T022 Design Economics

NRM 1 Estimating
1. Purpose of an Order of Cost
  1. relates to RIBA A/B & OGC Gateway 1 (business justification) 2 (delivery strategy)
    1. RIBA A/ Gateway 1
      1. identify clients needs - prepare feasibility
    2. RIBA B/Gateway 2
      1. iden. client brief/procurement method/ other consultants engaged
  2. Est. proposed building project affordability
  3. Est. a cost limit
    1. Max expenditure a client is willing to make
  4. May be a need for alternative scenarios = cost options
  5. Information Required fro OofC
    1. From Employer
      1. location
      2. statement of bdg use
      3. life span
      4. details of enabling wrks
      5. initial design brief
      6. requirements 4 refurb
      7. floor areas
      8. site conditions
      9. budget/cashflow constraints
      10. restraints e.g. planning/stat auth/listed bdg
      11. other e.g. CA/ land remediation
    2. From Architect
      1. sketches e.g. floor plans/ elevation/ sections
      2. Sch of areas e.g. GEA/ GIFA/ NIA
      3. Min storey height/ sch accomodation
      4. suggested ground conditions
      5. indicative services
      6. initial risks
  6. Process of OofC
    1. 1. facilitating wks est.
    2. 2. Building wrks est.
    3. 3. MC prelims
      1. they define the scope of the works
      2. inc. proj particulars, list of dwgs, des of site,
      3. Preliminaries sections A54 - Prov sums; A10 Proj particulars
      4. Considerations when assessing preliminaries
        length of contract
        location - access/ space res/ accomodation
        type of proj: refurb/ new build/ large tower
        size of proj
        need 4 temp wrks
        security
        sectional completion
        avalibility of services
    4. 4. Sub total
    5. 5. MC OH&P
    6. 6. Works Cost Estimate total
    7. 7. Proj/Design team fees
    8. 8. Sub-total
    9. 9. Other Dev/proj. cost est.
    10. 10. Base cost est. total
      1. Base Cost Estimate
        total Bdg wks + MC prelims + MC OH&P + Prj/design fees + other dev est.
    11. 11. Risk Allowances estimate
      1. 4 nr risk allowances
        design dev
        construction risks
        emp. change risk
        emp. other risk
        allowance 4 risk & inflation r calc seperatley + add 2 base cost 2 determine cost limit
    12. 12. Cost Limit total (excl Inflation)
    13. 13. Tender inflation est.
      1. you review inflation through the use of TPIs
        tender price index
      2. TPI reflect changes in level of pricing in lowest accepted tenders for new wks 2 take account of market cond. - compares with base date
    14. 14. Cost limit total (excl. construction inflation)
    15. 15. Construction inflation est.
    16. 16. Cost limit total (inc Inflation)
2. Measurement rules for Building Works
  1. Floor area Method
    1. Quants determined by measuring the GIFA
    2. Measured & multiplied by an appropriate £/m2
    3. c = a x b
    4. a = GIIFA; b = cost/m2 of GIFA; c = Building cost estimate
    5. GIFA in accordance with RICS code of measuring practice 6th ed
    6. where building comprises of more than one bdg function = GIFA of each function calc seperately
      1. you can then delineate party walls etc.
    7. Ext wks measured separately as SA (Site Area)
  2. Functional Unit method
    1. units of measurement used to represent a prime use
    2. each function inc necessary circulation space
    3. Cost/ hotel rm; cost/ school child; cost/ hospital bed
    4. c = a x b
      1. a = no. of functional units; b = £/functional unit; c = building works estimate
  3. Elemental method
    1. alt approach 2 calc total est cost of bdg wks
    2. considers maj elements and provides an OofC based on the breakdown of other similar buildings
    3. cat. into group elements and elements
      1. 0 - Facilitating works
      2. 1 - substructures
        ELEMENT: Substructure
      3. 2 - superstructures
        ELEMENT: frame/ U.floors/ roof/ stairs & ramps/ Ext walls/ Windows & ext doors/ Int walls & partitions/ Int doors
      4. 3 - Internal finishes
        ELEMENT: wall/ floor/ ceiling finishes
      5. 4 - FF&E
      6. 5 - Services
        ELEMENT: Sanitary/ equip/ disposal/ water/ heat/ space heat & AC/ ventilation/ Electrical/ Fuel/ Lift/ Fire+lightning protection/ com, security & co
      7. 6 - prefab bdgs
      8. 7 - wks 2 ext bdg
      9. 8 - ext wks
    4. c = a x b
      1. a = EUQ; b = EUR; C = cost target
    5. used for RIBA C or OGC Gateway 3A
    6. provides a basis of the formal cost plan 1
      1. EQR/EUR s/s by more detailed measure of elements
3. Measurement Rules
  1. MC prelims
    1. added as a %
    2. derived from a considered assessment of cost analyses of previous bdg proj.
    3. subbies Prelims are normally inc into unit rates
    4. A list of MC inc in part 9 of NRM 1
    5. they define the scope of the work
  2. MC OH&P
    1. added as %
    2. derived from a considered assessment of cost of previous bdg proj.
    3. a list is inc in part 10 of NRM1
  3. Proj/design fees
    1. either inc/exl
    2. list of fees in part 4 of NRM 1
    3. added as a %
  4. other dev/proj costs
    1. e.g. insurances/ planning fees/ fees 4 party walls etc.
    2. added as a lump sum
      1. acertained in conjunction with client
  5. Risk
    1. risk exposure - as the design dev = more of proj defined & a risk response decided
      1. risk avoidance
        seriousness of risk consequences on proj is unacceptable
        measures inc review of brief/ re-design
      2. risk reduction
        level of risk unacceptable
        Action would be to reduce by: redesign/ further site investigation/ diff mat/ diff method of con/ change contract strategy
      3. Risk Transfer
        accepting risk would not be client value 4 money
        transfer 2 a 3rd party
        higher premium
        e.g. insurance cover
      4. Risk Sharing
        client retains some risk
      5. Risk retention
        risk retained by client = called residual risk
    2. risk allowances should NOT be a % but a properly considered assessment of the risk taking in 2 account completeness of design + other uncertainties
      1. Allowances should be made for the following
        Design Development risk
        e.g. planning/ legal/ covenants/ 3rd party risks
        Construction Risk
        e.g. site conditions/ access restrictions/ boundaries/ extg bdgs
        Employer change risk
        e.g. chg in scope/ quality/ time
        Employer other risks
        e.g. early handover/ acceleration/ avalibility of funding
        allowance should be made based on formal analysis e.g. risk register and Monte Carlo simulations
  6. Inflation
    1. its possible to consider future effects of inflation on the base cost est. over a period of time
      1. to date of tender
        t = CL x p
        p = % tender inflation (published indices TPI), BCI or retail price indices (RPI) or % derived from in-house sources
        CL = cost limit; p = % for tender inflation; t = tender inflation estimate
      2. mid-point of construction
        c = CL x p
        CL = cost limit (ex const infla); p = % 4 const infla; c = construction inflation est
  7. VAT
    1. is complex and recco excluded from OofC
NRM 1 Cost Planning
1. Purpose of cost planning
  1. intrinsic with RIBA C/D, E/F & OGC gateway 3A & 3B
    1. RIBA stage C & Gateway 3A
      1. concept: implement concept design and outline proposals 4 structural & building services, outline spec, formal cost plan 1
    2. RIBA stage D
      1. Design development: update design, planning, completion of brief
    3. RIBA Stage E & Gateway3B
      1. Technical Design: prep of tech design and spec 2 coordinate components and elements of proj & info for stat standards
    4. RIBA Stage F
      1. Production Info: prep info ready for tender
  2. main purpose
    1. ensure emp. are provided with value for money
    2. make clients & designers aware of cost consequences of their desires/ proposals
    3. provide advice 2 designers to help them arrive 2 practical designs withn budget
    4. keep expenditure within cost limit
    5. robust cost info which the client can use 2 make informed decisions
2. Elemental cost planning/ cost planning
  1. budget breakdown of the cost limit into cost targets for each element
  2. its a statement of how the proj team proposes to distribute the availible budget amougst the elements of the building
  3. its an iterative process which is performed in steps of inc detail as design develops
3. Constituent of a cost plan
  1. it takes the same shape as the cost estimate
4. Formal cost plan stages
  1. formal cost plan 1 = RIBA stage c
  2. Formal cost plan 2 = RIBA stage D
  3. Formal cost plan 3 = RIBA Stages E & F
5. Cost control in procurement
  1. CP become a important cost control mechanism when work is procured by the use of seprate wk pack
6. Reporting of elemental cost plans
  1. cost expressed as £/m2
  2. items in CP reports
    1. 1. Exec summary/ prj title/ description/ status of CP
    2. 2. statement of cost inc cost limit
    3. 3. details of info/ spec on which CP was prepared/ statement of floor areas
    4. 4. Cost Plan
    5. 5. assumptions/ base date/ reason for change from previous CP
    6. 6. VE options/ conclusion/ recommendations
    7. 7. inclusions & exclusions
State of the construction market
1. Trends and forecasts 2013
  1. Tender price index
    1. The second half of 2012 saw prices come under renewed pressure. 2013 little respite
  2. Building cost index
    1. Employers faced higher wage bills at the end of last year and will have to fund a small wage increase at the beginning of 2013
  3. Retail price index
    1. Higher utility costs caused retail prices to move back up. Higher food prices coming through will stop consumer price measures falling towards target.
  4. Generally
    1. 2012 ended with construction prices continuing their slide
    2. Provisional fig 4 4thQ GDP = economic activity fell by comparison with 3rdQ, = Speculation trple dip recession (NB* confirm narrow avoidance)
    3. Deloitte CFO survey 2013: market has cautious optimism
    4. The Bank of England held interest rates at 0.5% since 03/09 & some suggest they will stay until 2017.
    5. The Autumn Statement 12/12 recog need 2 restore capital spending & announced an add £5bn of investment for roads, rail and edu
    6. Infrastructure pipeline: 550 projects est. @ £330 billion to 2015
      1. An xtr 50 proj compared 2 2011 & £70m
      2. problem: gov think 85% will be privately funded
    7. BofE 4thQ Credit survey: banks offereing more cheaper credit due to the funding 4 lending scheme
      1. downside: bank reduced interest on savings - no need 2 attract savers money
    8. Construction products Assoc: lowered expectations of construction output 4 2013/14
      1. trimmed by more than 4%
    9. The recently released Construction Skills annual report does not anticipate a return to the 2007 levels of construction activity until 2022.
    10. competition will remain intense keeping a lid on underlying cost inc
    11. A prediction of MC turning down works due to slim est depart - picking job 2 put effort into rather than buying jobs at a loss
    12. Material cost increases are likely to remain subdued in 2013
    13. EUROPE
      1. (IMF) forecasting a further small contraction (-0.2%) for the Eurozone, before achieving a small 1.0% inc
    14. GLOBAL
      1. Global economy: stabilise in 2013; Global economic growth not expected 2 pick but neither slow again.
      2. weak Eurozone & slow Japan offset US growrh
      3. US should pick up if uncertainty of fiscal cliff & debt reduction is resolved
      4. China: regain momentum in 13 & surpass 8% growth
      5. Emerging market construction growth to lead the industry
        construction demand is likely to be highest in high risk areas, including Latin America, Africa and the MENA region.
Economics of design
1. Wall: Floor ratio
  1. relationship between wall and floor
  2. Shows efficiency of a bdg
  3. Lower the ratio = cheaper the bdg
2. The most efficient bdg shape is a circle but has poor lettable area = square is best
Sources of cost info
1. In-house historical data
2. BCIS
3. Cost indices
4. cost analyses published in trade journals
5. Price books SPONS/LAXTONS
6. Building cost models
7. Sub-contractors & Suppliers

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T022 Design Economics

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