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Contents

Section 1 Design Process

Section 2 Designing to a Budget

Section 3 Construction Costs

Section 4 Estimating Process

Section 5 Cost Management Techniques
                                             


 

Description:  This unit introduces the Design & Construction Process of a project in the Construction industry.

Author:  Gates MacBain Associates


Section 1  Design Process



Aims and Objectives

At the end of this section you should be able to:
  • Outline the stage of work involved in the design process of a building.


Before doing this unit you should be familiar with the way that a building is designed and the way that the designers ensure it meets the requirements of the client. You should, read through the constructionsite unit The Construction Process to ensure that you can understand the procedures that are carried out. You should visit the website below to ensure that you understand the RIBA Plan of Work.  This will involve in you being able to explain each of the stages involved with the construction of a building appertaining to its design.  These stages relate to: 
  • Appraisal
  • Design Brief
  • Concept
  • Design Development
  • Technical Design




Websites



Publications

  • Thompson, A (1998) Architectural Design Procedures, Arnold: London (Chapter 9)



Constructionsite Units



Self-Assessment Task

  • List and explain each of the stages of the RIBA outline of work.




Section 2  Designing to a Budget




Aims and Objectives

At the end of this section you should be able to:
  • Discuss the financial factors which will influence the design of the building.


The design of a building will depend on a number of interrelated factors and the designer will need to know exactly what the client requires, particularly with regard quality as it is quality which has the biggest affect on budget. The requirements for a five star hotel with regard to quality will be much greater than for a hostel for the homeless, consequently, a building incorporating the same floor space will differ significantly for the two buildings. 

Construction costs are not the only factors which need to be considered at the design stage for the use of the building as the life cycle costs and the costs in use will also need to be considered, particularly if the client intends to retain the building for some time. Let us look at some of these factors.  


Life Cycle Costing  

The life cycle cost of a project is the total cost of that project over its operating life. It includes the initial acquisition costs and the subsequent running cost which include:   
  • Construction costs
  • Management
  • Maintenance
  • Cleaning
  • Energy
  • Replacement

Cost analysis can be carried out at the design stage to show the pattern of expenditure according to the design and specification chosen. This will determine the amount to be spent on the building throughout its life. It will also identify areas which it could be more economic to replace than to maintain. 

It allows a choice to be made between alternative design, methods of construction or materials. It also identifies areas in which operating costs may be reduced. 

Rising maintenance costs can reduce the profitability of a project in later years, even though it would be expected to obtain an increased rental income from the property.  

Life cycle costing will also consider the residual value of the building and land at the end of its life. This must consider the likely value and the cost of disposal.    


Maintenance  

The following will need to be considered: 
  • If the project is to be sold the maintenance cost will fall on the purchaser, the developer will therefore, have little concern for any cost other than the initial ones. 
  • If the building is to be kept it may be better to pay maintenance cost from  running costs rather than to incur larger construction costs involved with higher specifications for quality, as these will incur higher capital requirements and interest costs.     
  • The design and layout of some buildings may after some years be considered unfashionable or obsolete.  This could result in a complete refit even though the building is in sound condition. This would negate the possible savings obtained from the higher standards incorporated into the original building. 
  • Consideration will need to be given to the importance of minimizing maintenance and the disruptive effects which it may cause. 
  • If the building is to be leased, the obligations for maintenance under the lease by the owner and lessee would be considered. 
  • The life expectancy of the building will also determine the standards of materials and components included in the original design.
  
Building Life - Obsolescence 

The life of a building is the length of time which the use of the building satisfies the requirements of the building owner or user. 

In order to reduce the risk of a building becoming obsolescent before it reaches the end of its physical life the design must incorporate flexibility. 

The most common reasons for a building becoming obsolete is due to economic or functional reasons.  

Economic Obsolescence is when the use of the building is more expensive than alternative means of meeting the objectives for being in that building. It could also be that the asset would bring a better rate of return if redeveloped or that the value of the land is greater than the income obtained from the building. 

Functional Obsolescence means that a building ceases to function for the purpose for which it was built. Another aspect of this is that the building does not function technologically. 

Physical Obsolescence is due to the deterioration of the building fabric to such an extent that the building is no longer safe for occupants to use. 

Other factors to consider is the legal or social changes which may occur during the life of the building.  


Cost In Use   

Cost in use can be reduced if the initial outlay is increased i.e. the incorporation of uPVC double glazed windows is initially higher than that of soft wood, though the overall cost over the life cycle of the building may be less due to energy savings and the reduced cost of maintenance.   

The criteria for choice of materials can therefore be, not only the finance available, but also the intentions of the building owner to retain or dispose of the building.   

The client may prefer to have superior materials and workmanship for prestigious reasons.   
Repair or replacement may be difficult and therefore expensive. It may also cause problems to the user and therefore it should be reduced as much as possible.   

As the long term cost of a project often outweighs the initial cost they are an important factor in the decisions made with regard to the design and materials chosen for the project.




Publications

  • Thompson, A (1998) Architectural Design Procedures, Arnold: London (Chapter 9)




Self-Assessment Task

  • Explain how life cycle costing influences the design and budget of a building.






Section 3  Construction Costs




Aims and Objectives

At the end of this section you should be able to:
  • Explain the methods of assessing the potential cost of a building.


The construction costs for a project will depend on the size, type of building, standard of finish required, location (costs will vary according to the region in which the development occurs), the economic climate of the construction industry i.e. if there is a shortage of construction work available firms will reduce the amount of their tender in order to try and attract work. If the opposite is the case and there is a lot of work available, firms will increase their tenders, as they will not be too keen to obtain the contract which will stretch their resources, unless it is worth their while financially. In a recession, construction firms can literally buy work in order to keep their workforce and to ensure some cash flow. Whether the rate of inflation needs to be considered will depend on the duration of the contract and the rate of inflation. 

Building Costs can vary between builders/developers. This can be due to the size or purchasing abilities of a company or the discount that it receives from suppliers. 

Professional fees must be added to the cost of construction and these will vary according to the project. In the past, fees were based on a set scale which was a percentage of the building cost, though in the last few years an element of competitiveness has emerged which can result in the professions negotiating their fees. This has resulted in a reduction in the amount paid in professional fees though if a scale is used these can be as little as 8% of the cost of a basic industrial unit to 20%  or more for more sophisticated developments with complex mechanical, electrical and communication services installations.  

The preparation of costs will be done by the Quantity Surveyor in order that the client can obtain a suitable building within the cost constraints imposed. 


Methods of Assessing Construction Costs   

The method of obtaining a price for the construction work may be: 

Elemental Cost Analysis.  This is based on historical data from completed projects with the costs broken down into the elements of construction and shown on a metre squared basis. Data for the calculation of costs can be obtained from a number of sources i.e. the Royal Institution of Chartered Surveyors quarterly review of building prices. 

Cost per unit area.  This is also based on historical data obtained from similar completed projects on a cost per metre squared basis. This information may be obtained from the developers own projects or from other developers. It is an easy method to calculate though it is not very accurate. Best used on simple offices or car parks. 

Approximate Estimating.  This requires a detailed amount of information about the design requirements of the project. Cost can then be obtained by taking off quantities and building up an estimate. Data on costs is obtained from such sources as Spon’s or Wessex (these provide up-to-date pricing information for building work) or from the use of a number of computer software programmes which are now available. 

Bills of Approximate Quantities.   This method is time consuming in comparison to those listed above. The method requires a Bill of Quantities being produced before an estimate can be obtained. It is, however, the most accurate and can be used for tendering. 


Comparison of Costing 

The following will give an indication of the average costs (as a comparison)  per square metre of gross internal floor area for new building work.  

  
  £/m2
 Residential 
 Private Flats 475 - 650
 Luxury Flat 750 – 1050
 Speculative Houses  500 – 800
 Sheltered Accommodation 450 – 600
  
 Offices  
 Low rise – basic 600 – 900
 Medium rise – basic 750 – 1000
 High rise - basic  1000 - 1400
 With air conditioning add 300 - 900
  
 Industrial   
 Light Industrial – basic 250 – 400
 Light Industrial with offices 350 - 550
 Workshop 325 – 500
 Warehouse 250 - 350
  
 Retail 
 Shop shells 350 – 550
 Shop fit-out 450 – 850
 Shells in malls 450 - 550 

      
Other Factors   

Although the above methods will give an indication of the likely costs, these are only a guide.  They should not be used to assess the viability of the project if the project is to be retained, as they do not consider a number of other factors.  This will require an economic analysis of the project which should also consider the following:  
  • Ancillary costs - these cover demolition, landscaping, parking provision, civil engineering works, and access roads. A sum of money must be allowed for this in the calculations.
  • Contingency 10%  (An amount set aside which may be used in the event of additional work, which has not been allowed for, needing to be done)                   
  • Fees - Building Regulation Fees, (Based on 70% of Construction Costs), Planning Fees, Bank Arrangement Fees  
  • Selling Fees 2% of Capital Value
  • Letting Fees 15% of first year's income.
  • Construction Finance.   Total construction costs for half construction period.
  • Other Finance. Finance from end of construction period, for whole of letting period or until sold.
  • Assume 6 month Void Period (the period from completion to letting when no income is received, normally assumed to be 6 months though will depend on the type of project and the likely demand) 

If the project is to be retained and let the likely income can be determined by obtaining an indication of the market value of the type of property and multiplying that by the amount of usable space, this is the Net area available to let and excludes entrance, stairs etc. which is not charged for in the rent. 

Department of Business and Regulatory Reform (BERR) publish information which assists firms in the costing of a project or in the preparation of tenders.    



Websites




Publications

  • Thompson, A (1998) Architectural Design Procedures, Arnold: London (Chapter 9)




Self-Assessment Task

  • Looking at each of the methods of assessing costs discussed in this section, review the type of project where each could be used.





Section 4  Estimating Process




Aims and Objectives

At the end of this section you should be able to:
  • Discuss the need for and the contents of a Bill of Quantities.


When the designer has produced the drawings for a building these are passed to the Quantity Surveyor who will prepare the Bill of Quantities. This is a document which lists the items which describes the work that is to be done in order to produce the building.  It specifies the details of each operation and itemises the materials, parts and labour for each operation. 

Once the document has been prepared it is sent to the firms who are invited to tender for the job.  Each company who wishes to tender will then cost each of the items in order to obtain an overall cost. Each company will return the document with a price against each item which forms part of the tender  

The product specification that details the operations required to build a standard construction project. It covers the costs of inputs (labour, materials and plant), subcontracting, preliminaries and overheads. It also covers contractor’s profit or loss, architect’s and engineer’s fees and non-deductible taxes. A bill of quantities is structured to provide a weighted price for each component specified which, when summed across components, provide the purchasers’ price for the standard construction project described. 

Before a company decides to submit a tender for a contract they need to estimate the cost of the job, then decide if they want to carry-out the work and determine what profit they want to make. 

It is the job of the estimator to price the job.  To do this they need to keep up to date with the factors which will influence costs such as materials, labour etc. The estimator will then by assessing the drawings and specifications, determine (take off) the quantity of materials required. The take-off process incorporates decisions about:  
  • equipment needs
  • sequence of operations
  • number of workers required,
  • physical constraints at the site.
Allowances must be made for wastage of materials, inclement weather, or any other factors that may increase costs also which must be incorporated into the estimate. Once these factors have been considered the estimator will produce a cost summary for the contract and include overheads etc whereby a bid proposal is produced. 

Large companies may have specialist estimators for specific areas ie mechanical services. These days a lot of estimating is done by the use of computer software packages.     

Research by the RICS suggests that nearly 80% of tender documents are still sent as hard copy, although increasingly more are being sent by electronic means.   



Websites




Publications

  • Thompson, A (1998) Architectural Design Procedures, Arnold: London (Chapter 9)
  • Harris, F & MacCaffer, R, (2005) Modern Construction Management 5th Edn. Oxford: Blackwell (Chapter 5) 




Self-Assessment Task

  • List the factors the estimator will need to determine prior to the preparation of a tender document.




Section 5  Cost Management Techniques




Aims and Objectives

At the end of this section you should be able to:
  • Explain the options that are available in order to monitor costs on a project.


You will be required to understand the essentials regarding cost management techniques, the purpose of which is to ensure the profitability of any projects.  There are a number of ways that this can be done. 


Cash Flow Forecast 

In order to survive a business must, in the long term, make profits from its trading, though equally as important is the flow of cash into the business in order for it to be able to pay the outstanding creditors as they arise. 

The Cash Flow Forecast provides a means of assessing the amount of money coming into and going out of a business over a period of time. It therefore, enables any liquidity problems to be foreseen, and prevents the loss of interest due to having too much money in a credit account earning no money. It also enables the manager to assess if finance is available for any additional expenses that may be required. 

Forecasts may be drawn up for each month showing all out-goings and income for that month. Allowance is made for the period of time between sales and receipt of money so the cash flow should show when the money is expected to be received, not when a sale has been made.   


Additional Information 

The cash flow can also provide information which can be used to help management in assessing a project or the state of a business i.e. the total amount of money spent on a specific item. 

This can be put in as an additional column to total the income and expenditure. The use of spreadsheets is ideal for cash flow forecasts as they calculate all figures and allow ‘what if’ scenarios.   


S-Curves 

These will show the expected finance required for the duration of the project. The S-Curve shows the amount of expenditure and how it is required over the duration of the project. The shape of the curve conforms to an ' S' and shows the gradual build up of expenditure during the early part of the contract as the contractor becomes established on site, this normally reaches a peak at 60% of the contract and then slows down towards the end prior to completion. This is due to the majority of contracts incurring the majority of expenditure in the middle of the contract. 

The S-curve is plotted by showing the cumulative borrowings on a monthly basis; this provides useful information for financial planning and the monitoring of costs. 

S-Curves may also be drawn to show the requirements not only for finance (as shown below) but also for labour or specific materials. Any stage payments received can also be shown which will reduce the requirement. Details on the production of an S-curve can be found in Management Systems for Construction listed below.  



Figure 1: S-curve    


Publications


  • Griffith A, et al, (2000) Management Systems for Construction, Longman: Harlow (Chapter 3)
  • Harris, F & MacCaffer, R, (2005) Modern Construction Management 5th Edn. Oxford: Blackwell (Chapters 7, 10 & 11) 




Self-Assessment Task

  • Discuss and assess the options available to a construction company in order that it can monitor its cost control for a specific project and the likely selection for given situations.actors the estimator will need to determine prior to the preparation of a tender document.




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