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Dear ____________,

This report will outline the specific services we are able
to offer, the methodology of how they will be executed and what that means to
you, the client.

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Pre-contract cost management includes a range of varying
services that are used to manage and allocate prospective costs at the earliest
stage available; as well as outlining how these costs can affect correct
decision making at the earliest opportunity. This can be vital for aspects of
the design phase as some decisions relating to the construction process are
harder to alter than others. The basis of cost control helps the design team achieve
the best and most efficient design that is available for the approved budget.
The stages of pre-contract cost managements can be broken down into:

·        
Initial cost estimate – Prepared during feasibility

·        
Elemental cost Plan – Prepared during project brief
stage to detailed design

·        
Pre-tender estimate – The final and most accurate
estimate

The pre-contract cost planning/ cost management links
directly to the RIBA plan of work stages; preparation and brief, concept
design, developed design and technical design. (Ribaplanofwork.com,2018). During
the preparation and brief stage, we, in collaboration with the design team and
the client, establish whether the client’s requirements can be delivered within
their available finance.

The first stage of any project is for us to establish a
clear view of priorities, expectations and wants from the client (Buildrite Construction,
n.d.). Considering the procurement route chosen is traditional, there should
already be an understanding of building use, the development programme,
the building design and an idea of the client’s budget that they have set (Buildrite Construction,
n.d.).  When this
information is gathered, we will then assess the initial design obtained from
the architect and undergo a feasibility study to produce an initial cost
estimate. This process assesses how aligned the client’s budget is with the
estimated cost as we are able to calculate a cost per square metre rate via benchmarking.
Benchmarking is “a comparison in cost of similar projects, in order to review
levels of pricing”. We are able to use this exercise in order to analyse the
efficiency and focus of the project. This is done via accurate measurement of
the GIFA (Gross Internal Floor Area) of the project in accordance with Code of
Measuring practice to identify the cost /m2 or cost per functional unit in
conjunction with SRM (Standard rules of measurement) such as NRM2. This also
depends on detailed market analysis to establish:

·        
Specification

·        
Location

·        
Inflation comparisons

·        
Sustainability

·        
Programme

·        
Building efficiency

·        
Date of the project

 

Even if the data between the two comparable projects are
different, there are a number of adjustments we are able to make to update the
cost data to align them with the time/location. Therefore, giving us a more
accurate comparison between 2 projects. This information is gathered either
in-house via tender returns, market data or final Accounts or through BCIS
(Building Cost Information Service). The benefit of this practice is that we
have the capability to collate elemental values and extrapolate those values to
determine an approximate overall cost. This gives a clear financial view for
the client to make potential changes to the design. For example, if one element
has a much higher cost than expected due to an unconsidered variable, we can
discuss options with the client on how we can drive the cost down, and what
that means for other elements of the build.

The benchmarking process involves:

·        
Defining the process

·        
Data collection

·        
Data comparison

·        
Analysis

·        
Action

·        
Repeat

Benchmarking adds the benefit of establishing a
representative and accurate allocation of the cost throughout the different
elements, which can be used as a part of the value engineering process which
involves sustaining the function while reducing the cost. This deep analysis
allows us to also recognise common relationships between variables that may
have been over overlooked previously – another tool we can collectively use to
optimise efficiency.

It also allows us to establish a realistic programme of
works by comparing the project to those similar and making a calculated
assumption of what time frame the project should be completed in.

 

 

An elemental cost plan is a technique that is used to break
down the design assesses how the budget is distributed among the elements that are
divided in accordance with NRM1. This will produce an approximate total
construction cost by acquiring prices from contractors/suppliers. As the design
stages progress and become more detailed (as per the RIBA plan of work), more
developed cost plans will be issued, obtaining more accuracy through higher
levels of detail. Cost plans should be presented in accordance with the new
rules of measurement (NRM1). Cost checking will also be required as the design
stages progress, to ensure that the design is within cost targets. If the
design is undertaken according to the individual elements of the building, this
makes the cost checking exercise much more straightforward for the QS. It may
be the case that an element of the building is over budget. If this is the
case, the element may need to be redesigned or another element changed so that
the overall budget is not exceeded.

As per the diagram below, the earlier the change is made in
the project, the higher the impact of the change and lower the cost. However,
as the project progresses, the impact of the change decreases and the higher
the cost associated with it. Detailed cost planning ensures that the design
team are designing to a budget rather than the cost manager costing to a design.
The outcome of this can produce value engineering exercises, a potential cash
flow projection as well as a whole life cycle cost.

 

Cost of change to
a project over time.

 

 

 

 

At the pre-tender stage, all cost management increases
confidence of a tender cost. A pre-tender estimate is the stage between cost
planning and post contract. Our role is to then produce the final estimate of
the costs of the works that are described in tender documents before tender
offers are received. (Designing Buildings Ltd, 2018) We will once again use
benchmarking techniques, although our choices of comparable projects may differ
due to a final design being to the highest detail and being able to price all
elements realistically and accurately.

The pre-tender estimate combines the cost plan with the
tender information to identify any mistakes and ensure consistency. It also
allows the client to have a final view in to ensure nothing has changed without
their consent or make any changes. (RICS, 2018)

The final comparison can be made with the budget, however if
the pre-tender estimate exceeds the budget then the QS must provide explanation
or solution for the client to analyse and consider. The pre-tender estimate
must be broken into packages which allows easy comparison between tenders. The
pre-tender estimate must also follow a standardised approach outlined NRM1.

 

Value Management/ Value Engineering

According to the RICS, value can be described in the
following way: “value can be thought of as a very simple idea – the ratio
between the benefit derived from a course of action and the cost or effort required
to achieve it” (RICS, 2017). Our additional services of value management and value
engineering allows us to provide value to your company. Both terms refer to
searching for improvements within a project although they both achieve this in
different ways.

VE (value engineering) will include the project team to
focus on retaining functionality and performance of an element while reducing
the cost. This can be done by suggesting alternative materials, components and
systems, comparing the different cost impacts and performances and selecting
the most efficient route that would be best value for money for the client.

VM (Value management) is a broader process which studies what
ways value can be added to a project strategically while still attending to the
project brief. Value management output focuses on aligning business needs with
project objectives by identifying what is most valuable to the client. This As
the value management is at a more strategic stage of the project, there could
usually be more input from various stakeholders. For example, if we were to
undertake value management for your prospective building, we may potentially
engage with local planning authorities, local residents and businesses as well
as the client and design team through various workshops.

The earlier value management and value engineering are
carried out on a project, the higher the chance of significant cost savings to
the project. It is important to consider that there may be additional costs to
the project due to value management and value engineering. However, the
expectation is that the overall value will far outweigh the initial costs.

 

Fig. 1 (RICS, 2017)

Life cycle costing must also be considered in order to
identify the cost of the full life of a product or service. Since life cycle
costing considers the life time value of a building, it could be part of the
decisions during the design phase. If this is considered early in the design phase
of the building, it can be implemented without additional cost or minimal
additional cost. We are able to assist in advising and recommending particular
methods used within the industry in order for those options to be assessed.

 

A risk can be described as an event that if it occurs, could
cause potential cost and programme implications to the project. The RICS
describe risk management, as “the process through which the project team, including
the client, identifies and assesses the risks that the project poses. This
enables them to be acknowledged, prioritised and then managed in a structured
way to reduce their effect on the project as a whole” (RICS Guidance Notes,
2017). The RICS NRM states that risks take the form of: Risk avoidance, risk
reduction, risk to the contractor, risk shared by the client and contractor and
risk retention by the employer.

Another role within our scope of services includes risk
management. We are able to manage risk by establishing a risk management plan
containing a risk strategy

 

Contained within the budget we are able to outline an amount
necessary for contingency – usually 5% – for any unforeseen changes to the design.
These changes could include price changes in the market, or insufficient level
of detail in the original project scope when the budget is being established as
well other This contingency will decrease as the design phase’s progress. The
level of contingency should reflect the level of risk associated with the
project. As Faithful and Gould explain, “The design contingency is usually up
to 10% of the overall construction cost. Whilst calculated and identified
separately, the contingency amount should be an additional sum held by the
owner in the project budget. The owner holds the budget and retains it for use
by the architect and designers to ensure that all desired scope is covered” (Hawkes,
2017). The contingency will also need to be considered for the main
construction phase of the project. This will be established based upon
identified risks, how likely they are to occur and their possible impact on the
project. Some of the techniques that are used for calculating the contingency
of a project are: percentage addition, Probabilistic method and a sensitivity
analysis. 

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