Rics - Cost Reporting
Rics - Cost Reporting
Rics - Cost Reporting
Cost reporting
1st edition
rics.org/guidance
rics.org
Cost reporting
RICS guidance note, UK
1st edition
Acknowledgments
RICS would like to thank the following for their
contribution to this guidance note:
Lead author:
Christopher Green FRICS, Capita Property and
Infrastructure
Working group:
Chair: Andrew Smith FRICS, Laing ORourke
John G Campbell FRICS, BAM Construction Ltd
David Cohen FRICS, Amicus Development Solutions
Stuart Earl FRICS, Gleeds Cost Management
Roland Finch FRICS, NBS
Roy Morledge FRICS, Nottingham Trent University
Michelle Murray MRICS, Turner & Townsend plc
Alan Muse FRICS, RICS
Michael T OConnor FRICS, Carillion Construction Ltd
Martin Stubbington MRICS, RICS
Kevin Whitehead FRICS, McBains Cooper Consulting
Ltd
Contents
1 Introduction ............................................................ 3
Glossary ........................................................................ 14
International standards
RICS is at the forefront of developing international It is for each member to decide on the appropriate
standards, working in coalitions with organisations procedure to follow in any professional task. However,
around the world, acting in the public interest to raise where members do not comply with the practice
standards and increase transparency within markets. recommended in this guidance note, they should do so
International Property Measurement Standards (IPMS only for good reason. In the event of a legal dispute, a
ipmsc.org), International Construction Measurement court or tribunal may require them to explain why they
Standards (ICMS), International Ethics Standards (IES) decided not to adopt the recommended practice.
and others will be published and will be mandatory for
Also, if members have not followed this guidance, and
RICS members. This guidance note links directly to
their actions are questioned in an RICS disciplinary
these standards and underpins them. RICS members
case, they will be asked to explain the actions they did
are advised to make themselves aware of the
take and this may be taken into account by the Panel.
international standards (see www.rics.org) and the
overarching principles with which this guidance note In some cases there may be existing national standards
complies. Members of RICS are uniquely placed in the which may take precedence over this guidance note.
market by being trained, qualified and regulated by National standards can be defined as professional
working to international standards and complying with standards that are either prescribed in law or federal/
this guidance note. local legislation, or developed in collaboration with
other relevant bodies.
1 Introduction
A project cost report captures historic and forecast 2.3 Factors affecting outturn construction
costs across a construction project. Typical cost report
costs
headings are given below:
construction costs The outturn cost of a construction project comprises
professional fees the sum total of the following types of cost that the
statutory fees and charges quantity surveyor is required to adjust under a
construction contract.
third-party costs
direct works costs
Fixed costs
land costs
The costs that have been agreed to be paid for the
agency costs
known work or services.
finance cost; and
legal fees. Variable costs
The quantity surveyor may be asked to produce a
project cost report and draw specific cost advice from Provisional sums
other individual budget holders or advisers. The Undefined provisional sums
quantity surveyor should include a note in the cost The cost allowances for works or services whose
report to draw attention to the costs provided by design specification and extent are not known at
others and exclude liability for the accuracy of these the date of contract.
costs. Defined provisional sums
A programme cost report captures historic and The cost allowances for works or services whose
forecast costs across a programme of construction design and specification are not known at the date
works. Typical cost report headings are given below: of contract but the extent is sufficiently well known
programme management office costs; and to allow for programming and management.
project costs.
Provisional quantities
Detailed cost reports can be prepared to give a
greater level of detail within a construction project. The provisional quantities of work whose specification
Some examples are given below: is known, but the exact amount has yet to be
determined.
Elemental cost reports: report costs at an
elemental level. This type of cost reporting can
assist in value management and value engineering Prime cost sums
when budgets have been established for each The financial adjustment of work whose extent is
project element. known, but whose specification has yet to be
Building cost reports: cost reports for individual determined.
buildings across a project comprising several
buildings. Daywork allowances
Budget holder reports: cost reports prepared for
The monetary allowances made for the costs of labour,
the elements of the construction works under the
plant and materials, against which percentage uplifts
control of individual budget holders. A budget
are priced against the base rates of labour and prime
holder may be a specific designer of the project
cost of materials and plant. These allowances are for
i.e. architect, building services engineer, structural
engineer. work whose quantity and specification are unknown
and whose instruction is likely to be on an adhoc basis
Stakeholder reports: cost reports prepared for
where the valuing of the work by reference to contract
individual stakeholders in projects with multiple
stakeholders. rates would be inappropriate.
Risk allowances
The monetary allowances, for works or services, whose
quantity and specification are unknown and are at the
risk of the client.
Dayworks are submitted by the construction contractor cost report. However, the outturn cost report should be
on a daywork sheet that sets out the quantities and based on the valuation of variations as determined by
rates of plant, labour and material for each instructed the quantity surveyor.
item of work.
Anticipated instructions/early warnings
The quantity surveyor should check the following
before including the cost of a daywork sheet. The quantity surveyor should identify all anticipated
The daywork sheet has been approved and signed instructions/early warnings and make a suitable cost
by the clients representative designated in the allowance in the cost report. The quantity surveyor
construction contract. should review the following to identify anticipated
variations,
The basic rates for plant labour and materials have
been correctly recorded in accordance with the instruction requests issued by the contractor
construction contract. drawing revisions
The contract rates for overheads and profit have specification revisions; and
been correctly applied. programme delays which are at the risk of the
The daywork sheet is arithmetically correct. client
The work that is the subject of the daywork sheet The cost report should clearly identify that these are
has been instructed under the contract. anticipated instructions which have not have been
The correct method of valuing the instructed work instructed in accordance with the contract.
under the contract is on a daywork basis.
Any allowance for overheads and profit that is required
by the construction contract should be included within
Risk allowances
the valuation of each variation.
At the outset of the construction contract the quantity
surveyor should include the full amount of each risk Professional Fees
allowance which is not a fixed price risk allowance
The quantity surveyor should note that contract
borne by the contractor (these sums are included in the
variations may incur additional fees of professional
fixed prices). As work is instructed which is to be set
advisers. The construction cost report should exclude
against the risk allowances, then the quantity surveyor
the additional cost of such fees incurred by those
should reduce the risk allowance by the cost of each
professional advisers engaged directly by the client.
such variation valued in accordance with the contract.
The cost report should include the additional cost of
Any remaining risk allowances should be treated as such fees incurred by those professional advisers
described in section 4.5. engaged by the contractor.
The JCT Standard Form of Building Contract provides Contract sum 10,000,000
for such payments to be made separately from the Additional authorised expenditure 400,000
variations provisions of the contract. The NEC3 Total authorised expenditure 10,400,000
engineering and construction contract treats these
matters the same as other variations to the works and Forecast cost
does not distinguish loss and/or expense separately
from compensation events. Contract sum 10,000,000
Where the form of contract provides for separate Less risk allowances (300,000)
reimbursement of loss and/or expense then any claims 9,700,000
made under these separate provisions should be Adjustment of provisional sums 20,000
reported separately in the cost report. Contracts with Adjustment of prime cost sums (120,000)
this type of provision generally require the building Adjustment of provisional quantities 20,000
contractor to advise the client of the amount of the Contract instructions 250,000
claim as soon as it has become apparent that regular Anticipated instructions 100,000
progress of the works has been affected. The client Fluctuations 10,000
may instruct the quantity surveyor to ascertain the
Loss and/or expense 120,000
amount of loss and/or expense due to the construction
Risk allowance for remainder of contract 150,000
contractor as an additional service.
Direct works 0
When so instructed, the quantity surveyor should Total forecast cost 10,250,000
assess the information submitted in support of the Remaining authorised expenditure 150,000
claim, when received in accordance with the contract, 10,400,000
and include an appropriate allowance in the cost
The format of the cost report should be discussed and
report.
agreed with the client at the outset.
Where the claim received from the building contractor
is insufficiently particularised to allow the quantity
surveyor to make a reasonable assessment, then the 3.7 Other matters
quantity surveyor should request further information
and details from the building contractor. Treatment of VAT
When the quantity surveyor is not instructed to Cost reports should always report costs excluding
ascertain the amount of loss and/or expense due, then value added tax (VAT). The liability to pay VAT is
the client should be consulted to determine if another determined by many factors, each unique to a
professional has been appointed or whether the matter particular customer and project including:
is to be excluded from the cost report. Where the client customers VAT registration
has employed others to ascertain the amount of loss corporate entity
and/or expense, then the quantity surveyor should nature of the construction project
request a cost report on this matter for inclusion in the prevailing VAT rules; and/or
cost report. applicable tax jurisdiction
The cost report should contain a clear statement that
all reported costs are exclusive of VAT.
Cost Control
Frequent, regular and accurate cost reports provide asset value impact; and
clients and project teams with the best available data funding conditions.
upon which to base future project decisions. The
quantity surveyor should consider each cost report Cost reporting
produced in the context of the project brief and provide The quantity surveyor should consider the following
possible courses of action to address any cost issues when establishing a cost reporting service.
deviation away from the brief. In the case of cost
increases above the brief or approved construction Frequency
budget the following courses of action may be
Consideration should be given to the duration of the
considered:
project. Minor works may only have a duration of a few
(i) Omit elements of remaining construction work weeks therefore weekly cost reporting may be
that are not immediately critical for the required appropriate. The UK construction industry operates on
functionality of the building.
a monthly payment cycle norm and therefore monthly
(ii) Reduce the scale of elements of remaining cost reporting should be considered to be normal.
construction work without diminishing the
The timing of the production of the cost report should
required functionality of the building. This may
include reducing room sizes, circulation and accord with the availability of updated cost data and is
communication, space and storey heights. usually prepared in conjunction with the payment cycle.
It is recommended practice to produce monthly cost
(iii) Reduce the specification of elements of
reports even if stage payments are to be made less
remaining construction work.
frequently.
Each of the above measures should be considered
If the volume of variations on a project is such that
within the constraints of the planning consent to ensure
cost reporting should be carried out at shorter intervals
no breach is committed.
than set out in the consultants appointment, then the
The quantity surveyor should note the importance of quantity surveyor should advise the client and seek
advising the client of the whole life impact of potential instruction.
cost savings, considering the following:
capital cost saving Methodology
renewal cost and frequency impact Cost reports may be issued in hard copy or
operating cost impact increasingly they may be issued in electronic format.
maintenance cost impact; and Regardless of the agreed format it is important that the
end of life cost impact. quantity surveyor maintains a complete record of all
This should be carried out in accordance with the RICS It can be seen in this example that cost reports can be
guidance note Cash flow forecasting. expressed as group element cost reports or element
cost reports as appropriate. It should be recognised
Emergence of the final account that more than one designer may contribute to the
design and therefore cost, of a particular element. For
Cost reports should indicate the status of agreement of example, sanitary installations usually have fittings
each category of cost in a construction project. As specified by the architect and services designed by the
each category of cost is progressively agreed with the building services engineer. It is recommended that one
building contractor, so the final account emerges and of the designers is given budget responsibility and
cost certainty increases. The applicable construction should co-ordinate design and cost control.
contract will set out the specific procedure for the
preparation of the final account and the quantity If budget holder cost reporting is deemed appropriate,
surveyor should adhere strictly to these procedures. the quantity surveyor should arrange for monthly cost
meetings with each budget holder to discuss cost
variances from the agreed budgets. This requirement
4.2 Budget holder reporting
should be taken into account when agreeing fees for
the quantity surveying service.
As described in section 3.1, a key strategic function of
cost reporting is cost control. However, without
The budget holder cost reports are intended to be
establishing ownership and responsibility for costs, it is
supplemental to a construction cost report or project
difficult to exert control over costs. A cost report may
cost report as they only report costs within a budget
be expressed as a series of budget holder reports.
holders responsibility.
Budget holders can be identified as those designers
who retain design control over specific construction
elements. A typical split of budget holder responsibility 4.3 Contractor consultation
is shown here:
The content of a cost report is confidential and should
Budget holder Element not be disclosed to anyone without the express
Client 0 Facilitating works consent of the client. A comprehensive cost report
Structural engineer 1 Substructure should not be prepared without a detailed consultation
Structural engineer 2.1 Frame with the building contractor. This consultation should
Structural engineer 2.2 Upper floors identify the amounts being claimed and forecast
Structural engineer 2.3.1 Roof structure against each category of cost by the building
Architect 2.3.2 Roof coverings contractor. The cost report may include this information
Architect 2.3.3 Glazed roofs in addition to the quantity surveyors assessment of
Building services 2.3.4 Roof drainage each category of costs. This allows the client to see
engineer the degree of agreement and hence the residual risk in
Architect 2.3.5 Rooflights, skylights and outturn cost.
openings
Architect 2.3.6 Roof features
Architect 2.4 Stairs and ramps 4.4 Client and budget holder presentation
Architect 2.5 External walls
Architect 2.6 Windows and external doors
It is recommended that the quantity surveyor presents
Architect 2.7 Internal walls and partitions
each cost report to the client. A careful explanation of
Architect 2.8 Internal doors
each section of the cost report will afford the client or
Architect 3 Internal finishes
budget holder a better understanding of the costs of a
Client 4 Fittings furnishings and
construction project and movements in cost in the
equipment
reporting period. This in turn will lead to better decision
Building services 5 Services
engineer making on issues of scope, specification and
Architect 6 Prefabricated buildings and programme, and increase the likelihood of controlling
building units cost within budget. Communication of a cost report
Architect 7 Work to existing buildings solely by post or email should be avoided.
Landscape architect 8 External works
4.5 Risk allowance management contractor. The burden of proof of the actual loss and
expense lies with the building contractor and may
Cost reports should avoid the use of a general include prolongation and disruption claims from its
contingency allowance and instead adopt the use of subcontractors in addition to the building contractors
risk allowances for anticipated cost occurrences. own loss and expense. This information may not be
Quantity surveyors should measure and value the costs provided to the quantity surveyor until sometime after
being incurred and reduce the risk allowance as the completion of the construction project. The quantity
actual cost emerges. If a general contingency is surveyor should make the client aware of the difficulty
required to be included in the budget by the client, in reporting a reasonable assessment of loss and
then its reporting treatment should be agreed with the expense claims during the presentation of each cost
client at the outset of the project. There are two report. The cost report should state whether an
accepted methods of reporting general contingency: assessment for loss and/or expense has been included
1 General risk allowance maintenance method and on what basis is the allowance made.
Costs incurred and forecast for which no other
provision was made in the budget, should be set 4.7 Reporting of liquidated and
against the general risk allowance. The balance of
remaining risk allowance should be maintained
ascertained damages
throughout the remainder of the project. The form of construction contract may permit the client
2 General risk allowance progressive release method to deduct liquidated and ascertained damages if the
Costs incurred and forecast for which no other building contractor fails to complete the works by the
provision was made in the budget should be set date for completion. The amount of liquidated and
against the general risk allowance. The balance of ascertained damages which the client is entitled to
remaining allowance should be progressively recover from the building contractor should be reported
reduced on an agreed basis The release of in the cost report unless instructed otherwise by the
remaining general risk allowance may be made client. The quantity surveyor should always seek the
pro-rata to: clients instruction in this regard.
Glossary
Anticipated instructions Instructions known to be required but not yet issued in accordance with the contract
for variations to the contract works.
Budget The amount approved or agreed with the client that is available for expenditure on
the construction project.
Contract instructions Instructions issued in accordance with the contract for variations to the contract
works.
Dayworks The monetary allowances made for the costs of labour, plant and materials, against
which percentage uplifts are priced against the base rates of labour and prime cost
of materials and plant. These allowances are for work whose quantity and
specification are unknown and whose instruction is likely to be on an adhoc basis
where the valuing of the work by reference to contract rates would be inappropriate.
Fixed costs The lump sum payments set out in the contract for specified construction work.
Fluctuations Monetary adjustments made to the original contract prices to compensate for
changes in pricing levels at a macro-economic level by reference to input costs, price
indices and price adjustment formulae.
Loss and expense Additional costs arising from delays to programme or the disruption to the
performance of the contract works.
Prime cost sums The quantities of work whose extent is known but whose specification has yet to be
determined.
Provisional quantities Where work can be described and given in items in accordance with the applicable
measurement rules but the quantity of the work required cannot be accurately
determined, an estimate of the quantity is given and identified as an provisional
quantity.
Provisional sums
Defined provisional sums A provisional sum for defined work is a sum provided for work that is not completely
designed but for which the following information shall be provided:
the nature and construction of the work
a statement of how and where the work is fixed to the building and what other
work is to be fixed thereto
a quantity or quantities that indicate the scope and extent of the works; and
any specific limitations and the like identified.
Where provisional sums are given for defined work the contractor will be deemed to
have made due allowance in programming, planning and pricing preliminaries.
Undefined provisional sums A provisional sum for undefined work is a sum provided for work where the
information required for defined provisional sums cannot be given. Where provisional
sums are given for undefined work the contractor will be deemed not to have made
any allowance in programming planning and pricing preliminaries.
Risk allowances The monetary allowances, for works or services, whose quantity and specification are
unknown and are at the risk of the client.