R-Loops and RS

T he three methods identified above, the floor area method, the functional unit method and the elemental method, are more fully described in Chapter 14.

T hat chapter also includes a range of other methods that have been used in practice to calculate order of cost estimates. T he element analysis largely follows that developed by BCIS. Compare Table 8.3 with Table 15.3 to gain an understanding of the minor differences. T he choice and number of elements used to analyse building costs is dependent on the information available. D ifferent quantity surveyors will modify these lists to suit their own particular circumstances.

Table 8.3 provides the list of elements and their respective groupings.

T he calculation of rates and prices to be used in the above will be a combination of detailed analysis as demonstrated in Chapter 15 and the use o f benchmark analyses that are retrieved from a practice’s own database or from published analyses such as that retained by the BCIS. The updating of this information is done through the use of indices and as explained in Chapter 17.

156 Cost Studies o f Buildings

Table 8.3 List of elements for cost analysis purposes

Group element Element 4 Fittings, furnishings and equipm ent

5 Services 5.1 6 Complete buildings and building units 7 Work to existing buildings

8 External works 9 Facilitating works

10 Preliminaries (if shown separately)

Frame Internal walls and partitions Internal doors Gas and other fuel installations Lift and conveyor installations Fire and lightning protection

Communication, security and control systems Special installations

Builders’ work in connection with services Testing and commissioning of services

Preliminaries

T h e main contractor’s preliminaries will usually be calculated through the addition of an appropriate and realistic percentage to the building works estimate.

Alternatively benchmark data from previously completed projects can be used to assess the level of main contractor’s preliminaries to be applied to new building projects. Historically cost analysis provided the alternative options of showing preliminaries either as distributed evenly amongst the different elements or as a separate item (see p. 169). I f it is known at an early stage that there are costs relating

New Rules o f Measurement (N R M ) 157 to known site constraints, special construction methods, sequencing of works or other non-standard requirements, these are to be assessed and identified separately.

Group element 10 (preliminaries) provides a checklist of main contractor’s preliminary items under the two broad headings, Employer’s requirements and Main contractor’s cost items. Similar lists of typical items can also be found in the various standard methods of measurement for preliminaries.

Overheads and profit

T he NRM suggest that in the order of cost estimating, overheads and profit should be shown as a separate item and calculated by applying a selected percentage to the cost of the building Avorks estimate and the main contractor’s preliminaries.

The percentage addition to be applied will be derived from a properly considered assessment of the main contractor’s overheads and profit found on previous building projects. This item may be included in the different elements or in the cost per GIFA.

Project/design team fees

T he consultant’s fees are usually added as a percentage. These may include a contractor’s pre-construction fee. T he NRM provides a checklist of the possible activities that are involved.

Other development /project costs

There might be costs involved that are not necessarily directly associated with the works costs, but which will nevertheless be a part of the project costs. These might include insurances, planning fees, fees in connection with party wall awards, decanting and relocation costs, marketing costs, etc. T h e construction of the Emirates Stadium for the Arsenal football team, for example, required not only the purchase of the site but the purchase, relocating and construction for the occupiers of the new premises.

Risk allowances

All buildings involve risks, some obvious and others less so. Proper management of such risks can save both time and money. Chapter 20 describes the alternative ways of dealing with risks. Risk exposure (the potential effect of risk) changes as the building project progresses and therefore the continual management of risk is essential. Five approaches to dealing with risk are envisaged:

■ Risk avoidance

■ Risk reduction

■ Risk transfer

■ Risk sharing

■ Risk retention

Risk in order of cost estimating is usually allowed for by adding a percentage to the cost of the project. Separate allowances should be considered and added individually for:

Design development risks This is an allowance for use during the design process to provide for the risks that are associated with:

■ Design development

■ Changes in estimating data

■ T hird party risks (planning requirements, legal agreements, covenants, environmental issues, pressure groups)

■ Statutory requirements

■ Procurement methodology

■ Delays in tendering

Construction risks T his is an allowance for use during the construction process and provides for the risks associated with:

■ Site conditions (access restrictions/limitations, existing building boundaries, existing occupants and users)

■ G round conditions

■ Existing services

■ Delays by statutory undertakers

Employer change risks This risk applies to both the design and construction stages and includes:

■ Changes to the scope of the works or brief

■ Changes in quality

■ Changes in time

Employer other risks T his is a risk allowance that might include, for example:

■ Early handover

■ Postponement

■ Acceleration

■ Availability of funds

■ Liquidated damages or premiums on other contracts due to the late provision of accommodation

■ Unconventional tender action

■ Special contract arrangements

It is recommended that the size of the initial risk allowance is based upon the results of a formal risk assessment. It can be beneficial even at an early stage of the project to prepare a specific risk register incorporating the major risks identified and a risk management strategy. Risks should not be excluded without due consideration.

It is important not to allow the natural optimism that surrounds the early part of 158 Cost Studies o f Buildings

New Rules o f Measurement (N R M ) 159 a project to influence the nature of the judgements that need to be made. T he risks that can influence the cost of the project change as the building project progresses through the subsequent RIBA Work Stages. T he risks identified in a risk register should be reassessed at regular intervals throughout the various formal stages of cost planning which follow once the element costs have been calculated.

Inflation

An order of cost estimate is prepared using current prices at the time of its preparation. Inflation during both the design period and the construction phase will need to be considered. Inflation may be considered under two headings: tender inflation and construction inflation. It is important when using existing cost data for order of cost estimating to update this to current prices by use of indices.

Potential cost increases may be caused by tendering conditions and the effects of changes in the market. Price changes may also apply to particular materials or specialist resources. T he impact of major projects in a region will need to be allowed for, since these may have the effect of sapping resources. Some of these aspects, rather than being inflationary, may also be better dealt with under the heading of risk (above).

Value-added tax (VAT)

VAT in relation to buildings remains a complex area. It is recommended that VAT is excluded from order of cost estimates. Specialist advice might need to be sought to ensure that the correct rates are applied under the correct circumstances (see p. 232).

Other considerations will include:

■ Capital allowances for taxation purposes

■ Land reclamation relief

■ Grants

Taxation allowances, taxation relief and grants can provide valuable financial aid to an employer on building projects of particular types constructed in specific locations (see Chapter 11). This area is very complex and specialist advice should be sought from accountants or quantity surveyors who have acquired expertise in these areas.

Reporting order of cost estimates

Building cost are normally expressed as costs per m 2 G IFA or per functional unit.

Other methods can be used although these remain the most popular and most used (see Chapter 14). They should cover all of the cost items described above.

Items that are included in or excluded from order of cost estimates should be clearly stated to avoid any confusion between quantity surveyor and employer from arising. T he following should be stated:

■ Project title

■ Project description

■ Statement of cost and cost limit if appropriate

■ Information and specification on which the cost plan was prepared

■ Floor area of the project

■ Assumptions used in the cost estimates

■ Estimate base date

■ Estimated costs of alternative proposals

■ Inclusions or exclusions

8.6 PART 3: MEASUREMENT RULES FOR ELEMENTAL COST