© The College of Estate Management 2002

Paper 0344V1-1

QS Practice management and organisation

Contents

Aim

Learning outcomes

1. Introduction

2. Organisational models

3. Staff management and organisation

4. Management of quality

5. Legal forms of professional practice organisation

5.1 Partnership
5.2 Incorporation as a company

6. Practice administration

7. Professional indemnity insurance

8. Fees and fee bidding

 QS Practice management and organisation Paper 0344 Page 2

Aim
The aim of this paper is to examine some of the salient factors relating to the
management and organisation of a quantity surveying practice.

Learning outcomes
After studying this paper you should be able to:

z Discuss the changing nature of quantity surveying practice.

z Recognise examples of the different types of organisational and power cultures
generally found in quantity surveying practice.
z Discuss the principal functions of practice management.
z Outline the major advantages and disadvantages of partnership structure as
opposed to a limited company.
z Explain the need for, and outline the principles underlying, professional
indemnity insurance.
 QS Practice management and organisation Paper 0344 Page 3

1 Introduction
The nature and form of quantity surveying practice varies widely across the world.

In some regions, such as parts of the Far East, construction procurement is still very
traditional and the use of the bill of quantities is still widespread. The major fee-
earning activity is therefore still the preparation of bills of quantities, supported by
traditional forms of cost estimating and cost planning. Traditional post-contract
services include valuation of variations, preparation of interim valuations for
payment, and settlement of the final account.

In other parts of the world, such as the United Kingdom, the use of traditional
procurement approaches has substantially declined since the early 1990s. In their
place is greater use of the design and build family of approaches, as clients seek to
obtain better value for money and shorter contract periods. Although initial cost
advice is still required, these non-traditional approaches do not require the production
of a full bill of quantities. The scope of post-contract work required is also greatly
reduced. There is, however, the need for a detailed Statement of Employer’s
Requirements, and this is often produced by the quantity surveyor.

Removal of the consultant quantity surveyor’s major source of traditional fee income
has led directly to the need for many practices to restructure. Consultant quantity
surveyors in general are seeking a much broader role in the construction procurement
process. Some have specialised in particular branches of construction activity (eg
civil engineering or building services engineering work). Others have specialised in
the so-called ‘niche’ services such as claims preparation, dispute resolution,
construction law, strategic procurement advice, risk and value management,
management consultancy and PFI.

Some of the earliest ‘niche’ practices were those specialising in construction disputes
and claims preparation. The litigious state of the construction industry ensured that
early practices in this field were very profitable. However, the development of
mandatory adjudication procedures – proposed in 1994 by Sir Michael Latham in
Constructing the Team, and introduced in the Housing Grants Construction and
Regeneration Act (1996) (the Construction Act) – has greatly reduced the number of
major arbitrations in construction. These practices have therefore been rendered much
less profitable.

These shifts in workload have also led directly to a change in the ‘shape’ of practices.
The large monolithic practices dedicated to the production of bills of quantities, using
large numbers of ‘takers off’ and ‘workers up’ in a production line environment, have
now disappeared, to be replaced by ‘leaner and meaner’ specialist consultancies with
fewer, more highly qualified members.

The role of the quantity surveyor within construction contracting companies and their
subcontractors remains strongly focused on commercial management, and has, to
some extent, been broadened by the move towards design and build based
procurement approaches.

The shift towards ‘one stop shopping’ by clients during the past decade has also led to
a significant increase in the number of practices grouping together, either to form
integrated multi-disciplinary practices, or pooling their resources in some less formal
way as a loosely based consortium or confederation to bid for specific projects.
Although quantity surveying is recognised as a separate profession in most countries,
in the UK the Royal Institution of Chartered Surveyors decided, upon its recent
reorganisation, that a Quantity Surveying Faculty was unnecessary. Perhaps this
indicates the changing face and increasing diversification of the quantity surveying
profession in the United Kingdom.
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2 Organisational models
A number of different approaches have been used to classify alternative forms of
organisational structure.

1 The spider’s web

This type of organisation has a central power source with radial threads of power and
influence spreading from the centre figure. The concentric rings of the web represent
functional and communication routes, providing continuity across the radial power
lines.

This organisational style depends upon one or more strong controllers at the centre of
the web, who will expect all staff to share their values and beliefs. The organisation
therefore depends on trust and empathy for its effectiveness and on personal influence
for communication. There will normally be little devolution of real power, and
therefore little bureaucracy.

‘Web’-oriented organisations are often found in small entrepreneurial organisations,

with strong leaders, often founder figures, at the centre of the web. The quality of
decision making is therefore heavily dependent on the abilities of those in power, and
if the central figure leaves, the web falls into disrepair and the organisation loses its
focus and identity.

This type of organisation is frequently found in small, traditional consultancy

practices.

2 The Greek temple

This organisation has a very formal hierarchical structure, with both roles and
communication routes being carefully prescribed. The role is often more important
than the person, and there may be a presumption that any suitably qualified person
will be capable of fulfilling the functions prescribed by the role.

These structures are therefore characterised by a strong reliance on standard

procedures, rules and systems. Power is derived from the role, essentially from
occupation of a particular position within the hierarchy, and there has historically
been a high degree of job security and regular career progression.

This form of organisation is most often found in large bureaucratic organisations (eg
central government departments, local government offices and other public bodies),
and will survive well as long as the environment remains stable. They are, however,
slow to recognise change and reluctant to change even when the need is recognised.

3 The fishing net

The fishing net structure consists of vertical and horizontal strands. This type of
organisation is common in project-based organisations, where the vertical strands
commonly convey company policy and the horizontal strands represent project
influences. Most of the power and influence therefore lies at the joins in the net.

The major focus of this type of organisation is successful completion of the project
but within overall organisational policies and methods. It fosters a team culture, with
influence based more on expertise than position or personal power.

This form of organisation is extremely adaptable and responds quickly to change. It

can form project teams or task groups to deal with new issues, and reform or change
the membership of task groups easily. Individuals should be able to exert a high level
of control over their work and would expect to be judged by results. Control is more
difficult than in other forms of organisation, and is mainly through the allocation of
resources.
 QS Practice management and organisation Paper 0344 Page 5

This style of organisation is most often found in project-led organisations.

Implementation of this structural form may often be a significant factor in the
successful establishment of multi-disciplinary project teams.

4 The cluster
This organisational form resembles a cluster or galaxy of stars, each independent but
part of a common system. Here the individual is the focal point and the organisation
exists principally to serve and assist the individuals to ‘do their own thing’. Formal
bureaucracy tends to be minimal.

Some small consultancy firms or partnerships promote this form, but the culture
becomes unstable as the size of the organisation increases. The logical evolutionary
route is to a ‘fishing net’.

3 Staff management and organisation

Traditionally, the role of the manager in professional organisations has been to
organise the effective use of resources in order to ensure that work is done efficiently
and in a timely manner. Management of people is of major importance in managing a
professional office, in particular providing encouragement and motivation. In many
professional offices it is also the role of the manager to secure a substantial part of the
office workload and to organise necessary support services such as secretarial and
clerical resources and computer facilities, to enable the office to function effectively.
How far managers are prepared to delegate the duties and responsibilities of
management to others in the organisation will depend largely upon:

z the manager’s personal attitude to the staff – eg basically lazy and needing to
be driven, or responsible, well motivated and capable of initiative and self-
control;
z the nature of the organisation’s internal culture and power structure.

Senior managers are often also responsible for marketing the practice and for
ensuring that the firm operates in an ethical way.
 QS Practice management and organisation Paper 0344 Page 6

4 Management of quality
Most practices of any size have standardised and documented procedures to control
the way their work is carried out and govern the normal range of services offered to
clients. As well as standard ‘back office’ tasks such as payroll, time recording and
client invoicing, there will be standardised presentations of the practice’s work,
common formats for reports, and, in larger practices, often structured training for
employees.

Some, perhaps most, will achieve recognition of their systems and processes through
one or more of the external inspection and accreditation agencies, such as ISO 9000
series quality assurance, Investors in People etc. These activities are typically very
costly and time-consuming, but have been strongly driven by client demand.

Most practices attempt to secure repeat business with existing clients, and a common
way to do this is through the appointment of a senior member of staff to act as ‘client
manager’. The client manager will act as liaison between the practice and the client’s
representatives, and will be responsible to the client for ensuring that their work is
carried out in a satisfactory manner.

5 Legal forms of professional practice

organisation
There are basically two ways in which chartered surveyors may practise together:

z Partnership, and
z Formation of a limited or unlimited liability company.

5.1 Partnership
Partnership is perhaps one of the commonest forms of professional association. It
arises most often when two or more practitioners wish to pool their joint knowledge,
experience and resources for mutual benefit. Each individual retains his professional
identity, but the formation of the partnership provides increased capital and enables
the partners jointly to undertake larger projects and to offer a wider range of services
to clients.

Partnerships are governed by the Partnership Act 1890. This defines a partnership as:

‘The relation which subsists between persons carrying on a business in common

with a view to profit.’

A business is defined as ‘including every trade, occupation or profession’.

The only true partners are those holding an equity stake in the business. They are
therefore responsible for, and derive benefit from, the assets and business of the
practice. They also have a joint and several responsibility for all practice debts.
Although some employees may be called ‘associates’ or ‘salaried partners’ and
receive part of their remuneration in the form of a share of the profits of the business,
they are not true partners within the meaning of the Act.
 QS Practice management and organisation Paper 0344 Page 7

Practitioners joining a partnership as full partners are expected to contribute to the

partnership’s share capital, in return for which they receive a share of future profits.
New partners joining an existing practice may also be required to make an additional
‘goodwill’ payment to reflect the partnership’s reputation, though this practice is now
falling into disuse. The partnership capital is then used to finance the business, and
any profits arising are distributed at the end of the financial year.

There is no obligation in law requiring the partners to set out the terms of their
partnership in writing, and in the absence of a written agreement the provisions of the
Partnership Act will apply. Many small partnerships exist perfectly well on the basis
of a purely oral agreement. For larger practices, however, it would plainly be prudent
for a written partnership agreement to be prepared.

There is no standard form of agreement, but one would typically expect the
agreement to include things such as:

z details of the practice;

z arrangements for present and future contributions of capital;· profit/loss
sharing;
z the basis of each partner’s drawings;
z any restrictions on partners’ activities outside the practice;
z accountancy and practice management procedures;
z arrangements for future partners;
z provision for retirement;
z provision for the distribution of a partner’s share in the event of retirement or
death.

5.2 Incorporation as a company

Surveyors may constitute themselves as a company, provided that provision is
included in the company’s Memorandum of Association stating that:

‘… any business of surveying for the time being carried on by the company shall at
all time be conducted in accordance with the Rules of Conduct for the time being of
the Royal Institution of Chartered Surveyors’.

The primary advantage of limited company status is that company directors are only
liable for company debts up to the limit of their shareholding within the company,
whereas partners in a partnership carry unlimited liability. Note, however, that if the
company requires an overdraft the bank may insist upon additional security in the
form of personal guarantees, which can effectively cancel out the benefits of limited
liability.

It is also possible for a firm of chartered surveyors to be owned by a commercial

organisation such as a financial services organisation, provided that chartered
surveyors have full responsibility for the whole of the surveying work.

Companies in the United Kingdom must be registered at Companies House. For this
to be done the company are required to supply:

z the company name;

z registered address;
z names of all directors;
z name of the company secretary;
z a copy of the company’s constitution setting out rules covering general
meetings, powers of directors, transfer of shares and payment of dividends.

Companies must state their registered number and address on all business letters and
order forms.
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6 Practice administration
In the modern world of business regulation and detailed record keeping, practice
administration is a major task for all but the smallest of practices. Typical ‘back
office’ activities will include:

z salaries, tax and national insurance payments;

z staff pension scheme;
z VAT;
z petty cash;
z practice book-keeping and banking;
z project costing and timesheet control;
z fee invoicing;
z filing and correspondence;
z mail;
z photocopying documents;
z maintenance of standard office procedures;
z arranging maintenance, repair and renewal of office equipment and computer
facilities;
z maintaining stationery stocks;
z holiday and sickness records;
z etc.

Common practice is to employ an administrator/office manager to provide a focus for

office co-ordination and control. In smaller practices one person may take on the
functions of administrator, secretary and book-keeper, but in larger organisations the
office manager may require support from a number of secretaries and clerical staff. It
is rare for administrators’ time to be directly charged to specific projects. Their costs
generally form part of the firm’s overhead costs to be recovered from the
practitioners’ fee income.

It used to be common for much of the routine office work to be carried out by an
office junior, often a trainee surveyor at the beginning of his career, who would also
act as general assistant to one or more senior members of staff, thus ‘learning his
trade’ from his more senior colleagues. The growth in graduate employment in
surveying and the drive for ‘fast track’ professional qualification has meant that this
arrangement has now largely fallen out of favour, particularly in the United Kingdom.
 QS Practice management and organisation Paper 0344 Page 9

7 Professional indemnity insurance

All professionals owe a duty to the client to carry out their work with proper care.
They may be liable to damages for negligence if they fail to do so. It is for this reason
that professional indemnity insurance (PII) should be obtained.

Since litigation is expensive and the outcome unpredictable, indemnity insurance has
become an increasing means of sharing liability for any loss. A policy such as the
RICS Professional Indemnity Policy will provide an indemnity in respect of legal
liability for errors and omissions committed in the course of business.

In the United Kingdom PII is compulsory for some professions, including chartered
surveyors. Compulsory professional indemnity insurance (CPII) has been effective
for members of the RICS practising as principals in private practice in the United
Kingdom since 1 January 1986. They must have minimum indemnity insurance cover
of:

z £250,000 for every claim where their gross fee income does not exceed
£100,000;
z £500,000 where gross fee income exceeds £100,000 but does not exceed
£200,000;
z £1,000,000 where the gross fee income exceeds £200,000.

Professional indemnity insurance cover may form the largest part of some firms’
budgets after staff and premises costs.

Although indemnity insurance is compulsory for members of the RICS, they have
freedom of choice as to where to place such insurance. The RICS decided not to
effect a master policy whereby all its members were insured under one scheme.
(Conversely, a master policy has operated for solicitors for many years.) A recent
trend has been for firms within a particular profession to group together to arrange
their own insurance, which is managed on their behalf by a company experienced in
the management of such insurance. This is known as a mutual insurance.

Because of lack of capacity in the traditional indemnity insurance market from time
to time, it has been known for renewal quotations to be given very close to the expiry
date of the existing policy, so that there is little time for the renewal terms to be
discussed adequately. In recent years there has been a lot of competition amongst
insurers. However, as interest rates fall there is a danger that insurance market
capacity may contract again. This would result in premiums increasing after a period
of relative stabilisation. It is not surprising, therefore, that members of some
professions have been looking for long-term stability for themselves and their clients.
This has resulted in the creation of mutual insurance companies.

It has been suggested that a mutual insurance company have the following benefits:

z It is not in business to make a profit for outside investors, nor does it charge
any commission. The potential substantial savings will be reflected in lower
premiums or, alternatively, will make more cash available for the settlement of
claims.· The insured firms elect the directors of the mutual company, who
fulfil a supervisory role with powers to influence the policies of the company.
z The mutual is established on a long-term basis, with members committing
themselves in return for a known premium rate, subject to gradual adjustment
over a period of years. One mutual formed by a number of firms of surveyors
requires members to remain within the mutual for a minimum of five full
policy years.
 QS Practice management and organisation Paper 0344 Page 10

Such companies must obtain appropriate reinsurance cover to satisfy the Department
of Trade and Industry.

Mutual insurance companies will analyse claims, experience that should assist them
with risk management programmes in keeping the possibility of further claims to an
absolute minimum. They will want to ensure that good standards are being followed
and applied in the management of projects.

All solicitors are insured under a mutual insurance company which is managed on
behalf of the Law Society. Another mutual insurance company operates for the
benefit of a number of architectural practices. This has had a marked effect on the
development of collateral warranties.

The incorporation of some professional practices has so far had no effect on

indemnity insurance premiums. Indeed, it has been suggested that such firms could be
more vulnerable to claims, in that their housekeeping is not so good. Effective risk
management is most important. For members of the RICS who have been in practice
by themselves and wish to retire, six-year run-off policies are now available. This
should help surveyors enormously in budgeting for their retirement.

8 Fees and fee bidding

For many years the professional bodies, including the RICS, issued detailed sets of
fee scales for the various services and classes of quantity surveying work. These fee
scales effectively represented the ‘standard charge’ for particular activities, and
proved to be a very useful guide to inexperienced clients seeking an early idea of
what professional charges they were likely to face for particular projects. The
standard fee scales were upheld by the professional institutions, and members were
expected to use them.

The enforced use of standard fee scales was declared illegal in the United Kingdom in
1977 by the Monopolies and Mergers Commission. Although standard fee scales are
still available for use as a guide, the use of fee competition is now commonplace.
While the professional institutions recognise the use of fee competition, the degree of
competition is still to some extent regulated by Institutional regulations and bye-laws.
RICS Bye-law 19, for example, states that: ‘No member shall … having once quoted
a fee for professional services, revise that quotation to take account of the fee quoted
by another member of the surveying profession for the same services [or] quote a fee
for professional services which is to be calculated by reference to the fee quoted or
charged by another member of the surveying profession reduced in some proportion
or amount.’

Standard fee scales are still available in various parts of the world. Where this is the
case, competition is frequently based on a percentage discount from the standard
scale. Increasingly, however, clients are seeking bespoke services for which standard
scales are no longer adequate. In this case, most fee calculations will, initially at least,
be related to an estimate of the time required. All fee quotations must reflect at least:

z the cost to the surveyor of carrying out the work;

z an allowance for practice overheads;
z an allowance for the risks which the surveyor is taking;
z profit.
 QS Practice management and organisation Paper 0344 Page 11

In addition to a straightforward time charge, however, many surveyors would argue

that the fee charged should reflect the value added to the client’s business, and the
skill level required. In this case, the initial time charge assessment may be enhanced
to reflect these additional factors.

Clients’ attitudes to professional fees vary. Inexperienced clients are likely to make
their choice of consultant on the basis of lowest price alone. This then encourages the
practitioner to seek enhancements to the original fee for anything not specifically
included in the initial brief. More experienced clients tend to choose consultants on a
fee/quality assessment, balancing the need to keep costs low with the desirability of
obtaining advice of the right calibre. In this case the balance of the price/quality
criteria might be expected to vary from 10%–90% in the case of routine tasks not
requiring an especially high level of professional skill, to 90%–10% in the case of
extremely difficult problems where high levels of professional expertise are required.

SELF-ASSESSMENT QUESTIONS

1. Review the factors affecting the current development of quantity surveying

practice in your area, and identify the key areas of development to which local
practitioners need to pay attention in order to safeguard their future business.

2. Analyse the organisational form of the organisation in which you work, and
identify any changes which will need to be made in order to meet the challenges
identified in Question 1.

3. Explain the benefits to be gained from requiring quantity surveyors in private

practice to maintain compulsory PII.