Quantification and Costing of Construction Works Flashcards
1
Q
What are the typical cost manager responsibilities on a construction project?
A
- 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.
2
Q
If you are producing estimates and cost plans, which measurement rules represent industry best practice?
A
New Rules Of Measurement (NRM).
3
Q
Can you name the 3 documents in the NRM suite?
A
- 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.
4
Q
Can you provide a brief overview of each of the NRM documents please?
A
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.
5
Q
What is the structure of the NRM 1?
A
- 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.
6
Q
What is the structure of the NRM 2?
A
- Part 1: General introduction
- Part 2: Rules for Detailed measurement of building works
- Part 3: Tabulated rules of measurement for buildings works
- Appendices.
7
Q
What is the structure of NRM 3?
A
- 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.
8
Q
Why is it important to measure the works according to industry standards and best practice?
A
- 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.
9
Q
What are the key headings for contractor preliminaries identified in NRM2?
A
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.
10
Q
How is risk dealt with under NRM?
A
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.
11
Q
Can you tell me the 4 risk categories identified in NRM?
A
- Employer Change Risk
- Employer Other Risk
- Design Development Risk
- Construction Risk
12
Q
How does NRM define the ‘cost limit’ of the project?
A
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.
13
Q
Can you explain what the ‘base cost estimate’ should include?
A
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.
14
Q
What is an order of cost estimate?
A
- 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.
15
Q
How are professional fees presented in the order of cost estimate?
A
Fees can be presented as an item (if actual fees are known) or a percentage applied to the ‘works cost estimate’.
16
Q
Which RIBA stage is the order of cost estimate typically produced?
A
RIBA Stage 1 - Preparation and Briefing.
17
Q
What is the difference between an order of cost estimate and cost plan?
A
- 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.
18
Q
What additional information should accompany an order of cost estimate?
A
- 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
19
Q
What is a cost plan?
A
- 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.
20
Q
Other than predicting the final project cost, what other benefits does the cost plan provide to the project and project team?
A
- 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.
21
Q
Do you need a programme to complete the cost plan?
A
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
22
Q
What sources of cost information and data are available when preparing a new estimate or cost plan?
A
- 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.
23
Q
How do you take account of the project location and why?
A
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.
24
Q
What is a cost plan risk allowance?
A
A sum included to cover unknown costs or unmitigated risks during the project.
25
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).
26
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.
27
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.
28
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.
29
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.
30
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).
31
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.
32
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.
33
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.
34
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.
35
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.
36
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.
37
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).
38
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.
39
What types of provisional sum are there?
Defined and undefined.
40
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.
41
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.
42
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.
43
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.
44
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.
45
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)
46
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.
47
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.
48
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.
49
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.
50
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.
51
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).
52
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.
53
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.
54
What are the key advantages of remeasurement contracts?
- Since the work is tendered on approximate quantities, the contractors will submit competitive prices in their tender.
- The contractor's risk is comparatively low (compared to a lump sum contract).
55
What are the key disadvantages of remeasurement contract?
- There is less cost certainty until the project is complete.
- General accuracy of cash flow forecasting.
- The risk for the employer is higher (compared to a lump sum contract).
56
What is a target price contract?
- The main difference between a target and conventional contract is the mechanism for sharing risk and opportunity.
- The target cost is set early in the project, upon completion, cost savings or overruns are shared between the contractor and employer based on a pre-agreed formula or percentage. This is often termed the 'pain & gain' mechanism.
57
What are the key advantages of target price contract?
- The contractor and employer are incentivised to reduce costs.
- Encourages active and equitable risk sharing, based on a clearly defined allocation of risk agreed at the outset of the project.
58
What are the key disadvantages of target price contract?
- The employer and contractor must share pain and gain, this exposes the employer to greater risk.
- Complex target price, pain/gain share may not easily be understood by all parties.
59
What is a guaranteed maximum price (GMP) contract?
- A guaranteed maximum price contract (GMP) sets a limit that the employer will pay their contractor, regardless of the actual costs incurred (i.e. the contract sum will not exceed a specified maximum).
- If the actual cost of the works is higher than the guaranteed maximum price, then the contractor must bear the additional cost.
- If the cost is lower than the guaranteed maximum price, the contract should set out which party will benefit from the savings. Usually, the savings will be split between the employer and contractor using a pre-agreed agreed formula or percentage.
60
What are the key advantages of Guaranteed maximum price (GMP)?
- Establishes the employer's maximum financial commitment (subject to employer variations). If the contractor's costs exceed the target cost, only the target cost sum is paid.
- Both the contractor and employer have potential to benefit from savings.
61
What are the key disadvantages of GMP?
The contractor will have to share any savings made while taking on the risk of cost overrun.
62
What are contractor preliminaries?
- Items which cannot be allocated to a specific element, sub-element or component.
- Preliminaries are typically items which are necessary for the contractor to complete the works but will not actually become part of the works once the project is complete.
- Contractor preliminaries may include items such as:
- Management and staff
- Site establishment
- Temporary services
- Security
- Safety and environmental protection
- Insurances.
63
When assessing the costs for contractor preliminaries (at tender stage) what are the key considerations to determine if they are fair and reasonable?
- Length of contract.
- Type of project (new build, refurbishment, infrastructure etc.)
- Size of project and overall build cost.
- Need for temporary works.
- Security requirements.
- Method and sequencing of works (working hours, supervision, management etc.)
- Extent of contractor's design responsibilities.
64
Can you give me examples of contractor preliminaries which might be considered abnormal (over and above a 'standard' project)?
- Tower cranes.
- Evening /weekend working.
- Road closures/traffic management.
- Closing train lines.
65
What is the difference between fixed and time related preliminaries?
Fixed Preliminaries are one-off costs whereas time related Preliminaries are dependent on duration.
- Time Related - lower crane weekly hire.
- Fixed - Purchasing site security equipment.
66
What is inflation?
NRM 1:
- Means an upward movement in the average level of prices and or costs (i.e. the opposite of deflation).
- It is included as an allowance in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment and materials.
67
What are the two types of inflation as defined in NRM1?
- Tender Inflation - means an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the estimate base date to the date of tender return.
- Construction Inflation - means an allowance included in the order of cost estimate or cost plan for fluctuations in the basic prices of labour, plant and equipment, and materials during the period from the date of tender return to the mid-point of the construction period.
68
What does TPI stands for?
Tender Price Indices.
69
What do TPIs show?
- They measure the movement in prices agreed between clients and contractors at 'commit to construct' normally when the tender is accepted.
- These indices are typically used for adjusting estimates and budgets to different dates.
70
What is meant by the term 'functional unit'?
NRM1 - means a unit of measurement used to represent the prime use of a building or part of a building (e.g. per bed space, per house and per m2 of retail area). It also includes all associated circulation space.
71
Can you explain what GIFA is please?
NRM1 - Gross Internal Floor Area (GIFA) is the area of a building measured to the internal face of the perimeter walls at each floor level.
72
Can you explain what GEA is please?
NRM1 - Gross External Area (GEA) is the area of a building measured externally (i.e. to the external face of the perimeter walls) at each floor level.
73
What is wall-to-floor ratio?
- The wall-to-floor ratio of a building is calculated by dividing the external wall area by the gross internal floor area. This indicates the proportion of external wall required to enclose a given floor area.
- This may reveal how efficient the design is and may also help inform the construction cost.
diagrams shown in the page no: 158(841 Q)
74
Can you explain what NIA is please?
NRM1 - Net Internal Area (NIA) is the usable area within a building measured to the internal face of the perimeter walls at each floor level.
75
What is the purpose of IPMS?
- International Property Measurement Standards.
- IPMS for industrial, office, residential and retail buildings have been drafted by the independent Standards Setting Committee and establishes a consistent methodology for measuring buildings around the world.
76
What is a bill of quantities?
A detailed document consisting of all items which makeup the components of a building as well as preliminaries. It includes measures and rates for each item. Usually based on full production of drawings and project specification. This document then forms an excellent tool for pre and post contract cost control. By using the rates contained within the document, we can easily manage variations and monitor exact expenditure on site.
Consists of:
- Preliminaries.
- Preambles (description of materials and workmanship to be employed).
- Measured works.
- Provisional sums.
- PC Sums.
- Dayworks.
- Appendices (bonds, warranties etc.)
77
Why would you use a BoQ instead of a schedule of work?
- A BoQ is more detailed.
- Much easier to compare tenders.
78
What are the advantages and disadvantages of preparing a BoQ based on standard method of measurement?
Advantages:
- Easier post-contract cost control.
- Easier tender analysis.
- Good for large, complex projects.
- It should have everything in it (detailed).
- Cost certainly.
Disadvantages:
- Expensive to produce.
- Time consuming.
79
How would dayworks be included within a BoQ?
Day or hourly rate for labour.
80
When are approximate quantities to be used?
For items that cannot be accurately quantified at time of tender.
81
What is Cash Flow?
- (S-Curve mechanism) Cash Flow refers to the movement of cash into or out of a business or project.
- It is usually measured during a specified, finite period.
- Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.
82
How would you create a cashflow forecast?
- Need to have the construction programme and cost plan.
- The cash flow can be created on a computer programme such as Excel.
The Cash Flow can be created without a computer, the expected costs are attributed to each month on a simple x-y axis graph. Construction projects usually from a 'S Curve'.
Graph shown in page no:159 (850Q)
83
What are the key differences between employer's cash flow and contractor's cash flow items?
- Contractor cash flow will show the construction costs and prelims.
- Client Cash Flow considers fee to government authorities, consultant fee, land acquisition charges, marketing, sales charges etc.
84
What is the benefit of cashflow forecast for the employer?
- Allows employer to gain an understanding of financial requirements over the duration of the project duration.
- Also acts as a check against valuations - early indication of financial difficulties.
- Helps clients to plan expenditure.
- Predicting cash flow is important in order to ensure that an appropriate level of funding is in place and that suitable draw-down facilities are available.
85
What would payments being behind the cash flow forecast imply?
This would imply that the project was behind programme or under budget.
86
What would payments being ahead the curve imply?
The project was ahead of programme, or the contractor is claiming for more than has been completed on site.
87
Why do we need to use a cash flow forecast?
Predicting cash flow is important to ensure an appropriate level of funding is in place and that suitable draw-down facilities are available.
88
Is there anything else to consider that may affect your cashflow?
Cash Flow projections may be affected by the need for the early purchase of long-lead time items or by items that the client may wish to purchase that are outside of the main contract (such as furniture or equipment).
89
What is the purpose of a financial report?
- To report against budgeted values and act as a working cost check on the project budget.
- To give the client an understanding of any savings or additional monies required.
- To report on contract progress against pre-contract predictions.
90
What would you include in a financial report?
- Executive Summary.
- Contract Sum.
- Instructed Variations.
- Potential future variations as advanced warnings.
- Claims.
- Cost Plan.
- Value engineering options.
- Anticipated final account total (forecast).
- Risk allowances.
- Final account progress.
- Total of certified payments.
- Major risks or causes for concern.
- Next steps and recommendations.
- Cash Flow Forecast.
91
What is the difference between cost and price?
- Cost is the total of labour, plant, materials and management deployed for a specific activity.
- Price is the amount a purchaser / client will pay for an item or product.
92
How can the cost report help to monitor & control the project budget?
- It tracks all issues relating to cost on the project.
- Budget, forecast cost, expenditure to date.
- Remaining expenditure for all areas of the project such as consultant fees, contractor valuations, surveys, FM costs, in addition to Variations/Changes (approved & Unapproved) and key Risks.
- Identifies Final Account - outrun costs vs client initial expectations.
- Life Cycle Costing - total cost of a building from creation to grave.
93
How is a risk register used in the post contract phase of a project?
The risk register is regularly updated throughout the post contract stage (usually during progress meetings). Any new risks identified will be added to the risk register and any risks that have not materialised and are no longer a risk will be closed out. The risk register can then be used to re-allocate or give back to the client the risk allowances if they are no longer required or to obtain additional risk allowances if deemed necessary.
94
The contractor on your project has made a large (and in your opinion) unrealistic claim for loss and expense. How do you deal with it within your cost report?
I Would report the contractor's figure that they have claimed but highlight to the client that I believe this is unrealistic and that I will carry out due diligence checks on it to ensure value for money for the client. I would then report any change to this cost once it is agreed.
95
Give some examples of why a project might have a cost overrun?
- Employer's objectives not clear or changed during the project.
- Unrealistic cost estimates.
- Risk allocation is ambiguous.
- Inadequate management control.
- Design not meeting planning or statutory requirements such a Building Regulations.
- Uncoordinated design.
- Design that is difficult to built or maintain.
- Design that does not meet the tendering or procurement strategy.
96
What is life cycle cost?
- It is the total discounted cost of owning, operating, maintaining and disposing of a building or a building system during a measurable period. (By NIST - National institute of standards and technology).
- The discounted Cash Flow method is used to find out the life cycle cost of a project.
97
Why carryout life cycle costing?
- As part of business case evaluation to work out if you can afford the buiding structure.
- To work out if you can afford to run it.
- As part of optional appraisal exercise to decide on the most economically advantage solution.
- To control the design development within running cost and capital cost budget.
- To provide a set of instructions and a budget for the facilities manager.
98
What are the advantages of lifecycle costing?
- Allows consideration of the long-term implications of a decision.
- Enables informed decisions to be made on material selection.
- This can result in lower operational, maintenance and replacement costs.
- Can be used to plan future maintenance requirements - flexible spaces, easier access.
- Can be used to judge sustainability in money terms.
99
What are the disadvantages of life cycle costing?
Components are not always replaced due to end of life - style, fashion etc instead - almost impossible to assess this at design stage.
- Costs of defects caused by bad workmanship / design faults cannot be predicted.
- Uncertainity of available data - hard to predict life spans, future inflation and maintenance requirements over long periods.
- The client may be selling the building after it is constructed.
- Choosing the wrong discount rate can render the exercise totally useless.
100
What sort of clients might be particularly interested in life cycle costing?
- Government clients - concerned with overall value for money.
- PFI Projects.
- Owner-occupiers.
- Clients aiming to incorporate sustainable technologies.
101
What elements should be considered when calculating life cycle costings?
- Construction costs (construction cost, client's definable costs, other related costs).
- Maintenance costs (replacement costs, refurbishment & adaption costs, Redecoration cost, ground maintenance cost etc).
- Operation costs (cleaning, windows & external services, External cleaning).
- Utilities cost (fuel, service charges).
- Administrative cost (staff cost, property management, waste management).
- Overhead costs, taxes.
- Occupational costs (internal moves, reception, security, helpdesk, switchboard, postal).
- Miscellaneous (library, laundry, catering, FF&E, internal plants, stationary, porters, car parking charges).
- End of life costs (disposal inspections, demolition, reinstatement as per contract).
102
How accurate is life cycle costing?
- A lot of assumptions have to be made - on time periods, costs, trends, inflation etc.
- Its accuracy relies on the accuracy of the assumptions.
- As the time period considered grows, the accuracy is likely to fall.
103
Where can you get information about maintenance costs?
- Building Maintenance Cost Information Service (BMCIS) - part of BCIS.
- From subcontractors.
- From in house data.
- Previous Projects.
104
What is net present value?
Where future costs are discounted to present values.
105
How does the net present value method works?
- It involves the comparison of the net present value of alternative options.
- It is useful at the design stage.
- Future life cycle costs - on maintenance / replacement etc - are discounted to present values.
106
How can life cycle costing be used in a value engineering exercise?
You could review the maintenance costs and the cost of an element over its life cycle. It may be that something has a higher capital cost but its maintenance and replacement costs are significantly less than a cheaper capital cost alternative.
107
What are advanced payments?
- It allows the contractor to receive lump sum payment in advance.
- Usually paid for the procurement of items on long lead in times (for example a lift).
108
What are the disadvantages of advance payments?
- May reduce the incentive of the contractor.
- Bad for the employer's cashflow.
- Concerns over why the contractor can't fund the expenditure- insolvency worries.
- Commercial risk for the employer if the contractor goes into liquidation.
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What is a valuation?
- A detailed breakdown of the works and provides an appraisal of the cost of the works carried out to date.
- Precursor to issuing an interim certificate.
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What are the main elements of a valuation?
- Preliminaries
- Measured work
- Variations
- Materials on site
- Materials off site
- Loss and expense
- Provisional sums (JCT contracts)
- Retention.
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What information is typically shown on a payment certificate?
- Date info
- Date of certificate
- Date of valuation
- Contract date
- Client details - company, name, address
- Contractor details - Company, Name, Address
- Contract administrator details - Company, Name, Address
- Address off site
- Contract sum
- Payment due
- Gross value
- Less retention
- Less previously certified
- Amount due (exc. VAT)
- Director's signature.
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How do you evaluate interim valuations?
- Go to site and conduct/review the valuation with the contractor.
- Check work done, materials on site and materials off site.
- Value preliminaries, agree variations and any claims.
- Valuation amount is gross valuation, less retention, less previous payment.
- Then send recommendation to contract administer to issue the payment certificate.
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What is a vesting certificate?
A Vesting clause is a contractual term which deals with the transfer of ownership of goods and materials and a vesting certificate is a document evidencing that transfer of ownership of those goods or materials.
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What are the options for conducting valuations?
- Stage payments (relating to programme milestones). The stages are usually related to the completion of significant items e.g. substructure and frame.
- Periodic payments (monthly for example).
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What would you do if the contractor claims for paint in their 1st application for payment?
- Assuming the project is a new build, the contractor is likely to be front loading.
- Assess if they had done any painting during the site visit and adjust the valuation accordingly.
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If a contractor's work has been certified and paid in an intern valuation, can it be devalued in a later certificate?
- Payment in an interim certificate is a payment on account of the final sum.
- It is always open and can be devalued in a later certificate.
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What does the term on account mean?
- It's a payment made to recognise works has been completed but the actual value hasn't yet been agreed.
- For example, contractor is claiming 10k and the QS values at 8k, pay 9k 'on account' and then increase or decrease the value once the value has been agreed.
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A junior surveyor working in your team incorrectly over certifies on an interim valuation - what do you do?
The first thing to do is to check the facts and make sure an over certification has taken place.
Assuming it has:
- You need to check whether the valuation has been processed of not.
- If it has not, then withdraw it and re-certify.
- If the valuation has been paid, then you need to remember it is an interim certification and assuming it is not the final certificate then financially matters can be rectified next month.
- Talk to the client, explain the situation and ensure sufficient preventative measures are put in place to stop this happening again in the future (lessons learned session).
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What is a gross valuation?
- Each month the work must be valued and then an amount paid to the contractor.
- To ascertain this amount, you do not value only the work completed in that particular month. This would prove almost impossible and is unrealistic.
- The process is based on calculating the total amount of works completed to date and then deducting the previous month's total.
- This then gives the value of work completed in the current month.
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What needs to be in place for you to include payments for materials on site?
- Materials should be onsite and adequately protected.
- Should be covered by works insurance.
- In reasonable quantity.
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What needs to be in place for you to include payments for materials off site?
- Proof that ownership will transfer to the employer on payment (vesting certificate).
- Insurance until materials arrive at site.
- Materials are clearly labelled as for the site and set apart from other materials.
- Material off-site bond has been provided if required under the contract.
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In which instances would you use Dayworks to value the works?
- It is generally used when work cannot be priced in the normal way when work is instructed for which there are no comparative rates in a bill of quantities and a fair and reasonable rate cannot be agreed.
- Can be used for uneconomical works.
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What is a variation?
An alteration to the scope of works in a construction contract in the form of an addition, substitution or omission from the original scope of works.
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What is the final account?
- Financial statement of all the adjustments to the contract sum and therefore the total amount that the employer is liable to pay.
- End financial poison of contract.
- Includes all additions and omissions.
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Who typically prepares the final account?
- The quantity surveyor (traditional procurement).
- The employer's agent (D&B procurement).
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What is its purpose of the final account?
To conclude the financial position of the project.
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What are the usual components of a final account?
- Summary
- Adjustments of prime costs
- Adjustments of provisional sums
- Adjustments of approximate quantities
- Variations
- Claims
- Fluctuations
- End financial poison of contract.
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What is the procedure for getting the final account agreed ?
- The QS should visit site to evaluate if required.
- Once prepared, the QS should send all the details and supporting evidence to the contractor.
- Any points of disagreement should be discussed and negotiated.
- Both parties should sign the summary to show their agreement.
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What if the employer does not pay a sum due to the contractor under JCT?
- In addition to the unpaid sum, the employer must pay interest on that amount from the payment date until the time payment is made.
- The contractor may wish to exercise their right to suspend works.
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What are payment timescales for the JCT Design & Build 2016 contract?
PAGE NO: 166 (899Q)
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What are the payment timescales for the NEC3 contract?
PAGE NO: 167(900Q)
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Key Differences between CESMM3 VS CESMM4?
- Published in 2012, however it retains the established structure of CESMM3.
- "Contract neutral" - (1.2,1.3 &1.4 of CESMM3 deleted).
- Currency of CESMM4 mentioned as per the CoC wherein CESMM3 mentioned as "Pounds sterling with pence" - Refer 6.1
- Document is generally "national standard neutral", so it means there is limited reference to British or other national standards and that information must be given elsewhere on the drawings or in the specification - (1.15 of CESMM3 deleted.). However, there are exceptions to this principle where it has proved impossible to produce bill items without reference to some form of standard classification.
Example: "Concrete Mixes" and "Road Construction", - (See Item 8 of the table under 5.6)
- It incorporates the newest technologies so that it is completely up-to-date with current practices.
- Parent company guarantee has been added in CESMM4 under General Items, Contractual requirement - A130 CESMM4.
- No Separate items provided for "Insurance of the Works" and "Third party insurance". One item provided for all the insurances.- A120 &A130 deleted in CESMM3 & A120 added in CESMM4.
- Update "Class C" by adding latest tests (Vibro flotation - C8\*\*).
- Update "Class E" - High energy impact compactions has been added in CESMM4 under general filling (E65\*).
- Includes a completely updated "Rail System" - Class S.
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Selecting a SMM
Factors affecting the selection of standard method of measurement to a project.
1. Type and nature of Works
2. Familiarity of SMM in the region
3. Level of details available / status of design
4. Employer requirement
5. Better meeting the needs of clients
6. Etc
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How will you advise
