Introduction

Estimating is the process by which the cost of carrying out a quantified work activity can be established by using historical data, synthesis of the activity and computer generated software.

The estimate is a net estimated cost of carrying out the work for a given project. It considers all items of expenditure which are likely to be required in order for the work to be completed. Allowances must be made for wastage of materials, inclement weather, or any other factors that may increase costs. These will need to be incorporated into the estimate. Once these factors have been considered the estimator will produce a cost summary for the contract and include profit and overheads; and move the process on to the tender production stage.

The contract estimate is produced by the Estimator in conjunction with the pre-contract Tendering team, it is their assessment of the cost of a contract; this has been derived from the information provided by the Client to the Architect and Quantity Surveyor and research, investigations and planning carried out by the team.

The estimating process incorporates decisions about:

equipment needs sequence of operations number of workers required physical constraints at the site conditions of contract

In this unit you will look at the pre-tender stage and the production of an estimate to allow a tender to be submitted. It will also look at the process of Valuation which will measure the work that has been completed in order to enable the contractor to be paid by the client for work as the contract progresses.

Pre-tender process

Learning outcome: On completion the learner will: Know the factors and considerations involved with the Pre-tender process.

IMPORTANT An assignment is being used for this Unit. Details on how to produce the assignment is included on the form, which you should down-load from the column on the left by clicking on "Assignment for Unit 9" and from the Submitting Assignment Page from the Student Area.

Contents

9.1.1 Types of Procurement 9.1.2 Types of Tendering 9.1.3 Tender Stage

Book

The Chartered Institute of Building, Code of Estimating Practice, Wiley-Blackwell; Chichester, Chapter 11

9.1.1 Types of Procurement

The system that is commonly used in the construction industry for the completion of a project is for a client to engage a company to carry out the work on its behalf.

In order to do this they will generally appoint a contractor, directly or through an Architect, Engineer or Project Manager.

The procurement process may take a number of formats in order to select, evaluate and appoint a contractor for a project, the choice between the various systems will be determined by the employing authority and the constraints applicable to the contract.

The main options available are considered below.

Traditional

This method usually uses the standard form of contract by the Joint Contracts Tribunal (JCT) or a similar. The contract requires the contractor to carry out the construction according to the drawings and specification drawn up by the design team. All work is supervised on behalf of the client by the design team leader, which is normally the architect or on civil engineering projects, the Consultant Civil Engineer.

Design and Build

In this case the Contractor is responsible for the design, specification and the construction. The contract may be on a fixed price or cost reimbursement basis, which may be either negotiated, or subject to tender. These are normally used for repetitive types of building of a standard type i.e. industrial unit which the contractor has constructed previously. Past experience and familiarity of the design and construction should result in cost savings for the client.

Management Contracting

In this, the design team specify the building requirements and specialist subcontractors are supervised and co-ordinated by the management contractor to carry out the construction. The management contractor receives a fee, which may be a set fee or a percentage of the contract cost. The management contractor is responsible for providing site accommodation for which he will be reimbursed either at cost or as a laid down lump sum in the tender document. Generally used on complex projects that require a short contract period, though which must have flexibility for modifications during construction.

Construction Management

Construction management is similar in most respects to management contracting except that whereas with management contracting the contract is between the client and the contractor (the subcontractors are engaged through the main contractor) in construction management the contracts for the work packages are with the client. The construction manager is employed to manage the construction work. This system tends to be used only on large, specialist technical projects such as power stations.

Project Management

Project Management is "the overall planning, control and co-ordination of a project from inception to completion aimed at meeting a client's requirements and ensuring completion on time, within cost and to required quality standards".

Project management can be used on projects of any size, though it is normally used on larger developments. The Project Manager may be an organisation or an individual who guides the client in the selection of a suitable procurement system, appoint all members of the construction team and controls and organises the project. Appointed on a fee basis, which is not dependent on the cost of the contract. This tends to ensure that the project manager works solely for the client's interest, as he earns no commission.

Partnering

Partnering is the creation of a special relationship between contracting parties in the design/construction industry. This relationship encourages the parties to change their traditional adversarial relationships to a more co-operative, team based approach, which promotes the achievement of mutually beneficial goals, including the prevention of major disputes.

The method of procurement should be selected on the basis of the priorities for the contract, cost lead time duration of the works form of contract quality anticipated are a few of the considerations but each contract will have its priorities defined during the feasibility and design process.

Task 9.1.1 Procurement Methods

Suggest and justify the recommendation for a type of procurement method for:

1. An office block 2. A industrial unit 3. A hospital

Word Guide: 300 400

9.1.2 Types of Tendering

The majority of builders still obtain much of their work by the system of tendering, especially for new work or work of some importance as opposed to smaller or repair work.

Tendering for work takes various forms; all cost money to prepare yet many tenders are unsuccessful. Success rates vary according to the companies tendering strategy.

Open Tendering

This usually takes the form of an advertisement in the national or local press stating that tenders are required to carry out a construction contract. The system has disadvantages but does give contractors new to an area or those starting new businesses the chance to tender or establish themselves.

Selective Tendering

Contractors apply to be included on an approved list maintained by an employing body often an architectural practice, local authority or statutory body. These organisations have extensive knowledge and experience of individual contractors and regularly review contractor performance an approved list. From such lists they are able to select contractors most suited to the contract the number invited will vary according to the value of the contract.

The main advantage of this system is that the contractors are known and vetted by the employing authority and be assured as is possible that they will meet their contractual obligations. The system of vetting usually by pretender questionnaires and the interviewing of contractors can work against contractors who are trying to establish themselves in a particular market or newer companies which are expanding. However the system is used extensively throughout the construction Industry.

Serial Tendering

This type of tender the contractor is required to submit costs for carrying out work usually not against a particular project but against sample Bills of Quantity , Works Schedule, or price for a sample structure in the knowledge that others of a similar nature will be undertaken. The rates given in such documents will form the basis of costing for future work undertaken, which will be measured and valued by both parties to the contract. The contract is usually also for a fixed period of time (often 5 years) after which the tendering procedure will be repeated.

Some contractors specialise in this form of contract in the knowledge that once secured they have continuity of work for their employees.

Negotiated Contract

Negotiated contracts take many forms it is very much dependent upon the type of construction and the requirement by the client for factors such as speed, quality, repetition, cost, desire to retain the services etc.

Generally the negotiated contract is credited with saving much of the costs arising from selective tendering and allows early contractor involvement but other factors disadvantages are also present it is important that the Client and contractor determine the parameters for negotiation before commencement and that the stages at which each may withdraw are agreed together with any associated costs at each stage.

There are three methods used to calculate a final contract price;-

The maintenance of positive relationships during the negotiation process is essential , trust partnering and mutual benefit of the contract to both parties during negotiations and the actual contract works is required.

Package Deal Tendering and Turnkey Contracts

These aim at provide the client with a complete service from enquiry to completion with the responsibility for all design, construction and associated works being borne by the contractor. The Turnkey option will usually include everything needed by the client to commence work ( Desks, Chairs Computer installations etc) It is usual for the client to approach one or more contractors y and carry out initial discussions before entering into formal design and contractual discussions with the selected contractor, this process is similar to the Negotiated tender process.

This type of contract is often associated with commercial and industrial structures where simple repetitive design and speed of construction are the main criteria and with clients who wish to retain the services of a contractor who has given good service and value in the past and with whom a positive relationship exists.

Package deals are also popular in that they provide a service which usually involves only two parties the client and the builder, the builder being responsible for securing and managing other building professions which in the construction process.

Recommendation and Reputation

Much work may come to the builder through other ways other than that of tendering or the various methods already dealt with. One of the most likely sources is of course, the reputation of the builder, which has taken possibly many years to build up and all members in the organisation have to play their part in achieving this, from management to operative.

Another method closely related to the firms reputation is that of receiving work on the recommendation of a satisfied client, this can also result in work of a continuous nature

such as maintaining various properties, for example, banks, supermarkets etc., after showing competency for work of this type. Speculative or spec. building, as it is often termed, is now quite common and this generally means that the builder takes a gamble (usually a very calculated one) of building houses, office blocks, etc. before having any client. These methods of obtaining work all hold a place on the make-up of a progressive company and to create a steady flow of work - all must be exploited to the full.

Task 9.1.2 Types of Tendering

Discuss the advantages of three of the above forms of tendering.

Word Guide: 300 400

9.1.3 The Tender Stage

The tender stage comprises of the gathering together of all resources (physical and human) required to carry out a contract; the pretender team determining via the use of critical analysis of information available the most efficient and cost effective process by which the contract may be progressed and completed.

The Estimator will contribute to this process by providing advice on the overall cost of the various constructional strategies proposed but until the method statements have been produced the Estimator is not in a position to accurately cost the work proposed. The production of a contract programme derived from method statements produced for the various elements of work to be completed and encompassing health and safety assessments is central to the estimating (and subsequently to the construction) process.

Each company tendering for a contract will have their own strategy on constructional techniques to be used and resources available and will incorporate these into the estimating process.

The estimating of the rates used within the tender is both an art and a science and it must never be assumed that an Estimators role is to place predetermined unit rates derived from historical data and synthesis into Bills of Quantity.

The estimate is only a part of the tender process and it should not be assumed that the estimate derived by the pretender team will be the final tender figure presented to the

client. The importance of commercial awareness at adjudication to convert the estimate into a tender cannot be overstated.

Pre-Tender and Pre- Contract Processes

The majority of work secured by a contractor is done so by some form of competitive tendering process.

The importance of gaining as much information as possible about the proposed contract and site cannot be overemphasised.

The contract documentation and tender drawings will provide a useful starting point but most Estimators will need to visit the proposed site to get a feel for the contract and the environment in which the work will take place.

The initial examination of a site may be divided into 3 stages:

The Site Visit The Desk Top Study Soil Exploration / insitu testing (These usually result in laboratory analysis of soil

samples and a formal report for use by the tender team).

The extent of this investigation is in reality often limited to the site visit and desk top information which increases the risks taken by the contractor.

The extent upon which the estimator will complete each of these stages will depend upon the complexity of the contract, the need to secure the new work.

Thus the site visit and the recording of such information to relay back to the tender team will have a profound effect upon the tender figure eventually arrived at and submitted to the client.

Site visit will vary according to whether the site is Compact (Traditional enclosed area) or Extended (sewers runs, pipelines or coastal defences).

Considerations will include:

Access and egress points to the site present Temporary roads and access points needed Ground conditions especially where bore hole information has not been provided

within the contract documents. Standing surface water / ponding Excavations which can be examined. Water courses Surface contamination Existing buildings on the site Dumped rubbish or other clearance items Excavation challenges including machinery assessment removal of or storage of spoil Obvious service location and type of service

Potential vandalism in the area Security arrangements and the type of hoarding or fencing required Temporary buildings location and type Adjacent buildings type and proximity Crane operation and access Local restrictions pedestrian restrictions / police restrictions local events Local knowledge

Many other considerations will apply on a site by site basis and most companies adopt a standardised site visit report or check list to ensure that items are not overlooked.

The Preliminaries section is very important in establishing the overall tender costs and will contribute a considerable percentage to the overall

Desk Top Analysis

This is basically writing e-mailing and accessing web based information to add to the on site evaluation.

It will include:

Archive and current maps charts, geological profiles and historical data. Ordinance Survey maps Past use of the site Local Authority records and Archives Details of existing utilities NRSWA. Covenants Rights of Way Archaeological evidence Ordinance Ownership of adjacent land. Mining activities Environmental considerations Aerial photographs. Planning constraints SSSI Rail track

Task 9.1.3 Pre-tender Stage

Outline the procedure which is generally used to prepare for the submission of a tender for a contract.

Word Guide: 300 400

Section Complete

You have now completed this section of Unit 9. You may now move on to the next Section by clicking on the 'L4-9.2 Estimating' link below.

Estimating

Learning outcome: On completion the learner will: Know the process related to producing an estimate.

IMPORTANT An assignment is being used for this Unit. Details on how to produce the assignment is included on the form, which you should down-load from the column on the left by clicking on "Assignment for Unit 9" and from the Submitting Assignment Page from the Student Area.

Contents

9.2.1 The Estimating Process 9.2.2 Cost Calculations 9.2.3 Production of the Estimate 9.2.4 Turning the Cost Estimate into a Tender

Book

The Chartered Institute of Building, Code of Estimating Practice, Wiley-Blackwell; Chichester, Chapter 4, 6, 7 & 8.

9.2.1 The Estimating Process

Estimating is the process by which the cost of carrying out a quantified work activity can be established using historical data, synthesis of the activity and computer generated software information.

The contract estimate produced by the Estimator in conjunction with the pre-contract Tendering team is their assessment of the cost of a contract; this has been derived from the information provided by the Client to the Architect and Quantity Surveyor and research, investigations and planning carried out by the team. This will include processes and document production which will assist the estimator to establish a cost to complete the project. They include amongst others:

Risk assessments Site investigation Resource availability Contract programme Sub-contract availability The drawings and specification Preliminaries and individual site conditions and location Form of Contract and requirements Prime Costs and Provisional Sums

When the Designer/Architect 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 and describes the work that is to be done in order to construct the building. It specifies the details of each operation and itemises the materials, parts and labour for each operation, it will also include preliminaries, material specification details about the form of contract, P.C. and P.S. inclusion and other factors which will affect how the work will be carried out and the quality and allowances to be incorporated.

Once the document has been prepared it is sent to the companies who are invited to tender for the contract. Each company who wishes to tender will then cost each of the items in order to obtain an overall estimate.

Before a company decides to submit a tender for a contract they need to decide if they wish to price the contract, taking into account all relevant factors, and finally determine what profit they expect, before turning the estimate into a tender.

Estimators need to keep up to date with the factors which will influence costs such as plant, materials and labour availability.

The estimating process incorporates decisions about:

equipment needs

sequence of operations number of workers required physical constraints at the site conditions of contract

Allowances must be made for wastage of materials, inclement weather, or any other factors that may increase costs. These will need to be incorporated into the estimate. Once these factors have been considered the estimator will produce a cost summary for the contract and include profit and overheads; and move the process on to the tender production stage.

Take off

The initial take off content within any contract is vital and whilst various systems of approximate estimating exist, none can be as accurate as using the Standard Method of Measurement (SMM) approved and accepted by professional Quantity Surveyors and the Royal Institute of Chartered Surveyors, (RICS).

SMM ensures that each item of measured work is divided into trade or element headings in accordance with the rules for the use of SMM; it provides a standard method of providing and presenting measured building works and thus allows accurate Bills of Quantity to be produced. This means that each contractor tendering for the work is doing so with exactly the same information.

The fact that all measured work is quantified according to the rules of SMM allows the Estimator to accurately assess the work to be completed within the measured work section. However it should be understood that many forms of contract and tendering procedures exist within the construction industry and the comments within most text books and publications refer to The JCT Form of Contract. Domestic Sub Contractors and Nominated Sub Contractors have their own form of contract based upon the relevant JCT format used for the main contract.

Contractors may use alternative systems to take off work content where Package Deals, Turnkey or similar contracts are being Tendered for or negotiated but inevitably some form of Bills of Quantity will be required for price determination and valuation purposes.

Being realistic in the form and amount of work output whether referring to machine or person is vital if the contract is to be won and return to a profit.

The Estimator will complete the Bills of Quantity by reference to the information produce by the Tender Team, in essence by placing a price against every work item within the Bills of Quantity and multiplying this by the quantity of the item priced. The page is then added and taken to the Summary where additional Bills of Quantity items such as Preliminaries, Prime Cost, Provisional Sums, Contingency Items, etc as applicable to the individual contract are included.

Task 9.2.1 Submission Considerations

Discuss the factors that need to be considered before a company decides to submit a tender for a job.

Word Guide: 300 400

9.2.2 Cost Calculations

The Estimator should possess the knowledge and understanding of the work items (as detailed within SMM) in order to be able to place accurate figures against each of the Bills of Quantity measured work items and/or to be able to complete the costing of the preliminaries and other such items. The Estimator will also carefully consider the information provided by the Tendering team and incorporate this into the unit rates.

Whist computer estimating programs are available and the use of price books (such as Spons or Wessex), historical data retained by the Estimator and company are aids and checks on accuracy; much of the Estimators role will depend upon his experience and ability to calculate accurately Unit Rates.

Units Rates

Units Rates are rates per unit of measured work within the Bills of Quantity, they are described in terms of Lm, M2, M3, Tonnes, Item, etc; all complying with the rules of SMM; for each unit of measured work the Estimator includes a price at which he/she considers that the work can be completed.

The unit rate will include whatever the Estimator considers necessary and appropriate, it is important that the unit rate build up is transparent to all who may wish to use the unit rate at a later date; this could be to extract and analyse various parts of the cost build up to establish items such as, labour content, labour output constant, material costs, waste factors etc.

The basic inclusions in the unit rate will be:

Materials Waste on Materials Labour in the form of an output constant multiplied by the craft persons all in rate

Plant (Specialist plant identified for a specific work item may be included within the unit rate but may be itemised at the end of the Bills of Quantity section in which the description of the work was present; general plant may be described within the preliminaries)

Overheads Profit

Price books and computer software used for estimating purpose provide an excellent source of information, in particular to confirm or query the Estimators labour constants but all such information should be taken as a guide only and not used without interpretation of the constraints and opportunities identified by the Tender team as applicable to the individual tender and contract under consideration.

Labour Constants

The establishment of accurate labour constants is vital to the accuracy of the calculation of the unit rate; indeed the accuracy of the Estimators calculation of labour output could be considered to be central to the accuracy of the estimate and tender figure itself. In addition to determining the cost of the contract to the contractor the labour constant will determine amongst other factors the programme durations for the contract and hence cash flow.

The Estimator must use all the information and expertise available to ensure the accuracy of the labour constant as far as it reasonably practical to achieve this objective.

Cost Estimate not Tender Figure

After all the work which has gone into the production of the Estimate for a contract it should be remembered that the Estimators price to complete the contract is not the Tender Figure/ Price which will be submitted to the Client, it is purely the cost of carrying out the work in the view of the Estimator and the Tendering team. The actual Tender Figure/Price; the amount to be quoted to the Client which will secure the contract for the company will be subject to a process usually referred to as: Completing the Estimate and Final Tender Review, Adjudication or Settlement, a process by which the company take into account factors which will enhance their chances of success or diminish these; it will also consider the amount of work they currently have and the importance of gaining the contract, only then will a Tender Figure/Price be established.

Computer Aided Estimating

Computer aided estimating has been growing in popularity since the 1980s, its use has increased as more sophisticated systems have been developed and amended, most incorporate systems which enable the Estimator to adapt software and performance criteria to the specific needs of the company and to take into account the requirements of individual contracts.

The computer aided software currently available complements and is largely derived from traditional estimating price books; publications such as Spons, Laxtons, Luckins and Wessex and similar reference material have been used by Estimators for many years. These contain methods of measurement with descriptions for most trades and services together with the calculated unit rates.

Most computer aided estimating systems operate in a similar manner allowing the Estimator to accept the published rates or amend them to reflect the true cost of resources as obtained from quotations received for plant, labour and materials and combine these with their calculations and requirements for overheads and profit. The units rates may further be amended by the Estimator to take into account individual factors and constraints affecting the unit rate and hence the Estimators cost price.

Price books and estimating packages must always be considered as guides only; seldom would a contract be gained by merely substituting price book or computer software unit rates into a Bill of Quantity; and the profitability and /or desirability of such a contract would always be most questionable. Many factors affect the Estimators price and indeed the price calculated by the Estimator is seldom the tender price which is submitted to the client.

Computer aided estimating is undoubtedly beneficial in the calculation and extension of the Bills of Quantity and recalculation, adding or subtracting from the rates following adjudication meetings or in correction of errors and similar events.

Many contracts have now dispensed with the traditional format of paper based Bills of Quantity and drawings; all information being received by the contractor in an electronic form which is compatible with computer aided estimating techniques.

E-Tendering is becoming increasingly popular as it allows contractors to extend the use of electronic communication and data exchange to sub-contractors and suppliers who have the facility to deal with information exchanged in this manner. Most large organisations now possess and use this technology but smaller sub-contractors operating in a limited discipline could be excluded by this process and hence the competition for a contract be reduced. The rapid exchange of information enables a speedier tendering process and allows rates quoted by suppliers and sub-contractors to be incorporated into the unit rates and estimate accurately.

A word of additional caution; computers used in design calculations and other areas including estimating are capable of giving the impression that all factors have been considered, build confidence and give assurance; in reality this is an illusion; the skill and experience and judgement of the estimator cannot be replaced. Computer aided estimating is an aid to the estimator not a replacement for their expertise.

Task 9.2.2 Cost Calculations

Provide an overview of how the costs for a project can be formulated

prior to submitting a tender.

Word Guide: 300 400

9.2.3 Production of the Estimate

The first thing that needs to be done in the production of the estimate is to estimate the costs involved with the project. Although this section deals specifically to the development of a project the principles will apply to all construction work.

Estimating Construction Costs

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 Use of Price Books

Estimators may use Price books as a means of determining unit rates; particularly where the Estimator does not have a full understanding of the work to be executed. They are used to complement and enhance the Estimators historical data records and experience of pricing contracts much of which may be stored mentally and thus not available for others to access without consultation.

Estimating price books; publications such as Spons, Laxtons, Luckins, Griffith and Wessex and similar reference material have been used by Estimators for many years, these contain methods of measurement with descriptions for most trades and services together with the calculated unit rates. The essential fact to remember is that Price books are the estimate of the unit rate by an individual or group of individuals based upon a set of assumptions against a defined and measured item; not an exact price which must be incorporated into an estimate; nothing could be further from the truth; even price books from differing authors may well have differing unit rates for an identical operation.

The skill of the Estimator rests with their ability to amend the published unit rates to reflect the true cost of resources as obtained from quotations received for plant, labour and materials and combine these with their calculations and requirements for overheads and profit. The units rates may further be amended by the Estimator to take into account individual contract and contractual factors and constraints affecting the unit rate and hence the Estimators cost price. These factors affect the Estimators price and it should be remembered that the price calculated by the Estimator is seldom the tender price which is submitted to the client.

Bills of Quantity

The Bill of Quantities list in standard format items of work to be completed, together with the specification, details of the form of contract and conditions under which the work will be carried out, plus additional contingencies and items/sums for inclusion in the tender. The Bills of Quantity description and format may be considered as a form of shorthand standardization of work to be completed during the contract which is understood by other members of the construction industry.

The Bill of Quantities is in essence a method by which contractors, usually from a selected and previously approved list are requested to forward a tender price to carry out the contract based entirely upon the contents of the Bill of Quantities and related enclosures, the principal documents of which will be the form of a contract, tender drawings, preambles and specification.

Traditionally a Bill of Quantity would be produced using the current Standard Method of Measurements by the Quantity Surveyor working for and on behalf of the Architect and priced by the Estimator working for the contractor. Today this format is still found but increasingly contractors and clients are using various methods to compile a Bill of Quantity; this is particularly true where Package Deals; Design and Build and similar contractor based tendering formats are adopted for new contracts.

Traditional methods of Bill and Quantity production were very labour intensive and including taking off, abstracting, cut and shuffle and direct billing processes, today much of this work has been superseded by computerized taking off; billing and estimating software of which a very wide variety of choice exists. It should not be however be assumed that the computer is capable of analytical thought and able to analyse and price the individual challenges presented by a contract.

The role of the Quantity Surveyor and Estimator in the production of the Bill of Quantity and costing of the contract at all stages; pre and post contract and during the design process in invaluable.

Once the Contract has been awarded the Bill of Quantity may be used as the basis of cash flow forecasts, variations, valuations and final accounts and other contractual matters, however it is important to remember that all work completed is subject to re-measure on site.

The Bill of Quantity is a pricing mechanism and whilst every effort is made to ensure that it is accurate it should never be assumed that all of the measured items are accurate or indeed still present in the final contract.

The Bill of Quantity in whatever format adopted is essential to the effective and efficient management and financial control of a contract.

Additional information on Bill of Quantities can be found by visiting the website listed below.

Producing the Estimate

The estimate is a net estimated cost of carrying out the work. It considers all items of expenditure which are likely to be required in order for the work to be completed. On completion the estimate is submitted to management to enable them to determine if a tender is to be submitted and the price of the tender.

A detailed guide for the production of an estimate can be found in the CIOB Code of Estimating Practice.

Bill of Quantities

Task 9.2.3 Bill of Quantities

Explain the structure and function of a Bill of Quantities, its format and divisions.

Word Guide: 300 400

9.2.4 Turning the Cost Estimate into a Tender

The Estimator in co-ordination with the tender team will by this stage have completed the task of investigating the true nature and extent of the contract under consideration and produced documents and reference material to aid their final pricing of the contract. They will have produced a pre-tender programme early in the tendering cycle to ensure that the tender is completed and received by the Client by the date noted on the tender documentation. They will be working as a team to produce that which they consider will be the right price for the contract and the strategy by which this price will be competitive and secure the contract.

Even at this stage the manner in which the contract and its individual elements and operations will be completed will have been established and method statements, risk assessment, the overall contract programme etc, produced and discussed.

The estimating team must be optimistic about their chances of winning the contract, and the type of contract should be compatible with the Bidding Strategy of the company if the team are to be fully motivated.

It is a reflection on some contractors that only 10% or less of contracts tendered for are won, yet other contractors achieve success rates of 50% or more merely by targeting certain types of contract and recruiting and retaining expertise within that field of work.

Assuming that the tendering team have worked diligently completed the required documentation, produced the required statements and programmes, and studied the drawings and details fully the challenge still remains. - How can the Estimators price be converted into a tender price which can be submitted to the Client and secure the contract for the company.

Taking the contract forward using the knowledge of the tender team and utilizing their understanding of the project and experience from previous contracts is a process known to some as Adjudication and to others as Settlement; some use the description of Completing the Estimate and Final Tender Review and separate out settlement as a separate stage.

All are terms which interact and in essence describe a process of checking what has been produced by the tender team and taking this forward to produce a Tender Figure /Price which will secure the contract; turning the estimators cost price to the contractor of actually carrying out the work into a figure which will actually win the contract.

The tender team is charged with the objective of winning the contract at the highest possible price that it is actually possible to do so; not the lowest price anyone can achieve

that feat but their company will not remain in business for any length of time. (It should be appreciated that in the real world other factors may make the above statement seem simplistic but the essential point is made).

The estimate should be carefully checked for errors in the bills of quantity unit rates and extension of the rates until the Estimator is content with the price calculated.

Settlement / Adjudication Meeting

The process of settlement or adjudication involves considering amongst other factors:

The Estimators report Contract conditions and form of contract Site factors Past experience of the Client Analysing own work content Sub-Contract allocation. Prime cost and Provisional sum content Discounts available Non Standard insurance requirements Liquidated damages applicable Complexity of the contract Programme constraints Likely variations Valuation dates Labour availability Profit margins required Preliminaries Effects on overheads Dayworks Contingency sums included Preliminaries including contractual requirements Competitors The existing company workload The need for the new contract. Financial implications and cash flow analysis Risk analysis Health and Safety Plan. Cash flow with the new contract Cash flow without the new contract Company retention on selective tendering lists.

The list is in reality extensive and many of these factors will already have been considered by the tendering team and related to the estimator but the final settlement is in many respects left to the senior management of the tendering company; on their shoulders rests the continuance of the company and responsibility for its profitability.

That which turns the estimate by into the formal tender is complex and many would consider it an art rather than a science, everyone attending the settlement meeting(s)

should contribute and much discussion will take place until a sum of money is agreed and the Form of Tender completed and submitted.

It is not unusual for a Managing Director aware of the competition to reduce or increase the Estimators cost prediction before submitting the tender.

Outline Tender Procedure for a Contract to be Awarded under JCT form of Contract

1. Invitation to tender Document delivery 2. Check contract documentation 3. Ensure complete 4. Bills of Quantity 5. Drawings as contract documentation 6. Conditions/Form of Tender 7. Note return date 8. Determine tender policy for this invitation 9. Yes/No (with carefully worded letter) 10. Read all documentation carefully 11. Decision to tender Positive 12. Produce Pre-tender Programme 13. Method Statements 14. Contract outline programme 15. Working methods 16. Health, safety, welfare and environmental protection requirements 17. Meeting schedule etc. 18. Assign duties to personnel 19. Carry out pre-tender site investigation assess work and site conditions 20. Determine own work content of the Bills of Quantity 21. Request quotations for plant and materials full documentation must be provided,

including specification and form of contract 22. Determine extent of the sub-contract works and request quotations full

documentation must be provided, including specification and form of contract 23. Price sections of the Bills of Quantity to be completed by the main contractor 24. Compile/price the whole of the Bills of Quantity using information gathered from

internal and external sources 25. Analyse Bills of Quantity to determine contractors own work content 26. Preliminaries 27. Domestic sub-contractors 28. Nominated sub-contractors 29. Nominated suppliers 30. Provisional sums 31. Daywork sums 32. Contingencies

33. Discounts 34. Possible additions/omissions etc. 35. Adjust rates and price in line with the findings- analysis report for adjudication

meeting 36. Determine financial viability of the contract 37. Determine work impact of success or failure of the tender report for adjudication

meeting 38. Adjudication meeting to determine tender price 39. Complete form of tender and deliver to the appointed place in good time obtain a

receipt 40. Analyse competition tender price/duration if possible and evaluate own performance 41. Commence pre-contract procedure or use information gained as feedback for future

contracts.

Task 9.2.4 Tendering Process

Discuss the factors which will have a bearing on the final tender submission price.

Word Guide: 300 400

Section Complete

You have now completed this section of Unit 9. You may now move on to the next Section by clicking on the L4-9.3 Valuation of Work link below.

Valuation of work

Learning outcome: On completion the learner will: Know the process related to producing an estimate.

IMPORTANT

An assignment is being used for this Unit. Details on how to produce the assignment is included on the form, which you should down-load from the column on the left by clicking on "Assignment for Unit 9" and from the Submitting Assignment Page from the Student Area.

Contents 9.3.1 Valuations 9.3.2 Preparing the Valuation on site

Book

The Chartered Institute of Building, Code of Estimating Practice, Wiley-Blackwell; Chichester

9.3.1 Valuations

Interim Valuations for Site Managers

Most contracts have a value in excess of a few thousand pounds, under these circumstances Contractors are usually paid as the construction work proceeds.

It would be unreasonable to expect the Contractor to provide funding for the whole of the work, which in reality may total many millions of pounds. The tender price would be inflated by the cost of borrowing large sums of money to fund the contract. The standard JCT forms of contract include clauses for periodic or interim payments to be made.

Frequency of Valuations and Valuation Date

The JCT Form provides for the Client to pay the Contractor sums stated to be due in the Interim Certificates at the periods stated in the Appendix to the Conditions of Contract. This will in contractual terms usually mean that payments are monthly, the first Valuation being one month after the date on which the Contractor takes possession of the site, with subsequent payment in accordance with the form of contract agreement. The Client is responsible for payment via the Architect but in reality the Quantity Surveyor appointed by the Architect will normally complete the Valuation and advise the Architect of the amounts to be certified and paid.

Some contracts will make payments at certain pre-agreed stages in place of Interim Valuations. This form is usual in house building where the first payment may be due when the substructure is finished, the second when superstructure walls including upper floors are constructed, the third when the roof in finished, and so on.

It is usual for the PQS and contractors QS to meet on site to agree the Valuation though this is not strictly necessary under the terms of the contract. It is usual for these individuals to meet each month on a fixed date; agreed at the start of the contract to complete the Valuation process.

General Procedure

The usual method of preparing an Interim Valuation is to value, on each occasion, the amount of work which has been done since the beginning of the contract including the value of other acceptable inclusions; deducting from total value at each monthly Valuation the total of previous payments; (Valuations) to give a balance due for payment. If these rules are followed, any previous under-valuation or over-valuation will be automatically corrected. Most companies use their own Valuation forms which allow for subsequent entry into software systems.

Task 9.3.1 Valuations

Discuss the need for and procedures involved in the valuation of the completed work.

Word Guide: 300 400

9.3.2 Preparing the Valuation on site

The Quantity Surveyors first task, on visiting the site for Valuation purposes, is to make himself known to the Site Manager and ensure that he receives a full site induction or if this is not his first visit to the site an updating of the current site status from the Site Manager.

The QS may then tour the Works, making notes as necessary of the extent of work done and listing the quantities of the various materials and goods stored on the site. The QS will expect the Site Manager to have produced a list of materials and quantities on site and other documentation to assist in the formation of the Valuation.

The PQS and Contractors QS will usually prepare and agree the Valuation before leaving the site; subsequent disputes will thus be avoided.

Inclusions in Valuations

The Standard JCT Form provides that the amount stated as due in an Interim Certificate.....shall be the gross Valuation of specified parts of the Works, less the retention percentage and the total of previous Interim Certificates. Gross valuation comprises in full or in part:

1. Preliminaries 2. Main Contractors work (as billed) 3. Variations 4. Unfixed materials and goods 5. Statutory fees and charges

6. Nominated Sub- Contractors work 7. Fluctuations in costs of labour, materials and/or taxes, etc. 8. Retention

1. Preliminaries

Preliminaries contained within the Bills of Quantity are easily quantifiable; those contracts which do not have B of Q can prove a challenge and it is advisable to agree the costs of identified individual preliminary items at the commencement of the contract or when payment of individual preliminary items will become applicable.

Preliminaries items are of four kinds, namely, cost-related, time-related, single-payment or a combination of two or more of these. The PQS and QS will agree which Preliminary items fall into which category at the commencement of the contract. On some contracts the parties merely agree to consider all items to be time related and simply divide the total costs of the Preliminaries by the duration of the contract, such practice is not advisable and should be discouraged.

2. Main Contractors work

The value of the work completed by the Contractor will be easily established using the unit rates contained in the Bills of Quantities; in the case of Stage or Lump sum contracts the Valuation will be formulated using agreed schedules between the contracting parties.

When valuing the Main Contractors work the Surveyor will start with the Excavation and Earthwork section or the Demolitions of Works and proceed in B of Q order through all the succeeding work sections which contain items of work which have been wholly or partly carried out. Each item within each section is noted separately and a completion value assigned to it, indicating by use of bill item references that which is included in each amount.

3. Variations

Most projects have Variations, which present a difficulty in the context of Interim Valuations for several reasons. The JCT Form requires that effect be given in Interim Certificates to the measurement and Valuation of Variations. Each Variation must be valued, either approximately or accurately, as soon as possible after issue and included within the monthly valuation after the work has been executed; using the appropriate form of valuing the work (this is usually the preserve of the QS).

The valuation of variations must not be left until the end of the contract this could seriously affect cash flow and cost/value reconciliation calculations and lead to an inaccurate prediction of contract profitability.

4. Unfixed materials and goods

The JCT Form enables the inclusion within the Valuation of materials and goods delivered to the site which are intended for incorporation in the Works. The materials must be pertinent to the ongoing works and the QS will need to be satisfied that the materials and goods are actually on site and to ascertain approximately how much of each material or goods there are at present.

Materials or goods which are - insufficiently protected materials or those which have deteriorated or been damaged; quantities which are clearly in excess of requirements or any materials or goods which have been delivered prematurely, that is, when the materials are not pertinent to the continuance of the Works should not be included in the valuation.

The JCT Form also allows the inclusion in the valuation of materials and goods intended for the Works but not yet delivered to the site to be included in the Interim Valuation, subject to a number of extra conditions. I general these are that:

they are intended for incorporation into the Works, are in accordance with the contract specification, are ready and fit for use.

they are stored separately from other goods or materials at the place where they are being kept and are clearly identifiable, appropriately marked and they are properly and adequately insured.

ownership is established in written contracts or sub-contracts for their supply.

The PQS must be sure that that all these conditions have been met in full before these materials of goods can be included in the Valuation.

5. Statutory Fees and Charges

Any charges and/or fees paid by the Contractor to any local authority or statutory undertaker for work executed or materials or goods supplied in the course of carrying out its statutory obligations should be included in the next Interim Valuation after receipt of such services.

These costs are usually included in the Bills of Quantity in the form of Provisional Sums; any sums for profit and attendances will be applied to the authorities charges.

Sums equivalent to cash discounts to the invoiced amounts may not be added, which invariably will be net; this exclusion only applies to fees and charges for work done or goods supplied in discharge of the statutory obligations of the authorities.

6. Nominated Sub-Contractors work

The JCT Nominated Sub-Contract details that should be included within a Valuation in respect of sub-contract works. The sub-contractor will make application to the Main Contractor on completion of the whole of part of the works for inclusion into the Main Contractors next Interim Valuation.

Nominated Sub-Contractors will be informed of the Valuation date in each month of the main contractors Interim Valuation and provided with dates by which their application for inclusion into this Valuation must be received.

Provided the QS is satisfied of the validity of the claim; that is that the work had been executed and any other aspects of the application for inclusion into the main contractors Interim Valuation such as materials on or off site, variations, fluctuations etc it will be included in the next Interim Valuation.

Profit and attendance additions will be included by the Main Contractor on a pro-rata basis to the appropriate items in the Bills of Quantities. The JCT Form requires the Contractor to provide proof of payment to any nominated Sub-Contractor of any sum included in the immediately preceding Certificate in respect of their work, materials or goods.

7. Fluctuations

Will be specified in the contract documentation, JCT 2011 Standard Building Contract with Quantities gives options in Schedule 7 Contribution Levy and Tax Fluctuations.

8. Retention

It is usual in all forms of the standard forms of building contract for a percentage of the Valuation total to be deducted. Thus, the sum of money deducted is said to be retained by the Client and is called Retention.

The purpose of the retention percentage of the total value of work completed to date is mainly to provide a degree of protection to the Client against the effects of the Contractor defaulting,

Exclusions retention applies to certain aspects or activities within the contract and some contracts may have a limit on the amount of retention held back from the Contractor. These are contractual matters largely outside of the responsibility of the Site manager.

The JCT Form provides for one-half of the total then retained to be paid to the Contractor in the next Interim Certificate after the Architect has issued a Certificate of Practical Completion.

The second half of the retention monies is, in effect, released on issue of the Certificate of Making Good.

Task 9.3.2 Preparing the Valuation on site

Outline the considerations involved in the process of carrying out a valuation.

Word Guide: 300 400

Unit Complete You have now completed Unit 9. So you should complete your assignment and send it to info@gatesmacbain.co.uk. When submitting your assignment you should ensure that it meets all the requirements set out on the Submitting Assignments page, which is accessible from the Student Area. You will be notified as soon as this has been assessed and will then be advised as to your next unit.