T022 Design Economics

T022 Design Economics

1. NRM 1 Estimating

   • Purpose of an Order of Cost
     • relates to RIBA A/B & OGC Gateway 1 (business justification) 2 (delivery strategy)
       • RIBA A/ Gateway 1
         • identify clients needs - prepare feasibility
       • RIBA B/Gateway 2
         • iden. client brief/procurement method/ other consultants engaged
     • Est. proposed building project affordability
     • Est. a cost limit
       • Max expenditure a client is willing to make
     • May be a need for alternative scenarios = cost options
     • Information Required fro OofC
       • From Employer
         • location
         • statement of bdg use
         • life span
         • details of enabling wrks
         • initial design brief
         • requirements 4 refurb
         • floor areas
         • site conditions
         • budget/cashflow constraints
         • restraints e.g. planning/stat auth/listed bdg
         • other e.g. CA/ land remediation
       • From Architect
         • sketches e.g. floor plans/ elevation/ sections
         • Sch of areas e.g. GEA/ GIFA/ NIA
         • Min storey height/ sch accomodation
         • suggested ground conditions
         • indicative services
         • initial risks
     • Process of OofC
       • 1. facilitating wks est.
       • 2. Building wrks est.
       • 3. MC prelims
         • they define the scope of the works
         • inc. proj particulars, list of dwgs, des of site,
         • Preliminaries sections A54 - Prov sums; A10 Proj particulars
         • 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. Sub total
       • 5. MC OH&P
       • 6. Works Cost Estimate total
       • 7. Proj/Design team fees
       • 8. Sub-total
       • 9. Other Dev/proj. cost est.
       • 10. Base cost est. total
         • Base Cost Estimate
           • total Bdg wks + MC prelims + MC OH&P + Prj/design fees + other dev est.
       • 11. Risk Allowances estimate
         • 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. Cost Limit total (excl Inflation)
       • 13. Tender inflation est.
         • you review inflation through the use of TPIs
           • tender price index
         • 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. Cost limit total (excl. construction inflation)
       • 15. Construction inflation est.
       • 16. Cost limit total (inc Inflation)
   • Measurement rules for Building Works
     • Floor area Method
       • Quants determined by measuring the GIFA
       • Measured & multiplied by an appropriate £/m2
       • c = a x b
       • a = GIIFA; b = cost/m2 of GIFA; c = Building cost estimate
       • GIFA in accordance with RICS code of measuring practice 6th ed
       • where building comprises of more than one bdg function = GIFA of each function calc seperately
         • you can then delineate party walls etc.
       • Ext wks measured separately as SA (Site Area)
     • Functional Unit method
       • units of measurement used to represent a prime use
       • each function inc necessary circulation space
       • Cost/ hotel rm; cost/ school child; cost/ hospital bed
       • c = a x b
         • a = no. of functional units; b = £/functional unit; c = building works estimate
     • Elemental method
       • alt approach 2 calc total est cost of bdg wks
       • considers maj elements and provides an OofC based on the breakdown of other similar buildings
       • cat. into group elements and elements
         • 0 - Facilitating works
         • 1 - substructures
           • ELEMENT: Substructure
         • 2 - superstructures
           • ELEMENT: frame/ U.floors/ roof/ stairs & ramps/ Ext walls/ Windows & ext doors/ Int walls & partitions/ Int doors
         • 3 - Internal finishes
           • ELEMENT: wall/ floor/ ceiling finishes
         • 4 - FF&E
         • 5 - Services
           • ELEMENT: Sanitary/ equip/ disposal/ water/ heat/ space heat & AC/ ventilation/ Electrical/ Fuel/ Lift/ Fire+lightning protection/ com, security & co
         • 6 - prefab bdgs
         • 7 - wks 2 ext bdg
         • 8 - ext wks
       • c = a x b
         • a = EUQ; b = EUR; C = cost target
       • used for RIBA C or OGC Gateway 3A
       • provides a basis of the formal cost plan 1
         • EQR/EUR s/s by more detailed measure of elements
   • Measurement Rules
     • MC prelims
       • added as a %
       • derived from a considered assessment of cost analyses of previous bdg proj.
       • subbies Prelims are normally inc into unit rates
       • A list of MC inc in part 9 of NRM 1
       • they define the scope of the work
     • MC OH&P
       • added as %
       • derived from a considered assessment of cost of previous bdg proj.
       • a list is inc in part 10 of NRM1
     • Proj/design fees
       • either inc/exl
       • list of fees in part 4 of NRM 1
       • added as a %
     • other dev/proj costs
       • e.g. insurances/ planning fees/ fees 4 party walls etc.
       • added as a lump sum
         • acertained in conjunction with client
     • Risk
       • risk exposure - as the design dev = more of proj defined & a risk response decided
         • risk avoidance
           • seriousness of risk consequences on proj is unacceptable
           • measures inc review of brief/ re-design
         • 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
         • Risk Transfer
           • accepting risk would not be client value 4 money
             • transfer 2 a 3rd party
               • higher premium
                 • e.g. insurance cover
         • Risk Sharing
           • client retains some risk
         • Risk retention
           • risk retained by client = called residual risk
       • risk allowances should NOT be a % but a properly considered assessment of the risk taking in 2 account completeness of design + other uncertainties
         • 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
     • Inflation
       • its possible to consider future effects of inflation on the base cost est. over a period of time
         • 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
         • mid-point of construction
           • c = CL x p
           • CL = cost limit (ex const infla); p = % 4 const infla; c = construction inflation est
     • VAT
       • is complex and recco excluded from OofC

2. NRM 1 Cost Planning

   • Purpose of cost planning
     • intrinsic with RIBA C/D, E/F & OGC gateway 3A & 3B
       • RIBA stage C & Gateway 3A
         • concept: implement concept design and outline proposals 4 structural & building services, outline spec, formal cost plan 1
       • RIBA stage D
         • Design development: update design, planning, completion of brief
       • RIBA Stage E & Gateway3B
         • Technical Design: prep of tech design and spec 2 coordinate components and elements of proj & info for stat standards
       • RIBA Stage F
         • Production Info: prep info ready for tender
     • main purpose
       • ensure emp. are provided with value for money
       • make clients & designers aware of cost consequences of their desires/ proposals
       • provide advice 2 designers to help them arrive 2 practical designs withn budget
       • keep expenditure within cost limit
       • robust cost info which the client can use 2 make informed decisions
   • Elemental cost planning/ cost planning
     • budget breakdown of the cost limit into cost targets for each element
     • its a statement of how the proj team proposes to distribute the availible budget amougst the elements of the building
     • its an iterative process which is performed in steps of inc detail as design develops
   • Constituent of a cost plan
     • it takes the same shape as the cost estimate
   • Formal cost plan stages
     • formal cost plan 1 = RIBA stage c
     • Formal cost plan 2 = RIBA stage D
     • Formal cost plan 3 = RIBA Stages E & F
   • Cost control in procurement
     • CP become a important cost control mechanism when work is procured by the use of seprate wk pack
   • Reporting of elemental cost plans
     • cost expressed as £/m2
     • items in CP reports
       • 1. Exec summary/ prj title/ description/ status of CP
       • 2. statement of cost inc cost limit
       • 3. details of info/ spec on which CP was prepared/ statement of floor areas
       • 4. Cost Plan
       • 5. assumptions/ base date/ reason for change from previous CP
       • 6. VE options/ conclusion/ recommendations
       • 7. inclusions & exclusions

3. State of the construction market

   • Trends and forecasts 2013
     • Tender price index
       • The second half of 2012 saw prices come under renewed pressure. 2013 little respite
     • Building cost index
       • 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
     • Retail price index
       • Higher utility costs caused retail prices to move back up. Higher food prices coming through will stop consumer price measures falling towards target.
     • Generally
       • 2012 ended with construction prices continuing their slide
       • Provisional fig 4 4thQ GDP = economic activity fell by comparison with 3rdQ, = Speculation trple dip recession (NB* confirm narrow avoidance)
       • Deloitte CFO survey 2013: market has cautious optimism
       • The Bank of England held interest rates at 0.5% since 03/09 & some suggest they will stay until 2017.
       • The Autumn Statement 12/12 recog need 2 restore capital spending & announced an add £5bn of investment for roads, rail and edu
       • Infrastructure pipeline: 550 projects est. @ £330 billion to 2015
         • An xtr 50 proj compared 2 2011 & £70m
         • problem: gov think 85% will be privately funded
       • BofE 4thQ Credit survey: banks offereing more cheaper credit due to the funding 4 lending scheme
         • downside: bank reduced interest on savings - no need 2 attract savers money
       • Construction products Assoc: lowered expectations of construction output 4 2013/14
         • trimmed by more than 4%
       • The recently released Construction Skills annual report does not anticipate a return to the 2007 levels of construction activity until 2022.
       • competition will remain intense keeping a lid on underlying cost inc
       • 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
       • Material cost increases are likely to remain subdued in 2013
       • EUROPE
         • (IMF) forecasting a further small contraction (-0.2%) for the Eurozone, before achieving a small 1.0% inc
       • GLOBAL
         • Global economy: stabilise in 2013; Global economic growth not expected 2 pick but neither slow again.
         • weak Eurozone & slow Japan offset US growrh
         • US should pick up if uncertainty of fiscal cliff & debt reduction is resolved
         • China: regain momentum in 13 & surpass 8% growth
         • 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.

4. Economics of design

   • Wall: Floor ratio
     • relationship between wall and floor
     • Shows efficiency of a bdg
     • Lower the ratio = cheaper the bdg
   • The most efficient bdg shape is a circle but has poor lettable area = square is best

5. Sources of cost info

   • In-house historical data
   • BCIS
   • Cost indices
   • cost analyses published in trade journals
   • Price books SPONS/LAXTONS
   • Building cost models
   • Sub-contractors & Suppliers