Design Economics and Cost Planning Flashcards
What is a cost plan?
A structural breakdown of the cost limit in to cost targets for each element
Shows how the design team proposes to distribute the funds available on the elements of the proposed building
What is the purpose of a cost plan?
To control the development of the design
Identifies the clients agreed cost limit and how the money is to be allocated to the different elements of the building
Keep expenditure within cost limit approved by client (budget)
Ensure clients are provided value for money
Make employer/design team aware of cost consequences of their proposals
To assist the designers in providing design solutions which are within the clients cost limit
Provide robust cost information
What is the difference between a Cost estimate & a Cost plan?
An estimate is a forecast of construction costs which identifies the client’s budget
A cost plan is a breakdown of the cost limit in to cost targets for each element
What is the % error on a cost plan?
- 10-15% at the early stages
- 5% at the later stages
What is a PTE? What is it used for?
Pre-Tender Estimate
Final estimate of likely costs of the works before tendering
Provides a final budget that the client can use to confirm If they have sufficient funds
Basis for assessing and comparing tender returns
What is an Elemental Cost Plan?
Breakdown of the cost limit into cost targets for each element.
Provides a statement of how the design team proposes to distribute the available budget among the elements.
Base cost estimate
An estimate without any allowances for risk and uncertainty, or element of inflation. The base cost estimate is the sum of the works cost estimate, the project/design team fees estimate and the other development/project costs estimate.
Base date of cost data
The date on which rates and prices contained within cost analyses or benchmark analyses are taken as a basis for calculations
Building works estimate
the sum of the cost targets for group elements 1 to 8; excludes facilitating works estimate and on costs
Component
a measured item that forms part of an element or a sub-element
Construction inflation
an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period
from the date of tender return to the mid-point of the construction period
Cost checks
take place during all design stages and are concerned
with comparing current estimated costs against cost targets previously set for elements or sub-elements of the building
Cost limit
the maximum expenditure that the employer is prepared to make in relation to the completed building; is the base cost estimate + risk allowances
Cost target
the recommended total expenditure for an element deriving from a number of sub-elements and components
Deflation
a downward movement in the average level of prices and or costs
Element
a major part of a group element; separate cost targets can be established for each element as well as group elements
Element unit quantity
a unit of measurement that relates solely to the quantity of the element or sub-element itself e.g. the area of external walls
Element unit rate
Total element cost divided by total element quantity
What budget setting techniques are you aware of?
What estimating methods do you use to produce order of cost estimates?
- Area method
- Functional unit method
- Elemental method
Estimate base date
The date on which the cost limit (excluding inflation) is established as a basis for calculating inflation, changes or other related variances.
Facilitating works
all components measured and incorporated in group element 0
E.g. demolition works, diversion of services
Functional unit method
a rough budget-setting technique which consists of selecting a suitable standard functional unit of use for the project, and multiplying the projected number of
units by an appropriate cost per functional unit
Gross external area (GEA)
the area of a building measured externally (i.e. to the external face of the perimeter walls) at each floor level.
Gross internal floor area (GIFA)
the area of a building measured to the internal face of the perimeter walls at each floor level.
Group element
the main headings used to describe the key parts of an elemental cost plan
Inflation
an upward movement in the average level of prices and or costs
Main contractor’s overheads and profit
- head office administration
- return on capital investment
Main contractor’s preliminaries
e items which cannot be allocated to a specific element, sub-element or component
Include:
- management and staff
- site establishment
- temporary services
- security
- temporary works
How did you apply subcontractor preliminaries?
As these costs are separate to the main contractors preliminaries, I included subcontractor preliminaries in the unit rates applied to the building works
Net internal area
the usable area within a building measured to the internal face of the perimeter walls at each floor level
OGC Gateway Process
are key decision points within the OGC Gateway Process
Option cost
an estimate of the cost of alternative design solutions to achieve the employer’s objectives
Order of cost estimate
The determination of possible cost of a building(s) early in design stage in relation to the employer’s fundamental requirements. This takes place prior to
preparation of a full set of working drawings or bills of quantities and forms the initial build-up to the cost planning process.
Other development/project costs
costs that are not necessarily directly associated
with the cost of constructing the building, but form part of the total cost of the building project to
the employer (e.g. land acquisition costs, fees for letting agents, marketing costs and contributions
associated with Section 106 Agreements).
Price stability
the boundary between inflation and deflation
Prime cost sum
a sum of money included in a unit rate to be expended on materials or goods from suppliers when the specification of the material is unknown
PC sums are material only, exclude all other costs
Project/design team fee(s)
project team and design team consultants’ fees for
pre-construction, construction and post-construction related services
Retail area
the net internal area (NIA)
RIBA Plan of Work
A logical structure for building projects, starting with the brief and ending with post-occupancy evaluation
Summarises the deliverables required under each RIBA Work Stage
Risk allowance
the amount added to the base cost estimate for items that cannot be precisely predicted to arrive at the cost limit
Tender inflation
An allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the estimate base date to the date of tender return.
Works cost estimate
the combined total estimated cost of the building works estimate, the main contractor’s preliminaries and the main contractor’s overheads and profit prepared using prices current at the time the estimate is prepared (or updated).
What are some examples of functional rates?
- £/m2 (GIFA / NIA)
- Cost per key (Hotel)
- £/Kw (Data Centres)
- £/Per bed (Hospitals)
- Cost per seat (Church)
- Cost per child (School)
- Cost per unit (Residential)
What might you typically exclude from a cost plan?
- Inflation
- Professional Fees
- VAT
- Decant costs
- Statutory Fees
- Artwork costs
- AV/IT
- FF&E
- Whitegoods
- Asbestos removal
What would you usually see in a cost estimate aside from the costs?
- Project Title
- Building type
- Type of work
- Client
- Dates
- Site conditions
- Floor area
- Number of units
- Number of storeys
- Functional units
- Building accreditation scores e.g. sustainability
- Drawings/Specification used
What are the typical sections of a cost plan?
- Executive summary
- Breakdown of costs
- Information used
- Area schedules
- Assumptions, clarifications and exclusions
Whats the difference between cost and price?
Cost is the total for labour, plant, materials and management
Price is the above plus profit
What is building a rate up by “First Principles”?
- Materials
- Labour
- Plant
- Subcontractor Preliminaries
- Design fees for that item
- Risk Allowances
- OH&P
What information is required to produce an order of cost estimate?
- Location of site
- Description of building use / project brief
- Indicative programme
- Number of floors, storey heights
- Existing design (floor plans)
- Site conditions
- Specific requirements such as enabling works
- MEP requirements
- Client’s requirements of other costs
How is a works cost estimate built up?
- Facilitating works estimate
- Building works estimate
- Main contractors preliminaries
- Main contractors OH&P
How is a base cost estimate built up?
- Works cost estimate
- Project / design team fees estimate
- Other development / project costs estimate
How is the cost limit (including inflation) built up?
- Base cost estimate
- Risk allowances estimate
- Tender inflation estimate
- Construction inflation estimate
Why is Construction Inflation taken to the mid-point of construction?
Mid-point is a good ‘average’ indication of how market may fluctuate.
There are lots of variables so taking an average is the most logical way
Mid-point is good, because all trades are expected to be tendered and taken account of the inflation for the remaining period
How can you work out Construction Inflation?
- BCIS/In House data
- Tender price index (TPI)
- Retail Price index (RPI)
Why is VAT often excluded in cost plans?
Employers will incur differing overall capital expenditure for the same building component depending on whether they can or cannot fully recover, or recover a portion of the VAT
Complex area should seek specialist advice
What is a Pricing document?
Sets out the way the design team/client wish to review the breakdown of cost received by the bidders
Usually based on PTE, Preliminaries broken down in more detail
Why would you produce a Pricing document?
Enable like for like comparison between tenders and PTE
Better assess value for money
Identify any significant differences in pricing between tenderers – ensure design has correctly been interpreted
Identify areas of potential saving
Form financial section of tender report
How do you work out contingency when cost planning?
1) Refer to priced risk register to understand overall risk allowance
2) Verify the overall risk allowance against benchmark data
3) Apply these overall costs to the NRM1 structure
General considerations:
- Consider risk exposure
- Consider uncertainties (completeness of design, site investigations carried out?, how robust is the risk assessment?)
- Benchmark - what contingency was required?
What abnormals could you have on a project when cost planning?
The Site: • Location – is it next to a train line? Is there a listed building next door? • Poor ground conditions • Accessibility / tight working space • Asbestos, Knot weed, infestation
The Works:
• Specialist work / major engineering
• Working hours / requirements – does the site need to be heavily secured? Security checks? Out of hours working?
Other Factors:
• Market conditions – Is there a lack of appetite from contractors?
What are the RIBA stages?
0 - Strategic definition 1 - Preparation and briefing 2 - Concept design 3 - Spatial coordination 4 - Technical design 5 - Construction 6 - Handover 7 - In use
Why are the RIBA Stages important to a construction project?
They provide a structured set of progressive stages through a project which is recognised by all the members involved
The stages can be used to track the progress of how the design is developing. At the end of each stage there should be a sign off by the Client confirming the design is fitting the scope.
The stages have a checklist of deliverables, this can also be used to track how the design is going and should provide consistency, so everyone knows what is expected to be supplied at each stage
Why was the RIBA plan of work updated in 2020?
- Changed based on feedback from clients and architects
- BIM integration
- Sustainability is now a key project strategy
- Stage 3 has changed from design development to spatial coordination as its not about changing the design concept but making sure it is coordinated
What are the roles of a QS throughout the RIBA stages?
0 - 1 = Feasibility estimates, high level procurement advice, high level cost advice
2 - 4 = Cost plans, procurement of works, benchmarking, ensuring value for money
5 - post contract responsibilities
6 - Handover and close out, issue retention releases
What are OGC Gateways?
Office of Government Commerce – an office of HM Treasury
Produced guidance about best practice in procurement and project management
What information would you expect to receive for a stage 2 cost plan?
From the Client:
• Confirmation of budget
• Confirmation of brief
• Confirmation of programme including any critical events
• Confirmation of procurement strategy, phasing, facilitating works, insurances, approach to section 106, contract strategy
• Authority to commence to next design stage
From the architect • Concept design drawings • General arrangement plans • General elevations • General sections • External landscaping • Sketches • Schedule of GIFA and NIA • Outline specification • Room data sheets • Environmental strategies
From MEP Engineer • GA’s for each main system • Schematics • Plant room layouts • Outline specification
What information would you expect to receive for a stage 3 cost plan?
- Updated/more detailed information from stage 2
- Plant schedules to market test
- Sizes of pipework, ductwork etc.
How does measurement affect cost planning?
More detailed the measurement the more accuracy of cost planning, for example functional rates would inform an estimate, but detailed design where the design has been co-ordinated and sized will lead to an accurate cost plan (Stage 4)
If you are measuring in accordance with IPMS V RICS Code of Measuring Practice then the areas in your cost plan will be different
What are the 2 categories of the Preliminaries under NRM2?
- Prelims (Main Contract)
* Prelims (Works Package Contract)
How are Prelims (Main Contract) divided?
1) Information & Requirements
• Set out project particulars (project title, address, names, contract details, employer, employer’s team)
• Identifies drawings upon which the BOQ was based
• Provides information on site boundary, existing buildings/services
• Identifies any constraints and restrictions
• Specifies the standard form of contract
• Explain the document provided, their content and how they are used
• Confirms method of measurement e.g. NRM2
• Set out employer specific requirements (progress reporting, programme management, cost reporting, quality standards, security, safety measures, requirements on advertising, O&M’s, post completion requirements such as maintenance)
2) Pricing Schedule
• Include in the pricing schedule a list of headings under which the main contractor is to price their preliminary items.
• Divided into 2 main cost centres
What are Preliminaries?
Costs which are required by the methods of construction work but do not form part of the building works estimate
How are preliminaries broken down?
- Time = costs will include things such as site staff, printing costs, supervision, plant and equipment, site clearance over the length of the programme, security
- Fixed = costs will typically be one-time costs like site welfare set up, hoarding set up, crane erection, site demobilisation, surveys
How would you cost prelims in an estimate?
- Early stages / lack of information - benchmark against similar projects
- As more design information is available and a programme of works is issued, this can be used to calculate the preliminaries
Name some NBS preliminaries sections?
- A10 – Project Particulars
- A11 – Tender & contract documents
- A12 – The site / existing buildings
- A13 – Description of the works
What should be considered when assessing preliminaries levels?
Contractual:
- Length of contract
- Sectional completion
- Level of CDP / contractors design
Project Specific:
- Location (access, space restrictions)
- Type of project - new build, refurb, nr of storeys
- Size of project
- Temporary works / security requirements
- Project limitations such as OOH working
How can prelims be broken down?
- Employer’s Requirements
a. Site Accommodation
b. Site Records
c. Completion and Post Completion requirements - Main Contractor’s Cost Items
a. Management & staff
b. Site establishment
c. Temp services
d. Security
e. Safety & Environmental protection
f. Control and protection
g. Mechanical plant
h. Temp works
i. Site records
j. Completion and post completion requirements
k. Cleaning
l. Fees and charges
m. Site services
n. Insurance, bonds, guarantees & warranties
How do you go about assessing preliminaries?
- Has everything been included? Is the programme reasonable?
- Cost per week?
- How does it compare to the PTE?
- Are the rates reasonable?
What was SMM7? How does it differ to NRM?
Standard Method of Measurement 7, superseded by NRM
Differences:
- Different structure
- Lettering replaced by numbering
- NRM specifies other project costs, SMM7 did not
Why would using NRM help against a professional negligence claim?
When an allegation of professional negligence is made against a surveyor, a court or tribunal may take into account the contents of any relevant guidance notes published by RICS in deciding whether or not the member had acted with reasonable competence.
Therefore, where members do not adopt recommended practice, they will need to explain their actions.
NRM is a “Guidance Note” – recommended
What is NRM/ what are the New Rules of Measurement?
- Published by the RICS
- Provide a standard set of measurement rules for estimating and cost planning
- Facilitates consistency and benchmarking
- Helps to avoid disputes
How would you advise a client who wanted to know what sources of cost information are available to compile a feasibility estimate?
Previously when advising clients on sources of cost information avaliable, I would make them aware of
- Internal benchmarking data
- Previous tender submissions
- Cost books and BCIS
References made to sources of cost information in assumptions and exclusions
What is VAT?
- Value Added Tax
- Applied to goods or services
How does VAT work?
- Companies must charge VAT on their goods and services
- Some companies may claim VAT back that they’ve paid for business related goods or services
- You must report to HMRC the amount of VAT youve charged and the amount of VAT you have paid through your VAT Return usually done every 3 months
What are the elements listed out in NRM1?
0 - Facilitating works 1 - Substructure 2 - Superstructure 3 - Internal finishes 4 - Fittings, furnishings and equipment 5 - Services 6 - Prefabricated buildings and building units 7 - Works to existing buildings 8 - External works
9 - Main contractors preliminaries 10 - Main contractor's overheads and profit 11 - Project / design team fees 12 - Other development / project costs 13 - Risks 14 - Inflation
How are the NRM1 elements structured?
- Group Element (e.g. services)
- Element (e.g. Water Installations)
- Sub element (e.g. Cold Water Installations)
- Component (e.g. plant, pipework, insulation)
How do you proceed if the cost plan exceeds the clients budget?
- Reconcile against previous issue and analyse to understand where / why the costs have increased
- Propose that a value engineering process is undertaken
- Set up a meeting with the project / design team to discuss VE further
What is buildability?
Harnessing the contractor’s expertise and knowledge during the design stage
What are the advantages of buildability?
- Better programming
- Better sequencing and construction methodology
- Lower CAPEX and OPEX
- Improved quality int he finished buildings performance and maintenance characteristics
What design efficiency ratios are you aware of?
- Wall to floor ratio
- NIA to GIA
- GIA to GEA
- Slab to slab height
- Units per core
- Lifts per core
What is the wall to floor ratio?
= Total Wall (m2) / Total Floor (m2)
- The lower the value the better (40% - 65%)
- This shows the relationship between wall area and floor area
- It is used to show the cost efficiency of the building
The lower the ratio the cheaper the building as there is less external wall area per m2 of floor area
What is the NIA to GIA?
= Total NIA / Total GIA
- typically 75% - 85% is considered efficient
What is GIA to GEA?
= Total GIA / Total GEA
- Typically 95% is considered efficient
What is the most efficient shape of a building?
- (in theory) Circular - as lower wall to floor ratio
- However circle has poor lettable area and difficult to construct
Easiest shape of a building to construct?
- Square or rectangular
You inherit a project from an ex colleague, the project is over budget what would you do? (You have access to design team)
- Analyse previous cost plans to understand the cost limit / cost targets and benchmark against other projects
- Analyse the design and understand its efficiency
- Understand if anything is over specified, challenge the design team to understand why
- Once your assessment has been completed, inform the client as to why the project is over budget and suggest a value engineering workshop takes place
What is a Section 106 agreement?
- Planning obligations - agreements between the client and local authorities in the context of granting planning consent
- Included in the clients ‘other development / project costs
What is builders work in connection with services?
- The builders work which is involved with installing MEP services, usually included as a percentage
- Included in 5.14
What is the purpose of an order of cost estimate?
- To establish the clients budget and whether the proposed building is affordable
What is a functional unit?
- A unit of measurement used to represent the prime use of a building
- Used for order of cost estimating
What is contingency?
- A sum included in the estimate to cover unknown expenses or unmitigated risks during the project
How is contingency priced and how does it develop throughout the design stages?
- During early stages its typical to see a % addition based on assessment / benchmark data
- Once a risk register is produced it should be based on this
- As the design develops, more information becomes available so therefore the contingency should reduce
Typically, the contingency would be higher during feasibility stages (7.5%) however later design stages it should reduce to between 2.5% - 5%
What are preliminaries? Where do you find guidance on how to prepare preliminaries?
Preliminaries are items which cannot be attributed to a specific work package but are required for the project to be carried out
Guidance can be found in NRM2
How do you calculate preliminaries in a cost plan?
If there is a programme available, then calculate the actual rate for individual prelims items against the duration of the construction period
(Site welfare, site hoarding, staff and management, security, plant and equipment, etc)
If your estimate was for a project which was not anticipated to start for 18 months, how would you deal with this?
- Use BCIS tender price indices in order to apply inflation to the cost plan
If the client decided to put the project on hold for 2 years, how would you advise the client upon the cost implications?
I would apply the tender price indices in order to calculate the cost fluctuations in materials, plant and labour for when the client anticipates the project being carried out
How do you take in to account location of a project?
Through the application of location indices
What might you need to consider when using benchmark data from a different location?
- Different market conditions in different locations
- Different cost of materials, plant and labour
What does BCIS stand for? What is it?
Building Cost Information Service
Provides construction cost and price information through publications, online services and price books
BCIS calculate 3 types of inflation indices for construction; what are they?
- Tender price indices (TPI)
- Output price indices (OPI)
- Resource cost indices (RCI)
What are tender price indices?
They measure the movement in prices agreed between clients and contractors at ‘commit to construct’ normally when the tender is accepted.
These indices are typically used for adjusting estimates and budgets to different dates.
The BCIS All-in TPI is the most widely used example.
What are output price indices?
They provide a measure of the average price of construction projects currently on site, i.e. the movement in prices paid by clients when the work is carried out.
They normally reflect accepted tender prices in previous periods.
These indices are typically used to convert construction output volume figures from current to constant prices, either for national statistics or construction programmes.
The BCIS All-in OPI is a typical example of an OPI
What are resource price indices?
They measure the movement in the cost of labour, material and plant to a contractor.
These are generally the factory gate prices for materials and plant and nationally agreed wage awards and statutory employment costs for labour. Any difference between these costs and contractors site costs brought about by market conditions are reflected in the TPI.
These indices are typically used for understanding inflationary pressures when preparing estimates and budgets and in inflation adjustment clauses in contracts.
Examples of RCI include the General Building Cost Index, The General Civil Engineering Cost Index and the Price Adjustment Formulae indices.
Are there any negatives of BIM?
- Cost
- Training
- Quality of model
- Lack of understanding
Should you be using NRM or IPMS?
Only if project applicable
How does your approach to cost planning change throughout the design stages?
- In accordance with the RIBA plan of work and the New Rules of Measurement 1
- RIBA stages 0-1 I produce order of cost estimates to identify the clients budget and whether the proposed works are affordable
- RIBA stages 2-4 I produce cost plans to identify the cost limit and ensure control over the development of design
- As the project progresses throughout the design stages, more design information becomes available so therefore risk allowances will reduce and accuracy of cost plan will increase
What information is required to produce an order of cost estimate?
- Location of site
- Indicative programme
- General project requirements
- Number of floors
- Number of units (if resi)
- Any existing site surveys / information
- Any site constraints
- Any working requirements (OOH)
