Home Qualifications
Home
Qualifications
 

Contents

Section 1 Estimating Construction Costs
 
Section 2 Producing the Estimate
 
Section 3 Turning the Cost Estimate into a Tender
 
Section 4 Computer Aided Estimating
                                             


 

Description:  The purpose of this unit is to enable you to produce an estimate for a building services engineering project using appropriate methods of pricing.

Author:  Gates MacBain Associates


Section 1 Estimating Construction Costs



Aims and Objectives

At the end of this section you should be able to:
  • Suggest ways that an estimate of the construction costs for a project can be obtained.


Although this section deals specifically to the development of a project the principles will apply to all construction work.

The construction costs for a project will depend on the size, type of building, standard of finish required, location (costs will vary according to the region in which the development occurs), the economic climate of the construction industry i.e. if there is a shortage of construction work available firms will reduce the amount of their tender in order to try and attract work. If the opposite is the case and there is a lot of work available, firms will increase their tenders, as they will not be too keen to obtain the contract which will stretch their resources, unless it is worth their while financially. In a recession, construction firms can literally buy work in order to keep their workforce and to ensure some cash flow. 

Whether the rate of inflation needs to be considered will depend on the duration of the contract and the rate of inflation.

Building Costs can vary between builders/developers. This can be due to the size or purchasing abilities of a company or the discount that it receives from suppliers.
 
Professional fees must be added to the cost of construction and these will vary according to the project. In the past, fees were based on a set scale which was a percentage of the building cost, though in the last few years an element of competitiveness has emerged which can result in the professions negotiating their fees. This has resulted in a reduction in the amount paid in professional fees though if a scale is used these can be as little as 8% of the cost of a basic industrial unit to 20%  or more for more sophisticated developments with complex mechanical, electrical and communication services installations.
 
 
Methods of Assessing Construction Costs  
 
The method of obtaining a price for the construction work may be:
 
1. Elemental Cost Analysis.  This is based on historical data from completed projects with the costs broken down into the elements of construction and shown on a metre squared basis. Data for the calculation of costs can be obtained from a number of sources i.e. the Royal Institution of Chartered Surveyors quarterly review of building prices.
 
2. Cost per unit area.  This is also based on historical data obtained from similar completed projects on a cost per metre squared basis. This information may be obtained from the developers own projects or from other developers. It is an easy method to calculate though it is not very accurate. Best used on simple offices or car parks.
 
3. Approximate Estimating.  This requires a detailed amount of information about the design requirements of the project. Cost can then be obtained by taking off quantities and building up an estimate. Data on costs is obtained from such sources as Spon’s or Wessex (these provide up-to-date pricing information for building work) or from the use of a number of computer software programmes which are now available.
 
4.  Bills of Approximate Quantities.   This method is time consuming in comparison to those listed above. The method requires a Bill of Quantities being produced before an estimate can be obtained. It is, however, the most accurate and can be used for tendering.
 
 
Comparison of Costing
 
The following will give an indication of the average costs per square metre of gross internal floor area for new building work in comparison to other types of developments.
 
  £/m2
Residential  
Private Flats 475 - 650
Luxury Flat 750 – 1050
Speculative Houses 500 – 800
Sheltered Accommodation 450 – 600
   
Offices  
Low rise – basic 600 – 900
Medium rise – basic 750 – 1000
High rise - basic 1000 - 1400
With air conditioning add 300 - 900
   
Industrial  
Light Industrial – basic 250 – 400
Light Industrial with offices 350 - 550
Workshop 325 – 500
Warehouse 250 - 350
   
Retail  
Shop shells 350 – 550
Shop fit-out 450 – 850
Shells in malls 450 - 550
 
 
 
Economic Analysis
 
Although the above methods will give an indication of the likely costs, these are only a guide.  They should not be used to assess the viability of the project as they do not consider a number of other factors.  An economic analysis of the project should also consider the following:
  • Ancillary costs - these cover demolition, landscaping, parking provision, civil engineering works, and access roads. A sum of money must be allowed for this in the calculations.
  • Contingency 10%  (An amount set aside which may be used in the event of additional work, which has not been allowed for, needing to be done)               
  • Fees - Building Regulation Fees, (Based on 70% of Construction Costs), Planning Fees, Bank Arrangement Fees  
  • Construction Finance.   Total construction costs for half construction period.
  • In the event of a development project:
  • Selling Fees 2% of Capital Value
  • Letting Fees 15% of first year's income.
  • Other Finance. Finance from end of construction period, for whole of letting period or until sold.
 
 
The Use of Price Books
 
Estimators may use ‘Price books’ as a means of determining unit rates; particularly where the Estimator does not have a full understanding of the work to be executed. They are used to complement and enhance the Estimators historical data records and experience of pricing contracts much of which may be stored mentally and thus not available for others to access without consultation.
 
Estimating price books; publications such as Spons, Laxtons, Luckins, Griffith and Wessex and similar reference material have been used by Estimators for many years, these contain methods of measurement with descriptions for most trades and services together with the calculated unit rates. The essential fact to remember is that Price books are the estimate of the unit rate by an individual or group of individuals based upon a set of assumptions against a defined and measured item; not an exact price which must be incorporated into an estimate; nothing could be further from the truth; even price books from differing authors may well have differing unit rates for an identical operation.
 
The skill of the Estimator rests with their ability to amend the published unit rates to reflect the true cost of resources as obtained from quotations received for plant, labour and materials and combine these with their calculations and requirements for overheads and profit. The units rates may further be amended by the Estimator to take into account individual contract and contractual factors and constraints affecting the unit rate and hence the Estimators’ cost price. These factors affect the Estimators’ price and it should be remembered that the price calculated by the Estimator is seldom the tender price which is submitted to the client.
 
There are a number of price guides such as Spons, Wessex, TSI Luckins, Griffiths and Hutchins, a selection of which are detailed below though a more detailed list can be found on the Price Guides Direct website link to below.
 


Websites


Publications

  • Cooke B, Williams, P, (2009) Construction Planning, Programming and Control; Wiley/Blackwell; Chichester (Chapter 5)
  • Langdon, D (2011) Mechanical and Electrical Price Book; Spon's
  • Langdon, D (2011) Architect's and Builder's Price Book ; Spon’s
  • TSI Luckins Electrical Installation Times Guide; Trade Service Information Ltd; Stamford
  • TSI Luckins HVAC & Plumbing Installation Times Guide; Trade Service Information Ltd; Stamford


Self-Assessment Task

  • Discuss the options available for the estimating of costs which would be suitable for a building services contract stating the advantages or disadvantages applicable.




Section 2 Producing the Estimate


Aims and Objectives

At the end of this section you should be able to:
  • State the procedure involved with the production of an estimate.


The estimate is a net estimated cost of carrying out the work. It considers all items of expenditure which are likely to be required in order for the work to be completed.  On completion the estimate is submitted to management to enable them to determine if a tender is to be submitted and the price of the tender.
 
A detailed guide for the production of an estimate can be found in the CIOB Code of Estimating Practice.



Publications

  • CIOB. (2009) Code of Estimating Practice, Wiley Blackwell; Oxford


Self-Assessment Task

  • List the sequence of operations involved with the production of an estimate.





Section 3 Turning the Cost Estimate into a Tender



Aims and Objectives

At the end of this section you should be able to:
  • Discuss the procedure involved in turning an estimate into a tender.


The Estimator in co-ordination with the tender team will by this stage have completed the task of investigating the true nature and extent of the contract under consideration and produced documents and reference material to aid their final pricing of the contract. They will have produced a pre-tender programme early in the tendering cycle to ensure that the tender is completed and received by the Client by the date noted on the tender documentation. They will be working as a team to produce that which they consider will be the right price for the contract and the strategy by which this price will be competitive and secure the contract.
 
Even at this stage the manner in which the contract and its individual elements and operations will be completed will have been established and method statements, risk assessment, the overall contract programme etc, produced and discussed.
 
The estimating team must be optimistic about their chances of winning the contract, and the type of contract should be compatible with the ‘Bidding Strategy’ of the company if the team are to be fully motivated.
 
It is a reflection on some contractors that only 10% or less of contracts tendered for are won, yet other contractors achieve success rates of 50% or more merely by targeting certain types of contract and recruiting and retaining expertise within that field of work.  
 
Assuming that the tendering team have worked diligently completed the required documentation, produced the required statements and programmes, and studied the drawings and details fully the challenge still remains. - How can the Estimators price be converted into a tender price which can be submitted to the Client and secure the contract for the company.
 
Taking the contract forward using the knowledge of the tender team and utilizing their understanding of the project and experience from previous contracts is a process known to some as ‘Adjudication’ and to others as ‘Settlement’; some use the description of ‘Completing the Estimate and Final Tender Review’ and separate out settlement as a separate stage.
 
All are terms which interact and in essence describe a process of checking what has been produced by the tender team and taking this forward to produce a Tender Figure /Price which will secure the contract; turning the estimators cost price to the contractor of actually carrying out the work into a figure which will actually win the contract.
 
The tender team is charged with the objective of winning the contract at the highest possible price that it is actually possible to do so; not the lowest price anyone can achieve that feat but their company will not remain in business for any length of time. (It should be appreciated that in the real world other factors may make the above statement seem simplistic but the essential point is made).
 
The estimate should be carefully checked for errors in the bills of quantity unit rates and extension of the rates until the Estimator is content with the price calculated.
 
 
Settlement / Adjudication Meeting
 
The process of settlement or adjudication involves considering amongst other factors:
The Estimators report
Contract conditions and form of contract
Site factors
Past experience of the Client
Analyzing own work content
Sub-Contract allocation.
Prime cost and Provisional sum content
Discounts available
Non Standard insurance requirements
Liquidated damages applicable
Complexity of the contract
Programme constraints
Likely variations
Valuation dates
Labour availability
Profit margins required
Preliminaries
Effects on overheads
Dayworks
Contingency sums included
Preliminaries including contractual requirements
Competitors
The existing company workload
The need for the new contract.
Financial implications and cash flow analysis
Risk analysis
Health and Safety Plan.
Cash flow with the new contract
Cash flow without the new contract
Company retention on selective tendering lists.
 
The list is in reality extensive and many of these factors will already have been considered by the tendering team and related to the estimator but the final ‘settlement’ is in many respects left to the senior management of the tendering company; on their shoulders rests the continuance of the company and responsibility for its profitability.
 
That which turns the estimate by into the formal tender is complex and many would consider it an art rather than a science, everyone attending the settlement meeting(s) should contribute and much discussion will take place until a sum of money is agreed and the Form of Tender completed and submitted.
 
It is not unusual for a Managing Director cognisant of the competition to reduce or increase the Estimators cost prediction.
 
A good source of information is obtained from Chapter 8 of the CIOB publication ‘Code of Estimating Practice’, Chapter 7 and 8 of ‘Understanding Tendering and Estimating’ and Chapter 17 and 18 of ‘Estimating and Tendering for Construction Works’.
 
Chapters 19 and 20 of Construction Planning, Programming and Control, give a practical overview of the contractual procedures applicable to two contracts at various stages of management responsibility.
 
 


Publications

  • CIOB. (2009) Code of Estimating Practice, Wiley Blackwell; Oxford
  • Brook M. (2010) Estimating and Tendering for Construction Work,  Elserier; Oxford
  • Kwayke  A.A. (2003)  Understanding Tendering and Estimating; Ashgate; Aldershot
  • Cooke B, Williams, P, (2009) Construction Planning, Programming and Control; Wiley Blackwell; Chichester (Chapter 5)


Self-Assessment Task

  • Discuss the factors which would be considered by the management of a construction company on receipt of the estimate for a contract to enable them to determine the tender price to be submitted.





Section 4 Computer Aided Estimating



Aims and Objectives

At the end of this section you should be able to:
  • Discuss the advantages and the limitations of using computer aided estimating.


Computer aided estimating has been growing in popularity since the 1980’s, its use has increased as more sophisticated systems have been developed and amended, most incorporate systems which  enable the Estimator to adapt  software and performance criteria to the specific needs of  the company and to take into account the requirements of individual contracts.
 
The computer aided software currently available complements and is largely derived from traditional estimating price books; publications such as Spons, Laxtons, Luckins and Wessex and similar reference material have been used by Estimators for many years. These contain methods of measurement with descriptions for most trades and services together with the calculated unit rates.
 
Most computer aided estimating systems operate in a similar manner allowing the Estimator to accept the published rates or amend them to reflect the true cost of resources as obtained from quotations received for plant, labour and materials and combine these with their calculations and requirements for overheads and profit. The units rates may further be amended by the Estimator to take into account individual factors and constraints affecting the unit rate and hence the Estimators’ cost price.
 
Price books and estimating packages must always be considered as guides only; seldom would a contract be gained by merely substituting price book or computer software unit rates into a Bill of Quantity; and the profitability and /or desirability of such a contract would always be most questionable. Many factors affect the Estimators’ price and indeed the price calculated by the Estimator is seldom the tender price which is submitted to the client.
 
Computer aided estimating is undoubtedly beneficial in the calculation and extension of the Bills of Quantity and recalculation, adding or subtracting from the rates following adjudication meetings or in correction of errors and similar events.
 
Many contracts have now dispensed with the traditional format of paper based Bills of Quantity and drawings; all information being received by the contractor in an electronic form which is compatible with computer aided estimating techniques.
 
E-Tendering is becoming increasingly popular as it allows contractors to extend the use of electronic communication and data exchange to sub-contractors and suppliers who have the facility to deal with information exchanged in this manner.  Most large organisations now possess and use this technology but smaller sub-contractors operating in a limited discipline could be excluded by this process and hence the competition for a contract be reduced. The rapid exchange of information enables a speedier tendering process and allows rates quoted by suppliers and sub-contractors to be incorporated into the unit rates and estimate accurately.
 
A word of additional caution; computers used in design calculations and other areas including estimating are capable of giving the impression that all factors have been considered, build confidence and give assurance; in reality this is an illusion; the skill and experience and judgement of the estimator cannot be replaced. Computer aided estimating is an aid to the estimator not a replacement for their expertise.
 
The publication; Estimating and Tendering for Construction Work Chapter 4 by Martin Brooks considers the advantages and limitations of computer aided estimating and considers the various methods by which information is exchanged.
The CIOB publication; Code of Estimating practice Chapter 12; considers, Computerisation, e-commerce and the e-bidding processes.
 


Publications

  • CIOB. (2009) Code of Estimating Practice, Wiley Blackwell; Oxford
  • Brook M. (2010) Estimating and Tendering for Construction Work,  Elserier; Oxford


Self-Assessment Task

  • Briefly outline and describe the process used for e-tendering.





Site Map