Construction management contracts: law and practice

The context of construction management (CM) reveals that this method of procurement is as much a management philosophy as a contract structure. It is important to consider legal and contractual issues in this context. The interplay between management and law is complex and often misunderstood. Before considering specific issues, the use of contractual remedies in business agreements is discussed. In addition, the extent to which standardising a form of contract detracts or contributes to the success of projects is also considered. The dearth of judicial decisions, and the lack of a standard form, render it difficult to be specific about legal issues. Therefore, the main discussion of legal issues is centred around a recently completed research project which involved eliciting the views of a cross-section of experienced construction management clients, consultants and trade contractors. These interviews are used as the basis for highlighting some of the most important legal points to consider when setting up CM projects. The interviews revealed that the advantage of CM is the proximity of the client to the trade contractors and the disadvantage is that it depends on a high degree of professionalism and experience; qualities which are unfortunately difficult to find in the UK construction industry.

Accounting information systems as institutional carriers: a case study of regulatory compliance in UK asset management houses

Previously, governments have responded to the impacts of economic failures and consequently have developed more regulations to protect employees, customers, shareholders and the economic wellbeing of the state. Our research addresses how Accounting Information Systems (AIS) may act as carriers for institutionalised practices associated with maintaining regulatory compliance within the context of UK Asset Management Houses. The AIS was found to be a strong conduit for institutionalized compliance related practices, utilising symbolic systems, relational systems, routines and artefacts to carry approaches relating to regulative, normative and cultural-cognitive strands of institutionalism. Thus, AIS are integral to the development and dissipation of best practice for the management of regulatory compliance. As institutional elements are clearly present we argue that AIS and regulatory compliance provide a rich context to further institutionalism. Since AIS may act as conduits for regulatory approaches, both systems adopters and clients may benefit from actively seeking to codify and abstract best practices into AIS. However, the application of generic institutionalized approaches, which may be applied across similar organizations, must be tempered with each firm’s business environment and associated regulatory exposure. A balance should be sought between approaches specific enough to be useful but generic enough to be universally applied.

Why do research on commercial property management? Somebody HAS to!

This paper identifies some significant gaps in our knowledge of the configuration and performance of the property asset management sector. It is argued that, as many leading academic property researchers have focussed on financial vehicles and modelling, in-depth analysis of property assets and their management has been neglected. In terms of potential for future in-depth research, three key broad preliminary research themes or questions are identified. First, how do the active management opportunities presented, costs of management and the key management tasks vary with market conditions, asset type and life-cycle stage? Second, how is property asset management delivered and what are the main costs and benefits of different models of procurement? Finally, what are the appropriate metrics for measuring the performance of different property managers and approaches to property management? It is concluded that the lack of published materials addressing these issues has implications for educating property students.

Living up to the value agenda: the empirical realities of through-life value creation in construction

Current research agendas are increasingly encouraging the construction industry to operate on the basis of 'added value'. Such debates echo the established concept of 'high value manufacturing' and associated trends towards servitization. Within construction, the so-called 'value agenda' draws heavily from the notion of integrated solutions. This is held to be especially appropriate in the context of PFI projects. Also relevant is the concept of service-led projects whereby the project rationale is driven by the client's objectives for delivering an enhanced service to its own customers. Such ideas are contextualized by a consideration of broader trends of privatization and outsourcing within and across the construction industry's client base. The current emphasis on integrated solutions reflects long-term trends within privatized client organizations towards the outsourcing of asset management capabilities. However, such trends are by no means uniform or consistent. An in-depth case study of three operating divisions within a major construction company illustrates that firms are unlikely to reorientate their business in response to the 'value agenda'. In the case of PFI, the tendency has been to establish specialist units for the purposes of winning work. Meanwhile, institutionally embedded operating routines within the rest of the business remain broadly unaffected.

Drivers of fund performance: a panel data analysis

The principle aim of this research is to elucidate the factors driving the total rate of return of non-listed funds using a panel data analytical framework. In line with previous results, we find that core funds exhibit lower yet more stable returns than value-added and, in particular, opportunistic funds, both cross-sectionally and over time. After taking into account overall market exposure, as measured by weighted market returns, the excess returns of value-added and opportunity funds are likely to stem from: high leverage, high exposure to development, active asset management and investment in specialized property sectors. A random effects estimation of the panel data model largely confirms the findings obtained from the fixed effects model. Again, the country and sector property effect shows the strongest significance in explaining total returns. The stock market variable is negative which hints at switching effects between competing asset classes. For opportunity funds, on average, the returns attributable to gearing are three times higher than those for value added funds and over five times higher than for core funds. Overall, there is relatively strong evidence indicating that country and sector allocation, style, gearing and fund size combinations impact on the performance of unlisted real estate funds.

Depreciation and its impact on the total return of UK commercial real estate, 1994-2003

Depreciation is a key element of understanding the returns from and price of commercial real estate. Understanding its impact is important for asset allocation models and asset management decisions. It is a key input into well-constructed pricing models and its impact on indices of commercial real estate prices needs to be recognised. There have been a number of previous studies of the impact of depreciation on real estate, particularly in the UK. Law (2004) analysed all of these studies and found that the seemingly consistent results were an illusion as they all used a variety of measurement methods and data. In addition, none of these studies examined impact on total returns; they examined either rental value depreciation alone or rental and capital value depreciation. This study seeks to rectify this omission, adopting the best practice measurement framework set out by Law (2004). Using individual property data from the UK Investment Property Databank for the 10-year period between 1994 and 2003, rental and capital depreciation, capital expenditure rates, and total return series for the data sample and for a benchmark are calculated for 10 market segments. The results are complicated by the period of analysis which started in the aftermath of the major UK real estate recession of the early 1990s, but they give important insights into the impact of depreciation in different segments of the UK real estate investment market.

Private property vehicles: the valuation of interests in limited partnerships

This paper examines the extent to which the valuation of partial interests in private property vehicles should be closely aligned to the valuation of the underlying assets. A sample of vehicle managers and investors replied to a questionnaire on the qualities of private property vehicles relative to direct property investment. Applying the Analytic Hierarchy Process (AHP) technique the relative importance of the various advantages and disadvantages of investment in private property vehicles relative to acquisition of the underlying assets are assessed. The results suggest that the main drivers of the growth of the this sector have been the ability for certain categories of investor to acquire interests in assets that are normally inaccessible due to the amount of specific risk. Additionally, investors have been attracted by the ability to ‘outsource’ asset management in a manner that minimises perceived agency problems. It is concluded that deviations from NAV should be expected given that investment in private property vehicles differs from investment in the underlying assets in terms of liquidity, management structures, lot size, financial structure inter alia. However, reliably appraising the pricing implications of these variations is likely to be extremely difficult due to the lack of secondary market trading and vehicle heterogeneity.

Liquidity in commercial property markets: deconstructing the transaction process

This paper draws from a wider research programme in the UK undertaken for the Investment Property Forum examining liquidity in commercial property. One aspect of liquidity is the process by which transactions occur including both how properties are selected for sale and the time taken to transact. The paper analyses data from three organisations; a property company, a major financial institution and an asset management company, formally a major public sector pension fund. The data covers three market states and includes sales completed in 1995, 2000 and 2002 in the UK. The research interviewed key individuals within the three organisations to identify any common patterns of activity within the sale process and also identified the timing of 187 actual transactions from inception of the sale to completion. The research developed a taxonomy of the transaction process. Interviews with vendors indicated that decisions to sell were a product of a combination of portfolio, specific property and market based issues. Properties were generally not kept in a “readiness for sale” state. The average time from first decision to sell the actual property to completion had a mean time of 298 days and a median of 190 days. It is concluded that this study may underestimate the true length of the time to transact for two reasons. Firstly, the pre-marketing period is rarely recorded in transaction files. Secondly, and more fundamentally, studies of sold properties may contain selection bias. The research indicated that vendors tended to sell properties which it was perceived could be sold at a ‘fair’ price in a reasonable period of time.

Can profitable trading strategies be derived from investment best-sellers?

A glance along the finance shelves at any bookshop reveals a large number of books that seek to show readers how to ‘make a million’ or ‘beat the market’ with allegedly highly profitable equity trading strategies. This paper investigates whether useful trading strategies can be derived from popular books of investment strategy, with What Works on Wall Street by James P. O'Shaughnessy used as an example. Specifically, we test whether this strategy would have produced a similarly spectacular performance in the UK context as was demonstrated by the author for the US market. As part of our investigation, we highlight a general methodology for determining whether the observed superior performance of a trading rule could be attributed in part or in entirety to data mining. Overall, we find that the O'Shaughnessy rule performs reasonably well in the UK equity market, yielding higher returns than the FTSE All-Share Index, but lower returns than an equally weighted benchmark

Low-cost momentum strategies

This paper analyses the impact of trading costs on the profitability of momentum strategies in the United Kingdom and concludes that losers are more expensive to trade than winners. The observed asymmetry in the costs of trading winners and losers crucially relates to the high cost of selling loser stocks with small size and low trading volume. Since transaction costs severely impact net momentum profits, the paper defines a new low-cost relative-strength strategy by shortlisting from all winner and loser stocks those with the lowest total transaction costs. While the study severely questions the profitability of standard momentum strategies, it concludes that there is still room for momentum-based return enhancement, should asset managers decide to adopt low-cost relative-strength strategies.

The role of rules-based compliance systems in the new EU regulatory landscape: perspectives of institutional change

Purpose The research objective of this study is to understand how institutional changes to the EU regulatory landscape may affect corresponding institutionalized operational practices within financial organizations. Design/methodology/approach The study adopts an Investment Management System as its case and investigates different implementations of this system within eight financial organizations, predominantly focused on investment banking and asset management activities within capital markets. At the systems vendor site, senior systems consultants and client relationship managers were interviewed. Within the financial organizations, compliance, risk and systems experts were interviewed. Findings The study empirically tests modes of institutional change. Displacement and Layering were found to be the most prevalent modes. However, the study highlights how the outcomes of Displacement and Drift may be similar in effect as both modes may cause compliance gaps. The research highlights how changes in regulations may create gaps in systems and processes which, in the short term, need to be plugged by manual processes. Practical implications Vendors abilities to manage institutional change caused by Drift, Displacement, Layering and Conversion and their ability to efficiently and quickly translate institutional variables into structured systems has the power to ease the pain and cost of compliance as well as reducing the risk of breeches by reducing the need for interim manual systems. Originality/value The study makes a contribution by applying recent theoretical concepts of institutional change to the topic of regulatory change uses this analysis to provide insight into the effects of this new environment

Construction contracts: law and management (3rd edition)

This book is aimed primarily at students for whom the study of building or civil engineering contracts forms part of a construction-based course. We have had in mind the syllabus requirements for first degrees in Building, Civil Engineering, Architecture, Quantity Surveying and Building Surveying, as well as those of postgraduate courses in Construction Management and Project Management. We have also assumed that such students will already have been introduced to the general principles of English law, especially those relating to contract and tort. As a result, while aspects of those subjects that are of particular relevance to construction are dealt with here, the reader must look elsewhere for the general legal background. In producing this third edition, we have again been greatly assisted by the many helpful comments made by reviewers and users of its predecessor. Nonetheless, our basic aim is identical to that which underpinned the first edition: to provide an explanation of the fundamental principles of construction contract law, rather than a clause-by-clause analysis of any particular standard-form contract. As a result, while we draw most frequently upon JCT 98 for our illustrations of particular points, this merely reflects the pre-eminent position occupied by that particular form of contract in the UK construction industry. We conclude by repeating our previous warning as to the dangers inherent in a little learning. Neither this book, nor the courses for which it is intended, seek to produce construction lawyers. The objective is rather to enable those who are not lawyers to resolve simple construction disputes before they become litigious, and to recognize when matters require professional legal advice. It should be the aim of every construction student to understand the legal framework sufficiently that they can instruct and brief specialist lawyers, and this book is designed to help them towards that understanding.