Project finance, Design Economics & Cost Planning and Quantification & Costing Flashcards
What are the typical cost manager responsibilities on a construction project?
- Manage risk allowance expenditure
- Initiate action to avoid overspend
- Prepare pricing documents for tendering
- Evaluate and analyse tender bids
- Prepare interim valuations
- Value variations and compensation events
- Assess the contractor’s financial claims
- Negotiate and agree final accounts
- Issue financial reports or statements
- Provide initial cost advice on capital investment plans
- Produce cost estimates and cost plans
- Produce cost reports, estimates and forecasts
- Prepare and maintain the cashflow forecast
If you are producing estimates and cost plans, which measurement rules represent industry best practice?
New Rules of Measurement (NRM)
Can you name the 3 documents in the NRM suite?
- NRM 1 - Order of cost estimate and cost planning for capital building works
- NRM 2 - Detailed measurement for building works
- NRM 3 - Order of cost estimating and cost planning for building maintenance works
Can you provide a brief overview of each of the NRM documents please?
NRM 1
Provides guidance on the quantification of building works for the purpose of preparing cost estimates and cost plans. It is the ‘cornerstone’ of good cost management of construction projects, enabling more effective and accurate cost advice to be given to clients and other project team members, as well as facilitating better cost control.
NRM2
Is written mainly for the preparation of bills of quantities and quantified scheduled of works, although the rules will be invaluable for designing and developing standard or bespoke schedules of rates
NRM 3
Gives guidance on the quantification and description of maintenance works for the purpose of preparing initial order of cost estimates. The rules also aid the procurement and cost control of maintenance works
What is the structure of the NRM 1?
- Part 1: General introduction
- Part 2: Measurement rules for order of cost estimate
- Part 3: Measurement rules for cost planning
- Part 4: Tabulated rules of measurement for elemental cost planning
- Appendices
What is the structure of the NRM 2?
- Part 1: General introduction
- Part 2: Rules for detailed measurement of building works
- Part 3: Tabulated rules of measurement for building works
- Appendices
What is the structure of NRM 3?
- Part 1: General introduction
- Part 2: New rules of measurement for building maintenance works
- Part 3: Measurement rules for order of cost estimating (renewal and maintain)
- Part 4: Measurement rules for cost planning of renewal (R) and maintain (M) works
- Part 5: Calculation of annualised costs for renewal (R) and maintain (M) works
- Part 6: Tabulated rules of measurement for elemental cost planning
- Appendices
Why is it important to measure the works according to industry standards and best practice?
- To provide consistency and greater accuracy of pricing
- To ensure that all parties price on the same basis and therefore reduce the risk of dispute
Is it mandatory for chartered surveyors to follow the procedures set out in NRM?
Following NRM is not a mandatory requirement. However, when an allegation of professional negligence is made against a surveyor, the court is likely to take account of the contents of any relevant guidance notes published by RICS in deciding whether the surveyor had acted with reasonable competence
What items are included within the standard NRM 2 preliminaries (main contract) list?
Employer requirements
- Site accommodation
- Site records
- Completion & post-completion requirements
Contractor cost items
- Management & staff
- Site establishment
- Temporary services
- Safety and environmental protection
- Control and protection
- Mechanical plant
- Temporary works
- Site records
- Completion & post-completion requirements
- Cleaning
- Fees & charges
- Site services
- Insurances, bonds, guarantees and warranties
How is risk dealt with under NRM?
NRM recommends that risk allowances are not a standard percentage, but a properly considered assessment of the risk, considering completeness of the design and other uncertainties such as the amount of site investigation undertaken
Can you tell me the 4 risk categories identified in NRM?
- Employer Change Risk
- Employer Other Risk
- Design Development Risk
- Construction Risk
What is an order of cost estimate?
- Order of cost estimate is a term using by RICS under the New Rules of Measurement, specifically NRM 1 for capital building projects
- The key purpose is to establish if the proposed building project is affordable and if so, to set a realistic cost limit for the development project
How are professional fees presented in order of cost estimate?
Fees can be presented as an item (if actual fees are known) or a percentage applied to the ‘works cost estimate’
Which RIBA Stage is the order of cost estimate typically produced?
RIBA Stage 1 - Preparation and Briefing
What are the RIBA stages of work?
- Stage 0 - Strategic Definition
- Stage 1 - Preparation and Briefing
- Stage 2 - Concept Design
- Stage 3 - Spatial Coordination
- Stage 4 - Technical Design
- Stage 5 - Manufacturing and Construction
- Stage 6 - Handover
- Stage 7 - Use
What is the difference between an order of cost estimate and cost plan?
- An estimate provides a possible cost based on the employer’s requirements and is the initial phase of the cost planning process. The estimate is usually completed using m2 areas of functional units
- A cost plan is a more detailed elemental breakdown and shows how the costs are distributed across the project
What additional information should accompany an order of cost estimate?
- Covering letter
- Executive summary
- Cost limit
- Specification notes
- Assumptions
- Exclusions
- Drawings and other information upon which the estimate is based
- A schedule of value enhancing options
- Risk register
- Cash flow information
What is a cost plan?
- The cost plan is typically prepared by the cost consultant and provides an estimate of what the actual project cost is likely to be
- The cost plan identifies the client’s agreed cost limit and how the money is allocated to the different parts of the project
Other than predicting the final project cost, what other benefits does the cost plan provide to the project and project team?
- Designers are aware of the cost implications of their proposals which enables them to arrive at practical and balanced designs
- Provides information upon which the employer can make informed commercial decisions
Do you need a programme to complete the cost plan?
Preliminaries are typically presented as a weekly rate in developed cost plans; therefore, a programme or at least some high-level dates will be required. The key information usually required is:
- Design and tendering periods
- Start of site date
- Construction period
- Completion date
How do you structure a cost plan?
NRM 1 recommends a template to be following within appendix G of the NRM 1
What sources of cost information and data are available when preparing a new estimate or cost plan?
- Information produced by the BCIS (Building Cost Information Service); data is available of a wide range of building types
- Published pricing books such as SPON’s and BCIS (the information may need adjusting for inflation)
- Pricing documents and other information from previous projects
- Cost analysis and cost models produced in-house
- Speaking direct to contractors, subcontractors and suppliers for cost information
How do you take account of the project location and why?
A location factor is usually applied to recognise differences in construction prices. For example, a project in London is typically more expensive that a similar project in Nottingham
What is a cost plan risk allowance?
A sum included to cover unknown costs or unmitigated risk during the project
What fees might be included in the fees estimate?
Consultant fees:
- Project and design team
- Other specialist consultants
- Survey fees
Contractor fees:
- Management and staff
- Specialist support staff
- Contractor’s design management fees
- Contractor design team fees (if applicable)
- Framework fees (if applicable)
How can design and construction processes impact project costs?
- Design complexity (bespoke detailing)
- Variations
- Proportion of risk allocation
- Contractor design portions (Risk / PI)
- Contract type - lump sum / target / reimbursement / remeasurement
- Legislation / planning obligations e.g. Building Regulations & Section 106 conditions.
- Value engineering
- Construction methods - prefabricated e.g. modular, bespoke components, concrete vs steel, level of skill required
- Use of BIM
What benefits does client get out of cost planning?
A cost plan tells client whether or not they can afford the scheme, helps develop design in order to tailor scheme to meet budget, is a value management tool which can be used to ensure client gets a building which suits their needs and represents best value
How can the cost manager help control the design to keep the project within budget?
Discuss cost plan with the design team and explain how changes have impacted the budget, discuss the limitations of the budget and offer areas where money can be saved through VE; identify less expensive materials / products, identify areas of design which may not be economical
What are some of the reasons we have cost overrun?
- Cost overruns often caused by employer through objectives that are unclear or unchanged during the project
- Unrealistic cost estimates
- Risk allocation is ambiguous
- Inadequate management control
- Design that does not meet planning or statutory requirements
- Uncoordinated design
- Design that is difficult to build and maintain
- Design that does not meet the tendering / procurement strategy
How would you deal with a cost plan that is over the client’s budget?
Communication of cost plans is extremely important. You need to do this in a clear and concise manner. Often cost plans come in at more than a client’s budget. In these circumstances you need to approach matters in a positive manner, identifying areas where potential savings can be made - possibly in terms of material specification or re-design. Reference needs to be made to value engineering alongside the design team
What risk allowances does the NRM recommend should be included within a cost plan?
- Design development risks = planning issues, environmental issues, incorporating sustainable technology
- Construction risks = discovery items during works, site / ground conditions, existing services.
- Employer change risks = changes to design by employer
- Employer other risks = acceleration, postponement, availability of funds
What are the various sources of cost data that we use?
- In-house cost data - cost information from previous projects
- BCIS (Building Cost Information Service) - database of cost info
- Client - benchmark data from previous projects
- Pricing books (SPONS)
- Cost models / data published in industry mags
- Manufacturer supplier literature or quotations for specialist items (soft tender)
What is BWIC?
- BWIC stands for Builders Work In Connection and is usually set as a percentage of the services cost
- Depending on the size of the job and complexity will determine the percentage of BWIC.
- BWIC accounts for any drilling, fixing, cutting that the builders do whilst undertaking the services
- BWIC can be measured in accordance with NRM2 when doing BoQs
Why is VAT excluded from the cost plan?
Different clients will incur different levels of VAT (some might be exempt)
Please can you tell me what you understand by the term benchmarking?
Benchmarking is the use of historical data from projects of a similar nature as a compensation or cost check of the cost of a project
How did you undertake benchmarking exercise for your client?
I produced a clear document which highlighted the comparative items to the benchmarked project and then clearly identified the elements which were abnormal
How are subcontractor OH&P calculated?
In NRM these are deemed to be included within the unit rates, so keep a look out for this to ensure they are not included twice
What are the problems to the QS regarding cost control with piling? whose risk is the piling?
The end depth of the piles are never a certainty and the procurement route used determines who takes the risk
What is a provisional sum?
A provisional sum is an allowance that is inserted into tender documents or contract for a specific element of the works that is not yet defined in enough detail for tenderers to price
How can a provisional sum be expected?
- The contract administrator (under JCT) should issue an instruction for its expenditure, there should be an add and omit on the instruction
- NEC - does not provide for provisional sums on the basis that if you cannot clearly define an aspect of the works, you should not include it in the contract
How are provisional sums dealt with in the final account?
The provisional sums included in the contract are deducted and the actual amount substituted
What are the risks associated with provisional sums?
- That the actual cost and time exceeds that allowed for in the provisional sum because the nature of the item changes; or an insufficient sum was originally allowed for
What types of provisional sum are there?
Defined and undefined
Please explained the deferral between defined and undefined provisional sums?
- Defined provisional sums are considered to have been accounted for within the contractor’s price and programme. In effect the contractor is taking the risk that their estimate will be sufficient
- Undefined provisional sums are not accounted for in the contractor’s price and programme. This means that the client is taking the risk for the works and the contractor may be entitled to an extension of time and additional payments
Is the contractor entitled to claim prelims costs and/or an extension of time in relation to a defined provisional sum?
No because a defined provisional sum should have already made allowances for prelims and time
What does BCIS stand for; what is it?
Building Cost Information Service
What is the BCIS used for?
- BCIS provides construction cost and price information through publications, online services and price books
What are the options for different types of pricing documents?
- Bill of Quantities
- Schedule of Rates (SoR)
- Contract sum analysis
- Schedule of works
How can we get prices for work?
- Lump sum
- Cost reimbursable
- Re-measurement
- Target cost
- GMP - guaranteed maximum price
What is a lump sum contract?
- Fixed sum in contract
- Lump sum contracts are normally used where the employer can define what is required. This will normally be in the form of drawings and specifications but can alternatively be a performance specification
What is a re-measurement contract?
- A price based on approx. quantities. Work is measured against agreed rates
- A bill of quantities comprises a list of work items and quantities prepared by the employer and priced by the contractor
- Where there is a significant amount of contractor’s design, a lump sum contract should be used rather than re-measurement, as it allows the contractor to price the work and include the various design stages within his activity schedule rather than the employer measuring the work which would not be practical
What is a reimbursable / prime cost contract?
- Contractor completes work and then is paid on the costs plus a pre-agreed mark-up
- Used where the extent of works cannot be defined but works need to progress quickly (emergency road works for example)
- A cost reimbursable contract should be used where the definition of the work to be done is inadequate for the contractor to price and yet an early start it required
- Suitable for maintenance or refurbishment works where extent is unknown until exposed or emergency work or resolution of a difficult project
Advantages
- Flexibility to alter design, programme and quantum of work
- Enables early start on site
- No premiums for abnormal risks in tender
Disadvantages
- No time or cost certainty
- No incentive for efficiency
- Difficult to monitor true costs
What is a target price contract?
- Target contracts are a development of cost reimbursable contracts and are used where the extent of work to be done may not be fully defined (although the target is to be based on assumed work), where anticipated risks are greater or where the employer sees a direct and significant benefit in encouraging collaboration through the target mechanism itself. Financial risks are shared, proportionally through the contractor’s share percentages, between the employer and the contactor
The contractor tenders a target price:
- The target price includes the contractor’s estimates of cost-plus other costs, overheads and profit.
- The contractor tenders his percentage to be applied to cost
- During the course of the contract, the contractor is paid cost plus the percentage for profit and overheads and at the end of the contract, the contractor is paid (or pays) his share of the difference between the final total of the target and the final cost plus profit and overheads according to a formula stated in the contract
Why would you use a target cost contract?
- Risk is shared (also known as pain/gain)
- Encourages positive behaviour between all parties
