Design economics and cost planning

Question 1

Can you briefly identify the different Risk allowances as detailed in NRM 1?

Answer 1

“(a) Design development risks – an allowance for use during the design process to provide forthe risks associated with design development, changes in estimating data, third party risks (e.g. planning requirements, legal agreements, covenants, environmental issues and pressure groups), statutory requirements, procurement methodology and delays in tendering.

(b) Construction risks – an allowance for use during the construction process to provide for the risks associated with site conditions (e.g. access restrictions/limitations,
existing buildings, boundaries, and existing occupants and users), ground conditions, existing services and delays by statutory undertakers.

(c) Employer change risks – an allowance for use during both the design process and the construction process to provide for the risks of employer driven changes (e.g.
changes in scope of works or brief, changes in quality and changes in time).

(d) Employer other risks – an allowance for other employer risks (e.g. early handover, postponement, acceleration, availability of funds, liquidated damages or premiums
on other contracts due to late provision of accommodation, unconventional tender action and special contract arrangements)

Question 2

What was your advice to the client following the LCC exercise?

Answer 2

I advised the client that by increasing the sustainability levels from bronze standard to silver aspects, the capital cost would increase by approximately £8k per unit, however the additional cost could be subsidised by the Scottish Governments Greener Homes Incentive which is £2k per unit. So whilst the client would be paying an extra over capital cost of £6k per unit they would save money in operating costs by having more energy efficient units. The payback period was 20 years. From a LCC aspect there was negligible change from a LCC perspective, so the benefit was only realised from a capex perspective. There was a betterment in the Gold and Passivhaus LCC analysis however the capital investment was too great despite the long term value of the investment.

Question 3

How did you completed the LCC?

Answer 3

I completed a cost analysis on the varying sustainability levels, looking at bronze, silver, gold and passivhaus technical standards (addressing section 6 and 7 energy and sustainability) whilst also looking at the health and wellness aspect in terms of area provision. I ran a capital cost estimate for each. I then used this to inform my LCC analysis/study over 60 year to compare the LCC impacts of each technical standard. I profiled the repair and maintenance requirements of components over the study term – using manufacturer data sheets for example – to plot those events and using the discount factor from BSRIA data sheets, was able to profile each across the 60year study period. I then liaised with client to obtain operational costs (incl energy bills) to determine this value over same period.

Question 4

What was the lifespan for your maintenance costs?

Answer 4

60 years, but you can run it over a shorter term.

Question 5

What factors need to be taken into account when using secondary source data?

Answer 5

Costs may need updated to account for location and time factors, this can be through the use of the tender price index which charts the movement of tender prices.

Question 6

What is the ground classifications you mentioned?

Answer 6

Inert - used on site
Contaminated non hazardous - £150/m3
Contaminated hazardous - £500/m3

Question 7

What are the main drawback of using historical data?

Answer 7

• Market Trends
• Out of date
• Not having a complete knowledge of the historical data
• Inaccuracies and inconsistencies

Question 8

What is a good wall to floor ratio?

Answer 8

Depends on the type of asset, however 0.4 and below is considered to be efficient

Question 9

What are the key contents of your cost plans?

Answer 9

Building works
Services
External Works
Prelims
Contingencies
Design Development
Exclusions

Question 10

On your Inverclyde project how did you go about advising the Client on using a risk register vs a percentage-based contingency?

Answer 10

Held a risk workshop with the client and design team
Identified different risk types across the 4 sites (design, pre-construction, construction, H&S)
Reviewed the probability of the risk
Impact of the risk on cost time and quality
I allocated a possible cost effect
Then Allocated a risk factor = Probability x (Cost + Time + Quality)
Weighted Cost Effect = Probability x Possible Cost Effect

We also had a general allowance for construction contingency of 2.5%

Question 11

What is whole life costing?

Answer 11

The whole life cost includes the life cycle cost plus other costs such as the cost of the site, cost of financing the project, etc.
Whole life costs therefore relate to the overall development, whereas life cycle costs relate to the building only.

Question 12

Can you explain what metrics can be used to discuss design efficiency?

Answer 12

The Metrics vary depending on the type of project, however there are various cost metrics, area metrics, ratios that can be used to identify design efficiency

Question 13

Can you briefly explain the measurement rules for risk as detailed in NRM 1?

Answer 13

Risk avoidance
Risk reduction
Risk transfer
Risk sharing
Risk retention

Question 14

Which NRM is applicable to cost planning?

Answer 14

NRM1 – Order of Cost Estimating and Cost Planning

Question 15

What are the different ways that one can prepare a cost estimate?

Answer 15

(unit / elemental / GIFA)

Question 16

When would you use NRM 1, NRM 2 and NRM 3?

Answer 16

NRM 1 - Order of Cost Estimating and Cost Planning
NRM 2 - Detailed Measurment of Building Works
NRM 3 - Building Maintenance Works

Question 17

What is a Discount Rate?

Answer 17

 Is a constant across the term = removes speculation of volatility.
 Is essentially reversing the compounded inflation of the future and representing it a present date value.
 Public Sector uses 3.5% as advised by Treasury – the client should always be consulted though as his financial team/treasurer will know their borrowing capacity/rate.

Question 18

On your Early Years project, you mention that you advised on the use of a maximum cost metric cost model based on 6 similar construction schools. What was your advice on the use of this?

Answer 18

I completed an elemental order of cost estimate, using benchmarked data from six other early years schools. I used this as a comparator against the RIBA Stage 2 formal cost plan 1 to advise the client and design team which elements were trending about the design allowance. Where this occurred I implemented VE to bring the design within the affordability cap.

Question 19

At what stage would you prepare an order of cost estimate?

Answer 19

At RIBA Stage 0-1

Question 20

What is LCC?

Answer 20

 LCC looks at 4 aspects:
o Construction Costs
o Operation Costs (includes Occupancy Costs)
o Maintenance Costs
o End of Life Costs
 Assumes a flat rate of inflation across the term of the model.
 Uses Net Present Value (NPV) to assess/compare like for like across the term of the model.
 NPV = the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.

Question 21

What is Life Cycle Costing?

Answer 21

Life cycle cost is the cost of a building throughout its life taking account captial costs, operating and maintenance costs and end of life costs.
Life cycle cost calculations are an attempt to price as many as possible of the factors affecting the value of a building and to bring them into a single cost. This cost can then be compared with other design solutions, taking into account factors such as appearance, comfort and convenience, which are difficult to price and depend on personal judgement.
Includes
1. Construction Costs
2. Maintenance costs
3. Operation
4. Occupancy costs
5. End of life costs
In order to compare predicted user costs with initial costs, it is usual to convert future expenditure to its net present value (NPV) or present discounted figure. This is because future costs cannot simply be added to initial costs to arrive at a life cycle cost due to the effects of inflation and interest rates. Future expenditure is therefore converted to its NPV using discount tables,

Question 22

You mention in your submission that you had worked on an early years project. Can you explain the advice you gave to your client regarding the design being too expensive for the affordability cap?

Answer 22

Yes, I completed an order of cost estimate using historic data from 6 other early years schools built in the central belt of Scotland.
When the design had progressed to RIBA stage 2 I benchmarked my formal cost plan 1 against the order of cost estimate
to identify elements that were had design excess.

Question 23

What is the GIFA?

Answer 23

Gross Internal Area is the area of a building measured to the internal face of the perimeter walls at each floor level

Question 24

What is the Study Period?

Answer 24

 Defines the time period for the study.
 Study period starts at year zero (0) - initial capital investment. BREAAM default study period is 60 years, however always consult with client to determine what study period they wish you to run the analysis – the decision may be strategic, i.e. to tie in with an assets life span, or lease period for example.

Question 25

What is an elemental cost plan?

Answer 25

Cost Plans provide a breakdown of the total estimated cost and show the money is to be spent on different elements of the building.

Question 26

How did you produce an elemental cost plan with limited information?

Answer 26

Where limited information was available for a certain element of a building, it would be priced on a cost/m2 GIFA basis.

Question 27

How did you price the commercial element of the project?

Answer 27

Shell and Core - priced used in house benchmarked data for town centre retail shell, ranges between £85 to 130/ft2
Allowed £120/ft2 or £11.15/m2

Question 28

What design efficiency advice did you give?

Answer 28

The development consisted of an existing B listed hospital and new build apartment blocks. In the existing asset the apartments were being installed in the existing wards,
the net to gross area ratio was 60% and the wall to floor ratio was 0.8 due to the high ceilings.
I advised that by installing mezzanine upper floors within the apartments this would increase the net internal area, add further bedrooms and increase the value of the assets
thus increasing the return on the clients capital investment
Increased net to gross ratio to 75% and reduced the wall to floor ratio to 0.4

Question 29

Can you explain the difference between Value Engineering and Value Management?

Answer 29

VE is identifying specific elements and looking for alternatives that achieve better value
VM is a process where you look at the overall project and try do identify alternative options that can achieve better value.

Question 30

What are the functional units you were referring to?

Answer 30

This is one of the single rate methods of estimating, commonly used for early cost estimates.
This would be used at the early brief stage of a project, where the client may have only an idea of the number of items or people to accommodate.
Common examples are:
Car Park – Estimate based on Cost per parking space
Hotel – Cost per bedroom
School – Cost per student
The key constituents would then be added to complete the order of cost estimate.

Question 31

Take me through the RIBA stages of cost planning.

Answer 31

Stage 0: Strategic Definition
Unlikely an estimate will be issued at this stage.
Stage 1: Preparation & Brief –
Likely to be an estimate based on functional unit method – Formal Cost Plan 1
Cost limit agreed with client
Feasibility estimate carried out
Stage 2: Concept Design –
Elemental Cost Plan based on Cost/ m2 GIFA
Cost based on cost analysis of similar previous projects
Stage 3: Spatial Co-ordination
Elemental Cost Plan, measured from drawings where possible – Formal Cost Plan 2
Cost/m2 GIFA applied where sufficient detail not available
Stage 4: Technical Design –
Updated Elemental Cost Plan – Formal Cost Plan 3

Question 32

What do you mean by superficial method?

Answer 32

Cost per m2

Question 33

What is the difference between a feasibility estimate/order of cost and a cost plan?

Answer 33

An estimate is a forecast of possible cost of a building based on historical data, in the case of a feasibility its purpose is to determine whether the project is financially viable.
Cost Plans provide a breakdown of the total estimated cost and show the money is to be spent on different elements of the building.

Question 34

What is GEA?

Answer 34

Gross External Area is the area of a building measured externally at each floor level

Question 35

What is NIA?

Answer 35

Net internal area (NIA) – is the usable area within a building measured to the internal face of the perimeter walls at each floor level.

Question 36

What discount rates did you apply?

Answer 36

Public Sector uses 3.5% however I would always consult with the client as his financial team/treasurer will know their borrowing capacity/rate.

Question 37

Why is NIA so important to private developers?

Answer 37

Net internal area is the lettable space within the asset, it is important that this is maximized as this will ultimately generate revenue post completion

Question 38

What are some of the things you would exclude from a cost plan?

Answer 38

Depends on the client’s brief, however it is typical to exlcude:

• Asbestos
• Professional Fees
• Vat – Different client will incur difference levels of VAT
• Loose fixtures and fittings
• Inflation
• Site acquisition costs

Question 39

What is the standard grant subsidy awarded to local authorities?

Answer 39

Through the Affordable Housing Supply Programme.

Council social rent - £57k per unit
Council social rent - greener - £59k per unit

Question 40

How do local authorities qualify for the greener homes subsidy?

Answer 40

Greener’ homes
3.10 To qualify for the higher ‘greener’ subsidy, homes must meet Section 7, Silver
Level, of the 2011 Building Regulations in respect of Energy for Space Heating (that is, full Bronze Level plus Aspect 2 of Silver Level).

Question 41

What impact do you think Brexit will have on construction and how would you advise your client on the risks?

Answer 41

In terms of taxation on importing of materials is unknown, so mitigation would be to specify UK products
Could concur delays and cost
Delay – manufacturing delays could be concurred – spec choices, is it in the UK?
What materials were coming from oversees, what is the capacity to fulfil the order with UK products – do some market testing,
Under contract that’s the contractors risk
Under cost plan – soft market testing, allowance for Brexit – risk register, UK products so they’re not incurring taxation
Two stage – could place early orders, vesting certs on PCSA for materials etc

Making sure you get best value – single or two, make sure you were preselecting tenders, minimum 3 and max 5 – to create tension and competitiveness in the
Credit checks some be done to ensure contractors are healthy

Question 42

How would you advise the client on Covid risk?

Answer 42

Cashflow is king, advise not amend the contract payments – as this keeps continued cashflow within the contracting organisations

Prelims – might need to extend programme – might need to factor into time related prelims
sites are 80-90% productive – tight site with lots of productive

Indexation
economists are suggesting on large projects – prices are staying firm – not much change in costs,
Smaller projects – is there the same amount of competition, insolvency risks?

Pricing could swing both ways
If there’s less work, then competition could be fierce.