4 Pre-contract cost management
Panel 4.2 The building cost information service of the RICS
The nationally available BCIS contains two types of elemental cost analyses:
1. Concise cost analysis, which gives only a breakdown into broad elements such as substructure, superstructure, services etc.;
2. Detailed cost analysis in a standard format – fully describing each project thus:
(a) information on the project, including description, site and market conditions, number and prices of tenders, contract period, form of contract;
(b) elemental costs – showing element total cost, cost per square metre gross floor area, element unit quantity, element unit rate, with two sets of figures for the preliminaries shown separately and apportioned;
(c) specification and design notes;
(d) plan and elevation.
The elemental cost data from previous projects is accessible to subscribing members via computer link to the BCIS. Thus even in the absence of designer’s drawings, the client’s cost adviser is able to create on the computer a pre-contract cost model using the data from several similar previous projects.
Table 4.3 Establishment of elemental cost targets for inclusion in cost plan.
Element 43: floor finishes
Area Specification Quantity (m2) Rate (£) Cost (£)
Outline cost plan
All areas Typical mix 10,000 7.30 73,000
Detailed cost plan
Warehouse Floor hardener 9,000 2.00 18,000
Office Carpet 900 50.00 45,000
Toilets Ceramic tiles 100 100.00 10,000
10,000 73,000
Milestone reports
If all the documentation is formatted in the same way it can be compared and reconciled. One way to do this is to use milestone reports. This is a table that summarizes and reconciles between each milestone. A milestone report is normally a report such as
● original budget
● cost plans for example 1 to 10
● pre-tender estimates
● contract sum
● financial statement for example 1 to 50
● final account.
The main-group costs, such as total finishes, are tabled together with the total cost, area, cost per square metre and a comment on any major changes to brief. The costs can be plotted on a graph. After several projects, the client’s cost consultant can analyse their performance to see whether they need to adjust their level of optimism or pessimism.
4.5 General comments
The client obviously remembers the first figure reported to them. When the original feasibility study is performed the budget is often fixed; it is therefore essential that all cost reporting reconcile back to the original budget. All estimates should explain to the client and the design team about what is included in the budget. It should be a discussion document for design optimization.
As the design develops it is inevitable that some over-specification in individual elements will occur, sometimes increasing the total cost beyond the total budget. The elemental breakdown can highlight the offending elements by showing an excessive percentage of the total.
Normally the individual percentages of each elemental cost for a particular type of building produce a typical pattern. It is important to match the percentages, or pattern, with the norm for that type of building. Mere consideration of the total cost per square metre can be mislead-ing as there can be two high and two low elements, which may cancel each other out and yet require a detailed examination.
4.6 Action after receipt of tenders
In most cases, sound cost planning will produce tenders within budget. If, due to market conditions or late changes in designs and specification, adjustments need to be made to a tender, information on potential savings will need to be identified by the design team. If there are significant changes from the initial tender documents, consideration should be given to the need for seeking revised tenders.
4.7 Conclusion
This chapter has briefly reviewed the key concepts of pre-contract cost management in the industrial engineering, civil engineering and building sectors in order to identify a suitable approach for construction works. Many similarities in the approach and techniques in the three sectors have been identified.
The cost manager’s systems should provide clients and project managers with the maximum possible advance warning of likely expenditure so that timely and appropriate actions may be considered.
It is necessary to identify what items are included in the estimate and which are excluded.
Forecasts should not be single figures, implying a degree of accuracy that does not exist; they should be a range of figures within stated parameters. Ideally, each estimate should be a logical development of its predecessor reflecting the increased level of detail available.
In the periods between revisions of estimates and cost plans, the development of designs and programmes and the progress of procurement and commitment must be controlled.
A major factor in the management of costs is the identification and management of the risks.
Risks are associated with the unknown. Therefore, as a project progresses from inception through design construction and use, the unknown elements should diminish and the risk allowance reduced accordingly.
4.8 Questions
1. Describe and discuss the range of cost models and show how they are useful at different stages in the design process.
2. Discuss the steps that can be taken to ensure that cost planning and control keep the final cost of a building project within cost target.
3. The primary function of producing estimates of the cost of construction works is to be able to advise clients of anticipated development costs. Discuss the various methods of providing such pre-contract estimates in relation to a proposed marina development.
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