Order of Cost Estimate

Assignment 1 was issued in the form of very simple email (Appendix 1 Doc.1) with request to produce an Order of Cost Estimate for a potential new housing development. There were no further instructions or information how this document should be produced and what it should look like. Therefore, in order to produce such a document, first there needs to be understanding of the its purpose.

Order of Cost Estimate is the pre-tender document which will act as a base for the contract cost control and give the client indication of the contract budget. This estimate will be constantly updated throughout the project development to produce more accurate information.This will be important factor for client to consider when making decision to build. Ashworth (Cost Studies of Buildings) Accuracy is one of the most important element when producing the estimate. Too high estimate price may discourage the client form further development on the other hand too low estimate may result in client’s dissatisfaction and a abortive design.

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As mentioned before, there were no detail information provided such as drawings or specifications which suggested that the Request for Information (RFI) should be produced first. Producing RFI proved to be quite simple and in return the client provided most of requested information.

Email did not contain any details, drawings or specifications, part time students were told that a full time student would provide more in depth information in order for the group to finish this assignment.

The first part of the lecture comprised simple and short explanations of differences between cost, price and value.

Although the BCIS session was a failure, it gave some directions to where to start with the assignment. During the next few days many more queries were posted and students managed to get answers to some of them.

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The next lecture, presented by Steve Todd, was well presented and easy to understand. It was the first proper lecture explaining what an Order of Cost Estimate is, why is it produced and how is it structured. The main reason to produce Order of Cost Estimate is to provide a client with the estimated cost of a project based on the client’s outline brief, so the decision can be made to progress the project further.

At the early stage of the project, where there is not enough design information, the estimator can use BCIS or other historical data to compare tender prices for similar project and provide the client with approximate project target cost. Although an Order of Cost Estimate can be a very useful tool in establishing the project budget, it is, in most cases, highly inaccurate due to the inaccuracy of the data used to prepare it.

The above topic focuses on two main aspects – decision to bid and determining the bid price.

The Recent analysis illustrates that there are 21 factors to be considered when making the decision to bid. The main ones are:

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• opportunities;
• resources;
• project relationships;
• project procedures;
• project characteristics;
• risks; and
• lowest cost.

Another important factor to consider is the cost of preparing the tender, which is usually one per cent of the overall cost of the project and only recoverable if the bid is successful. Therefore, considering that the average tender success rate is one in five, it is very important to improve the tendering process. It can be done by performing post-contract evaluation, looking at lessons learned and communicating the outcome to the bidding team, so they can compare the tender price against the finished contract one.

In most cases, the main reasons that a contractor wins the tender are the price and errors. The tenderer with the lowest price is checked and, if errors occur, the tenderer is given the opportunity to stand by his tender or withdraw his offer.

In some cases, the lowest price is not the only criteria to win the bid. Some clients have specific criteria they follow in appointing the winner. The successful tender might be the one which provides the solution to a specific problem or a better approach to the program of works, therefore the key is to understand what the client’s expectations are and effectively what the client wants.

The Tendering lecture acted as a bridge between Assignment 1 – Order of Cost Estimate and Assignment 2 – Pre-contract activities. As a tender is based on Order of Cost Estimate, the lecture showed how important is to prepare an accurate estimate and what information is needed in order to win the job.