CAPEX vs OPEX

Capex v. OpexThe idea that the property industry is hamstrung by a narrow focus on capital expenditure and too little consideration of the operational costs and carbon impact once end users occupy any building, drew a broad consensus. The panel felt true sustainability demands going back to building and asking, ‘Is it performing as it should?'Matthew Blythin believes the process should start with local authorities following the example set by Greater London.“I think this is an area where Kent and other regional areas are lagging behind. The London Plan absolutely requires a whole lifecycle assessment of carbon. It’s the ‘polluter pays’ type of approach. You just don't see that trickling down outside of London.”

Hayley Porter-Aslet described Capex v. Opex as a deep seated challenge, in which the central government has got a lot to answer.

She stated that Kent County Council’s programme are only allocated a limited amount of funding and due to this, there is a lot of pressure regarding school delivery.

Automatically, there is some sort of conflict because the school could request certain measures that operationally, are cost effective, such as: ground source heat pumps, LED lighting, or any other measures that would be make additional savings to the revenue budget.

However, the council's response would be impractical as they only focus on the CAPEX and would not be prepared to adjust the finite level of funding already set, stated Hayley.

Guy Hannell stressed the need to be modelling carbon as the design process happens.

“I think in five or ten years, it will be a mandatory requirement to digitally model the carbon footprint of a building in its totality, before we go anywhere near a building site. There's a huge question about all the skills that are required to do all of that work.

However, we are heading to a place where we will be saying the performance in occupation, has to line-up with what the model said. I fully expect contractors to be measured against that output. It will drive a completely different way of designing.”

He added: “I know it was much maligned, but PFI made you to take a longer term view of operational costs and what the condition of the building will be like in 30 years, when you would hand it back.

I remember sitting in meetings discussing material choices, not because of the Capex, but on the basis of what materials have the longest life cycle.”

The panel agreed that we need to be measuring carbon, using accredited methods all the time and become more literate as a nation, in our understanding of what reduction means.

In doing so, we need to support innovation and research that furthers these goals, demystifying 'Net Zero', so that there is a common benchmark, which represents positive action towards decarbonisation
rather than just offsetting.

Sean Bradley of Morgan Sindall Construction, highlighted an 18-month research project called 'Circular Twin' which demonstrated that, ultimately, low carbon does not have to mean higher costs.

Morgan Sindall conducted the study with procurement specialist SCAPE, architects HLM and Lungfish and the multi-disciplinary engineering consultancy Cundall. The research group discarded conventional industry approaches and collaborated, pooling their extensive experience in both education, construction and sustainable design. SCAPE, acting as the client, challenged the team to find a better way of delivering projects that achieve the outcomes needed to create a net zero built environment.Sean Bradley explained: “With Circular Twin we've actually taken a school that we built in the past and completely re-analysed that digitally in every single way.”

“Our group facilitated decisions were made by the client based on the modelled lifecycle carbon of the building - not cost. Capital and operation costs were evaluated and forecasted, but carbon was the key driver.”

“This allowed the traditional paradigms of value defined by cost to be challenged and invited the assembly of the project team, and their behaviours, to change – ultimately helping to achieve long-term cost savings through operational efficiency.”

“The Circular Twin is an important piece of work and we want to show that we need to move on from the thought process, that zero carbon school will cost us more money. The net result from our study is that there is a very modest increase in capital costs, but you can reduce the whole life carbon by 67%.”

The challenges of making decisions about new buildings at a time when policy, technology and guidance is changing are being felt in Canterbury.

“We understand the designs of buildings have to be as good as they can be, but also flexible enough to do the next stage work if we know we haven't got it all right now,” said Nicholas Thurston.

“We don't want to create something that is going to be incredibly expensive to change. We may design something now and think, we're going to have to put gas in this building. But let's make it so that we can transform that away from gas quite cheaply, rather than having to rip the whole building apart. So make sure that all the ducting is in place, and allowances made for any extra equipment later on. And similarly making the air tightness and the fabric of the building as high specification as possible.”

What is the biggest barrier in bringing whole life costs of buildings to the fore?

Achieving consensus around refocusing procurement on whole life outcomes.
‘We’ve Always Done It This Way’ syndrome.
Sense of the greater good/need for radical action to achieve Net Zero.

“I think what you're fundamentally talking about is getting all of the experts and the supply chain involved in very early decisions. That’s a smarter approach than waiting until the die has been cast.” commented Sean Bradley.

Hayley Porter-Aslet agreed: “We always recommend bringing in M&E design experts from day one otherwise the architects plan might just need to be ripped up when M&E consultant looks at it and says, ‘I'm just going to ruin all of that, because I need to put X here and Y there.’ It will be a bit of a cost up front in terms of that feasibility, however, it's going to be saving you long term.”Nicholas Thurston wants a carbon price associated with that lifecycle cost, to guide the whole design. “The sustainable outcomes needs happen right at the front of the process, as it’s so hard to re-engineer it later on, because the budgets and expectations have been set.”
Thomas Warner backed-up the point. “I certainly think that the money invested up front saves you in the long term, as well as improving the carbon reduction side of everything.”