Design Economics & Cost Planning

Question 1

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

Answer 1

• A cost estimate is prepared earlier on in the design process typically between RIBA Work Stages 0 to Stage 2.
• This is when the level of design information is more limited and allows a cost estimate to be prepared on a cost per m2 or cost per functional unit basis.
• A cost plan is produced typically at each RIBA Work Stage from Stage 2 onwards.
• As the design progresses more information can be included to eventually breakdown the estimated cost of the development elementally into each of its component’s parts such as sub-structure, superstructure, services & professional fees into an elemental cost plan format.

Question 2

What is the difference between cost and price?

Answer 2

• The cost is the total cost of labour, plant, materials and management deployed for a specific activity.
• The price is the amount a purchaser or client will pay for an item or product and is made up of the cost plus the main contractor’s profit margin.

Question 3

How do you proceed if the cost plan exceeds the project budget?

Answer 3

• I would analyse the costs to assess the source of the increase and identify whether any element of work is abnormally high against the order of cost estimate.
• When the reason for the overspend is identified I would then look to propose value engineering options to my client and design team to bring the forecast back in line with the project budget.

Question 4

What is buildability?

Answer 4

Buildability is harnessing the contractor’s expertise and knowledge during the design stage to generate ideas for effective and efficient methods of construction.

Question 5

What are the advantages of buildability?

Answer 5

• Buildability can result in better programming, sequencing and construction methods.
• A quicker more efficient programme can be achieved.
• Reduced capital and life cycle costs of the building can be obtained.
• The quality in the finished building’s performance and maintenance characteristics can be improved.

Question 6

What is a wall to floor ratio?

Answer 6

• This shows the relationship between the wall area and floor area.
• It is used to show the cost efficiency of the building.
• The lower the ratio, the cheaper the building is to construct as there is less external envelope to construct in comparison to the floor area.

Question 7

What is the most efficient shape?

Answer 7

• In theory a building with a circular floor plate building would offer the most efficient design as there is less wall to floor area.
• However a circular floor plate has a poor lettable floor area and is difficult to fit out therefore a square floor plate is considered to be the most efficient.

Question 8

How would you prepare an estimate for M&E works?

Answer 8

• I would ask an M&E specialist surveyor to undertake the estimate.
• For feasibility estimates the M&E amount would be included in the m2 or functional unit rate.

Question 9

What is a Section 106 agreement?

Answer 9

S106s are agreements between local authorities and developers that are negotiated in the context of granting planning consent.

Question 10

What is construction to ‘shell and core’?

Answer 10

• Shell and core is the basic structure, services and envelope of the building.
• This normally includes the fit out of landlord and common areas for example the reception, toilets, lifts & stair cores.
• Base services are typically terminated at entry points to each of the lettable floor plates however life safety services infrastructure is normally provided.

Question 11

What is a CAT A fit out?

Answer 11

• CAT A is also known as a ‘developer’s fit out’.
• This provides generic fit-out items to suit most developers for example life safety elements and basic fittings such as suspended ceiling tiles, raised floors, carpets, lighting and power distribution to floor plates.

Question 12

What is a CAT B fit out?

Answer 12

• A CAT B fit out overlays the CAT A provision with bespoke elements that are specific to the needs of the building’s user to enable the tenant to occupy and use the space.
• This would typically include partitions, power distribution to floor boxes, data cabling, artwork and branding, upgrading CAT A finishes and toilet finishes.

Question 13

Where could you find the definitions for CAT A & B?

Answer 13

The British Council of Offices (BCO) fit-out guide.

Question 14

What is BWIC?

Answer 14

• BWIC stands for Builders Work In Connection and is usually set as a percentage of the services cost.
• BWIC accounts for the Main Contractor to perform any drilling, fixing, cutting and penetrations to enable the services installation.

Question 15

What is an order of cost estimate?

Answer 15

• Under NRM this is described as the determination of the possible cost of a building 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.

Question 16

What is the purpose of an order of cost estimate?

Answer 16

• To establish if the proposed building project is affordable and, if affordable, to establish a realistic cost limit.
• The cost limit is the maximum expenditure that the client is prepared to spend on the proposed building project.

Question 17

What is the format of a feasibility estimate or order of cost estimate?

Answer 17

• This can be presented on a cost per m2, functional unit or elemental basis.
• It may also be presented as a range for example £700-£850/m2.
• This may consist of element rates for the main elements of the building for example Substructure, Frame, External Walls, Upper Floors & Roof.
• Any site abnormal costs or enabling works are also considered.
• Other inclusions are Preliminaries, Contingency, Inflation and location factor adjustments.

Question 18

What is a functional unit?

Answer 18

• A functional unit is a unit of measurement that considers the prime use of the building.
• For example in the construction of a hotel or hospital the functional unit may be presented as a cost per bedroom or cost per bed.
• In a retail estimate the functional unit would be presented as the net lettable retail space.

Question 19

Where would you get your rates from for a preliminary estimate?

Answer 19

• Previous similar projects and historical cost data such as previous tender submissions or a contract sum analysis.
• Other sources may include estimating price books such as Spons or Laxtons, the Building Cost Information Service or specialist contractors.

Question 20

What information do you need to be able to carry out an order of cost
estimate?

Answer 20

• Building Location.
• The type of building.
• Floor area or number of functional units.
• Storey height.
• Whether raised access floors or deep suspended ceiling are envisaged.
• Initial floor plans, roof plans, elevations and sections.
• Requirements for refurbishment to existing buildings and enabling works.
• Indication of specification and quality.
• Indicative programme, procurement and contract strategy.
• Budget & cashflow constraints.
• Site conditions, probable ground conditions.
• Indicative M&E design intent, availability of utility services and the sustainability strategy.
• Details of professional fees, development costs, VAT and treatment of inflation.

Question 21

What is a cost plan?

Answer 21

• The cost plan presents the estimated cost of the development into an elemental or functional format.
• It shows how the design team proposes to distribute the funds available on the different elements of
  the proposed building.

Question 22

What is the purpose of a cost plan?

Answer 22

• It is used by the cost consultant to control the development of the design.
• It identifies the client’s agreed cost limit and how the money is to be allocated to the different elements
  of the building.

Question 23

When would you do a cost plan?

Answer 23

• A formal cost plan is typically issued between RIBA Work Stage 2 to Stage 4.
• At stage 2 the Concept Design is made available and the cost plan may be produced at a fairly high level. The Cost Plan may be broken down into the different elements of the building based on an outline specification and Architectural concept drawings.
• At stage 3 the Spatial co-ordination of the building is undertaken, the schedule of accommodation may be adjusted and the cost plan is updated to reflect this accordingly.
• At stage 4 the technical design is made available and cost plan updated to reflect the Architect and Engineering technical designs. Specialist subcontractor designs may also be made available to support with refinement of the project costs.
• The cost plan at Stage 4 will typically form the basis of a pre-tender estimate to compare tender submission against although this is no longer referenced within the RIBA Plan of Work.

Question 24

What are the principal components of a cost plan?

Answer 24

• Construction costs.
• Preliminaries.
• Contractor’s OH&P.
• Contingency.
• Inflation.
• Assumptions.
• Exclusions.
• Area Schedule.
• List of Drawings & Specifications adopted.

Question 25

Name the main elements of an elemental estimate

Answer 25

Substructure.
o Excavation.
o Disposal.
o Foundations.

Superstructure.
o Frame.
o Upper floors.
o External walls. o Roof.
o Internal finishes. o Services.
o External works.

Question 26

What is usually excluded from a cost estimate?

Answer 26

• Professional fees.
• VAT.
• Client decant costs.
• Loose fixtures and fittings.
• Inflation.
• Site acquisition costs.
• Section 106 Agreement.
• Removal of asbestos.

Question 27

Why is VAT excluded?

Answer 27

• Because different clients will incur different levels of VAT, for example charities may not be subject to VAT.
• We would not be in a position to know the correct rate unless informed of it.

Question 28

What is contingency?

Answer 28

A sum included within the estimate to cover unknown expenses or unmitigated risks during the project.

Question 29

How is contingency assessed?

Answer 29

• The amount included should reflect the risks and unknown specific items associated with the project.
• During the early design stages a contingency allowance can be included as an overall percentage of the cost estimate at around 5%-10%.
• As more design information becomes available a risk register can be compiled and each item assigned a probability and cost impact. The total cost of risk register items can then be included as the project contingency.

Question 30

What are the stages of the RIBA Plan of Work?

Answer 30

0 Strategic Definition
1 Preparation and Brief
2 Concept Design
3 Spatial Co-ordination
4 Technical Design
5 Manufacturing and Construction
6 Handover
7 Use

Question 31

How do you take account of inflation when preparing a cost estimate?

Answer 31

I take into account inflation through the use of Tender Price Indices and include adjustments for Construction Inflation and Tender Price Inflation.

Question 32

What time period would Construction Inflation be included for?

Answer 32

I would allow for Construction inflation from the anticipated start of the project to the mid-way point of the project.

Question 33

What time period would Tender Price Inflation be included for?

Answer 33

I would allow for Tender Price inflation from the estimate base date to the anticipated tender return date.

Question 34

What is meant by the base date within a cost estimate?

Answer 34

• The base date refers to the date on which rates and prices contained within a cost estimate are based on.
• These are included for the basis of calculations for example if adjusting the rates for inflation in the future, the base date can be used as the starting point from which inflation would be adjusted.

Question 35

What does TPI stand for?

Answer 35

Tender Price Indices.

Question 36

What do TPIs show?

Answer 36

• They reflect changes in the level of tender prices over a period of time.
• The price adjustments take into account the level of inflation depending on current and forecast market
  conditions.

Question 37

Where can you obtain Tender Price Index information from?

Answer 37

• The service I use to obtain Tender Price Indices is the Building Cost Information Service.
• Larger cost consultancies also produce their own in-house tender price forecasts.

Question 38

Why do you need to take account of location?

Answer 38

• Inflation needs to be accounted for to anticipate the changes in the prices of labour, plant and materials.
• We need to account for inflation from the date the cost estimate is produced to the anticipated start date of the project.
• This is to ensure accuracy of the estimate for the client and to ensure the project remains within the cost limit that has been established.

Question 39

What does BCIS stand for?

Answer 39

Building Cost Information Service.

Question 40

What is BCIS?

Answer 40

The BCIS provides construction cost and price information through publications, online services and price books.

Question 41

Where do you get cost information from?

Answer 41

• Previous Tender Submissions.
• Previous Contract Sum Analysis.
• Benchmarks.
• BCIS.
• Building cost models.
• SPONS and other price books such as Laxtons.
• Specialist sub-contractors and suppliers.

Question 42

What do you understand by the term VE?

Answer 42

• VE stands for Value Engineering.
• VE is an organised approach aimed at providing the necessary functions of the building taking into account the clients objectives at the lowest cost, without detrimental affects to quality, reliability, performance or delivery.

Question 43

What do you understand by the term VM?

Answer 43

• Value Management is the proactive process of defining what value means to a client and putting procedures in place to ensure that maximum value is delivered for the client, first time.
• In comparison, Value Engineering forms one of the processes under Value Management and is a reactive procedure to bring the anticipated cost of the development back in line with the project budget when a potential overspend is identified.

Question 44

What is value, what does value mean?

Answer 44

• Value is a measure of worth taking into account the overall usefulness and benefits that are delivered in relation to cost being paid for it.
• Value is a complex concept and means different things to different clients.
• For example a short term developer looking to sell a building on completion will place greater value on a cheaper out-turn cost whereas a developer occupier may place more importance on a higher quality building with lower operating costs.

Question 45

What happens during the VE process?

Answer 45

• The design team will typically be brought together in a meeting including the Client, Quantity Surveyor, Architect, Engineers and potentially the Main Contractor and specialist subcontractors.
• The team will pool together their expertise and suggest different value engineering proposals.
• The chairperson of the meeting should monitor the proposals against the clients’ objectives around
  value.
• It is the chairperson and teams responsibility to deliver increased value for money by offering cost effective solutions without compromising the overall usefulness of the building when considering the clients objectives.

Question 46

What are the phases of the VE process?

Answer 46

• Information phase.
• Speculation phase.
• Evaluation Phase.
• Development Phase.
• Presentation Phase.

Question 47

Describe what happens in the Information Phase of VE

Answer 47

o Understanding the clients objectives around value.
o Defining the clients objectives and key criteria governing the project.
o Understanding background decisions that have influenced the design development of the project.

Question 48

Describe what happens in the Speculation Phase of VE

Answer 48

o Listing creative ideas to generate a lesser capital or life cycle cost.
o Generating ideas to provide the necessary functions of the building at the most efficient price.
o Judgement of each of the ideas is prohibited.

Question 49

Describe what happens in the Evaluation Phase of VE

Answer 49

o The criteria for evaluation of the ideas generated during the speculation phase are defined.
o Each of the ideas are assessed against the evaluation criteria.
o The ideas that are considered to offer the greatest potential cost savings and value improvement are retained.
o The ideas considered not worthy or impractical are discarded.

Question 50

Describe what happens in the Development Phase of VE

Answer 50

o Ideas retained from the evaluation phase are developed and expanded into workable solutions.
o This will include developing a description of the proposed design change with advantages and disadvantages.
o Cost comparisons and design calculations will be undertaken as part of the development phase.

Question 51

Describe what happens in the Presentation Phase of VE

Answer 51

o The retained ideas are presented to the client in a written report.
o A briefing or verbal presentation may also be provided to build the clients understanding.
o The rationale and background on why the proposals are being recommended is explained.
o As well as referencing monetary benefits, a wider communication of delivering the clients specific objectives should be provided.
o Decisions are taken by the client and design team on what proposals are accepted or discarded.

Question 52

Why is VM needed?

Answer 52

• Each construction client has their own specific objectives and definition of what value means to their organisation.
• Client organisations are sometimes made up of different working groups with contrasting priorities.
• If agreements concerning the definition of value are not reached then chances of perceived failure of the project increases.
• VM is needed to reach an agreement on what value is defined as and to reach a shared understanding on the objectives that are being sought.

Question 53

What are life cycle costs?

Answer 53

The costs that will be incurred over a defined period of operating and maintaining a building or an asset including repair, maintenance, replacement, cleaning, decorating, services provision and disposal.

Question 54

What are the advantages of life cycle costing?

Answer 54

• Life cycle costing allows consideration of the long-term implications of a decision.
• It enables informed decisions to be made on material selection.
• Life cycle costing can result in lower operational, maintenance and replacement costs.
• It can also be used to plan future maintenance requirements ensuring easier access and less disruption to the operation of the building.

Question 55

What are the disadvantages of life cycle costing?

Answer 55

• Future costs are optional and the costs of maintenance can always be deferred.
• Components are not always replaced due to end of life which is impossible to assess at design stage.
• The cost of defects caused by bad workmanship and design faults cannot be predicted.
• It is hard to predict life spans, future inflation and maintenance requirements over long periods.

Question 56

What costs should be considered in life cycle costing?

Answer 56

• Capital costs.
• Operational costs.
• Maintenance costs.
• Replacement costs.
• Disposal costs.

Question 57

Where can you get information about maintenance costs?

Answer 57

• Building Maintenance Cost Information Service (BMCIS) – part of BCIS.
• From sub-contractors and suppliers.

Question 58

How does the payback period method work?

Answer 58

• It judges an investment in terms of the time period over which the invested sum is returned in cost savings.
• The increased expenditure on a higher quality component is viewed as the ‘investment’ and the savings provided in the form of future costs is viewed as the ‘revenue’.
• The best option would be the one that repaid the investment in the shortest time.

Question 59

What sort of materials is the payback period method used for?

Answer 59

• This is often used to evaluate the options for incorporating sustainable technologies.
• It is considered suitable for elements that have a very high initial capital cost but will ‘pay back’ this initial investment over a period of time in terms of reduced running costs.

Question 60

Why might a client accept higher capital costs?

Answer 60

• For prestige reasons.
• When considering that the replacement or repair may be inconvenient even if the solution is cheaper.