FAQs

The following FAQs are addressed below:

• How do you treat inflation?
• How is it different from a cost report?
• How is it different to a tender appraisal?
• Is there a standard method of measurement for use while compiling a post-tender estimate?
• What happens if the post-tender estimate is well over the budget?
• Why do you need a post-tender estimate?

How do you treat inflation?

The post-tender estimate needs to take into account the basis for the tender. If the tender is a fixed-price tender then the inflation associated with the construction works has already been catered for. However the post-tender estimate does include non-construction elements of the project and such these may be subject to different allowances.

Prior to applying inflation it is important to ensure that the inflation costs are not already covered within the quotes/tenders that are in place. Once the elements of work / costs are identified, which are base dated, then the inflation associated with these needs to be calculated bearing in mind the elements of works these need to cover.

Guidance on the rate of inflation can be sought through the BCIS. Building Cost Index allows for the inflation during the course of a project. Due to the varied nature of the elements which make up a post-tender estimate, inflation may need to be applied differently to the various components. Elements such as financing are more likely to be tied to interest rates whereas many of the non-construction elements could be more related to retail or consumer price index.

How is it different from a cost report?

Cost reporting is a post contract activity with the cost report based on the contract (and contract sum), variance is recorded against this base document. Allowances can be included in a cost report to help ascertain the final account for the contract which the cost report pertains to.

A post-tender estimate is a pre-contract activity and, as such, it is more flexible in its approach. It does relate back to a milestone document (i.e. the tender return) but it is not limited to the works carried out under the contract. As it is an estimate, it relates to the project and will cater for aspects of works that do not form part of the contract, for example, utility connections, professional fees and advanced enabling works.

How is it different to a tender appraisal?

A tender appraisal deals with the tender return comparing the returns against each other and checking that the return is complete with no caveats. The tender appraisal highlights any issues with the tender returns and ranks the returns in order of cost (with normalisation as necessary) to allow a recommendation to be made. It also gives the opportunity to amend errors and make allowances for any additional changes.

A post-tender estimate forecasts costs and utilises the tender return as a base. A tender appraisal should not alter the figures from the tender returns, below the line adjustments would only be made to normalise the tenders. A post-tender estimate calculates project output costs. Allowances can be made to cover alterations or proposed changes. There will always be an aspect of forecasting and estimating based on drawn information when developing an estimate. This is in contrast to the tender appraisal, based on the facts and figures with no interference or interpretation.

Is there a standard method of measurement for use while compiling a post-tender estimate?

Post-tender estimates should follow RICS NRM1: Order of cost estimating and cost planning for capital building works. Although the estimate does not quite conform to the standard estimating approach and does sit outside the cost planning time period.

The post-tender estimate needs to be able to cater for the scope of works/project scope that needs to be included. The principles associated with the NRM Order of cost estimating and elemental cost planning rules would provide a sufficient platform from which the estimate should be based.

What happens if the post-tender estimate is well over the budget?

The post-tender estimate is a final warning, before entering into contract, of the final project cost. If the cost is above budget it should be considered carefully and the appropriate steps taken.

Firstly there needs to be a reconciliation of the post-tender estimate to determine where the major movements have been and determine whether the scope of works has been varied by the client or other third parties. If the additional cost is not justifiable or is beyond the client’s expectation then it would be necessary to look at how the costs could be brought in line with the budget.

The next step is to instigate value engineering reviewing either the project from top to bottom in order to filter out what is important thereby establishing a hierarchy of project needs. It is essential that any cost reductions are achievable and are not reductions in necessary works which will invariably find themselves back into the project before the works are complete. This can create a false position at the commencement of the works which is not sustainable and will increase cost in accommodating necessary change. If the risk that something will be required is 100% certain then it needs to be factored into the costs. A review would need to take place on work that has a high probability of being required.

The most important factor is that if change is to be incorporated it should be done early. The later in the process the change happens the more expensive it will be to implement the change.

Why do you need a post-tender estimate?

The post-tender estimate may be used as an appraisal document to determine the viability of the project and whether it should go ahead. As this is a recasting of the costs based on a tender it constitutes the most accurate assessment of cost. At this stage an analysis can take place which factors in any additional items giving a full appraisal of the cost of the project. This is an important stage because it is the last opportunity for a client to stop the project without incurring excessive costs and disruption.

The other use for the post-tender estimate is as a report to record changes since the tender in the window before entering into contract. This may have been as a result of continued design development during the tender stage or changes introduced by the client. In this respect the estimate can be used as a reconciliation of the costs prior to entering into contract.