BE 2405 ± Construction Economics III

Pre-contract costing

Acknowledgement
This report reflects the combined efforts of many professionals in the University of Moratuwa. Their observations, conclusions, recommendations, are a product of intensive investigation upon us. Those became as precious assets to achieve the task of our project. So many people deserve credit, which is impossible to identify all of them individually. Mr. B.V. Prasath Sanjeewa, senior lecturers of the department of building Economics contributed skills and their dedication was made our project success. A project like this, necessasarily required the assistance of many people. H.A.E.C. Jayasena has assigned us to reach the task in a flexible manner. The lecturers in charge of computer labs helped and guided us to obtain knowledge by providing the facilities to access internet to collect information for our project work. Here this project work is acknowledged to the Department of building Economics in the University of Moratuwa as to show our gratitude to above professionals and future professionals. Your acceptation will be courage to our career in this field of Quantity Surveying and Facilities Management.

Department of Building Economics

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........... 11 6...................................0 Introduction ........ ...0 Pre-contract cost controlling........... 3 3........ .............................................. 5 3........................ 8 3..................................0 Preliminary Estimating techniques used in stages of RIBA plan ...0 References ............0 Conclusion ................................ .............BE 2405 ± Construction Economics III Pre-contract costing Table of Content 1.....1 2.................... ......4 Detail Design to Production Information stage ..........................0 Pre-contract cost control flow chart ............5 Bill of Quantities stage and Documentation ... ...................................0 Pre-contract cost planning process in the RIBA plan of work ............ .... . .0 Pre-contract cost planning ................. ............................................ .......1 Basic Principles of cost controlling .............................................................................................. ................................................... ....... 14 8.................................................... ..... .... .............................................. ................................0 Pre construction cost control line diagram ...........................2 Outline Proposal............................ ...1 Feasibility Studies ....0 Pre-contract cost controlling process in the RIBA plan of work........................................................................ 17 Department of Building Economics ii ....... ............... .................................................................... ...............1 Types of Cost plans produced in different stages ............................................... ....................................................................................................... . ................................................. ................................ .................................. ......................................................................................................... 12 7............................................ ............ ..................3 Scheme Design Stage ............. ....... 7 3.................... ......... ...... 9 5........... 16 10....2 2............ ... ........ .......... .................... ..... 11 5........... . 15 9.................................... ...... 2 3.................................... 8 4..... ...................... ...................................... .... ... 3 3....... ......

So to identify the function plays in pre contract stage is detailed throughout this report and the illustration of diagrams will enhance the understandability of how the planning and estimating is provided under these stages in the RIBA plan of work. cost control is the process of controlling of cost performance against the c plan. This course work contains about pre contract cost planning and cost control related with the RIBA plan of work and estimating techniques used in the cost planning process and cost controlling which is an essential part of cost planning. Ideally. during the tendering stage and after the construction commencement controlling is done by the client. in other words pre contact cost planning cannot sustain alone without pre-contract cost controlling or vice versa. Pre-contract cost controlling is quite different to the post-contract cost controlling. However.0 Introduction The cost of a project should be predetermined before the implementation of the construction due to the scarcity of investments in the project. structural and aesthetical requirements. cost control should be provided from inception to completion of the project. The objectives of this report are to set out the procedures which are necessary to enable a chartered quantity surveyor to carry out comprehensive pre-contract cost plan and control for a proposed project from the formulation of the client¶s brief. Pre-contract cost planning and cost controlling are processes which go together. which is given the overall idea and the estimating acts as a reference to the Bill of Quantities. This is a process that should be continued throughout the construction period to ensure that the final cost of a building project within the target cost. they are during the design stage. The cost control can be divided into three major areas.BE 2405 ± Construction Economics III Pre-contract costing 1. As quantity Surveyors. Such that the estimated final cost of project is always known. it is essential to have the idea of estimating prior to the preparation of the Bill of Quantities and pricing its items. through the various design stages until a contractor¶s tender is finally accepted. ost adjusting one or the other reference to the changing circumstances in the project's financial environment. Cost control and planning during the construction process is fundamental to ensure the success of a project. Department of Building Economics 1 . so the client requires knowing the cost of construction which fulfills his design and other functional. The most complex projects share the common theme that they are fraught with risks and uncertainty that can cause cost escalations.

All difference are to be fully reconciled. The purpose of this contingency is to cover any variable cost factors other than inflation or major changes required by the client authority. for example.This cost plan is not to be provided unless specifically requested. the project team leader must be informed and an allowance determined and included in the specific element. All factors must be included. The interim cost plan and tender document cost plan are to include a reconciliation statement comparing individual element totals. Interim Cost Plan . with those in the previous cost plan. Sketch Design Cost Plan 2. If it is considered that an allowance is at particular risk. the consequential saving should always be notified to the client. and the quantity surveyor should at all times work with the design team to satisfy the client at a lower cost if possible. It is envisaged that it will be required when there has been a significant change in the design. If the cost information is not available. areas etc. Target dates for the cost plans are to be decided upon between the Project Team Leader and the project team in accordance with the requirements of each particular project. If at any time sums have been included in the approved budget for site abnormal costs. 2. which subsequently are found to have been who or lly partially unnecessary. The extent of the design contingency allowance shall be clearly shown. The cost plan should not be prepared with a list of exclusions. Tender Document Cost Plan Cost plans are to reflect building price which includes market conditions. A contract contingency allowance shall be included if necessary. Department of Building Economics 2 .0 Pre-contract cost planning Pre-contract cost planning is the technique by which the budget is allocated to the various elements of an intended building project to provide the design team with a balanced cost framework within which to produce a successful design.BE 2405 ± Construction Economics III Pre-contract costing 2. It should be a continuous process. A general principle applies throughout the cost planning process that any agreed budget or cost limit is seen as the maximum cost. 3. progressive checks are being made from time to time in relatively more detail on perhaps smaller sections of the project as the designed is finalized. attention should be drawn to this fact.1 Types of Cost plans produced in different stages 1. In the early cost planning stages a design contingency allowance shall be included equating with the amount of detail available.

7. 6. Approximate location of the building on the site. the availability of the site for commencement of the construction. whether the total expenditure authorized by the client which is within the responsibility of the design team. 3. To establish the limit of expenditure necessary to meet client¶s requirements set out in the brief. Department of Building Economics 3 . 3. Information requirement The basic requirements from the client and members of the design team to the quantity surveyor From the Client 1. 7. Advice on routes of public sewers etc. 3. and of the recommended methods of contractual procedures necessary to achieve the required occupation date. In conjunction with the architecture. 2. Any specific requirements as to specification. 2. Objectives 1. Advice on likely Fire regulations 5. The required occupation dates.BE 2405 ± Construction Economics III Pre-contract costing 3. From the Architect 1. Names of previous similar projects designed by the practice. Architects concept of building. Names of similar buildings of broadly suitable quality.1 Feasibility Studies Definition At this stage Quantity surveyor should determine. 5. Location of the site. Any specific requirements relating to life cycle of costs. a schedule of accommodation. To provide the client with the alternative budgets for different completion dates and the quality of the building. 6. Advice on minimum storey height for specialist areas on schedule of accommodation. Requirement in respect of inflation. Advice on likely planning conditions 4. To provide the client with a statement of the likely area and quality of building which can be achieved within the limit of expenditure. 4.0 Pre-contract cost planning process in the RIBA plan of work 3. 2.

Advice on availability of public utility services. Unusual projects. A copy of document sent to the client. The assumptions upon which the prediction is made may need to be stated. Some public sector clients have their own rates. Such quality and quantity parameters as relate to their area of design. Advice on probable ground conditions. projects of great complexity and projects containing large element of alterations cannot normally be accurately budgeted at an early stage. This can be computed using predictions published by the BCIS. and therefore the framework for the actual design to develop Inflation The prediction of future inflation may not be necessary for some clients. Advice on probable floor loading. engineer 2. engineer 2. Advice on areas of building which will require specialist engineering services. 2. For many other types of projects. 5. A statement setting out the time for design and construction which the budget cost will meet. and in such circumstances professional judgment is exercised. Method of preparation The method of preparation will depend on the type of project involved. sometimes they are unrealistically low. A statement of the basis of the budget calculation including any important assumptions made. with alternatives if appropriate. it is possible to build up a budget using the parameters set out. A statement of items not included. To the architect 1. Where an assessment of inflation is required for more than a few months ahead. To consultants other 1. Department of Building Economics 4 . The information from the quantity surveyor to design team members To the client 1. 3. 4. to which rates applicable to agreed quality and performance standard can be applied. The main elemental quantities of hypothetical buildings can be easily generated using agreed parameters. 2. A more detailed statement of quantity and quality parameters included in the calculation. and a statement of cost at current prices may be adequate. Once the budget has been calculated in this way it provides the first cost plan for the project. Cash flow forecast. From the structural 1.BE 2405 ± Construction Economics III Pre-contract costing From the services 1. The budget. Architects Journal or the PSA projections. a range of probable inflation is best provided.

the chosen distribution of the resources made available by the budget to provide a balanced design to meet the client¶s needs. engineer Department of Building Economics 5 . Outline proposals of alternative structural solutions. To set cost targets for the main elements so that. and authority to proceed. Confirmation of the brief. as the design develops. Outline proposals. 2. From the Architect 1. the targets are checked and adjustments made in order that the overall cost of the project is controlled within the budget. Outline drawings of the building and site works indicating alternative solutions. Confirmation of the design and construction time stated in the budget report.2 Outline Proposal Definition A statement of the cost of an intended design at the outline proposal stage which details the cost targets for the main elements of the building. To provide the opportunity for a preliminary consideration of life cycle costs. To provide the whole design team with a control document which communicates the cost. engineer From the structural 1. 2. together with the outline proposal drawings. where alternative budgets were quoted in the budget report the client must state his preferred alternative. 2. To describe. From the services 1. 4. quality and quantity parameters which are to be followed. 3. Information requirement The basic requirements from the client and members of the design team to the quantity surveyor From the Client 1. 4. together with approximate quantity and quality parameters which meet those targets. Acceptance of any other matters within the budget report. 3.BE 2405 ± Construction Economics III Pre-contract costing 3. Objectives 1. Confirmation of the budget. Indication of preferred specification for main elements.

Such quality and quantity parameters as relate to their area of design and target costs. A statement of floor areas. Evaluation should be made of the alternative forms of the construction of the key elements. Department of Building Economics 6 . the selection of components or systems should be made with a view to there being acceptable alternatives in case of speed up the construction. The key elements always vary and it is anticipated that major financial consequences almost always include structural and services elements. Inflation Where the client has been given a forward projection of inflation and where this prediction is significantly changed. 2. Methods of preparation The method of preparation will either be by the measurement of approximate quantities and the application of rates to the quantities generated. A broad indication of specification. other 1.BE 2405 ± Construction Economics III Pre-contract costing The information from the quantity surveyor to design team members To the client 1. it should be reported periodically. 4. the quantity surveyor must take into account the consequences of the proposals made by the other members. To the architect To consultants 1. because when the completion dates are critical. A copy of documents sent to the client. or from comparison of the requirements with analyses of previous projects of a similar character. A request for decisions on any alternative proposals. 3. The cost plan. Design and Construction Period In establishing the outline cost plan. A statement of cost 2.

engineer 2. consultants Department of Building Economics 7 . 4. 3.BE 2405 ± Construction Economics III Pre-contract costing 3. From the specialist 1. 2. From the Architect 1. From the services 1. together with the quantity and quality parameters described by the scheme drawings and specifications. Acceptance of any other matters within the previous cost plan report. To set out for the design team the actual distribution of resources described by the scheme design. in detail. To set cost targets for all elements so that as the detail design develops. the targets are checked and adjustments made in order that the overall cost of the project is controlled within the budget. Confirmation that the cost plan prepared at the outline stage is acceptable. Indication of any preferred alternatives given in a previous cost plan.3 Scheme Design Stage Definition A statement of the cost of a selected design at the scheme design stage. Confirmation on floor loading and the like. engineer 2. 3. and authority to proceed. Confirmation of the brief. Detailed design parameters. Objectives 1. Scheme drawings and scheme specifications. 3. which details the targets for all the elements of a building. Scheme drawings and scheme specifications. 2. Scheme drawings and scheme specifications. From the structural 1. Scheme drawings and scheme specifications. the cost. Information requirement The basic requirements from the client and members of the design team to the quantity surveyor From the Client 1. To provide the whole design team with a control document which describes. quantity and quality parameters which have been adopted. Provisional indication of weights where appropriate.

6.BE 2405 ± Construction Economics III Pre-contract costing The information from the quantity surveyor to design team members To the client 1. Methods of Preparation The method of preparation should normally be by measurement of approximate quantities from the proposed scheme drawings. The preliminary engineering and specialist services scheme drawings and outline specification notes will be required from the consulting engineers. Mainly the process of the cost checking is done to modify the cost plan. (Refer conjunction with cost controlling at this stage. A cash flow forecast. Such quality and quantity parameters as relate to their area of design and their target costs. (Refer conjunction with cost controlling at this stage. A statement of the cost. where appropriate. This also ensures that the likely builders work implications are understood by the design team and costs are taken into account 3. Major elements will normally need to be priced in greater detail. 5. To the architect To consultants 1.5 Bill of Quantities stage and Documentation The final tender cost plan is prepared for the project by pricing all the BOQ items.4 Detail Design to Production Information stage The review of cost plan is done at this stage. other 1. 4. Some elements may still be most suitably priced on an elemental unit rate basis. A statement of the proposed design and construction programme. The degree of detail to be measured should be related to the cost significance of the elements in the particular design. A statement of the specification. where the cost significance is low. The cost plan. using of the finalized drawings and specifications. A copy of documents sent to the client. A statement of the relevant life cycle cost where appropriate. A statement of the floor areas.) Department of Building Economics 8 . 3.) 3. 2. Pipe work and cables will normally still need to be priced on an overall basis related to floor area or service points at this stage. Likewise pricing should be similarly related. 2. from which approximate quantities of equipment can be measured and priced using all-in rates.

Required the historical cost data and experience of the estimator is required. Conference Estimating Used for the preparation of earliest price estimate given to the client Based on consensus view point 2. Story enclosure unit method   Detail Stage Production Information Stage Requirements are as above. Design 7. Estimate = Standard units of accommodation x Cost per unit  Scheme Stage design 4. Attempting the use of cost data of similar projects.0 Preliminary Estimating techniques used in stages of RIBA plan Stages Inception Preliminary Estimating techniques and 1. Unit method    feasibility Stage No need of drawings and specifications. Only the concept of the project in respect of function is required. 3. This technique use weightings for the estimating the building elements. This method is base on relationship between building volume and unit cost.  Estimate = Area of the building x Unit cost (cost/m2 ) 6. Cube method     This method needs some of sketch drawings. Only required historical data and the experience of the estimator in adjusting those historic data to the current figures. Elemental Cost estimating    Department of Building Economics 9 . Estimate = volume of the building x Unit cost (cost/m3 ) 5. Superficial area method   Requirements are as above. Financial methods Used to determine cost limits or the building costs in a developer¶s budget. This method is based on relationship between building Area and unit cost (cost/m2). purpose and function of the project.BE 2405 ± Construction Economics III Pre-contract costing 4. Detail drawings are required The method analyses the cost on an elemental basis.

BE 2405 ± Construction Economics III Pre-contract costing 8. labour and plant and equipment requirement. Approximate Cost estimating   Detail drawings are required Taking off is done for composite items by grouping together typically billmeasured items.  Relates to the cost of actual work Bill of Resource analysis To determine individual rates for measured items in the Bill of Quantities. Quantities Stage Department of Building Economics 10 . Considering each items by analyzing of material .

Cost targets are checked as the design advances. (cost check) Department of Building Economics 11 .1 Basic Principles of cost controlling Principles Frame reference (cost limit) Method checking (cost target) of of Description Establish a realistic cost estimate and determine how the money is going to be spending between elements of the construction. 5. Means remedial action of This is to ensure that the expenditure is contain with the cost targets (cost limits).0 Pre-contract cost controlling Pre-contract cost control is the total process which ensures that the contract sum is within the clients approved budget or cost limit. Generally. A construction cost control system should enable a manager to observe current cost levels. this action should take before preparation of production information and Bills of Quantities. this realistic cost estimate will be with acceptable contract price. The remedial action should take well before the stage where any damages done cannot be change back to the original budget. and institute corrective action to keep cost within acceptable bounds. If the value of any element in the cost plan is seriously altered by a decision taken at this stage it will be necessary to review the value of other elements in the cost plan. Remedial actions should take after the discussion with design team and the management/ client. in conjunction with all members of the design team. The cost planner. compare them with a standard plan or norm. must detect and measure variances from the cost targets previously established. As the design is developed and decisions taken the cost plan must be checked to ensure that such decisions will not adversely affect the intended expenditure.BE 2405 ± Construction Economics III Pre-contract costing 5. Therefore. As the work progress.

Principles The method will vary according to the stage reached in the design process. or would cause the total budget to be exceeded. Normally. The quantity surveyor should take into account. the consequential effects of the change and provide an updated cost plan. whilst maintaining Information stage overall cost control of the project within the framework of the cost plan To reduce the amount of abortive design work and lost time caused through proceeding too far in the design process before realizing that the budget will be exceeded. Outline Proposal Stage.BE 2405 ± Construction Economics III Pre-contract costing 6. this applies to consulting engineers. to the proposal. Scheme Design Stage When a change is proposed to the outline cost plan the following procedures should be followed. and All the relevant members of the design team should be informed. the quantity surveyor should communicate to the client. the likely effect on the design and the construction programme. In particular. when considering the proposed change. In all considerations of alternative cost proposals. Upon the conclusion of a proposed change. in principle. The architect should confirm his agreement. whose fees are calculated only on specific parts of the project. Department of Building Economics 12 . the client should be informed and instructions requested. the client should also be informed. Where the proposal incurs additional cost over the elemental target. Likewise. No proposal should be incorporated in the cost plan without the agreement of the quantity surveyor.0 Pre-contract cost controlling process in the RIBA plan of work Stage Feasibility Studies Cost control If at any time during the design process it becomes apparent that the agreed budget is likely to be exceeded. and all members of the design team. and he should indicate his confirmation that the proposal can be met within the agreed elemental target. without a change to the brief. the use of consultants for additional work should take into account any consequential addition to professional fees. if it becomes apparent that the whole of the agreed budget will not be required. Detail Design Objectives to Production To allow flexibility in the design process for change of mind. the quantity surveyor should positively indicate to the design team alternative savings that are available to maintain the overall budget.

The cost significant of an element related to the total cost of the project. the excess or saving revealed in the element is relatively small and there are still a number of elements to be checked. to provide a check on the quantity and the quality of parameters set down in the appropriate cost plan. If. since these may produce compensating amounts. Bill Quantities of This stage will be the final check of cost controlling. The known variability of cost of an element i. this takes the form of measurement of approximate quantities from the consultant¶s drawings. it will be necessary to cost check this before checking elements of low variability but of the same overall cost significance. setting down on a summary the value of the elements cost checked compared with the cost plan targets. then this must be notified immediately and the design team must be asked to consider modification to the cost plan. it is usually more appropriate to advice the architect of the difference and to suggest that no further action is taken until further cost checks have been carried out. where a wide range of cost is possible in an element. and to be especially clear as to the drawings or information upon which the cost check has been based. Judgment must be applied before notifying the architect of possible excess expenditure in a particular element.BE 2405 ± Construction Economics III Pre-contract costing however. however. If an excess revealed during cost checking is of such significance that is highly improbable that compensating savings will occur elsewhere. The two dominant considerations in deciding the priorities for cost checking elements are as follows. which is giving the entire picture of the project cost after the controlling the entire process. Department of Building Economics 13 . It is important for the quantity surveyor to maintain proper records of the cost checking process. The gross floor area is the first check at any stage.e.

0 Pre construction cost control line diagram Department of Building Economics 14 .BE 2405 ± Construction Economics III Pre-contract costing 7.

0 Pre-contract cost control flow chart ³Brief Stage Cost´ Sets Initial Budget Client Approval received? YES Alter Brief NO Cost Planning necessary? NO Procedures as appropriate YES YES Outline proposals required? NO ³Outline proposal cost´ total comparisons of alternatives Client Approval received? NO Amend Outline Proposals YES ³Sketch Design Cost Plan´ Includes estimates of alternatives during sketch design development and ³Final Cost Budget Document´ if required Client Approval received? YES NO Amend Sketch Design ³Tender Document Cost Plan´ Includes cost checks during detail development and production of tender documents.BE 2405 ± Construction Economics III Pre-contract costing 8. cost statements and interim cost plan if required Final Budget met? NO Amend Tender Document Department of Building Economics 15 .

Pre contract costing flows from the inception to the documentation in the process of RIBA plan of work. Therefore the methods used in the preparation of estimate also moderate as it flows in the process. It is highlighted where the estimator should obtain the client¶s approval to proceed with the work. The line diagram and the flow chart is given a symbolic presentation of the Pre contract costing of planning and controlling as the overall picture of the report. the estimator must use his professional judgment in developing a realistic reasonable estimate prior to the implementation of the construction.0 Conclusion The cost plays a vital role in the construction industry due to the fact that the client has a limited budget so the work should within the range of the client¶s budget to satisfy his requirements. Estimating techniques could not help the design team to prepare a realistic estimate for a client at the early stage of the building design. They are set up as cost limit. The plan is mainly depend on the appropriate technique used for the estimating and the estimator¶s skills. is different and developed when the design reaches step by another in the RIBA plan of work. Department of Building Economics 16 . Planning should go in conjunction with controlling to conclude on realistic cost plan of the project. It always updates at the presence of assumptions and the information available. For the required adjustments for the quantity.BE 2405 ± Construction Economics III Pre-contract costing 9. The cost control is the governing the accuracy and the reasonableness of the estimate throughout the process. The techniques used in the pre contract cost planning which is detailed in the project. cost target and the cost check. quality and time. It is come across with certain principles that used to maintain the cost within the client¶s budget also conjunction with his required quality of the work. As quantity Surveyor undergraduates it requires to gain the knowledge on planning and controlling the cost factor throughout the construction process. where the estimator will do a compare. Approximate quantities and single rate methods are important and are the methods most frequently employed today in both Cost planning and Cost controlling. Cost plan develop with the client¶s brief with an unknown design and ends up with the priced bill of quantities where the summary in it give the final cost estimate of the construction at the consultant¶s point of view. It results to develop preliminary estimating techniques. knowledge and experience. analyze on variation and update the budget with some other construction recommendation along with his scope.

0 References Department of Building Economics 17 .BE 2405 ± Construction Economics III Pre-contract costing 10.