It is prudent to confirm costs at every stage of a project and proceed with the certainty that the ground rules have been properly set and are understood by all.
There are five important stages that apply to the costing process.
Construction Estimates prepared from a brief or preliminary project design provide a client with advice on project affordability. Inappropriate advice can at this time lead to a commitment beyond the capacity of the client or the project. An estimate at this stage will generally be given on the least amount of project information, but will likely be the most important figure of all to the client.
It is important to remember that any opinion given at this stage is a ‘ball park figure’ or ‘best guess’. It may have an order of accuracy broader than plus or minus 20 to 25% and possibly more for projects which are complex or unique. This process is generally understood and accepted by Australian builders, however clients are sometimes not fully aware how significantly the costs may change depenaing on furtherproject documentation and design.
2. Schematic design.
Estimates provided after the pre-design stage confirm that the design meets the cost objectives of the client.
A schematic design estimate provides a more realistic figure than the pre-design estimate and will allow the client to make a decision whether and on what basis to proceed to the next stage.
This estimate should have an increased order of accuracy of plus or minus 15% to 20% for new buildings and might preferably be expressed as a range (e.g. $200,000 to $250,000).
The order of accuracy is not fixed and will vary with the nature of the project, its technical or design complexity, the degree of certainty of the value of provisional and prime cost sums, and the like. The order of accuracy will also vary according to the prevailing economic climate.
At this stage the estimate should include a reasonable ‘design risk’ contingency sum as well as construction cost contingency.
3. Design development.
At this stage, all matters relating to the brief will have been basically resolved. The architect or the contracted professional cost advisor can then provide, within the framework referred to above, a further estimate confirming the design’s compliance with the project objectives.
Estimates provided during the design development phase of a project should progressively improve the order of accuracy to that expected in a pre-tender estimate.
4. Contract documentation/tendering.
A pre tender estimate is required when the documents are ready for tender. The purpose of this estimate is to ensure that the tender is not abortive.
At the tender stage and in a stable market it is reasonable to expect that the estimate can achieve an accuracy of plus or minus 5% to 10%.
The quantity surveyor’s tender estimate is indicative of the mean of construction tenders.
Whilst tendering has the potential to win new business it brings with it a thorough complex of documents and processes; tight time constraints and additional work on top of other work.
Contractors or firms in Victoria and other states operating within the build environment often feel overwhelmed by the sheer size and complexity of the tendering and estimating process even before they begin the process. There is a lot at stake but a huge amount to gain - so effort spent on getting project tendering and estimating process right is one of the most effective investments that can be made.
5. Contract administration.
The project manager or clients agent must keep the client informed of the current financial status of a project at regular intervals during the administration stage of the project.
This task is most commonly related to the processes involved in the issuing of progress certificates, variations and extensions of time. It includes monitoring of expenditure against provisional sums, cost escalation, and probable future costs that will affect the end cost.
Cost information should be prepared in a format consistent with industry practice and should also inform the client of project-related cash flow requirements.