Expert Commentary

Cost of Quality in Commercial Construction

An important prerequisite to achieving a sustained competitive advantage in commercial construction is a robust quality management program. Poor quality generally leads to rework, and rework is considered a waste by many of the experts in lean thinking.


Construction Quality
March 2020

Rework generally occurs in three instances.

  • If defective work is discovered during construction
  • Near the end of the project by way of a punch list generated by the designer listing items that need to be corrected
  • When a defect is discovered during the warranty period

So, the cost of quality is associated with prevention, discovery, resolution, and associated overhead costs. In instances when the project is negotiated, the contractor may be called back even after the end of the warranty period and, in many instances, due to relationships, the work will be repaired or corrected, and this will, in all likelihood, cause greater disruption, cost even more, and potentially impact relationships and possible future business opportunities.

The Construction Industry Institute conducted a study in 2005 on the cost of rework due to poor quality in commercial construction averaging about 5 percent of the cost of the project. The seasonally adjusted annual construction rate for 2017 was about one and a quarter trillion dollars according to the Census Bureau. That puts the cost of rework necessitated due to poor quality at well over $63 billion in direct cost. The cost of rework in residential construction or residential remodeling is significant and more than likely higher than commercial construction, though there are no associated costs available.

During construction, defects in quality are usually found after the work has been put in place. The later the discovery, the greater the disruption on the smooth flow of production and the greater the associated costs. About half of the cause is attributable to human error. This may be the result of the lack of skill on the part of the workforce or insufficient supervision. This indicates that quality management must be approached holistically and integrated into every aspect of the project delivery process.

The costs associated with rework are generally not rigorously tracked in the construction industry, though given their magnitude, they should be. So, the question is why is this the case? Some of the reasons may be the fact that quality is somewhat difficult to define, as it depends on an individual's perspective. The project specification may state it in vague terms such as "normal and customary" or "function for its intended use," which are open to interpretation, or industry accepted production tolerances proposed by various organizations, which are not aligned with those proposed by others. Project staff members are hesitant to call management's attention to defective work, and so its associated costs are never tracked or evaluated.

Typical Quality Management

All construction companies try to achieve some level of quality in their finished product. But, generally, many of them have a less-than-effective quality management process with which to manage this effort. Typically, a project's quality is defined and established by the contract documents, more specifically in the project specifications. This becomes the "standard" for quality control (QC) against which the contractor's performance is compared. So, to achieve the required level of quality, the contractor must have some form of a quality assurance (QA) process to ensure the achievement of project quality. This becomes the quality management system (QMS) of the contractor, which varies greatly among the various contracting firms in the industry.

The QA program and process are devised, implemented, and managed by the various contraction organizations, as it is the contractor's responsibility to achieve the project's quality requirements in the finished product.

  • Ideally, firms have a written quality management program as well as a defined process, with people responsible to overseeing this effort. There also is an accountability element to ensure that the QMS functions properly, with some senior management oversight.
  • Some companies manage quality somewhat informally. The quality management program is not clearly defined and loosely managed, with an informally delineated process resulting in a significant variation in the levels of quality achieved in the different projects. Such an approach to QA may result in increased levels of waste as well as rework, with potential negative operational outcomes, leading to owner dissatisfaction.

To achieve its contractual obligations, the contractor must have a written and robust QMS. This starts with a detailed written program and a defined efficient and effective process to ensure the project's quality requirements are achieved. To ensure this is accomplished, the QMS must be integrated into the project delivery process. People must be assigned responsibility and be held accountable in managing the elements of the QMS. There needs to be a defined function that oversees the overall operation of the company QMS function as well as supporting field operations. Senior management routinely and regularly oversees the QMS to ensure that it is meeting expectations to create and deliver value.

Some Issues with Quality Management

The primary focus of construction management is related to time, and the tool utilized to control this is the schedule. The next element for control may be cost, and the tool used is the project budget. This may be followed by quality and finally by safety, though these two may be interchanged depending on the organization and its management. Time, cost, and safety are somewhat widely defined in the construction industry. But, when it comes to quality, it may be somewhat unclear or managed less rigorously.

Should the project progress fall behind the schedule, costs exceed the budget, or workers get injured on the job, project staff quickly recognizes the potential negative ramifications, discerns the size of the negative impact, may be able to arrive at its potential cost, and—more importantly—take action to fix things and work toward overcoming its consequences. But, when it comes to quality, things may not be clear-cut, well understood, or elicit a rapid response toward resolution. Some of this may stem from the fact that the defect may not be obvious or even determined to be a defect, or there is a lack of a unified approach to quality and its management.

To properly manage quality, we have to first define it clearly and precisely. Once it is defined, it can be measured. After measurement, the data can be analyzed, which then provides the opportunity for controlling and/or modifying the outcome. This then leads to improvement as well as significantly better results, which not only reduces or eliminates waste, it increases efficiency and creates value.

An Effective Quality Management System

The organizational QMS has three major subsystems.

  • The quality standards that become the QC element of the effort
  • The QA process that is the means and methods to ensure that the quality standard of the project is achieved
  • The management function that oversees, guides, and controls the operations of the QMS

Senior management must ensure that everyone working for the organization clearly understands that quality work is a core value. Work that is put in place meets company quality standards at the minimum. Quality is planned into the work, and execution ensures that quality is achieved in the work put in place all the time. Every project must create a project-specific quality management program by assessing the project-specific needs and modifying the organizational model program to meet those needs. This site-specific program must be reviewed and approved by management before implementation. Management must ensure that the project staff has a good working knowledge of the QMS processes and procedures.

The specification quality requirements must be clear, specific, and measurable. So, the project staff must review the project specifications to identify possible unique project elements or requirements, as well as to determine if the referenced quality standards are clearly understandable, measurable, and achievable. If they identify any ambiguities or questions, they must discuss this with the designer and arrive at an understanding of the requirements. It may be prudent to submit samples or build mock-ups to ensure that everyone is in agreement with the expected level of quality. This must be confirmed in writing with copies to the project owner. This effort is an effective means of establishing concrete standards and assists in managing expectations, which goes a long way in avoiding future disagreements.

The contractor's staff must have the necessary knowledge regarding the QMS. If there are any perceived deficiencies, an appropriate training session must be implemented to address this issue. Responsibilities for quality must be reviewed, and reporting requirements must be established. Another important step is for the contractor to ensure that the subcontractor's field personnel have a clear understanding of the project's quality requirements and that they will make sure all their crafts personnel are cognizant of this. If there are any perceived deficiencies, an appropriate training session must be implemented so that everyone is "on board." They need to agree on the inspection protocol so that there are no disagreements about this later.

The project should require that the status of quality be reviewed at every subcontractor meeting. This will require the subcontractor's personnel attend the meeting and come prepared to discuss the status of work completed since the previous meeting and answer any questions or concerns regarding work in progress or anticipated. These issues need to be discussed and addressed so as to resolve them expeditiously.

For any activity to be performed well, the people engaged in it must know what it is that they are responsible for, have the information necessary to do it, are capable, and are motivated. There also needs to be management oversight to ensure that the project has the necessary resources as well as guidance to perform the work. The steps listed above will go a long way in ensuring that the work being put in place will be at the expected level of quality throughout the life of the project.

Reasons for QMS Failure

QMSs can only be as successful as management's effort in creating an environment that ensures its success. They have to devise a system that is integrated, effective, and flexible, and there is a process that is easy to implement and execute. They must assign knowledgeable, capable, and motivated people who understand their responsibility as well as accountability and provide the appropriate resources and a motivational environment to enable the employees to carry out the work. Management must also provide oversight to ensure smooth operation of the QMS to ensure its success. The failure of the organizational QMS may be attributable to the following factors.

Poor or Unclear Values, Vision, and Strategy

Organizational performance depends on some underlying fundamental beliefs, guidelines, and understanding. These become the basis for how people respond to situations, deal with others, make decisions, etc. One of the reasons for QMS failure is that it is poorly designed, ineffective, and not site-specific or implemented at every worksite. Accountability is poorly or not defined. Senior management is not involved. The project QMS status is not regularly evaluated and results reported to management.

Lack of Integration and/or Alignment of Systems

QMSs are not fully integrated into the project delivery process. Project QMS is not tailored to address project-specific requirements. All subcontractors and partners are not knowledgeable of the project QMS procedures and practices. There is a lack of reporting and control.

Inadequate Standards

The standards establishing the project level of quality is not clearly defined or measurable. Project staff does not effectively manage the quality of the work being put in place. Management does not ensure that the quality of the work is regularly inspected, and deficiencies corrected, nor is regular reporting required and discussed. Management must define the quality standards in specific and measurable terms. Terms such a "good quality," "excellence," and "fitness for use" are not specific, are open to interpretation, and do not provide data that can be used in improvement initiatives.

Lack of Knowledge, Proper Training, or Ability

QMSs must not only involve managers but also employees. They have to be knowledgeable of the processes and procedures and capable of accomplishing the requirements as well as motivated to achieve superior results. The organization must have a way to assess people's knowledge and provide them with the education and/or training necessary to effectively execute as well as continuously improve performance and deal with any and all changing needs or conditions.

Poor System/People Interface

People utilize the systems to accomplish their tasks. The systems must be designed in such a way that they enable the workers to efficiently and effectively accomplish their tasks.

Inability To Integrate and Align Cross-Functional Interaction

Most work involves cooperation and teamwork to achieve goals and objectives. Integration with varying business systems is an advantage that quality managers should utilize. Audit management systems should be paralleled with QMSs to get better results.

Low Levels of Cooperation

To avoid this, management must ensure that everyone on-site understands the importance of doing quality work and meeting quality standards. The work climate must be conducive for working cooperatively.

Ineffective or Minimal Metrics

The organization must be metric-focused. The system should be designed to collect data that has to be analyzed to determine if the required quality level is being achieved as well as sent to management for oversight purposes. This information should be used to show overall improvements or where there is room for further improvement.

Ineffective Communication

Negative assessments should never be ignored and should immediately be communicated to quality managers. Ignoring information and the failure to use QMSs as a means of communication can lead to unacceptable results.

No Motivation for Improvement

It is easy to monitor and reward employees for meeting deadlines, but be sure to apply special emphasis on meeting quality standards. Providing recognition for meeting quality standards encourages employees and creates a climate that fosters good long-term results. 

There probably are more reasons for QMS failure. To overcome these, management must ensure that the QMSs are comprehensive, well-designed, and continuously improved. The success of QMSs is dependent on the ability and vision of management. All staff and subcontractors' and vendors' personnel fully understand and are required to follow the system. Project staff is held accountable for quality performance. Management regularly reviews QMS performance with field staff during the life of every project. Superior performance in the area of quality is recognized.

Quality Measurement

In construction, quality does not have a standard way to measure its effectiveness except in a limited few circumstances. Much of the measurements used are indicators of quality, such as the number of punch list items, the number of requests for information, or the number of callbacks for projects, to name a few. These do not establish a definite benchmark as to how many punch list items are acceptable and those beyond that indicate unsatisfactory quality. Also, not all of the indicators of quality are negative. Many requests for information look for clarification that actually improves the quality of the work. So, the measurement associated with the QMS effort must indicate its effectiveness as well as its cost.

To manage, one needs to measure, for measurement provides management with information on what is being done well and what is not. This allows management to devise improvement strategies to correct the discrepancy. Measurement also lets management know how good the improvement plan was and the degree to which it is eliminating the deficiency in order to bring the system into optimal performance. Measurement can also provide information as to how quickly the improvement of the QMS is closing in on the performance goal.

Quality may be measured in different ways depending on one's perspective and need. It can focus on construction utilizing six elements of quality as follows: performance, reliability, conformance, durability, serviceability, and aesthetics. It can also focus on life cycle performance looking at quality more holistically, taking into account the quality of design, materials used, and workmanship. The first focuses on quality during construction, while the second focuses on the effects of quality on future operation and maintenance costs.  

The level of quality compared to the level of cost would be a good representation of the point at which optimal results are achieved (see "Effective Management of the Cost of Quality").

EFFECTIVE MANAGEMENT OF THE COST OF QUALITY
Graph showing effective management of the cost of quality

The QMS must operate effectively as well as efficiently to achieve superior results while creating value for the project owner.

Cost of Quality

Cost of quality is a measure that organizations may use to determine the effectiveness of their quality management system. The data collected can be used to determine the extent to which resources are used in the effort to prevent defects or a poor-quality product. The data may also be used in determining the extent and cost of waste, as well as correcting deficient work. This data can also be used to pinpoint areas where improvement is necessary and measure the extent of system improvement, as well as the financial benefits derived from the improvement effort. The cost of quality may be broken down into five key areas. See "Cost of Quality."

  • Preventive costs are incurred in the effort to prevent defective work from being put in place. This may include planning for QA, ensuring that quality work is performed, training on quality requirements, etc.
  • Appraisal costs include activities involved in inspections, testing, audits, data collection, evaluation, and reporting.
  • Operational costs are incurred in the activities undertaken to correct defective work, which is discovered during the construction of the facility. This includes removal and replacing of the defective work. This includes waste, scrap, rework, etc.
  • Postconstruction costs are those defects identified by the owner during operation or maintenance of the facility. This may include warranty callback activities such as inspection, evaluation, repairs, or replacement, as well as claims and litigation costs dealing with complaints that are not easily resolved. This may include insurance claims, mediation, arbitration, or litigation.
  • The organizational QMS function costs may include the QMS function and its field support, the continuous improvement of the process, and overhead management costs.
COST OF QUALITY
Diagram showing the construction cost of quality with project costs and company costs

This can become the basis of a quality cost system (QCS). These costs in aggregate will define the true cost of a QMS that is deficient or ineffective in ensuring that the final product meets or exceeds the established and expected quality of the completed work. Such an analysis will not only provide the cost of an ineffective management system but will also identify areas of the process that are in need of improvement. Proactive organizations will strive to incorporate the QCS into their QMS to ensure that it is as effective as possible, but more importantly, provide it with a mechanism to continually improve the system.

Conclusion

The industry as a whole and innovative construction firms in particular need a change in perspective when it comes to effective quality management. Additionally, there is a balance to be struck between the proactive cost of quality and the resulting cost of poor quality. Astute organizations have shifted their focus of avoiding nonconformance to active engagement in quality performance. It is also reasonable to expect that the more an organization invests in prevention and appraisal, the less it will have to spend on failures on their QMS function and defects found during and postconstruction.

An important feature of the COQ is that the contractor has the ability to effectively reduce, or even possibly eliminate, nonconformance factors of the COQ utilizing a robust QMS as opposed to many other construction costs that are not easily controllable (e.g., weather, human error, partner delivery on their promises, etc.). Philip Crosby is quoted as saying, "Quality is free. It's not a gift, but it's free. The 'unquality' things are what cost money."


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