Approaches to Cost Estimation in Construction Projects

This article discusses the different approaches to cost estimation in construction projects, including initial cost appraisals, elemental cost planning, approximate quantities cost plan, pre-tender estimate, tender pricing document, contract sum analysis, and final account preparation. Each approach is described in detail, including its purpose, methodology, and benefits. The article also highlights the importance of collaboration between the client and contractor in ensuring accurate cost estimation and avoiding disputes.

Part a)
ENGINEERING SERVICES
QUERY FORM
TQ/RFI Number: TQ-03 Date: 06-03-19
Tender Number: 11 OF 2018 Tender Name:
Construction of Ground Floor 1234, Facility of
Acme Ltd.
Subject:
Query: 1. Tender call for the internal wall be made of hollow core blockwork. Solid blockwork will not
be effective since it reduces the insulation capacity of the internal wall.
2. Would the committee dealing with the tendering process provide the pricing for the hollow
core blockwork or is an addendum being provided?
3. On the structural drawings and plan provided, will the changes be incorporated and another
drawing issued?
4. Can we obtain the drawings in dwg to make the layout clearer?
Response:
1. Solid blockwork internal leaf is the most appropriate for this project. The thickness of the
internal wall is 100 mm and will be only realistic for solid blockwork as shown in the
diagrammatic cutway. In instances where the tenderer intends to adopt hollow core blockwork,
a licensed engineer must approve the drawing and submit the details before construction
commence.
2. Item number 4.05 in the pricing schedule is solid blockwork. It is the provision and
construction of the internal wall.
3. Kindly see the updated drawing incorporating the changes on internal wall.
4. The revised drawings are available in soft copy in hard disk provided.
The terms and conditions for other details remain unchanged.
Important: All those applying for the tender are directed to acknowledge the query response before

deadline for the tender elapses. Applications will be rejected for tenderers who fail to
acknowledge the query response.Company: Name:
Date: Signature:
Material quantity take-off of the ground floor is done and compiled in the attached excel file.
The unit price of the material was expressed per square metre. All the prices take into account
the expected inflation in the next two years which is the estimated period of completion of the
project.
Part b)
RIBA Plan of Work subdivides the sequences of briefing, designing, implementation and laying
of building projects into eight steps. The objectives and intended outputs for each step are
described. The purpose of RIBA Plan of Work is to lead the reader to important documents such
as professional service contracts and multiple forms used by building contractors (Allan
Ashworth, 2015). One of the approach is initial cost appraisals. This takes into account all
construction costs of the project. It is important to understand that this approach does not cover
wider project costs such as contracts outside main tasks, equipment leasing costs and fees. Thus
when using this approach, the client must provide information on what to be covered and the
remaining costs which the client will incur outside estimated costs. The estimated values are
determined by assumptions on the how the project will be like, possible inclusions and
exclusions, location of the project, market adjustments, the functions of the building,
procurement procedures, land rates, agent fees, legal charges, site surveys, running costs,
consultation charges, insurance, corporation tax, promotion and marketing, grants, capital
allowances and operational costs (Benge, 2014). Initial cost appraisals is utilised by the client to
obtain an early projection of the project cost even before it reach the design stage. This approach
is mostly used to gauge the ability of the client to afford the project demands.
The second approach is elemental cost planning. This approach is usually undertaken during the
project brief stage up to the design detailing stage (Greenhalgh, 2013). For a start, this approach

breaks down cost plan into series of components. It starts by the total construction cost of the
project portioned into the components using percentages. As the design stage advances and
various elements of the structure are incorporated in the design, the elemental cost advances to
the actual quantities of materials and equipment needed to complete the project. This means that
the various components will have the projected quantity of materials to be used during the
implementation stage. This costs need will be put in a spreadsheet format which makes it easy to
run and share with other programs. The approach must be in line with New Rules of
Measurement (NRM). All the assumptions and extra materials used are captured in this
approach. Any omissions and exclusions agreed upon by the parties involved must be clearly
stated. This approach takes into account statutory fees, professional fees, inflation, exclusions,
Value Added Tax (VAT) and client contingency (Richards, 2010). NRM1 describes formal cost
plan as the elemental cost plan submitted or reported to the employer upon finishing a specific
RIBA work phase. The formal cost plan stage is the time when a quantity surveyor or the person
estimating the cost finishes and submits the report containing the elemental cost plan to the client
for checking and possible consideration. This approach broadens the amount of materials
captured. This makes the estimate as close to the true value as possible.
The third approach is to use approximate quantities cost plan. This approach is an aftermath of
the elemental cost plan. The approach is pinned on measuring the defined quantities from plans
and structural drawings. It clearly shows how costs are distributed. This enables the involved
skilled personnel to locate the standard and sub-standard elements of the structure and make
adjustments where needed. Approximate quantities cost plan takes into consideration the
schedule of assumptions (Bailey, 2015). The approach also in many cases projects the cash flow
from the design process to completion of the project. The total cost of the project is also
considered in this approach. In most instances, approximate bill of quantities is used in instances
where it is difficult to make bill of quantities during tendering. This paves way for picking a
contractor for early commencement of the proposed project. However, it is important to
understand that the obtained values are approximate and many variations will rise up when
construction is on-going. This approach can also be used to control design costs. They are
included in the tender document to offer guidance while recognizing the responsibility of the
contractor to measure quantities. The plans and structural drawings are the core materials used in
cost estimation.

The fourth approach is the pre-tender estimate for contracts. This is done at the last period before
tendering is done. It is the information that will be presented to tenders to look into before
making a decision. It is important to understand that the pre-tender estimate is not captured in the
tender documents (Packer, 2014). The pre-tender estimate is used to check whether the available
budget will be sufficient. This provides the client with the idea whether the available funds will
be able to finish the project and gives the choice whether to commit and seek tenderers. It also
provides a platform for weighing tenders when they are submitted back. In instances where the
budget is lower than pre-tender estimate, the client should be given an explanation in order to
evaluate and respond accordingly. The values recorded should be divided into sections to ease
the work of comparing with the once submitted by tenderers (Pratt, 2010).
Another approach which involves documentation is tender pricing document. This can be in a
form of a booklet and contains the information which enables the client and design team to
review the valuations and prices of materials and other valuables of the project (Caplehorn,
2016). The information in this document is basically the prices presented by tendering
contractors. Its format is similar to that of pre-tender cost estimate although further breakdown
will be presented in this document. This approach provides the opportunity for close comparison
of the tender and cost plan. This offers an opportunity of harmonizing details and coming up
with the best choice for the project. Through this approach, one is able to pinpoint the variations
in allocation of funds. This opens door for proper allocation of funds as per the desired end
product. The implementation of the document is also tested in this approach (Sinclair, 2013). The
differences in pricing among the participants is evaluated and proper adjustments discussed and
corrected. Interpretation of the information presented in the document is also made. This ensures
clarity of the information presented to avoid ambiguity or even omissions. In order to minimize
costs, the client in coordination with companies competing and applying for the tender will help
in checking possible areas which can result to saving. This benefits the client and also ensures
stiff competition among the companies resulting to getting the best contractor for the project.
After reviewing the tender documents, the client settles for the best option. The best option is
reached upon once the client reaches an agreement with a contractor and a contract sum is agreed
upon. Here the approach is ensuring that all errors and ambiguity are corrected. The contract sum
does not stand for fixed price since adjustments will be done as the project is under construction.

The tender terms includes a section which allows adjustments as the project continues. Thus
contract sum can be adjusted because of variations, statutory, loss and expense, prime cost sums,
inclusion of sub-contractors and provision sums. In order to come up with the final account, both
the client and the contractor assigned the project need to agree and calculate the adjustments to
obtain the final cost and payment to be given to the contractor (Sinclair, 2013). This final amount
calculated and paid is to be captured in the final certificate. In some instances, the final payment
is anonymous and is captured as the construction continues as per agreed method of
measurement (Cartlidge, 2012).
The next step is to analyse the agreed value in the tender document. This is referred to as
contract sum analysis. This analysis is done by the contractor as per the agreement in the tender
document (Brook, 2016). The analysis puts into light contractor’s valuation into specifications
which the client can understand and analyse in comparison with other tenders. This analysis lays
the basis for valuating payments to be transferred to the contractor on site. Clients use it as an
alternative for gauging the budget of the project under construction. This analysis can also be
done before the project reaches the implementation stage. By doing that, the client is able to
identify if the value reflects the scope of the project under check and also prevent the contractor
from overvaluing the project (Holden, 2015).
There is always a mechanism and process by which the final payment is remitted to the
contractor. In many instances, the payment is made after elapse of the defects liability period
after confirmation that all patent defects are repaired and all the requirements are fulfilled by the
contractor. This can be referred to as preparation of the final account. Agreement must be
reached on the adjustments made on the contract sum. This is necessary in calculating the final
payment to be paid out to the contractor. This amount agreed upon is then captured in the final
statement as well as the final certificate. The contractor is required to provide the details showing
the adjustments made on the project. This is the basis of claiming any payment incurred in the
adjustments (Fairhead, 2014). In some instances the final statement and certificate can indicate a
refund of a portion of the contract sum to the client although cases are very rare. In cases where
disputes arises about the adjustments made, the contractor is required to produce evidence of the
purported adjustments. Failure to produce the necessary documents can result to non-payment
for such adjustments (Packer, 2016). It is therefore advisable that adjustments be recorded and

added onto the contract sum as the projects progresses. To completely eliminate disputes arising
from adjustments, quantity surveyor from both the client’s side and that from the contractor’s
side must work hand in hand at all times throughout the project construction. This insinuates that
both of them will have similar reports at all instances (James Harty, 2015).

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