China Engineering Cost Consulting: The Present Situation and Development Cheng yongxini,Chief architect, director of Xiamen Construction

Management Bureau, China. Wang quan minii, Gotechnical doctor, director of Xiamen Engineering Cost Management Bureau. Wang zhong qiangiii, Board chairman of Hymark software Co. Abstract: This paper presents an overview of the current status of the development of Chinas cost consultancy sector, conducts an analysis of the existing problems , and provides a forecast of the development . Keywords: Consuldancy sector, situation,development ,China

The consultancy sector is a newly emerging service sector in China; its also a knowledge-based sector with vast potential for development in the current world. Chinas cost consultancy sector is a young sector that lags far behind developed countries. With Chinas entry into the WTO, China construction market will be opened further, and Chinas engineering consultancy will face more opportunities and challenges. This paper presents an overview of the current status of the development of Chinas cost consultancy sector, conducts an analysis of the existing problems and the impact of the WTO membership on Chinas cost engineering sector, and provides a forecast of the development of Chinas cost consultancy sector. I. Evolution of Chinas Cost Consultancy Sector For the three decades between the founding of the PRC and Chinas reform and opening-up campaigns, Chinas engineering cost management was largely executed according to the principles of the planned economy, with the government being both the investor of construction projects and the executor of project construction and management. During this period of time, engineering cost was determined and controlled on the basis of the benchmarks and standards formulated by the government. Since the early 1980s, with the diversification of investing entities and the expanding pool of contractors, the state ceased to be the sole owner of construction projects and state-owned construction enterprises stopped being the only contractors. With the emergence of the conflict of interest between the owner and contractor, there was an objective need for an independent third party to provide project engineering and construction costs acceptable to both parties; thus, the engineering cost consultancy service sector was born. In the 1990s, after China drew up its objectives in building a market-oriented economic system, investing entities continued to diversify and the bidding system and contract management system as well as the project supervision system were launched. At the same time, the emergence and development of the socialist market economy changed the unitary planned economic system; as a result, the determination of engineering costs no longer simply followed the standards of government-issued standards for calculations; instead, it started to take into account the impact of various factors on costs, with costs having to be determined in a reasonable manner and controlled in an effective fashion; this further added to the difficulty of the task of engineering cost management, which provided ample room for the growth of the engineering cost consultancy sector; thus, the market of engineering cost consultancy sector emerged. In order to ensure a healthy development of the engineering cost consultancy sector, the state has drawn up relevant management rules and regulations. In 1996, the Ministry of Construction promulgated
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The Administrative Measures for the Qualifications of Engineering Cost Consultancy Service Providers and The Provisional System for the Qualification of Practicing Cost Engineers, examined and approved a number of engineering cost consultancy service providers, and established the qualification system for practicing cost engineers. At present, there are more than 4,000 qualified engineering cost consultancy providers in China, with 30,000-40,000 qualified cost engineers. As the economy continues its rapid development, the engineering cost consultancy sector is playing an increasingly important role in Chinas market economy. II. The Current Status and Existing Problems of Chinas Engineering Cost Consultancy Sector (I) The Engineering Consultancy Service Providers Are Characterized by a Limited Scope of

Business and a Tiny Volume of Business Currently, there are over 4,000 cost consultancy service providers in China. Despite the large number, they are characterized by small scale, limited scope of business, and weak financial resources, technical prowess and innovativeness. At the present time, most of them are simply providing services such as formulating engineering quantity lists, drawing up the base prices of tenders and auditing budgetary estimates and final settlements. The majority of these consultancy organizations in China do not provide comprehensive, total-process consultancy services centered on providing engineering costs for clients, including project evaluations, feasibility studies, bidding assistance or agency, engineering contract administration and payment, and claim administration, which are a common part of the business of international engineering cost consultancy service providers. Such a kind of total-process costing services has proved crucial to the improvement of investment returns. For this reason, China is currently learning from international experiences to help cost consultancy service providers expand their business scopes to cover the entire process of engineering and construction. (II) No Uniform Market Entry Threshold Is Established and the Overall Quality of Personnel Involved in the Sector Needs To Be Improved Engineering cost consultancy is a highly technical field, which, in line with international practices, requires practicing personnel in this particular sector to be multi-talented personnel with not only engineering expertise but also knowledge of economy, law and management. Chinese personnel in this sector, however, are characterized by inadequate systematic knowledge in economy, business and law and poor comprehensive coordination and administration skills though their technical expertise and jobsite experience are sufficient. At present, personnel engaged in engineering cost consultancy services generally fall into two types: cost engineers and engineering budge estimators. Cost engineers refer to holders of certificates of cost engineers who have passed the national qualification examinations for cost engineers. This group of personnel typically suffer from a mismatch of theory with practice. As there is no clear-cut requirement of knowledge system possessed by personnel in this particular sector, many of them come from financial, mathematical and electronic backgrounds, with inadequate actual experience with engineering cost consultancy. Although they are able to grasp basic theoretical knowledge and pass national examinations after a certain period of studies and training, their hands-on abilities may not be strong enough for their jobs. The existence of these personnel affects the overall proficiency of Chinas cost engineers. The other group of personnel in this sector are engineer budget estimators, which constitute the bulk of personnel in Chinas cost consultancy sector, numbering around 200,000-300,000 persons. Estimators generally do not meet the basic conditions, such as the length of service and educational attainment, for signing up for the national examinations of cost engineers. They typically obtain their qualifications through
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pre-service training and examinations administered by provincial and municipal cost administration authorities. This group of personnel usually lack adequate theoretical knowledge, but most of them are engaged in costing calculations and other special jobs, and therefore have considerable experience and are adequately competent for simple tasks of determining the base prices of tenders and auditing budgets and final settlement for cost consultancy service providers. However, as far as the long-term development of cost consultancy service providers is concerned, the estimators knowledge structure and experience are not insufficient for them to provide total-process independent cost consultancy service. Clearly, the proficiency of Chinas current cost consultancy personnel is very mixed, with the overall service quality to be improved. (III) The Accumulation of Engineering Cost Information and Data Is Inadequate and Information Networking Is Insufficient The engineering cost consultancy sector is actually an information service sector providing costing information and costing support. Chinas cost consultancy service providers, due to the long-term influence of the planned economy in China, generally relies on the various pricing standards and price information released by costing administration authorities for the provision of consultancy services, which means that the accuracy of their consultancy reports depend completely on the accuracy of the pricing information released by costing administration authorities. The overwhelming majority of cost consultancy service providers do not attach adequate importance to the accumulation of engineering cost information and data; such a lack of accumulated information and data on finished projects, plus an inadequate grasp of market trends, makes it difficult for them to build a working engineering cost databank to facilitate their consultancy services. With the progress of the marketization of Chinas construction sector, engineering pricing has become increasingly market-oriented, thereby accentuating the importance of the accumulation of engineering cost information and data. At the present time, few of Chinas cost consultancy service providers have their own information websites; most of them simply have intranets and use various pricing software for the calculation and summing-up of cost consultancy tasks and related documentation; the level of information networking is not high. For this reason, its imperative for China strengthen the construction of engineering cost consultancy information network, realize the sharing of information resources, improve technical service methods, and raise the technical content of engineering cost consultancy business in order to accelerate the marketization and network construction of Chinas cost consultancy sector. (IV) Brutal Price Warfare Is a Common Problem and the Fair Competition Mechanism Needs Improvement As the formulation of engineering work quantity lists and base prices of tenders and the auditing of budgets and final settlements constitute the bulk of the business of Chinas cost consultancy service providers, which rely on pricing standards and price information released by cost administration authorities and have inadequate technical strength, clients tend to have the impression that cost consultancy service providers are merely doing some additions and subtractions. With such an impression and an imperfect environment for fair competition, consultancy service providers, instead of relying on their strength and reputation to attract business, tend to use their connections and offer excessively low prices to win contracts. With such excessive price warfare, consultancy service providers devote insufficient time and energy to the improvement their own qualification and competence; instead, they take low price as the winning strategy. This phenomenon will eventually lead to poor quality of consultancy services and hamper the healthy growth and expansion of consultancy service providers. (IV) The Risk Constraint Mechanism Has Yet To Be Built for the Engineering Cost Consultancy Sector
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In international practices, the purchase of professional liability insurance is part of the preconditions for consultants to start their practice. Cost consultancy engineers face a host of risks, especially those of projects with long construction schedules and technical difficulties. Cost engineers are liable for mistakes in their services. How to provide an effective transfer and sharing of the risks faced by cost consultancy personnel is an issue which will involve professional liability insurance. At the present time, most of Chinas engineering cost consultancy service providers are joint-stock limited companies, with only limited liabilities, and no professional liability insurance which is common to their international counterparts. In case of mistakes, most consultancy service providers are reluctant and unable to provide compensation. With Chinas entry into the WTO, international engineering cost consultancy service providers with unlimited liabilities and professional liability insurance will make inroads into the Chinese market and become strong rivals of their Chinese counterparts. The professional assurance of engineering cost consultancy has attracted the attention of people in this particular sector. Judging from the developmental prospects of Chinas current engineering cost consultancy sector, its imperative to develop professional liability insurance for this sector. Such insurance will play a significant role in the development of Chinas engineering cost consultancy sector and the reform of Chinas engineering risk management system. III. The Development Prospects of Chinas Engineering Cost Consultancy Sector Chinas engineering cost consultancy sector is relatively young, lagging far behind their international counterparts. Chinas is currently seizing the opportunity presented by its WTO membership to accelerate the development of its engineering cost consultancy sector so that this particular sector will become a full-fledged sector tapping into the international marketplace on a grander scale while expanding its domestic market share. The author believes that Chinas engineering cost consultancy sector will enjoy major development in the following areas: (I) Regulating Industry Administration and Expanding Service Scope Chinas industry associations are mostly academic groups focused on academic activities with no concrete business undertakings. However, in the long run, China must bring its engineering cost consultancy service sector in line with international practices, with cost consultancy personnel transiting to industry administration. Also, there is a need to elevate the standing of industry associations so that they will play a role similar to various international engineering cost consultancy associations in areas such as positioning, development, and industry self-discipline. The engineering cost consultancy sector will move towards the adoption of total cost administration service and commercial module service; in other words, the sector will provide a full and complete range of services from the very beginning of the project until the completion of the project. (II) The Quality of Cost Consultancy Personnel Will Improve Constantly The constant improvement of the quality of engineering cost consultancy personnel is the key to the sustainable development of the engineering cost consultancy sector. For now on, the state will further improve the examination system for the qualification of cost engineers by combining examinations on theories with practical work, thereby tightening up the entry threshold for new entrants. Personnel who have already obtained qualification certificates as cost engineers must be subject to comprehensive, systematic continued education regularly and when necessary. Various measures must be tried to cultivate personnel with multiple talents; at the same time, the scope of work of low-quality estimators should be effectively limited while the scope of work of certified cost engineers must be expanded. These efforts will help improve the qualification and competence of the entire cost consultancy service sector and boost the competitiveness of consultancy service providers.
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(III)

The Domestic Engineering Cost Consultancy Market Will Be Further Opened

As part of Chinas WTO membership commitments, China will accelerate the pace of opening-up of its construction market and engineering cost consultancy market. According to the Government Staging Matrix of the General Agreement on Trade in Services, China is committed to allowing foreign businesspeople to set up equity and cooperative joint ventures in Chinas engineering cost consultancy sector before 2005 and allowing them to set up wholly-owned foreign enterprises in this sector after 2005. These equity and cooperative joint ventures which are operating in China will bring more advanced technologies and managerial expertise, thereby providing valuable models and experience for developing Chinas engineering cost consultancy sector. With the rapid development of Chinas economy and the massive construction for the 2008 Olympic Games in Beijing and the 2010 World Expo in Shanghai, Chinas engineering cost consultancy sector will have great opportunities to accumulate a greater amount of experience with large-scaled, international projects, which will help the sector to tap into the international marketplace while consolidating its grip on the domestic market. Representor Profile: Mr. Wang quan min, graduated from The Logistics Engineering College of PLA. From then ,he taught construction lecture for ten years. Since 1996, as a schoolmarster, he worked in Xiamen City Construction School for 4 years. Now, he is working in the Xiamen Construction Engineering Cost Management Bureau as a director.