Estimating commercial construction costs:
A Quantity Surveyor’s Guide

Estimating commercial construction costs:

Date

Whilst the estimation of commercial construction costs differs slightly from that of residential, hotel or industrial projects, the core principles are the same. Read on to find out.

Estimating Commercial construction costs
core principles

The main differences between the estimation of costs for a commercial project and other projects are as follows:

  • Scale: Commercial construction projects may be larger and thus more complex than for example residential projects
  • Timeline: Commercial projects often have more stringent timelines with extra complexity presented by multiple contractors and stakeholders
  • Building regulations and codes: May vary depending on the intended use of the site
  • Materials and Construction Techniques: Commercial construction projects may require more durable materials for high foot-fall, or may have specific design requirements – both of which can impact cost estimation

 

Understandably, the first thing anyone wants to know about their potential building project is how much it’s going to cost. Often clients want to know how much the cost will be, without committing to the preparation of a detailed design: “Can you do a quick estimate?” is a question we hear quite often! Unfortunately, the first figure that someone receives then becomes cast in stone! This can mean unrealistic expectations from the outset of a construction project, and an increased likelihood of risk being incurred – budget pressures can cause all kinds of corners to be cut. This is not the way to achieve a safe, successful project outcome! So how do you get this right?

The importance of
design

The first fundamental concept to understand when it comes to the effective estimating of commercial construction costs, is that the quality and accuracy of the estimate is dependent on the availability and completeness of the construction design. If you are not sure what ‘design’ refers to in construction, this description* is worth referring to:

“Broadly speaking, design is a process of creating the description of a new facility, usually represented by detailed plans and specifications; construction planning is a process of identifying activities and resources required to make the design a physical reality.”

The more design information that is available, in terms of the layout of the building, ground conditions, standard of finishings and the scope of any mechanical and electrical installations, the more accurate the estimate can be.

What if there IS
no design?!

So, how do we best inform the client on the likely cost of their proposed new build or renovation when there is little, or no design? Especially if the budgets will be relied upon and used as a basis for funding application or approvals? Well, this is where the importance of engaging an experienced Quantity Surveyor comes in, especially one with specific experience of your type of construction project. You can see examples of our past projects here. Reviewing case studies and past projects is a good place to start when considering selecting a Quantity Surveyor for your project.

Your Quantity Surveyor will use different estimating techniques at each stage of the construction project. The RIBA (Royal Institute of British Architects) Construction ‘Stages’ stages define the state or development of the design at any given moment in time  You can download the guide here, but we have given you an overview below.

As a construction project progresses through these RIBA stages, there are different techniques and types of cost estimates that are used to determine the total cost of the project. Your Quantity Surveyor has access to a range of data either from published information such as the Building Cost Information Service (BCIS) or from previous projects – again, experience here is worth its weight in gold. We cannot overstate the importance of engaging an experienced Quantity Surveyor when it comes to the effective estimation of commercial construction costs.

RIBA (Royal Institute of British Architects)
‘Stages’ Overview

Stage 0 - Strategic Definition:
Order of Magnitude Estimate

The order of magnitude estimate is used to arrive at a rough idea of the project’s cost. This type of estimate is used to inform decisions related to the project’s viability and feasibility. It is based on a limited amount of information, such as the size and type of building, and is typically expressed as a range of costs per square metre.

Stage 1 – Preparation and Brief:
Elemental Cost Plan

In this stage, the elemental cost plan (prepared during the project brief stage and carried through to detailed design) is used to provide a more detailed estimate of the project’s cost. This type of estimate breaks down the project into different elements, such as the substructure, superstructure, and services. The cost of each element is estimated separately, and then the total cost is calculated. The elemental cost plan is used to inform decisions related to the project’s scope and budget.

Stage 2 – Concept Design:
Concept Cost Plan

During this stage, the concept cost plan is used to provide a more detailed estimate of the project’s cost. This estimate is based on a more developed design and considers the materials, construction methods, and other details that have been determined during the concept design stage. The concept cost plan is used to inform decisions related to the design and budget.

Stage 3 – Developed Design:
Detailed Cost Plan

As more information becomes available, the detailed cost plan is used to provide a more accurate estimate of the project’s cost. This type of estimate incorporates more details of the project’s design and provides a breakdown of the cost of each item, such as materials, labour, and equipment. The detailed cost plan is used to inform decisions related to the project’s design, budget, and procurement.

Stage 4 – Technical Design:
Tender Documentation

During this stage, the tender documentation is used to provide a detailed breakdown of the project’s cost. This document is used to obtain bids from contractors and subcontractors and is based on the detailed cost plan. The tender documentation includes a ‘Pricing Summary’, or ‘Bill of quantities’, which provides a detailed breakdown of the project. It is used to inform decisions related to the project’s procurement and contractor selection.

Stage 5 – Construction:
Cost Control

Because this information comes from contractors based on information prepared by the Quantity Surveyor, this stage now reflects the true cost of the project, and is no longer an estimate. It is the cost that someone will offer to deliver the work for.

As the work progresses on site, cost control is used to monitor the project’s actual cost and take into account the cost of changes, variations and circumstances beyond the contractor’s control, such as ground conditions. This is done through regular cost reports and progress meetings with the contractor. Any changes or deviations from the original plan are identified and agreed with the contractor and reported to the Client, so informed decisions can be taken and corrective action if necessary.

Some challenges associated with
estimating commercial construction costs

Cost estimating for a refurbishment or conversion project is generally more difficult and time-consuming than for a new-build, because the work is likely to be bespoke. Historic or listed building repairs or conversions are an example of this – comparable data is less likely to be available. The refurbishment project is more suited to the detailed ‘approximate quantities’ analysis. This is a process whereby the Quantity Surveyor would build up a budget cost from scratch, by quantifying areas such as roofing and adding lump sum budgets for different elements of the work. Again this is where selecting a Quantity Surveyor with specific experience is valuable.

Throughout all stages of a construction project, contingencies should be included into the estimate to cover unknowns. In simple terms the amount of the contingency should reduce, stage by stage, as further design information becomes available and hence the risk is limited.

A final
word

Cost estimating is carried throughout the construction process to inform the client and enable good decision-making at all stages – an outcome of paramount importance to any professional Quantity Surveyor. 

Our advice should be realistic and reflect as much as we know or can estimate about the building using our knowledge and experience of construction methods as well as current market conditions. Specification or layout can be adjusted to reduce costs, but in the long run nobody thanks you for underestimating construction costs and telling the client what you think they want to hear! We always aim to be realistic and to give genuine and sound advice throughout all the RIBA stages. For a free consultation of your construction project, please contact us today!

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