Using pre-tender estimates

A pre-tender estimate should be based on the same information as the tender information pack. How the costs are derived is determined by what the tenderers have been asked to provide. For example, fixed price lump sum, phasing or sequencing.

The pre-tender estimate will be based on the best information available at that time, ideally a quantified bill of quantities. If quantified pricing schedules/documentation does not exist then it is necessary to measure the elements of the work to allow for pricing (much of this should be available from the associated cost plan).

The method of calculating the pre-tender estimate is the same regardless of contract type and whether the suite of documents include full bill of quantities or not.

• Package the works into trades
  This will allow major elements and specialist items to be sent out to trade contractors for market testing/ pricing check.
• Compare against other tender returns
  Where possible compare the project and estimates with similar projects. It may be that you are able to compare elements of the project which may be similar to another project even though the whole project is not comparable.
• Review the structure of the works
  Determine how the structure of the works is to be reflected in the estimate. In many instances this will affect the unit rates of specific items. In some cases the effect will be purely organisational.
• Available information
  Consideration needs to be given to the quality/completeness of the tender documentation.

It is common practice for someone not involved in the project to complete the pre-tender estimate. This gives no prejudice to the order of costs and also provided a clarity and accuracy check on the bill of quantities.

When comparing the pre-tender estimate against tender returns it was anticipated that it would sit somewhere in the middle (neither the lowest nor the highest) and as such would be a mean figure compared against the market.

When pricing the pre-tender estimate it was not intended to win the work, i.e. be the lowest price, from a practical point of view if the pre-tender estimate was priced too keenly it would be misrepresentative of the tender returns and could give a false expectation of what the tender return would be. It does mean that when the tenders are being opened there is an amount of trepidation particularly as the first tender opened is invariably the highest.

Not all works are tendered as complete projects. Large projects particularly are often tendered on a trade package basis through construction management style contracts. In these cases there would be a series of tender releases followed by various pre-tender estimates carried out for the individual packages.

On these projects the pre-tender estimate is much more specific and the works are self contained, there is no opportunity to balance the costs against other elements of work or preliminaries. Due to the focused nature of the tender, particularly for ground works and structural trades, the methodology and sequence are extremely important.

For finishes trades the specification is paramount as this dictates how the works will be carried out, for example, lift lobby glass wall panels are backed onto a separate wall lining on it’s own independent frame to accommodate tolerances within the finishes and not to rely on compounded tolerances from preceding trades such as concrete frame (core) and dry lining.

Inflation

The pre-tender estimate needs to reflect what the tenderers have been asked to price. If the tender documentation asks for a lump sum fixed price contract then the pre-tender estimate should be priced in the same way with allowance for fixed priced to be either included in the individual rates and/or a single line provision in the general summary. It may be necessary to add an allowance for risk if the contract asks for a Guaranteed Maximum Price (GMP).

On the other hand, if the contract allows for fluctuation then the pre-tender estimate would be priced accordingly with no allowances made for fixed price. If this is the case then the project should have a separate contingency fund to deal with any additional costs arising from this as these would not be covered by the tender.

When pricing a pre-tender estimate many of the rates available will be historic or current day. In this case due allowance should be made for either inflation or deflation. Guidance on the rate of inflation can be sought through BCIS. The Building Cost Index allows for the inflation during the course of a project which would be incorporated into the rate.

When looking at historical rates then it may be necessary to use the tender price index to base date the historical tender to that of the pre-tender estimate. It is important to note, when using inflation indices, that these are not generally tailored to specific rates but rather deal with a project as a whole. It will average out the peaks and troughs in the elements.

This can cause an issue when looking at a project which has a heavy bias towards a certain trade. For example if there was a disproportionate amount of mechanical and electrical services then this would influence the distribution of the inflation allowance and would put the increases outside that of an average building. This can also be the case with projects that have a large amount of specialist and bespoke features, whether this is façade cladding, internal finishes or services installations. The nature of the design may limit who can manufacture the designed items which has the knock on effect of losing competitiveness in the tender. Where elements of the building are no longer standard they should be priced accordingly and the rates will become bespoke and not necessarily relate to industry norms for inflation.

State of the market

There has been a sustained period of uncertainty within the industry: the aftermath of recession is generally followed by a period of growth; however, Brexit has plunged the industry back into a period of uncertainty. While the outcome of Brexit is unclear due to the timing and impact being an unknown at this stage, the immediate impacts are being felt.

The exchange rate of sterling is driving up the costs of imports and material prices. These will reduce margins and/or increase costs of projects. It also results in a volatility that makes predicting fixed prices on projects difficult, particularly with projects that run for a number of years.

Pre-tender estimates are more specific and go into a greater level of detail, these need to be reviewed with a close eye on the state of the market, particularly as exchange rates have differing effects on the various elements (depending on the extent of materials being manufactured/sourced abroad). With uncertainty, the pauses in decision-making disrupt the frequency of project starts, which creates pockets in workload. The workload gaps are not uniform across the trades so there are times with the services trades are very busy when the piling contractors have capacity. This needs to be considered when producing an estimate at package level.

The state of the market extends beyond political ramifications, with changes in supply chain and regulations having large impacts that are not always obvious. The closing of landfill sites or concrete batching plants have a direct effect on groundworks and concrete works. This impact will be felt in those respective trades and, therefore, this needs to be factored into any final estimates. Similar over/under supply is not always evident without engagement with the trades and emphasises the importance of regular engagement with the market, particularly in these uncertain times.