Questions

The use of historical cost data for the prediction of early stage cost estimates is common place, but the reliability and validity of such data, particularly when extracted from contractor's tender documentation, is often questionable.

Explain how the difficulties posed by the use of such data may be addressed in a holistic cost planning process.

Cost Planning process

The principles of elemental cost control

The three basic principles are:

1. Frame of referencei. the first is a realistic first estimate or cost limit of the

overall construction cost of the building.ii. The second is planning how the estimate should be

spent among the elements of the building.

2. Method of checking

3. Remedial action.

• Using wrong data will lead to a wrong estimating and produce wrong cost limit .

• This will produce a wrong cost target for all or some elements.

• Will affect the design, techniques, qualities and quantities of the building.

Once a contract has been completed and the Defects Liability Period expired, the Contractor is entitled to be paid the Final Valuation. In order to make this payment, it is necessary to produce a Final Account.

A. Detail the process and information required in order to compile a Final Account, highlighting the difference between ‘Lumpsum Contracts’ and ‘Measured Contracts’.

B. There are two methods of production for a Final Account. Explain the two approaches giving the advantages and disadvantages of both methods.

The Detail of the process1. The Employer’s QS prepare the account, fully price it, (or give the

Contractor an opportunity to provide rates and/or prices where necessary),

2. send a copy to the Contractor for examination.3. The areas of disagreement requiring the QS and Contractor's

surveyor to meet, discuss and negotiate the areas, items or rates in dispute until the whole document is agreed.

4. The Contractor will then sign the summary page to record agreement,

5. The QS will report to the Architect, pass on a copy for the Architect's records and for calculation of post-contract fees.

6. The Final Valuation Certificate will then be prepared using the Final Account total

7. Passed to the Employer for payment.

The information required in order to compile a Final Account

The following sections are normally required for Lump Sum contracts:1. Summary of Account

2. Prime Cost Sums - adjustments

3. Provisional Sums - adjustments

4. Variation accounts

5. Provisional Items - adjustments

6. Fluctuations, i.e. increased costs (labour, materials. statutory contributions, levies and taxes)

7. Contractor’s claims.

THE DIFFERENCE BETWEEN ‘LUMPSUM CONTRACTS’ AND ‘MEASURED CONTRACTS

Putting together the final account depends largely on the quantity surveyor but is usually based on the payment mechanism:

1. Lump Sum Contracts– The final account will start with that sum, and will proceed to

identify the additions and deductions

2. Measured Contracts– the final account will be built up from a zero and ‘Ascertained

Final Sum’

There are two methods of production for Final Account.

MethodDescriptionAdvantagesDisadvantages

1Bill omissions and additions are listed separately under each Architect's

Instruction

Cost of each variation is obvious showing total values for omissions

and additions.

The account document is likely to be thicker due to repetition of items in different

variations and space needed for separate

totals.

2All omissions can be collected together,

and similarly all additions, with each

group identified under the appropriate work

section or trade heading.

Less items, resulting in a compact document

that is quicker to prepare and price

The cost of each variation is not

individually available

A construction project client’s interpretation of lifespan is not necessarily the physical life of the building that they commission.

Using examples where possible, explain what is meant by lifespan from a client's perspective with reference to the physical, economic and functional interpretations.

Definition of a building ‘life’• Long time view• Short time view

life can be considered to be the lesser of:• economic,

• the value of the land is greater than the building itself• complete refurbishment may required,

• Functional:• is the length of time the building fulfils the functional needs of the client’s

activities before it becomes obsolete.

• physical life:• lifespan until physical deterioration requires demolition.

Many factors affect the ‘service life’ of a building and its constituent components.

Identify what these factors are and explain how they affect ‘service life’. ?

Factors affecting Life of building

• Environmental factors:– is the building sheltered spot or exposed– Sea air, a polluted industrial atmosphere,– exposure to flooding – extreme cases earthquake or volcanic activity

• Design and specification factors

• Construction factors:– the quality of workmanship on site – cutting corners to make up time due to delays on-site;– product or component substitution due to over-long procurement periods;– inadequate knowledge about new products.

• Organizational /operational factors: – the level of wear and tear to which the building or asset is subject in normal use– the type of use, hours of use, density of use and so on. – The maintenance regime adopted

Critically evaluate the need for elemental cost planning within a construction industry that you are familiar with.

The principles of elemental cost control

The three basic principles are:

1. There must be a frame of reference

1. There must be a method of checking

1. There must be a means of taking remedial action.

The frame of reference

Two parameters are set:1. the first is a realistic first estimate or cost

limit of the overall construction cost of the building.

2. The second is planning how the estimate should be spent among the elements of the building.

1- realistic first estimate or cost limit

• can be arrived using any of the estimating methods

• Or, the client can define a cost limit to which the building must be designed.

• Then, QS breakdown the cost over various parts of the building

• It makes it much easier to control the overall cost as the design becomes more detailed.

• the cost of each individual part must be independent

• Each discrete portion of the building is allocated a cost known as a ‘cost target’.

The method of checking

• In control system terms this is the monitoring stage.

• As the detail emerges, the quantity surveyor must put an accurate cost against that detail and compare the new figures with the cost targets set in the frame of reference.

Remedial action

• In control system terms this is the ‘action’ stage.1- design decisions will affect the cost(s)2- The cost difference between cost target and

detail design cost is distributed for the affected element and adjusting the overall cost to keep within the first estimate.

3- If the cost difference is too large then alternative materials or building techniques may have to be considered

4- The client may decide to increase the overall cost rather than change the design.

The rules for measurement of external cladding are found in Section H of SMM7, H31 Metal Profiled sheet cladding/covering/siding. From your knowledge of the rules of measurement explain how the following elements would be measured with regards to external cladding:

• External Cladding in Walls/Roofs/Ceilings/Floors etc.• Isolated Beams and Columns• Flashings• Abutments• Finished Angles• Holes• Firestopping• Access Panels

“It is not so much a question of how long a building or component may last, but of how long it will be retained”

Allan Ashworth

Discuss this statement in relation to deterioration and obsolescence of buildings and their constituent components.

Uncertainty and service life data

• Service life is the period of time during which a building or a constituent part meets the requirements of the client/owner

• Lifespan or service life prediction required for buildings and all their constituent components

• There is a lack of factual data concerning component lifespan and durability

• Although there are a number of sources of published service life and performance data – all imperfect

Uncertainty and service life prediction

Notional lifespan vs

estimates based on:

Published sources

Historical expenditure data

Empirical data (actual observed)

Judgement / ‘best guess’

actual lifespan

affected by variability in:

Component quality

Workmanship

In-use conditions/ patterns of use

Exposure to external environment – wind, rain, snow, pollutants, sun

Level of maintenance

“Data at present are rarely available to indicate reliably the degradation of even very similar buildings or components, since in practice there are many variables whichaffect service life”.BSISO15686-1:2000 Buildings and Constructed Assets- Service Life Planning

Uncertainty and Sensitivity Analysis

• Sensitivity Analysis is a technique used to test the effects of uncertainty and assumptions on the results of WLC exercises

• Sensitivity Analysis is used to determine how ‘sensitive’ results of a WLC forecast are to changing assumptions about the input variables

• “During a LCC analysis, a large number of assumptions need to be made, for example the discount rate to be applied and the life of the project and its various components. It is necessary to test the sensitivity of these assumptions in order to avoid any possible error in the overall analysis” [Ashworth]

• “A way of testing whether the results of the LCC analysis are sound is to repeat the calculations in a methodical manner by changing the values that have been attributed to the assumptions” [Ferry and Brandon]

In producing a Cost Value Reconciliation, it is important to establish not only the anticipated final account sum and the gross value of work executed to date, but some contractors will also make use of the net gross value.

Detail the significance of the various pieces of information that would be contained in a gross value exercise.

The contents of a gross valuation

1. Completed contractor’s works2. Preliminaries3. Unfixed material on and off site4. Variations5. Retention6. Fluctuations7. Claims8. Liquidated damages9. Advanced payments (if applicable)

Interim and Final accounts are key cost control mechanisms referred to during and at the completion of any construction project.

Prepare a short report to your client explaining the information they contain and why they are key documents.

The contents of Interim a gross valuation

1. Completed contractor’s works2. Preliminaries3. Unfixed material on and off site4. Variations5. Retention6. Fluctuations7. Claims8. Liquidated damages9. Advanced payments (if applicable)

What are the Contents of the Final Account?

The following sections are normally required for Lump Sum contracts:

1. Summary of Account2. Prime Cost Sums - adjustments3. Provisional Sums - adjustments4. Variation accounts5. Provisional Items – adjustments (Adjustment of

approximate quantities).

6. Fluctuations, i.e. increased costs (labour, materials. statutory contributions, levies and taxes)

7. Contractor’s claims.

The cost planning process starts when the client perceives a need for a building.

Discuss the steps the cost planning passed by.

No one can forecast the future and hence the true cost of the building will remain unknown until the Final account.

Explain this statement and discuss the factor affecting the accuracy

What are the factors affecting the selection of forecast cost of a building

FACTORS TO IMPROVE THE ACCURACY OF A FIRST ESTIMATE

1. Quantity

2. Quality

3. Market

4. Building Services

5. Location

6. Design economics

7. Final notes

Selecting a method for forecasting costs

depends on several factors:

• Availability of project information

• Time

• Availability of cost data

• Preference and familiarity

• Evaluate the contract selection methods.

• What is the best method for high raise building?

Methods of contract selection

• There are Four methods:1. Open tender

2. Selective tendering

3. Nomination

4. Serial tendering

• Discuss the elements of Cost/Value Reconciliation

Production of Cost/Value data, and the Cost/Value Reconciliation

• Dates of interim valuation and CVR

• Copy of the architect’s interim valuation certificate

• Analysis of all Bill items claimed broken down into their respective headings

• All details relating to both the costs and value

Analyzing the Value (revenue)

• The analysis of value for a CVR can be facilitated by an analysis of all Bill items claimed broken down into their respective headings of– Labour– Sub-contractor– Plant– Material– Overhead– Profit

• This analysis can be used as part of the process of building up a figure to represent the gross value of executed work to date.

Costs

• Labour• bonuses• non-productive overtime ( for accelerated works)

• Sub-contractors• Qs produce a detailed schedule of the contractor’s cost liabilities• The value of work invoiced by and paid to the sub-contractor.• evaluation of all executed work not yet invoiced,• attention to any variations to sub-contractors work

• Plant– Hired, the operating costs, repairs and maintenance, depreciation and residual

values.

• Haulage:– haulage and transport charges for transporting plant, materials and

personnel (external or internal)

Costs …. (cont.)

• Materials

• Additional Costs– Labour and material shortage (brought from other source)

• Overheads– Head office and site office

• Reserves and Contingencies:– If profit margin appears to be higher than original figure– Hold profit for heading unprofitable activities

• create a contingency fund)• insert cost reserves against some of the heads

• Remarks.– comments relating to these and the resulting potential financial

consequence.