Quantification and Costing of Construction Works 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 costs.
- Produce cost estimates and cost plans.
- Provide advice on whole life costs.
- 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?
- NRM1 - Order of cost estimating and cost planning for capital building works.
- NRM2 - Detailed measurement for building works.
- NRM3 - 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 team project members, as well as facilitating better cost control.
NRM 2 :
Is written mainly for the preparation of bills of quantities and quantified schedules 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 buildings 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.
What are the key headings for contractor preliminaries identified in NRM2?
Employer’s 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 extent 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
How does NRM define the ‘cost limit’ of the project?
Cost limit (or authorised budget or approved estimate) - means the maximum expenditure that the employer is prepared to make in relation to the completed building.
Can you explain what the ‘base cost estimate’ should include?
Base cost estimate - means an evolving estimate of known factors without any allowances for the 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.
What is an order of cost estimate?
- Order of cost estimate is a term using by RICS under the New Rules of Measurement, specially 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 the 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 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 sq.metres areas or 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 on site date
- Construction period
- Completion date
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 on 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.
- Existing client information - benchmark data from previous projects.
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 than a similar project in Nottingham.
What is a cost plan risk allowance?
A sum included to cover unknown costs or unmitigated risks during the project.
What fees might be included in the fee 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).
What benefit does the client get out of accurate cost planning?
- The cost plan confirms to the client the scheme is affordable (or not).
- Cost Planning places the client in an informed position to make commercial decisions.
- The cost plan can act as a value management tool to ensure the client gets a building which meets their needs, but also represents best value.
How would you deal with a cost plan which is over budget?
- Communicate the matter to the client and project team in a clear and concise manner.
- Identify areas where potential savings can be made, possibly in terms of material specification or re-design.
How can the cost manager help control the design to keep the project within budget?
- Explain to the design team where the cost plan sits against the budget and discuss the limitations.
- Identify and communicate areas of design which may not be economical.
- Regular project risk reviews and ask the design team to focus on mitigating key design risks.
- Explain how changes in the design will impact the cost plan.
- Contribute to value engineering and/or cost saving sessions.
What are some of the key reasons we have cost overrun on a project?
- Ambiguous client brief or changes in the later stages of the project.
- Unrealistic cost estimates.
- Project risk is realised or not properly managed.
- Inadequate management control or processes.
- Uncoordinated design.
- Unknown external factors (for example global pandemics)
- Unsuitable tendering and/or procurement strategy selection.
- Statutory authority influences such as onerous planning permission conditions.
What is BWIC?
- BWIC stands for builder’s work in connection and is usually set as a percentage of the services cost.
- BWIC refers to builder’s work that is necessary to allow other works to proceed (typically mechanical and electrical services but also other specialist installations).
Why is VAT usually excluded from the cost plan?
Employers may incur different levels of VAT (some might be exempt). Therefore, VAT is usually excluded to ensure the incorrect tax rate is not applied.
Can you tell me what you understand by the term benchmarking?
- Benchmarking is the use of historical data from projects of a similar nature.
- Can be used as a comparison or check for cost planning purposes.
- Benchmarking can highlight areas of design that are not value for money; or, if the price offered by the contractor is in line with market conditions.
How would you undertake a benchmarking exercise for your client?
Produce a clear document which shows the various cost plan elements side-by-side with the benchmark project(s). This project will identify items are considered abnormal, I would then endeavour to justify cost anomalies for flagged items.
How are subcontractor’s preliminaries captured in the cost plan?
NRM 1 - Costs associated with subcontractor’s preliminaries are to be included in the unit rates applied to sub-elements and individual components.
What allowance would you make for contractor OH&P in the cost plan?
The Percentage will vary due to various factors such as:
- Project location
- Project type and value
- Market conditions.
What is a provisional sum?
Provisional sums are generally an allowance or estimate included within the contract price that are:
- Not sufficiently defined, designed or detailed to allow an accurate determination of its cost at the time the contract is entered; and/or
- Work that the employer may or may not wish to be carried out.
How are provisional sums expended?
- The contract administrator (JCT contracts) should issue an instruction for its expenditure.
- Where a contract includes a provisional sum, the final amount payable will be adjusted (the provisional sum is omitted and replaced with the actual cost of the work).
How are provisional sums dealt with in the final account?
By the time the project has reached final account stage, the contract administrator will have issued instructions to expend all provisional sums. The instruction will show an add and omit (add actual costs and omit the provisional sum), the instructions are then accounted for in the usual way.
What types of provisional sum are there?
Defined and undefined.
Please explained the deferral between defined and undefined provisional sums?
Defined
The contractor is deemed to have allowed for programming and preliminaries within the contract.
Undefined
The contractor does not allow for planning, programming and preliminaries implications. This means the contractor may be entitled to an extension of time and/or additional preliminaries when the actual works are undertaken.
Would the contractor be entitled to claim additional preliminaries and/or an extension of time when expending a defined provisional sum?
No, since the provisional sum is defined, the contractor should have allowed for programme and preliminaries within their price.
What are prime cost sums?
- A sum of money included in a unit rate to be expended on materials or goods from suppliers (e.g. supply only ceramic wall tiles at 36.00/msquare).
- It is a supply only rate for materials or goods where the precise quality is unknown.
- Prime cost sums exclude all costs associated with fixing or installation, all ancillary and sundry materials and goods required for the fixing or installation of the materials or goods.
What is the difference between prime cost sums and defined provisional sums?
- A prime cost is limited to the cost of supplying the relevant item and does not include the cost of any work that relates to it (such as its installation).
- In contrast, defined provisional sums include allowances for supplying the item and all related work to be performed by the contractor.
Can you name some of the pricing documents we might use at tender stage?
- Bills of Quantities (BoQ)
- Schedule of rates (SoR)
- Contract sum analysis
- Schedule of work
- Priced activity schedule.
Can you name some of the pricing options for construction contracts?
- Lump sum
- Cost-plus (also known as cost reimbursable)
- Remeasurement
- Target cost
- Guaranteed maximum price (GMP)
What is a lump sum contract?
- Fixed price or lump sum pricing, as the name indicates, provides for payment of a set amount.
- The amount of the fixed price or lump sum is determined by a contractor by estimating their cost to provide the work, and then adding overhead and a profit margin.
What are the key advantages of lump sum contracts?
- The contractor takes on the pricing risk but stands to benefit from increased profit if actual costs turn out to be below the estimated costs.
- Cost certainly for the employer.
What are the key disadvantages of lump sum contracts?
- A lump sum agreement presents a higher risks to a contractor, if the contractor underestimates their cost, the profit margin decreases and may disappear altogether.
- As a result of the additional risks faced by the contractor, they may increase their tender price.
What is a cost-plus contract?
Cost-plus contracts, otherwise known as cost reimbursable contracts, involves the employer paying the contractor for the costs incurred during the project, plus a pre-agreed percentage for profit.
What are the key advantages of cost-plus contracts?
- Since cost-plus contracts are flexible by nature, inaccuracies in the initial bid aren’t as detrimental as they are with lump sum contracts.
- Cost-plus contracts allow employers to make design changes along the way, contractors know they’ll be paid for the extra time or materials which those changes incur.
What are the key disadvantages of cost-plus contracts?
- The final contract price is uncertain until the end of the project.
- Contractor may deliberately incur higher costs to increase profit (no incentive for efficiency).
When might a cost-plus strategy be appropriate to use?
- A cost-plus strategy might be used where are the nature or scope of work to be carried out cannot be properly defined at the outset.
- This pricing strategy would suit emergency work such as infrastructure repairs or immediate reconstruction following a fire.
What is a remeasurement contract?
- Work are carried out based on pre-agreed unit rates.
- The actual quantities of work carried out are measured and the tendered rates are applied to those quantities.
- The contractor is paid for the actual work they have done so the final value of the project will be derived based on the unit prices and exact quantities.
