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CVE 3204
ESTIMATING & CONTRACT

TOPIC 1: INTRODUCTION TO
COST ESTIMATING
Sr. ASMAWAN BIN MOHD SARMAN
Semester: January 2015

Learning Objectives:
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The student will able to;


Define the terminology
Identify the purpose/ importance of cost estimating
Understand the different methods of cost estimating process
and techniques to different stages of project development.
Identify different methods of construction estimate
Recognize cost data for estimating purposes
Identify the purpose/ importance of cost estimating for
parties in construction project.
Recognize the estimate methods and selection of methods.

Regardless of size, shape or function of any


proposed work, a method of producing a
accurate estimate of the project is essential. A
contractor cannot afford to make an unrealistic
offer to a client who is instructing the work being
undertaken.

Definition
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Estimating

process of pricing work based on the


information / specification and/ or drawings available in
preparation of submitting an offer to carry out the work for a
specified sum of money.
Specified sum = tender sum, eventually to be contract sum.
Contract sum shall be accurate/ confident.

Estimating ERROR

additional sums from client.

Recover

Definition: Cost Estimate


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Technique to forecast the possible costs incurred for


a certain building or construction project via
systematic
calculation
employing
certain
techniques.
It is part of cost planning process in controlling
the project cost at the design stage before any
drawings are embarked upon.

Main Importance of Cost Estimate @


Design Stage
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According to Seeley (1996, p.154),


the primary function of approximate or preliminary
estimating is to produce a forecast of probable cost of
future project, before the building has been designed in
detail and contract particulars prepared. In this way the
building client is made aware of the likely financial
commitments before existence design work undertaken.
Estimating process:

confirm / precise
contractual sum (contract stage)

Initial stage design stage tender stage

Types of Construction Estimate


-

Design estimate
Bid estimate
Control estimate

Types of construction estimate


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Design Estimates (consultants / client's estimate) during design stage


Screening estimates (or order of magnitude estimates)
Preliminary estimates (or conceptual estimates)
Detailed estimates (or definitive estimates)
Engineer's estimates based on plans and specifications
Bid Estimates (contractor estimate) Tender stage / bidding stage
As a contractor, a bid estimate is submitted to the owner either for
competitive bidding or negotiation.
Control Estimates post construction stage
Budget estimate for financing
Budgeted cost after contracting but prior to construction
Estimated cost to completion during the progress of construction.

The relationship of estimating process in


project development stages
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Table 1 shows the chronological development of the project, and the way in
which the cost estimating relate to the plan of work and cost planning
process.

Cost Procedure & Techniques


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(RIBA stages)
RIBA
Stages

Inception

Feasibility

Outline
proposal

Scheme
design

Detail design

Cost
Procedure

Cost study ,
establish cost
limit

Feasibility
studies

Outline cost
plan

Prepare
detail cost
plan

Prepare cost
check

Costing
techniques

Cost study of
samples of
similar
building

Preliminary
estimates:
either from
developer /
consultant
(using
financial
method /
interpolation
method)

Estimates
based on
group
elements

Estimate
based on
individual
elements

Approximate
quantities
method

Continued (next page)

Cost Procedure & Techniques


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Product
Bills of
information quantities
Prepare
BQ

Tender
action

Project
planning

On-site
operation

Completion

feedback

Cost
analysis ,
tender
evaluation

Cost
report

Prepare
final
account

Update
record

Elemental
cost
analysis of
tender

Monthly
checking of
variations
and
instructions

TOTAL COST TARGET = COST TARGET = COST LIMIT


(individual elements)

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(group elements)

Cost Estimate as Design Guide


Cost limit
lump sum estimate of $2,000,000

Elements
Group
elements

Cost Target

Cost Target

Cost Target

$600,000

$750,000

$650,000
Individual
elements

Cost Estimate as Design Guide


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Cost estimate functions as design guide whether the project is


appropriate to the cost limit / target allocation made earlier.
What if cost estimate > cost limit / target ???
What if cost estimate < cost limit / target ??
What if cost estimate = cost limit / target ??

Remedial action taken / adjustment ???

Remedial action taken / adjustment ???


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If the estimate is > the allocated sum for the particular


project, the following could be carried out:

The design could be altered to reduce cost


Extra provisions are sought after or requested from the client
The project is postponed is cancelled.

If the estimate is < the allocated sum, the following could


be done;

To accept the estimate


To modify the design and/or the specifications to increase the estimate
appropriate to the provisions set aside.

Therefore;
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The cost estimate of building associated with its:


Type
Shape and size
The various quality and materials used
Methods of construction
Changes in price level, materials, labour, plant, etc

For all cost estimates, sufficient and good cost data


plays an important role establishing the accuracy of
an estimate. (Topic on cost data will be discussed in depth further in the
future lecture)

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COST DATA in estimating

Cost data
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- Building Material Cost


Index
- Annual
Survey
of
Construction Industries

Journals, magazines, etc.


E.g. the Malaysian Surveyor
magazine by ISM
Technical data

Dept. of
Statistics,
Malaysia

Available books of cost


data:
- Average cost/ m2 for
(building work)
- Schedule of rates;
Govt
- For minor & repair publications:
works
PWD- unit
- For tender basedpembangunan dan
on drawings and khidmat kos,
Contract & QS
specs
dept
- Construction Cost Guide
(for the preparation of
preliminary estimate)

Priced books

COST
DATA
Information
services / cost
information
Tender /
contract
document / BQ

Spons Architects
& Builders priced
book
Spons
International
Construction Cost
Handbooks
Spons Asia Pacific
Construction Cost
Handbooks

Elemental Cost
Analysis in the

Malaysian
Surveyor
magazine by ISM

Previous project tender BQ/


Contract document (cost

analysis / ECA)

Cost Data (others)


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Other Government publications ; publish policies cost,


interest rates, labour etc. (Ministry of Housing And Local Government,
Bank Negara Malaysia).

Media comments on economy, announcement i.e. changes


to government policies, changes to the control cost of building materials or current
rate of inflation.

Other sources:

research conducted by Universities or other relevant bodies

Suppliers quotations or materials catalogues

Contractor , subcontractor quotations

Cost information obtained from Client and consultant

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Cost Estimate Parties Design Stage

CLIENT / EMPLOYER
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A cost estimate,
assist in ALLOCATING THE BUDGET required
to execute a planned project.

DESIGN TEAM (Architect, Engineers)


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Cost Estimate;
acts as a GUIDELINE in preparing a design so
that it does not exceed the cost limit stated by
the client.
Cost limit = Clients budget

CONTRACTOR / BUILDERS
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Cost estimate will,


assists in the preparation of OFFER PRICE to
ensure the offer price forwarded is reasonable
for bidding / tendering process.

PROJECT MANAGER
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Cost estimate is,

used as guideline to CONTROL THE COST of a


project especially in the preparation stage of
the design and in the execution of project at
the site.

BUILDING MANAGER
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Cost estimate;

assists in establishing information on the


probable total cost of repairs and
maintenance of the building when the building
is completed.

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Methods of Estimate
-

Preliminary estimate
Approximate quantity
Elemental estimate

Methods of Estimate
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Options appraisal

schematic design

Detailed design tendering

Preliminary Estimate

Later stage estimate

Used to establish the


probable initial allocation or
the approximate estimate
of a project. Methods
employed:

It used to produce value,


which is comparable to the
lowest tender sum. Methods
employed:

Unit
Cubic
Floor area
Storey-enclosure

Approximate quantity
Elemental estimate

The selection of method


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Depends on:
The

information and time to prepare the estimate

Time

is short simple / easy method used


More info thorough method may be utilized.
The

experience of the QS.

The

total and type of cost data available:

Relevant

/ updated cost data/ analysis, drawings, project


specifications.

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