- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 11 Oct 2020
Construction costs form part of the overall costs incurred during the development of a built asset such as a building. Very broadly, construction costs will be those costs incurred by the actual construction works themselves, and on some projects may be determined by the value of the contract with the main contractor.
Many projects will also include costs that it is not possible to determine when the construction contract is awarded (such as prime cost sums and provisional sums), and there may be construction works that are awarded by the client outside of the main contract (such as fitting out the interior, minor alterations to the completed works, installation of equipment, and so on).
In addition, the contract is likely to allow for the contract sum to be adjusted as a result, for example, of variations to the works, claims for loss and expense, or fluctuations (a way of dealing with inflation on large projects that may last for several years). It is because of these unknowns that clients are advised to hold a contingency.
As a result, what is considered the actual 'construction cost' of a project must be clearly defined and may not be finally determined until well after the actual construction works have been completed. This is true, even if a contract is described as having a 'fixed price' or 'guaranteed maximum price'.
Cost plans evolve through the life of the project, developing in detail and accuracy as more information becomes available about the nature of the design, and then actual prices are provided by suppliers.
Cost plans may include:
- Initial cost appraisals, prepared during the feasibility study stage.
- Elemental cost plans, prepared during the project brief stage and carried through to detailed design.
- Approximate quantities cost plans, prepared from the end of detailed design through to tender.
- Pre-tender estimates, prepared alongside tender documentation.
- Contract sum, agreed with the selected contractor.
- Final account, agreed once the construction works are completed.
Other than initial cost appraisals, these all relate to the construction cost of the project (rather than wider project costs that the client might incur, which could include; fees, equipment costs, furniture, the cost of moving staff, contracts outside of the main works, and so on).
Contingencies will tend to be highest in the early stages of the project when there are the greatest number of possible risks, but can generally be reduced as better particulars about the project become available and some risks have passed or been overcome.
The approximate quantities cost plan is a first attempt to measure defined quantities from drawings (or to take them off from a building information model). It presents a more accurate picture of where costs are distributed, in particular it draws the attention of designers to those elements of the design that are standard and those that are not and as a consequence may be more expensive.
The pre-tender estimate (PTE) is the final estimate of the likely cost of the works that are described in completed tender documents. It provides a final comparison with the budget, and along with a cash flow estimate enables the client to confirm that sufficient funds area available before committing to seeking tenders. It also gives a basis for assessing and comparing tenders when they are returned.
The contract sum provides the first actual confirmed price. Up to this point, all cost planning has been based on estimates. A bill of quantities is issued to tendering contractors for them to prepare a price for carrying out the works. The bill of quantities assists tenderers in the calculation of construction costs for their tender, and, as it means all tendering contractors will be pricing the same quantities (rather than taking-off quantities from the drawings and specifications themselves), it also provides a fair and accurate system for tendering.
Best practice for the preparation of bills of quantiti