Holder says, “We recommend construction management to get to a contract sum and then we like to sign a contract with the client at that point under a design and construct model.

“Often in the case of a Master Builders Association construction management contract, they actually call for an independent bank account to be established for the project where all the project funds go in and all the project payments go out, so the client and the contractor will have visibility over that.

“That's a great way of handling a project transparently because everyone can see the money going in and out, but the open-ended risk to the client is that there might be cost blowout and they're going to have to weigh the cost of that.

What to look out for in contracts

So, what's most important to look out for in a fitout contract? David McEwen says, “That's a tricky one. I guess what it boils down to is if the tenant can, then they should try and make a financial comparison of two options, or potentially three options.

“They have to understand from the developer whether there is a clear financial advantage in terms of whatever incentive might be on the table, as often during the deal that involves an integrated fitout.

“There maybe other factors in play. For example, the developer may be picking up the title on the incoming tenant's old lease and from a site survey the developer's assuming the risk of that lease tail, then that can be a very attractive option for the incoming tenant that might outweigh some of the disadvantages of an integrated fitout, for example.

“There are a number of situations where a developer might want to entice a tenant to their development by saying, ‘Well, ok, I will take the risk. I'll effectively assign the lease that you have on your existing premises, and I'll take the risk of either subletting that or disposing of that obligation in some way.’

“To a tenant who's got their eyes on a particular new development and thinks that's going to be beneficial for their brand, in terms of moving there or for whatever other reason, then that could be a very attractive proposition because it takes away some of the timing issues and the act of synchronising new fitouts and relocation with the end of an old lease.

“If the developer then makes an integrated fitout a condition of the agreement, then we have no practical choice and it may still work to their advantage despite the cost premium that may be associated with an integrated fitout.”

Other provisions

Holder says, “A fixed completion date would be important, with some sort of security for completion, because if clients don't move on the day they're supposed to move, they are to pay double rent and the financial effects can be quite serious.

“I think some conditions need to be enforced and attached to achieving certain key design criteria, such as making sure things that people don't notice, air conditioning, lighting and IT infrastructure all work on day one.

“A fixed agreement on change orders, which are variations, is important, and how they're presented, how they're priced and how they're agreed, with a schedule.

“I think key validation points for the client are important as well, so quality control throughout the fitout, assessing the air conditioning flows ahead of putting walls up, things like that so you get to that stage in the construction project where those validation points come in, when walls have been sounded and jointed, that those joints are correctly flush, so when you paint you can't see the joints.
There also needs to be a way of handling defective work, because often clients move in and things are either unfinished or need patching up, whatever, so at the end of the project how defects or finishing work is closed out need to be defined.

Competency is king

So, what are the standout abilities most often found in a company that kind of makes the success of relocation?  McEwen says, “I think to succeed, you need a CRE [Corporate Real Estate] team within the tenant organisation that has earned a seat at the executive table, a team that is close to the action and also has the ear of the CEO and the senior executives of the organisation.

“I think that that's critical, because then they have a much better idea of what's going on with regard to the potential acquisitions and that sort of thing. At the end of the day, if you've got a dynamic organisation, it's going to be very difficult to get it right when you're having to make decisions so far out.
Really, the only thing you can do there is have plenty of contingency, an open-minded builder in terms of when it comes to dealing with variations, to the extent that you can contractually limit the cost of those variations, then so much the better.

“If it's possible to have an organisation that is relatively static in this day and age, then that would be of benefit to the determinants. If you can't have that, then the next best thing is, as I say, having an equitable real estate team that's really seen as a valued contributor to the top table.”

Growth might be difficult, but so is the opposite

While organisational growth can put a spanner in any real estate team’s works, contraction also causes problems.

“Even that then creates issues in terms of, actually, maybe you think, ‘Perhaps we don't need five floors, we only need four floors. Can we stop the fitout and how much is it actually going to cost to stop the fitout of the extra floor?’ That still potentially has some cost associated with it, depending on what stage you can make that call.”

Holder has a supporting view, “Within a company, generally it's a strong project team ethic that counts, so there are clear ways of making decisions, a long time in design, budget pathways and being helped along that process by their lead consultant.

“Clear decision-making is very important as it gives you a clear outcome in terms of design and budget.

“Making sure that the budget's been allocated, and often setting contingency sums is important.

“When we designed Optus’ head campus in 2008, they’d designed that building for 7000 people, and the day they moved in, they had 7000 people.

“They had envisaged that home working and agile working would flow through the business.

“Therefore, their growth would be factored in, and they had catered for it, so they designed for capacity on day one.”

Countering problems

Proper building selection, as we mentioned earlier, is where you've assessed the building not only from a demographic and image point of view, but also technically whether it suits the occupier.
Often the size and shape of a building influences the design as well, whether it has a single-core staircase, or has two different cores.

The risk of working in new ways

Companies that are starting to embrace different ways of working into their workplaces also pose new fitout challenges.
You've actually got to look at the way your team works and how the different things they do every day determines how the workplace needs to function.
Marry up whether you need a focused area or a collaboration area or a breakout area and how those settings get designed. If that's not working from the start, you end up with very badly designed agile or activity based working setups.

Holder says, “We've seen a lot of those around town where they will look great when you walk around, but you see empty chairs in the corner because the area's just not being used properly.

“To assume that agile working is just to put 20 hot desks in and to just make everyone sign in their work every day will show you it won’t work like that so if companies aspire to work that way, they need to go through that consultation process early and properly.”
Remembering that business change is inevitable and it is difficult to get people in your organisation to focus on the move until it's almost upon them, you'll soon realise when and if the developer's builder has you over a barrel.

Fashion is not your friend

McEwen says, “You've got organisations like Yahoo!, and indeed IBM recently, were starting to give up on their view that pretty much everybody works from home some of the time.
“They basically took the hatchet to their office space a decade or so ago. Now, they're starting to turn it around and adopt more of the Google philosophy of we want people where we can see them because that's where they do their best work and their best collaboration.”

Managing the unforeseen

Every organisation needs to, and can, hedge its risk against change and a range of possible futures, Holder says. “I think clients need to factor into their property plans their long-term growth trajectory or how they are going to manage through mergers and acquisitions.

“They need more flexibility around their lease terms, so, instead of signing a five-year lease, they might sign a five-year lease with a three-year breakclause, so if they need to go, they have the ability to get out two years earlier.

“They might sign up for a floor to a building, have another option on another floor or have first rights on an optional number of floors.

“To go the other way, there's a lot of subleasing going on in town as well.

“They can put their floor back on the market for the remaining three years of their lease and usually in a good market, like Sydney at the moment, they get takers on it.”

Change is thine enemy

McEwen says there could be a variety of business reasons that drive particular deadlines. For one, he says, “I guess some of the occupier businesses are not necessarily just coming out of one site and going into one other site. They might be coming out of multiple sites, so you might have multiple lease expiries in play.

“The other aspect would be if they are potentially eyeing up an acquisition or have recently made an acquisition that might provide a greater incentive to get into somewhere new quicker.
Then, speaking of his experience with disablers, he says, “A classic example is the so-called Chinese walls in banking organisations.

“Within a banking organisation, and various other organisations, you'll have certain departments that are allowed to know certain things and other departments not allowed to know those things.

“You create a combination of physical and procedural information areas, which are often called Chinese walls. The compliance legislation has been shifting around and all the different regulators [come to an agreement about] change and what's acceptable.

“The organisations themselves come up with different procedural mechanisms to manage the information areas, which might mean they need more or fewer walls in different places. That's the thing.

“Then organisations restructure every five minutes, anyway, which then changes the goalposts. There you’ve got an issue where [they need to create] solid walls and take the associated security measures and that sort of thing between different departments.

“Those departments are also changing shape with restructures. They're changing shape with business growth or contraction. Then they're changing shape due to changing compliance requirements. That's a big one that I've encountered.”

“Yes, yes. Acquisitions is another one. I worked on a project where the company that was my client acquired another organisation, literally, two months before starting to occupy its new building.

“We suddenly had some departments doubled in size, and others went up by a quarter or whatever, and we wound up keeping the old building as well as the new building and just had to make everything fit.”
Pity the poor property manager who walks in just before moving.

Workplace strategy

Echoing his previous point about the design of workplaces around new ways of working, Holder says, “Due diligence eliminates many risk factors when selecting the building, but we should also get into an early conversation around workplace strategy as well, before we start designing anything.

“We don't get the drawing board out quickly and start drawing things.

“The first thing we do is to put the paper down, and have a conversation about how you are running your company.

“Generally, if we'd taken a brief from a client 10 years ago, they wouldn't have asked about that stuff, such as do you have a trust-based environment in the way you operate?

“But, these days, we're finding that there's a lot of hunger for that sort of information, and that leaders are getting wise to this stuff, and we have these conversations early and often.

“At one point, it wasn't relevant, but now with the new generation of workers coming through and particularly with agile and activity-based working in school environments, new workers are coming in expecting to work in these sort of environments.

“CEOs and employers need to understand the stuff, so it's that early conversation people want to have before we start designing things.

“That then affects how we then work on a design, whether it be at a job design which means people come and go and don’t need to have a fixed place to work, or whether it's a very traditional way of working, where you clock in, clock out and sit at the same desk every day.”

Summary

All projects can experience delays, cost overruns, changes and other problems. Choosing the appropriate delivery method can greatly reduce risk of such problems. As we have seen, there are advantages and disadvantages to each of the ways that a project can be delivered. A client weighs these advantages and disadvantages against the project type, their willingness to tolerate risk, the budget and their schedule requirements, and project goals to determine which method to choose.

For example, if a client is most concerned about knowing the fit out cost upfront, then a traditional lump sum delivery method may be a very good choice.
On the other hand, if the schedule is most important, then one of the methods that allows for fast-tracking, such as design and construct or a construction management approach, may be more suitable.

Above all, David McEwen says, “I think tenant customers need good quality advice about how the industry works. If they can get a good project manager who can explain how the different contractual structures work and point out some of the benefits, but particularly the pitfalls in each of them and help their client make an informed decision, they will benefit.

“If that's not project manager, then it maybe another independent adviser, but it's certainly never the real estate agent or the developer.”

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Date 15 August 2017 By Graham Lauren
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