How To Do Cost Estimates On Building Projects?

During the late 1950s the technique of elemental cost planning on buildings was established. This technique enabled the client to obtain a more reliable pre-tender estimate and gave the design team a template in order to control the cost during the design development stages.

The technique was embraced by the Hertfordshire County Council and used successfully on the CLASP modular school building projects in the 1960s.

The technique is now well established in the building sector and has been further developed by the Building Cost Information Service of the RICS (BCIS) to include a national database of elemental cost analyses, which can be accessed using online computer techniques.

Such information can be used to aid the pre-contract estimating process in the building sector as well as helping to ensure VFM by aiding the designer to ensure the most appropriate distribution of costs within the project.

Cost management is the total process, which ensures that the contract sum is within the client’s approved budget or cost limit. It is the process of helping the design team design to a cost rather than the QS costing a design.

The basis of the design cost control using the cost-planning technique is the analysis of existing projects into functional elements in order to provide a means of comparison between projects planned with data from existing projects. A building element is defined as part of a building performing a function regardless of its specification.

Elemental analysis allows the comparison of the costs of the same element to be compared between two or more buildings.

As the cost element under consideration is performing the same function, an objective assessment can be made as to why there may be differences in costs between the same elements in different buildings. There are four main reasons why differences in costs occur:

1. Differences in time (inflation)
2. Quantitative differences
3. Qualitative differences
4. Differences in location.

On a major project it is necessary to consider individual buildings or parts of buildings. A major shopping centre may be split into common basement, finished malls, unfinished shells, hotel and car parking. The parts of the whole may be physically linked and difficult to separate, but separation will ease estimating and control.

The costs of the identifiable parts can then be compared against other schemes. For example, a composite rate per square metre is meaningless when you mix the cost of finished atrium malls with unfinished shells.

It is not only important to separate out parts of the building that serve different functions but it is equally important to separate for phasing. Many major projects have to be built around existing structures, which increase the cost because of temporary works as well as inflation.

The client’s and project’s status with regard to VAT will also need to be established. In the UK VAT is currently payable on building work other than constructing new dwellings and certain buildings used solely on both residential and non-business charitable purposes and also on all consultants and professional fees. The current VAT rate is 17.5%.

It is customary to exclude this amount from estimates and tenders, a practice that is well understood in the construction industry. However, this must be pointed out to any client who otherwise may think that the estimate is their total liability (Ferry and Brandon, 1999).

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