New Rules of Measurement Order of Cost Estimating and Elemental Cost Planning July 2010

Presented by Sandie Lee and Adrian Smith

Objectives of session

Explain origin and structure of NRM Explore approach used in estimating and cost planning, BCIS v NRM Debate potential for use in UAE

Findings of Steering group

No specific advice on the measurement of building works solely for the purpose of preparing cost estimates and cost plans existed. In the absence of such rules, quantity surveyors generally adopted the principles described in the SMM, SFCA or past practices to prepare cost estimates and cost plans. Resulting in an inconsistent approach to cost estimating and cost planning Problems?

RICS Measurement initiative

Project overview
Provide a suited set of rules for: Volume 1 Order of Cost Estimating and Elemental Cost Planning (Released March 2009) Estimating- RIBA Work Stages A & B; OGC &2 gateways 1
Order of Cost Estimates and Cost Planning Estimating

Cost planning- Elements- RIBA Work Stages C E; OGC Gateways 3A, 3B & 3C Volume 2 Construction Quantities and Works Procurement RIBA Work Stages F K; OGC Gateway 3C Volume 3 Maintenance and Operation Cost Planning and Procurement RIBA Work Stage L; OGC Gateways 4 & 5

Construction Quantities and Works Procurement

Maintenance and Operation Cost Planning and Procurement

Introduction NRM volume 1

The most significant thing to happen in the industry in the last 25 years (Stuart Earl Vice Chairman RICS QS and construction professional group) Provides a consistent approach to measurement through the various stages of a project. Based on UK practices but have a worldwide application NRM Simplifies the measurement process and makes it more relevant to modern construction procurement methods. SMM7 22 years old. Only provides guidance for Bills of quantities not early estimates or cost plans. NRM is issued for guidance not mandatory (consequences of not following guidance?)

Pre-contract cost control

Two new publications which affect the way we could approach pre-contract cost control:
RICS New Rules of Measurement (NRM) Volume 1 Order of cost estimating and cost planning (2009) Revisions to the BCIS Standard Form of Cost Analysis (2008)

Existing standards
BCIS Standard Form of Cost Analysis (SFCA): First Edition 1961 Second Edition - 1969 Third Edition - 2008
BUT does not adequately address: Changes in procurement strategies. Modern day approach to compiling cost plans. Difficulties of capturing cost data; due to changes in procurement strategies.

Provides method for capturing, analysing and storing historical cost data. Cost data captured in a form that can be used for early cost advice. GIFA definition linked to RICS Code of Measurement. Elements defined by function. Developed when bills of quantities were main method of obtaining price. Cost data captured limited to construction costs.

Consequently, elemental cost data not captured in a form that can be readily used for modern procurement strategies.

RICS Guidance on NRM

Purpose:
To provide a structured approach to developing cost estimates and cost plans. To provide a common and consistent basis for measuring:
Areas; Element unit quantities (EUQ); and Elements, sub-elements, components.

Uses:
Pre-construction cost management. Order of cost estimates. Cost planning. Construction phase cost management. Analysis of cost data.

Who will (should) use it?

All those concerned with cost management of building projects. Those generating business cases.

To provide a common work breakdown structure (WBS) and cost breakdown structure (CBS) for a construction project.

Free download from isurv, and RICS web site Interactive version is useful, do not print if you can avoid it as Vol 1 is 359 pages long

NRM Vol 1 key Points

Describes:
Structure of order of cost estimates and cost plans. Constituents of a cost report.

Recognises that measurement is progressive:

Order of cost estimates:
Floor area (measurement linked to RICS Code of Measuring Practice); Functional unit; and Elemental estimates (preliminary high level elemental cost model);

Measurement:
Uniform approach to area measurement (i.e. GIFA, NIA, Retail Areas, and Site Area (SA)).
RICS Code of Measuring Practice: A guide for Property Professionals.

Cost plans (iterative process):

GIFA measurement; Element; and Component measurement. Sub-component measurement (user defined).

Uniform approach to component measurement

Structure of Volume 1

Measurement rules for order of cost estimating Part 1 General Part 2 Measurement rules for order of cost estimating Part 3 Measurement rules for elemental cost planning Part 4 Tabulated rules of measurement for elemental cost planning Appendices include definitions of GIA/NIA, measurement rules for elemental method of estimating, information requirements for formal cost plans, templates for elemental cost plans.

Structure of Volume 1 Part 1 - Places cost estimating and elemental cost planning in context with the RIBA Plan of Work and the OGC Gati definitions used in the rules. Part 2 - Describes the purpose and content of an order of cost estimate; defines its key constituents, explains how to prepare an order of cost estimate; and sets out the rules of measurement for the preparation of order of cost estimates using the floor area method, functional unit method and elemental method. Part 3 - Describes the purpose of elemental cost plans; explains their key constituents; and explains how to prepare an elemental cost plan. Part 4 - Comprises the tabulated rules of measurement for the preparation of formal elemental cost plans.

Appendices to Volume 1

Tabulated Rules from Part 4

Tabulated rules from Part 4.

Element Unit Quantities (Appendix E)

Tabulated Rules from Appendix E

Order of Cost Estimate Framework

Ref 1 2 3 Item Building Works Main Contractor Preliminaries Main Contractor Overheads and Profit

Works Cost Estimate

4 5

Project/ Design Team Fees Other Development/ Project Costs

Base Estimate 6 Risk Allowances:

Design Development Risk Construction Risks Employer Change Risks Employer Other Risks

Cost Limit (excluding inflation) 7 Inflation:

Tender Inflation Construction Inflation

Cost Limit (including inflation)

Cost Plan Framework Level 1 codes

Building Works Estimate

Order of cost estimate

Floor area method Functional unit method Elemental method (if required information is available) Cost/m2, cost per functional unit or appropriate element unit rates.

Elemental cost plan

Approximate quantities Elemental GIFA. Unit rates or element unit rates should be used. Rates used in a previous cost plan should be updated to base date of current cost plan. The measurement rules for elemental cost planning can also be used as a basis for measuring quantities for whole life costing.

The main contractors preliminaries estimate

Order of cost estimate

Added as a percentage to total cost of building work. Other known costs relating to site constraints special construction methods or sequencing are to be assessed and identified separately. Subcontractors preliminaries, design fees, risk allowances and overheads and profit incorporated into rates used for building works estimate. A list of typical items found in main contractors preliminaries is given in part 4 of volume 1.

Elemental cost plan

The method of estimating preliminaries varies depending on work stage. Formal cost plan 1 Same as in order of cost estimating stage. Formal cost plans 2 & 3 Cost check carried out to previous estimate. Preliminaries can still to be calculated on a percentage basis. Alternatively, all or parts can be assessed as a lump sum

Main contractors overheads and profit estimate

Order of cost Estimate

Added as a percentage to the sum of the total cost of building work estimate and the main contractors preliminaries estimate. Percentage is derived from assessment of main contractors overheads and profit on previous building projects.

Elemental cost plan

The method used is same as for order of cost estimating, however there is a choice to separate out into two parts: Main contractors overheads Main contractors profit
Subsequent cost checks to be carried out on cost significant items. Subcontractors preliminaries to be included in the unit rates applied to building works.

Project/design team fee estimate Order of cost Estimate

Fees associated with the project/design team May also include MCs pre-construction fee A list of typical project/design team fees including items to be found in main contractors preconstruction fee is given in part 4 of volume 1. These should be included as a percentage addition to the work cost estimate.

Elemental cost plan NRM recommends that when putting together a cost plan separate allowances be made for:
Consultants fees Main contractors pre-construction fees (if applicable) Main contractors design fees (if applicable)

Consultants fees should be added as a percentage. Main contractors pre-construction fees can be added as a percentage or derived lump sum Main contractors design fees are to be added as an allowance based on previous projects.

Other Development/ Project costs

Order of cost estimate and Elemental Cost Plan

These are for cost that are not necessarily directly associated with the works cost or project design team fees but form part of total cost of project to the employer e.g. insurances/ decanting costs Examples of other development costs are given in part 4 of volume 1. Other development costs should always be included in Order of Cost Estimates, unless specifically excluded at employers request. To be included as a lump sum allowance. The nature and extent should be ascertained in conjunction with employer.

Risk Allowance
Order of cost estimate
NRM divides risk into four categories:
Design development risk Construction risks Employer change risks Employer other risks

Elemental cost plan

Risk should not be included as a standard percentage but a properly considered assessment of the risk. Risk registers and estimates should be reassessed throughout the project to ensure that cost plans realistically reflect the risk. Risks are still divided into four cost target categories as with order of cost estimating.

A list of typical risks for each category is given in part 4 of volume 1. The risk allowance for each category is calculated by multiplying the base cost estimate by the percentage identified for each category. These are then added together to form the risk allowance.

Inflation estimate
Inflation Estimate

Tender Inflation/Deflation

Period from the estimate base date to the date of tender return

Construction Inflation/Deflation

Period from the date of tender return to the mid-point of the construction period.

Elemental cost plan Procuring by package need separate allowances for tender and construction inflation

Building works (1)

Benefits (1)
Training and education:
Promote common sense; Invaluable aide memoir; Help learning; and Establish cost estimating and cost planning competencies.

Approach:
Introduce formal estimating stages; Present a clear framework; and Provide a comprehensive work breakdown structure (WBS) and a cost break down structure (CBS) for cost estimates and cost plans.

Benefits (2)
Measurement:
Recognise that measurement is progressive; Uniform basis on which to measure areas; Measurement of cost significant items (i.e. components); and Uniform approach to measurement of components.

Modern construction:
Deal with modern construction products and methods, including modular units and complete buildings; and Consider sustainable construction.

Benefits (3)
Preliminaries:
Define main contractors preliminaries.

Risk management:
Dispense with the use of the generic term contingency; Promote proper risk management; Promote use (and management) of risk allowances; and Define four categories of risk.

Inflation:
Define two categories of inflation; and Define measurement of inflation.

Benefits (4)
Cost management:
Promotes budget setting using a cost limit, which includes allowances for risk; Help establish more effective cost control systems; Provide essential guidance on dealing with non-construction related costs; and Provide advice on how to deal with VAT, taxation allowances, taxation relief and grants.

Accuracy of estimates:
Define the information required by cost manager to produce cost estimates and cost plans at each formal estimating stage; and Help improve the accuracy of cost estimates and cost plans.

Benefits (5)
Innovative:
Deal with the total cost of delivering a building project (total cost management).

Value management and value for money:

Perform an essential part of a value for money framework; Help underpin a business case for a building project; Quantification of replacement components and building maintenance items; Aid value management and value engineering processes; Afford greater transparency; Aid actual cost scrutiny; and Encourage clear and effective communication.

Benefits (6)
Procurement:
Provide a method for codifying elemental cost plans so that they can be converted to works packages for procurement; and Aid cost management during the construction phase.

Data acquisition, analysis and evaluation:

Provide robust basis for capturing historical cost data in the form required for future cost estimates and cost plans.

Usability:
Can be easily computerised.

The rules exemplify RICS best practice.

Any Questions?