SM014 - Cost Estimation Manual - NZ Transport Agency · PDF filePage i NZ Transport...

Cost estimation manual (SM014)

Cost estimation manual manual number: SM014

© NZ Transport Agency

www.nzta.govt.nz

First edition

Effective from November 2010

ISBN 978-0-478-37104-8 (print)

ISBN 978-0-478-37103-1 (online)

http://www.nzta.govt.nz/�

Copyright information

This publication is copyright © NZ Transport Agency. Material in it may be reproduced for personal or in-house use without formal permission or charge, provided suitable acknowledgement is made to this publication and the NZ Transport Agency (NZTA) as the source. Requests and enquiries about the reproduction of material in this publication for any other purpose should be made to: NZ Transport Agency Private Bag 6995 Wellington 6141

The permission to reproduce material in this publication does not extend to any material for which the copyright is identified as being held by a third party. Authorisation to reproduce material belonging to a third party must be obtained from the copyright holder(s) concerned.

Disclaimer

The NZTA has endeavoured to ensure material in this document is technically accurate and reflects legal requirements. However, the document does not override governing legislation. The NZTA does not accept liability for any consequences arising from the use of this document. If the user of this document is unsure whether the material is correct, they should make direct reference to the relevant legislation and contact the NZTA.

More information

Published 2010 ISBN 978-0-478-37104-8 (print) ISBN 978-0-478-37103-1 (online)

If you have further queries, call our contact centre on 0800 699 000 or write to us: NZ Transport Agency Private Bag 6995 Wellington 6141

This document is available on the NZTA’s website at www.nzta.govt.nz


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NZ Transport Agency’s Cost estimation manual (SM014) First edition, Amendment 0 Effective from November 2010

Document management plan

1) Purpose

This management plan outlines the updating procedures and contact points for the document.

2) Document information

Document name Cost estimation manual

Document number SM014

Document availability This document is located in electronic form on the NZ Transport Agency’s website at www.nzta.govt.nz

Document owner Commercial Engineer

Document sponsor National Manager Professional Services

3) Amendments and review strategy

All corrective action/improvement requests (CAIRs) suggesting changes will be acknowledged by the document owner.

Comments Frequency

Amendments (minor revisions)

Updates incorporated immediately they occur. As required.

Review (major revisions)

Amendments fundamentally changing the content or structure of the document will be incorporated as soon as practicable. They may require coordinating with the review team timetable.

At least annually.

4) Other information (at document owner’s discretion)

There will be occasions, depending on the subject matter, when amendments will need to be worked through by the review team before the amendment is actioned. This may cause some variations to the above noted time frames.

http://www.nzta.govt.nz/publications/index.html�

Page ii


Record of amendments

This document is a controlled document as defined in the NZ Transport Agency’s (NZTA) Corporate services manual (FCS/Man/1). It is therefore, subject to review and amendment from time to time. Amendments will be recorded in the table below. Amendment notices, detailing the changes, will be issued via email to registered manual holders and should be inserted behind this page.

If you wish to be notified by email when any amendment is made, please email [email protected] with ‘Cost estimation manual SM014’ in the subject line and include your contact details: name, organisation and email address. Please ensure that you notify the NZTA of any subsequent changes to these contact details.

All individuals seeking to rely on or implement this manual, or any other manual referred in this document, have a duty to ensure they are familiar with the most recent amendments.

Amendment number

Description of change Effective date Updated by

0 Issue 3 of the Highways and Network Operations Cost Estimation Manual is amended to become the first edition of the NZTA’s Cost estimation manual (SM014), including minor amendments.

November 2010 Bill Hewitt

mailto:[email protected]�

Page iii


Foreword

The content of this is based on the NZTA’s current best business practices. The manual will continue to evolve and is subject to revision.

The owner of this manual shall be advised of any proposed amendments to ensure continuous improvement in best practice.

While all care has been taken in formulating this manual, the NZTA Board accepts no responsibility for failure in any way related to the application of this manual, or any reference documents noted in it. There is a need to apply judgement to each particular set of circumstances.

This manual is the first edition of the NZTA's Cost estimation manual (SM014). Three previous editions were published by Transit New Zealand.

Copyright in this manual remains with the NZTA. No reproduction of the contents of this manual is authorised in whole or part. Communications about this manual should, in the first instance, be directed to the NZTA ([email protected]).


Page iv


Contents

Part A – Introduction 1

1.0 Introduction 2

2.0 Terminology and abbreviations 6

3.0 Estimate definitions 10

Part B – Roles and responsibilities 13

4.0 Roles and responsibilities 14

Part C – Procedures 17

5.0 Purpose of cost estimates 19

6.0 Estimates 21

7.0 Escalation 25

8.0 Land and property 26

9.0 Risk analysis and contingency calculation 29

10.0 Reporting estimates 32

11.0 Estimate audit trail 40

12.0 Peer reviews and parallel estimates 41

13.0 Scope and cost control process 44

Part D – Guidelines 47

14.0 Estimate guidelines 48

Appendices 55


Part A – Introduction

1.0 Introduction 2

1.1 General 2

1.2 Manual background 5

2.0 Terminology and abbreviations 6

2.1 Terminology 6

2.2 Abbreviations 9

3.0 Estimate definitions 10

3.1 General 10

3.2 Project life cycle 11

In this part Section Page


1.0 Introduction

1.1 General

1.1.1 Purpose The purpose of this manual is to outline the minimum requirements in preparing project cost estimates for the NZ Transport Agency (NZTA).

1.1.2 Objective The primary objective of this manual is to ensure the consistent application of estimating procedures on the NZTA’s projects.

1.1.3 Manual status

This manual has the status of a ‘standard’ as defined in the NZTA 's Register of network standards and guidelines. The authority to amend or vary the manual has been delegated to the sponsor of this manual. This manual is a controlled document in accordance with the NZTA’s Corporate services manual (FCS/Man/1).

1.1.4 Intended manual users

This manual is intended to be a used by anyone preparing estimates for the NZTA.

1.1.5 Communication and amendment control

Manual users may communicate via email at the address given on the amendment control sheet. All amendments to this manual will be documented in the record of amendments table at the start of this manual.

1.1.6 Manual review process

The manual owner is responsible for the review and update of this manual. The review will be carried out in conjunction with the NZTA’s Project Delivery Value Assurance team. The purpose of reviews is to update the procedures to ensure the manual remains current and represents best practice.

All comments relating to amendments to this manual shall be made to either the regional office contact, who will determine the appropriate course of action, or via email to the address given on the record of amendments sheet provided at the start of this manual.

The manual will undergo regular review. In some instances a change to a fundamental part of the manual may require the manual to be reissued outside the programmed review cycle. If this occurs the NZTA’s consultants and registered manual holders will be informed of the change and issued with the new manual.

1.1.7 Interrelationships with other manuals

This manual contains procedures for preparing cost estimates. In addition consultants shall refer to other NZTA’s manuals, standards and guidelines including, but not limited to the following:

Project management manual (SM011) Annual plan instructions manual (SM018) Contract procedures manual (SM021) State highway professional services contract proforma manual (SM030) Risk management process manual (AC/Man/2) Planning, programming and funding manual (PPFM) Economic evaluation manual (EEM).


1.1.8 Document availability

This manual is available as a PDF on the NZTA’s website (www.nzta.govt.nz).

The following documents are referred to in this manual and are also available on the NZTA’s website:

The example forms are available as electronic Microsoft Excel documents (original copies are held on the NZTA National Office server (G:\Region\Manuals and Forms\SM 014 Cost Estimation Manual - Appendix Templates).

The elemental cost database. The register of estimate peer reviewers and industry.

This manual is available to road controlling authorities (RCAs). RCAs should contact, in writing, the manual owner at the NZTA National Office (a cost may apply).

1.1.9 Feedback The NZTA welcomes feedback about this manual. Please send feedback via email to [email protected], alternatively complete the following feedback form and fax to the NZTA (this form is also available on the NZTA’s website).




Feedback form

To Cost estimation manual (SM014) owner, NZ Transport Agency

Attention Bill Hewitt

Fax number 06 345 7151

Subject Cost estimation manual (SM014) feedback form

From (name and company)

Contact number

Contact email

Contact address

Manual reference

Comment and/or description of problem

Describe what you would like to happen/suggest change

Feedback ID Action

(for internal use only)

(for internal use only)


1.2 Manual background

The NZTA’s Cost estimation manual (SM014) has been produced jointly by the NZTA and Association of Consulting Engineers New Zealand (ACENZ). These organisations have an interest in the accuracy of cost estimates for roading projects and have agreed a set of policies that are the basis of this manual’s guidelines.

ACENZ is the professional body representing consulting engineers in New Zealand. Members of ACENZ are usually engaged to provide cost estimates for the NZTA’s projects.

The NZTA owns and manages this manual. Every person producing, reviewing or submitting estimates for an NZTA’s project must do so with reference to this manual.

The manual is intended to be a concise, hands-on, user-friendly and non-prescriptive resource containing sufficient guidance to produce a reliable estimate. It provides guidance on the types and use of project cost estimates and includes example estimate templates. The guidance can apply to all roading projects, whether maintenance or capital, delivered under any procurement method.

The principles of estimating can be applied to all NZTA’s work.

Internal and external peer reviews and independent parallel estimates conducted by experienced practitioners are a vital element of the estimation process. This manual also provides guidance as to the timing and requirements of these processes.


2.0 Terminology and abbreviations

2.1 Terminology

Base date Project costs shall be expressed in dollar values as at 1 July of the financial year in which the estimate is being prepared.

Base estimate

The total sum of the elements that make up an estimate and including provisional sums but not including a contingency. For example, in physical works it is the sum of the calculated quantities from a drawing multiplied by the current market rates for each work item.

Benchmark estimator Benchmark estimator – Roadworks Strategic Manager is an estimating software package that may be used by the NZTA to validate feasibility estimates (FEs) and option estimates (OEs). The NZTA’s Commercial Engineer (Project Services group - National Office) will manage this process.

Consultant(s)

A specialist person or organisation who gives expert advice or information. Consultant(s) are normally external to the NZTA but may also include internal parties.

Contingency A provision for known/unknown risks between the base and expected estimates. This may also be referred to as the risk contingency or an allowance to cover the statistical mean of risks and opportunities.

Elemental costing Estimates of project out-turn costs prepared using composite rates for major components of a project.

Escalation An additional allowance to cover for increasing costs due to inflation throughout the project life cycle.

Estimate types Feasibility estimate (FE) – prepared during the feasibility phase, normally as part of a project feasibility report. This estimate is used to provide budgets for forward works programming.

Note: To produce more reliable estimates further investigation beyond a traditional approach may be undertaken in the project feasibility phase.

The FE includes an expected estimate and a 95th percentile estimate. Generally, these estimates are prepared using elemental costs. Major risks must be identified and their impact on the out-turn cost assessed and included in the estimate.

Option estimate (OE) – prepared during the investigation and reporting (I&R) phase for each proposed solution. These estimates are used for comparing project options.

The OE includes an expected estimate and a 95th percentile estimate. These estimates are based on a preliminary brief, limited site information and general information about the type of construction, scope of work and possible alignment. All risks must be identified and their impact on the out-turn cost assessed and included in the estimate.

The OE will be compared with the FE. If there are differences between the estimates, the consultant must explain the reasons in a report to be included when they submit the OE.

Scheme estimate (SE) – prepared during the I&R phase. This estimate is based on the preferred option that will be included in the scheme assessment report (SAR)/assessment of environmental effects (AEE). The SE must be used to support any notice of requirement for designation (NOR).

The SE includes an expected estimate and a 95th percentile estimate. The estimate is based on the identified scope and functionality, appropriate site information and preliminary design drawings. All risks must be identified and their impact on the out-turn cost assessed and included in the estimate.

This SE will be compared with the OE and will be independently peer reviewed. If there are differences between the estimates and/or the peer review, the consultant must explain the reasons in a report to be included when they submit the SE.

Note: The NZTA will measure the consultant’s performance from the SE.


Estimate types continued

Pre-design estimate (PE) – prepared during the I&R phase. It is an estimate of the approved project option, updated to include any hearing or Environment Court conditions (eg notice of requirement/ resource consent). It is prepared prior to seeking funding for the design phase.

The PE includes an expected estimate and a 95th percentile estimate. All risks must be reviewed and their impact on the out-turn cost assessed and included in the estimate.

The PE will be compared with the SE. If there are differences between the estimates, the consultant must explain the reasons in a report to be included when they submit the PE.

Design estimate (DE) – prepared during the design and project documentation (D&PD) phase. This estimate is based on detailed design documentation and prepared prior to seeking construction funding and tendering of the physical works.

The DE includes an expected estimate and a 95th percentile estimate. ‘Detailed design documentation’ includes drawings, specifications, schedule of prices, NOR and all consent conditions. All risks must be reviewed and their impact on the out-turn cost assessed and included in the estimate.

The DE will be compared with the PE. If there are differences between the estimates, the consultant must explain the reasons in a report to be included when they submit the DE.

The DE is a construction phase cost estimate with both the I&R and D&PD phase costs set to nil. An engineer’s estimate for each physical works contract is derived from the DE, prior to issuing the tender documents. The engineer’s estimate is to reflect the expected tender price and will be used for making comparisons during the tender evaluation period.

Construction estimate (CE) – prepared during the tender evaluation period and updated at least quarterly during the construction phase until project completion. The estimate is based on the preferred physical works tender(s) and is used to confirm that construction funding allocations are sufficient. Note that the CE is a construction phase cost estimate with both the I&R and D&PD phase costs set to nil.

The CE includes an expected estimate and a 95th percentile estimate. The CE also includes escalation and information received during the physical works tender process. All risks must be reviewed, based on the preferred tender and any new issues that arise from the selection of the physical works contractor(s). The impact of these risks on the out-turn cost must be assessed and included in the estimate.

The CE will be compared with the DE. If there are differences between the estimates, the consultant must explain the reasons in a report to be included when they submit the CE.

Expected estimate The base estimate including an allowance for contingency calculated according to the guidelines in this manual. Note that escalation is only included in the expected estimate when it is used for funding applications. Reference to the expected estimate in this manual will generally exclude allowance for escalation.

Funding applications Funding applications are required prior to undertaking these phases of a project: I&R D&PD construction (management, surveillance and quality assurance (MSQA) and physical works).

All funding applications are made at the expected estimate level (and include advice of the 95th percentile estimates). Future escalation is added to these estimates.

The NZTA also needs the expected and 95th percentile estimates (including future escalation) for the purchase of property interests required to build the project.

In addition, all funding applications (I&R, D&PD and construction phases) for projects where the expected estimate of the construction phase of the project exceeds $4.5 million are accompanied by a separate estimate for the construction phase (including all property costs) of the project. This estimate includes the expected, 5th and 95th percentile estimates and excludes escalation.

Funding risk An additional provision for known/unknown risk between the expected and 95th percentile estimates. This allowance is to cover the difference between the statistical mean and the statistical 95 percent percentile of risks and opportunities.


Out-turn cost These costs include all actual costs. The only exclusions are the goods and services tax (GST) and any NZTA’s administration and overhead costs. The NZTA-managed costs, as defined below, are to be included in the out-turn cost.

Project cost centre Cost centre for project costs, excluding property acquisition (as defined in project property cost centre below) but including property owner accommodation works that form part of the physical work contract.

Project property cost centre

Cost centre for project property costs including property acquisition, property compensation, property owner accommodation works (unless these are deferred to construction in which case they are charged against the project cost centre) and professional services costs (including valuations, legal surveys and management costs).

Sunk costs Costs irrevocably committed which have no salvage value or realisable value (for example investigation, research and design costs already incurred). Sunk costs are included in an out-turn cost but are not included in economic evaluations.

Note that property costs are not normally a sunk cost as it nearly always has a market value that can be realised. However, costs such as property owner accommodation works are not normally recoverable and will be a sunk cost.

NZTA-managed costs Includes all project costs incurred by the NZTA that are not managed by the consultant and that are not part of the NZTA’s administration costs.

The NZTA’s project manager will provide these cost estimates to the consultant responsible for the project estimate.

5th percentile estimate

Note that the 5th percentile estimate is only required for funding applications, and only in relation to the estimate of construction and property costs.


The expected estimate plus an allowance for funding risk, calculated according to the guidelines in this manual. Note that future escalation is only included in the 95th percentile estimate when it is used for funding applications. Reference to the 95th percentile estimate in this manual will generally exclude allowance for future escalation.

95th percentile risk contingency

Out-dated terminology for funding risk.


2.2 Abbreviations

ACENZ Association of Consulting Engineers New Zealand

AEE Assessment of environmental effects

BCR Benefit cost ratio

CE Construction estimate

CI Cost indices

D&PD Design and project documentation

DE Design estimate

FE Feasibility estimate

FCWP Forward capital works programme (now 10-year forecast)

HNO Highways and Network Operations group

I&R Investigation and reporting

LTPP NZTA’s Long Term Procurement Plan

MSQA Management, surveillance and quality assurance

NOR Notice of requirement for designation

OE Option estimate

PADS Property acquisition and disposal system

PE Pre-design estimate

PFR Project feasibility report

PROMAN State Highway Project Financial Management System

SAR Scheme assessment report

SE Scheme estimate

SEP Schedule of elemental prices

NZTA NZ Transport Agency


3.0 Estimate definitions

3.1 General

There will normally be six out-turn cost estimates within the project development cycle:

1. feasibility estimate (FE)

2. option estimate (OE)

3. scheme estimate (SE)

4. pre-design estimate (PE)

5. design estimate (DE)

6. construction estimate (CE).

There will be two types of estimates for each of the above six cost estimates:

1. The expected estimate (ie on average, across the State Highway Programme, about half of the time the out-turn cost will come in under the expected estimate and about half of the time the expected estimate will be exceeded).

2. The 95th percentile estimate (ie one in 20 times the 95th percentile estimate will be exceeded).

All cost estimates shall include an assessment of all residual risks (from the risk register) at the time of estimating.


3.2 Project life cycle

Most projects are developed in four separate phases:

1. Project feasibility.

2. Investigation and reporting (I&R):

o scoping

o scheme assessment report (SAR) and/or assessment of environmental effects (AEE)

o notice of requirement for designation (NOR) and resource consents. 3. Design and project documentation (D&PD).

4. Construction (management, surveillance and quality assurance (MSQA) and physical works).

The NZTA applies hold points at various stages of a project, typically at the end of each of the above phases and at other critical milestones. For the success of the project reliable cost estimates are required at each of these hold points.

The following diagram of timelines shows the project phases from inception to completion for traditional and design/construct procurement models, and how estimates fit into the life cycle.

Figure 1: Traditional and design and construction contract delivery timeline with estimate deliverable


Each project has one ‘live’ estimate, which is updated progressively as the project develops. This estimate is given different names depending on the project phase or the hold point to which it relates. During the earliest phases of a project more than one OE may be prepared to allow for a number of potential solutions for the project.

1. Project feasibility

The project feasibility phase concludes with the production of a project feasibility report (PFR) and an associated FE. Usually the FE is based on limited knowledge of the project.

2. I&R

The I&R phase includes the development of a scoping report, if required, and a SAR/AEE.

The scoping report summarises the various options and includes OE(s) for each option proposed. A scoping report is not always required.

A SE is prepared during the SAR/AEE production but before the NOR is lodged.

The project estimate has to be recalculated once the designation is confirmed and all of the conditions are fully understood. This estimate is the PE that the NZTA will use to secure funding for the design phase.

3. D&PD

Once an option is approved it will progress to detailed design. At the end of this phase a DE is produced and used to secure construction phase funding.

4. Construction

During this phase the design is tendered out to the market. After receipt of tenders and before the contract is awarded, the estimate will be revised to a CE, which the NZTA’s project manager and the consultant then manage until completion of the project.


Part B – Roles and responsibilities

4.0 Roles and responsibilities 14



4.0 Roles and responsibilities

Each project shall have the following management structure:

The NZ Transport Agency’s (NZTA) project manager is responsible for:

– checking that the estimate has been produced according to the guidance given in this manual

– implementing external peer reviews and parallel estimates at appropriate times

– providing cost information for the NZTA-managed costs on previous project expenditure

– benchmarking estimates against elemental cost data. The consultant team leader is responsible for:

– establishing the scope of work in consultation with the NZTA’s project manager

– preparing and checking the estimate according to the guidance given in this manual

– collating estimate elements

– checking the estimate is consistent with the scope of works and guidance given in this manual

– internal peer reviewing estimates

– reconciling differences with external peer reviewer and independent estimator.

See figure 2 for a flow chart of the complete project management structure of a typical project from project feasibility report (PFR) to completion.


Figure 2: Project management structure

NZ Transport Agency NZ Transport Agency Consultant Phase

Commission PFR

Estimate

Produce PFR

Accept FE Produce/review FE

Prepare funding requestConsider I&R funding

PF

R

FE

Approve I&R funding Commission I&R Commence I&R

Produce/review OE

Produce scoping report

Complete SAR/AEE

Produce/review SE

Review scoping report and accept OEs

Accept SE

Check SE is produced in accordance with manual

Is SE <$4.5 million

Yes No

Is SE >$20 million

Parallel estimate

External peer review

Yes No

Confirm SE

Confirm designation

Accept PE

Prepare funding requestConsider D&PD funding

Produce/review PE

I&R

OE

SE

PE


Figure 2: Project management structure continued

NZ Transport Agency NZ Transport Agency Consultant Phase Estimate

Approve D&PD funding Commission D&PD Commence D&PD

Produce DE

Complete D&PD

Complete/review DE

Accept DE

Check DE is produced in accordance with manual

Is DE <$4.5 million

Yes No

Peer review

Is DE >$20 millionand

Has the project undergone a significant scope change?

orWould the project benefit from a parallel estimate?

Yes No

Parallel estimate

Confirm DE

Prepare funding requestConsider construction funding

Commence MSQA

Tender/evaluate

Produce/review CE

Award contract(s)

Manage/complete contract(s)

Confirm out-turn cost

Complete NZ Transport Agency

elemental costing model

Commission MSQA

Accept CE

Is funding sufficient?

Consider additional funding

Approve additional funding

No Yes

Forward elemental costs to the NZ Transport Agency Commercial Engineer

Approve construction funding

D&

PD

DE

CO

NS

TR

UC

TIO

N

CE

OUT-TURN COST


Part C – Procedures

5.0 Purpose of cost estimates 19

6.0 Estimates 21

6.1 General 21

6.2 Resource input for estimates 22

6.3 Estimate responsibility and ownership 23

6.4 Consultant performance 23

6.5 Project scope and functionality 24

7.0 Escalation 25

8.0 Land and property 26

8.1 Property purchase 26

8.2 Net property cost 26

8.3 Total property cost 28

8.4 Property acquisition fees 28

9.0 Risk analysis and contingency calculation 29

9.1 General 29

9.2 Terminology 29

9.3 The risk management approach for calculating contingency 30

9.4 Calculating likelihood and consequence 31

9.5 Sensitivity analysis 31

10.0 Reporting estimates 32

10.1 General 32

10.2 Reporting FE and OE 33

10.3 Elemental breakdown 34

10.4 Estimated costs 34



10.5 Funding application 37

10.6 Cash flow/Accrual reporting 37

10.7 Management of contingency 38

10.8 NZTA’s elemental cost database 39

11.0 Estimate audit trail 40

11.1 General 40

11.2 Estimates updates 40

12.0 Peer reviews and parallel estimates 41

12.1 General 41

12.2 Internal peer review 41

12.3 External peer review 42

12.4 Parallel estimates 43

13.0 Scope and cost control process 44

13.1 General 44

13.2 The records 44

13.3 Monthly reporting requirements 44

13.4 The process 45


5.0 Purpose of cost estimates

Cost estimates are required for:

financial planning programming option selection project specification funding approval committing contracts cost control.

Financial planning

The NZ Transport Agency (NZTA) requires cost estimates of all projects in the NZTA’s State Highway Plan to help with financial planning. The NZTA requires expenditure forecasts to be able to advise government of long-term revenue requirements and to arrange alternative funding where appropriate.

Once a particular project is identified and a project feasibility report (PFR) is completed, the project is programmed according to its priority. The NZTA manages a 10-year forecast using State Highway Project Financial Management System (PROMAN). The 10-year forecast is continually updated as more information on individual projects is gained and as project priorities change. Any changes to a project estimate are reflected in a change to the 10-year forecast. Each phase of a project is included in the 10-year forecast therefore, reliable estimates of each phase are required. The expected estimate will be used in the 10-year forecast and for long-term financial planning.

Programming

As the Crown agency responsible for planning, developing and operating the state highway network, the NZTA works to achieve government priorities. It is necessary to use funding prioritisation processes based on the NZTA’s allocation process which has a number of criteria. One of these is efficiency, which is largely based on the benefit cost ratio (BCR). This helps to determine the optimum timing of a project. The NZTA’s use of the BCR requires reliable estimates of cost throughout the development of projects so that they can be advanced for investigation, design and ultimately construction at the optimum time.

The expected estimate will be used in the economic analysis. The consultant must undertake a sensitivity analysis of the BCR using the 95th percentile estimate.

Option selection

The cost estimates of options are used to select the preferred option for the development of each project. In particular, reliable estimates are required for the differences in option costs to compare with the differences in option benefits. Estimates of the costs of options are generally required during the investigation phase, initially where options are being shortlisted and later when the preferred option is being selected.


Project specification

The NZTA uses cost estimates to help determine appropriate standards and mitigation measures to be adopted for each project. Care must be exercised to ensure that standards are not changed without adequate consideration of the potential cost impact (direct and indirect).

Funding approval

The NZTA requires reliable cost estimates in order to seek funding approval for these phases:

investigation and reporting (I&R) design and project documentation (D&PD) construction (including management, surveillance and quality assurance (MSQA)).

The funding allocation for each phase is based on the expected estimate including future escalation. The cash flow forecasts are based on the expected estimate of expenditure in each year. Each funding allocation must also advise the 5th and 95th percentile estimates including future escalation.

All funding applications for projects where the expected estimate of the construction phase of the project exceeds $4.5 million are to include a separate estimate for the construction phase (including all property costs) of the project. This estimate is to include the expected, 5th and 95th percentile estimates.

Committing contracts

The cost estimate is updated once tenders are received and evaluated. By this time, any pricing risk has been closed out and some risks may have changed as a consequence of tender offers. Cost estimates need to be updated following selection of preferred tenders to adjust funding allocations, if necessary, and make appropriate contingency provisions.

Cost control

To maintain optimal programme performance cost estimates, including annual cash flows, need to be continually updated during project delivery. Good cost control is demonstrated through regular (at least quarterly) update of the cost estimate during project delivery.


6.0 Estimates

6.1 General

The following figure provides a summary of the type and purpose of each estimate, along with the required confidence levels and input/output documentation.

Figure 3: Purpose, confidence and documentation for estimates

Phase Type Purpose of cost estimate Confidence level Input/output documentation

PFR

Long-term financial planning. Optimising timing of project development. Determine likely scope of project. Determine possible options for investigation. Obtain funding for investigation. Determine when to investigate.

I&R

FE

Optional Some I&R investigation is done in PFR to produce more defined scheme and a more reliable feasibility estimate (FE).

Expected estimate and 95th percentile estimate. Contingency and funding risk assessed.

Input: Risk management process commenced. The NZTA may use benchmark estimator as

yardstick. Output: Project feasibility report (PFR). I&R Funding Application form (with PFR)

OE SE PE

Confirm strategy. Project definition (including scope and functionality). Optimising timing of project development option selection. Determine when to design and construct. Obtain funding for design and property.

Expected estimate and 95th percentile estimate Contingency and funding risk assessed.

Input: Risk management process continued. The NZTA may use benchmark estimator as

yardstick. Value management. Output: Report(s) detailing differences between FE,

option estimate (OE) and scheme estimate (SE). Monthly reporting. Quarterly estimate updates. Scoping report (if required). Scheme assessment report (SAR)/Assessment of

environmental effects (AEE). Land designation and resource consent

conditions. D&PD funding application form (with pre-design

estimate (PE)).

D&PD

DE Confirm project. Optimising timing of project development. Project specification. Obtain funding for construction. Determine when to construct. Committing contracts.

Expected estimate and 95th percentile estimate. Contingency and funding risk assessed.

Input: Risk management process continued. Value engineering. Output: Report detailing differences between PE and

design estimate (DE). Monthly reporting. Quarterly estimate updates. Project documentation. Construction funding application form (with DE).


Figure 3: Purpose, confidence and documentation for estimates continued

Phase Type Purpose of cost estimate Confidence level Input/output documentation

Cons

truct

ion

CE Reassessment of contingency and risks. Managing cash flow. Reviewing allocation.

Tender price is base physical works estimate. Expected estimate and 95th percentile estimate. Contingency and funding risk assessed.

Input: Risk management process continued,

incorporating tender and tendered prices. Output: Report detailing differences between DE and CE. Accrual reports. Contingency management reports. Out-turn cost.

The estimate life cycle of a project is illustrated below, together with the perceived amount of risk at each phase.

Figure 4: Estimate life cycle with indicative uncertainty curves

6.2 Resource input for estimates

The estimate is critical to the successful development and delivery of a project. When planning or pricing consultancy services, the NZTA’s project manager and the consultant must allow sufficient time and resources to reflect the importance of the estimate.

FE OE SE PE DE CE Cost

Project completion

Timeline

Expected cost

Optimistic cost estimate

Pessimistic cost estimate


6.3 Estimate responsibility and ownership

6.3.1 Estimate responsibility

The consultant is responsible for the estimates prepared during the phase(s) for which they are commissioned.

If an up-to-date estimate is requested before the consultant has prepared the phase estimate(s), the consultant is to provide the previous estimate, having updated it to include any cost indices (CI) movement, changes in scope and assumptions.

The project team is responsible for preparing reliable base estimates for the elemental sections of an estimate. However, the consultant is responsible for the overall compilation, completeness and accuracy of the estimate.

The NZTA’s project manager will provide all actual cost information from the previous project phase(s). These will be recorded in future estimates. Commercially sensitive information, such as professional fees, shall be provided as a total element cost instead of a full breakdown.

6.3.2 Estimate ownership

The entire project team must take ownership of the estimate and ‘buy-in’ to the estimate.

6.4 Consultant’s performance

Association of Consulting Engineers New Zealand (ACENZ) and the NZTA have agreed that the NZTA will assess the performance of consultants based on their track record in estimating costs. The NZTA will monitor cost estimates against subsequent estimates and final out-turn costs.

The NZTA intends to publish the accuracy of estimates. The pricing indicator of estimating performance will be the construction cost estimate at out-turn and the DE measured against the SE.

The NZTA will also measure the out-turn cost against the FE although this will not be a performance measure. While it is inherently recognised the FE is based on an ‘educated guess’ particularly for larger transportation problems, the industry needs to note the FE is used to allocate I&R funds.


6.5 Project scope and functionality

The starting point for any estimate is definition of the project scope and functionality. Scope and function definition requires an understanding of the project objectives and the means by which those objectives will be delivered. One key element of this is the programme for development and delivery of the project. All time-related costs must take account of the risk-adjusted programme for the project. The NZTA’s Risk management process manual (AC/Man/2) describes the process for developing risk-adjusted programmes.

The amount of information available and hence the degree of scope and function definition achievable, varies depending on the phase of the project. Adequate contingency must be allowed for changes in standards, particularly where development of the project is expected to take a number of years.

Definition of project scope and functionality is an important aspect of producing a reliable estimate. It is essential that, even at the project feasibility phase, the project scope and functionality is known and understood in sufficient detail to allow the production of a meaningful estimate. Any changes in scope or functionality need to be recorded and agreed in order to provide an audit trail through the life cycle of the project estimate.

Project estimates must take into consideration project scope creep, for example update of the NZTA’s Geometric design manual. If this is impractical, consultants must qualify project estimates or specifically exclude these items from the project estimate. This will ensure that the NZTA can fully understand the limitations of the current scope of worksand therefore, the project estimate.

The NZTA will monitor the variations between FE and out-turn cost across the project portfolio.


7.0 Escalation

An allowance is to be provided in the expected estimates, 5th and 95th percentile estimates in all funding applications and construction estimates (CE) to cover the risk of escalating costs, commonly referred to as escalation.

Escalation is calculated cumulatively for the balance of the predicted project life cycle. Consultants need to assess the future escalation risks for the project’s cash flow and delivery timing. Escalation shall be applied from the date of the estimate preparation, through to the expected completion of the project.

In preparing the future escalation for an estimate the consultant shall consider the following:

The amount of escalation occurring between preparation of estimate and close of tenders.

Any transference of escalation risk to the supplier post-tender close. The retention of escalation risk by the NZTA post-tender close provided under the

cost fluctuation provisions.

The consultant shall allow within the base estimate for any changes to market rates since the initial estimate was prepared.

Expected estimates, without the addition of future escalation, shall be used for long-term programming purposes. The NZTA will escalate expected estimates to common base dates for portfolio analyses and update them.

Expected estimates with the addition of future escalation shall be used for application of professional services (I&R and D&PD) and construction funds.

To be consistent with the NZTA’s Economic evaluation manual (EEM) escalation is excluded from any economic analyses (BCR).

Appendix D contains example funding application forms. Refer to appendix G for an escalation calculation example.


8.0 Land and property

8.1 Property purchase

The NZTA runs two separate cost centres for any particular project:

project cost centre project property cost centre.

The project cost estimate includes cost items funded from both of the above cost centres.

Applications to the NZTA for project cost centre funding normally exclude any costs associated with property purchase (eg valuations, legal surveys, management, acquisitions and compensation fees) but normally include property owner accommodation works to be undertaken as part of the project physical works contract.

The NZTA is block-funded nationally for property acquisition and any project property cost centre needs to be prioritised within this fund. Nevertheless, property purchase costs are an important component of a project cost and the NZTA has its own system –Property Acquisition and Disposal System (PADS) – to manage these costs.

The Crown purchases property interests so that the NZTA can carry out its statutory functions and responsibilities in developing New Zealand’s state highway network. Currently those interests are acquired using the provisions of the Public Works Act 1981 (the Act). The Act’s provisions take a number of forms but primarily involve the acquisition of the freehold or leasehold title. Acquisition of these interests and the settling of compensation issues normally involve costs that need to be included in the project cost estimates.

The NZTA uses the services of specialists in the Act to conduct Crown property acquisition negotiations. This ensures that property owners are correctly informed of their rights. As described in the NZTA’s State highway professional services contract proforma manual (SM030) project managers, consultants and property advisers are to work together closely when assessing project property estimates.

It is necessary to estimate the:

nett property cost – used for project cost estimates and economic evaluation total property costs – used for establishing the project property cost centre budgets property acquisition agent’s fees.

8.2 Net property cost

8.2.1 General Property costs required for the project estimate and the project’s economic evaluation can be divided into:

nett property costs property compensation costs property owner accommodation works costs.


8.2.2 Net property costs

Nett property cost is defined as the market value, at the base date, of any property required to be purchased for a project, plus the out-turn cost (obtained from PADS) of any property already purchased for a project, less the market value of any surplus property, ie nett property only includes the corridor required.

For economic evaluation purposes, the NZTA’s Economic evaluation manual (EEM) states that where property has to be acquired, its resource cost is assumed to equate to its market value1. Similarly, where property becomes available for disposal, it is included as a cost saving in the economic evaluation.

The nett property cost shall be included in the total project out-turn cost and therefore, updated in parallel with the project estimate phases.

8.2.3 Property compensation costs

In certain circumstances the Act considers other losses apart from the market value of the property taken. This is termed ‘property compensation’ and may include:

permanent depreciation in the value of any remaining property and improvements (injurious affection) caused by the taking of the required property

costs or reinstatement of physical damage to land and/or buildings arising from the construction of the public works

additional compensation for loss that results from the acquisition, provided it is not ‘too remote’ and is the natural and reasonable consequence of the public works (disturbance)

professional fees reimbursement (excluding property acquisition agents fees) loss of actual business profit solatium payment (only applies to total purchase of property where residences are

occupied by the owner) temporary occupation of property outside the corridor required.

This list is not exhaustive and expert advice should be sought to determine all relevant compensation costs and make due allowance in the estimates.

It may be necessary to also compensate for disturbance and/or damage to various interests resulting from construction contracts. These costs are not normally planned for but the consultant should consider the particular risk of this happening.

8.2.4 Property owner accommodation works costs

During the property acquisition process, the NZTA may agree to carry out works as part of a property purchase or compensation agreement. For instance, an agreement might require the NZTA to erect fencing or construct driveways before or during construction of the project.

This work may be either a property compensation cost that has been deferred until construction or it could be an extra item agreed in lieu of property, or compensation entitlement. This work may be included in a subsequent physical works contract as ‘property owner accommodation works’ with a due allowance included in the project construction cost estimate. It is preferable that all property owner accommodation works be funded from the project cost centre.

The consultant must identify these accommodation works separately in the cost estimates.

1 Market value: The current achievable sale price of the land/property based on the doctrine of willing buyer/willing seller relative to its size,

shape and location.


8.3 Total property cost

At the outset of a project, the NZTA needs to understand the amount of funding necessary to purchase the property required for the project. This is necessary to set the budget for the project property cost centre and for programming purposes. This estimate data is entered into the NZTA’s PROMAN (via Project Setup – Property Tab – Total Property Cost column) and allows the NZTA to collectively consider all project property cost centres competing for funding, and make decisions on when individual property interests can be purchased.

It is not always possible to purchase only the portions of property required for a proposed new road corridor. In some instances it is necessary to buy entire properties to secure the road corridor required. In these cases the remaining property will at some stage be declared surplus and sold. The realisable value of the surplus property is not credited to the particular project property cost centre of the specific project but it is credited to the collective property block fund.

The estimated cost of the property will usually be derived following the development of a property purchase strategy in conjunction with the NZTA’s property acquisition agent.

8.4 Property acquisition fees

Property acquisition fees may include:

property acquisition agent’s fees other professional fees, eg the NZTA’s legal, valuation, specialists and survey fees Land Information New Zealand (LINZ) title and other disbursements advertising, eg section 23 notices.

All of these fees shall be separately and individually identified in the I&R, D&PD and construction phase estimates under consultancy fees. Note that as these are property purchase costs, they will normally be funded from the project property cost centre.


9.0 Risk analysis and contingency calculation

9.1 General

This manual is supplementary to the NZTA’s Risk management process manual (AC/Man/2) which describes the risk management process to be followed for the NZTA’s projects.

For cost estimation purposes risk is defined as the chance of something happening that will have a beneficial or detrimental impact on the final out-turn cost. Both the consequence and likelihood of the risk needs to be assessed.

Application for increases for I&R, D&PD and construction phases will be treated as an increase through the NZTA’s review process. The risk profile should be used as supporting information for the application for an increase in the allocation.

9.2 Terminology

The figure below shows the terminology used for risk-adjusted cost estimates.

Figure 5: Risk-adjusted cost estimate terminology

Cost distribution

Expected estimate


Base estimate

NZTA-managed contingency

NZTA-managed funding risk

Cost ($)

Frequency


9.3 The risk management approach for calculating contingency

The following figure details the risk management approach that shall be used to calculate contingency and funding risk at the various phases of the project life cycle.

Note: Segment values are the construction phase costs of the expected estimate.

Estimate < $4.5 million $4.5–$10 million > $10 million

FE Informal/General General General

OE Informal/General General/Advanced General/Advanced

SE General General/Advanced Advanced

PE General Advanced Advanced

DE General Advanced Advanced

CE General Advanced Advanced

Figure 6: Use of informal, general or advanced approach to risk management

Where informal/general or general/advanced is detailed as the applicable approach, the NZTA’s project manager shall determine the most appropriate of the two approaches.

9.3.1 Informal approach

The informal approach consists of the management of existing procedures and controls. It is applied where the formal risk management process is not necessary – either because existing procedures and controls are adequately managing the risk or because the risks have minimal effect on the attainment of the project objectives.

The informal approach would usually be appropriate where the activity:

has an expected cost estimate less than $100,000 is short-term, eg less than six months in durations is routine and follows a well-proven process, eg business planning has little or no effect on the NZTA’s goals and objectives.

9.3.2 General approach

The general approach is to be used for all NZTA’s projects where the informal approach is not used. This approach to risk management is a qualitative approach. It is targeted at achieving the appropriate management of opportunities and threats, through the systematic application of generalised risk management processes and qualitative tools.

Where the general approach is used to calculate contingency and funding risk, the risks must be identified, analysed and evaluated according to the qualitative general approach specified in the NZTA’s Risk management process manual (AC/Man/2).

The consultant needs to assess the impact on the estimate and include an appropriate contingency and funding risk allowance in the estimate. This assessment can be based on percentages or lump sums but must recognise the impact the identified risks may have on the out-turn cost.


9.3.3 Advanced approach

The advanced approach is quantitative. It is based around the modelling of individual risks to provide greater levels of certainty and confidence.

Where the advanced approach is used to calculate contingency and funding risk, the consultant is to analyse and evaluate risks according to the quantitative advanced approach specified in the NZTA’s Risk management process manual (AC/Man/2).

The advanced approach should also be used where the general approach reports a significant risk. The existence of one extreme risk or five very high risks within a project indicates a significant risk.

Risk impacts have to be quantified to produce an analytical outcome based on Monte Carlo simulation techniques. Software such as Crystal Ball, @RISK and Analytica may be used.

9.4 Calculating likelihood and consequence

The NZTA’s Risk management process manual (AC/Man/2) details the processes required to provide contingency and funding risk allocations within cost estimates for each of the above approaches, and contains the NZTA’s standard tables for rating likelihoods and consequences.

9.5 Sensitivity analysis

The consultant is required to undertake a sensitivity analysis to identify the risks that have the greatest impact on the expected estimate. The consultant must use linear regression theory to undertake the sensitivity analysis, and use the outcomes to rank the risks in terms of largest financial risk to the expected estimate. The report must include the sensitivity analysis and comments on the results, including treatment and mitigation plans for large financial and programme risk items.

The consultant is required to show all results in tabular or graph form. These need to include outputs for each phase, ie I&R, property purchase, D&PD and construction, as well as the total project out-turn.


10.0 Reporting estimates

10.1 General

Cost estimates need to be prepared and presented using a standardised industry format. This is essential to improve understanding of estimates and to reduce the risk of items being left out of presented costs.

Consultants are to use the templates included in this manual:

Elemental breakdown (appendix B). Estimated costs (appendix C). Funding applications (appendix D). Cash flow/accrual reporting (appendix E). Elemental cost database (appendix F). Cost reporting and scope management (appendix H).

For projects incorporating a number of contracts, the consultant will present each contract separately and then summarise all the contracts on a main form. This provides a ready reference from which an overall understanding of the estimated/actual out-turn cost for a project can be gained.

All cost estimates shall be accompanied by a report that as a minimum shall include:

scope and functionality statement and assumptions the base estimate the risk register the risk-adjusted programme residual risks for costing the pricing of residual risks expected and 95th percentile estimates date and cost index ranked sensitivity analysis on risks that have the greatest financial impact exclusions and assumptions peer reviews.


10.2 Reporting FE and OE

It is important that the full cost range for a project is reported accurately from the conception of the project. During the period from conception to the selection of a preferred option, it is important that the project’s estimate, contingency and funding risk is not limited to one option and ranges over the entire scope of potential options. In undertaking this, the consultant is required to report all options considered, including the preferred option and the probability for each option being the successful outcome for the project.

This is particularly important in the following circumstances:

Block projects, where any option will take the expected estimate for the project over the block cost threshold ($4.5 million).

Projects with an expected estimate between $4.5 million and $10 million, where there is a difference between any two options of 20 percent or more.

Projects where the probability of the preferred option being carried through to delivery is less than 50 percent.

All projects with an expected estimate of $10 million or more.

For the scenarios identified above, the consultant shall provide an overall probability curve, overlaid on all the individual option probability curves for the project.

In addition to the graph, the consultant shall ensure that the assumptions, probabilities and descriptions of each of the options, and the overall curve are described on the same page as the graph. This is to reduce the possibility of premature reduction of the large tail (funding risk) of the overall project curve before the SE is completed.

This information shall be incorporated into the estimate report until the project has a confirmed option (ie reaches the SE stage).


$45 million$25 million

Option A: ‘preferred’ 60% probability of being able to achieve

Overall project curve

Option B: 25% probability of being able to achieve

Project ML

ML ML

Option C: 15% probability of being able to achieve

$10 million$5 million BA

$30 millionML C

$15 million


10.3 Elemental breakdown

The example elemental breakdown form presents the estimated out-turn cost for a project. The form is designed to be consistent with the elemental cost information that the NZTA holds at a national level for each element.

The consultant is required to use an elemental breakdown form to prepare an estimate,and to supply it to the peer reviewer, and the NZTA’s project manager so they can understand what is included in the out-turn cost estimate.

10.4 Estimated costs

10.4.1 Estimated property acquisition costs

Example forms are included in the appendices to present the estimated project property costs and the total purchase cost of property.

The consultant is to use a project property cost form for economic analysis. The project property cost is to be included in the project estimate as a single-line item. The consultant shall get assistance from the NZTA’s property acquisition agent to estimate the nett and total project property costs.

A total purchase cost of property form must be submitted to identify the cash flow required for the purchase of property.

10.4.2 Summary of estimated costs

The consultant must use the appropriate form for the phase of the project life cycle to report the estimated costs. More information as to which form to use is detailed in section 3 of this manual. Appendix C contains example forms for the following project estimates:

FE OE SE PE DE CE.

The I&R, D&PD and MSQA fee sections are to be rolled up and summarised as single-line items. Physical works must be broken down into the element headings for a project.

10.4.3 Project estimates

These are required at different stages of the development of a project:

FE (form A) OE (form B) SE (form C) PE (form D) DE (form E) CE (form F).


10.4.3 Project estimates continued

Property costs are to be estimated by the property acquisition agent.

Professional services fees (I&R, D&PD and MSQA) to be estimated as a percentage of the physical works estimate only at the early phases of the project (FE, OE and SE). For all other phases of the project a detailed estimate of these costs is required.

Estimates for the NZTA-managed costs and consent monitoring fees to be provided by the NZTA’s project manager.

Fees are removed from the project estimate as and when they become sunk costs.

Estimates calculated on these forms are as at the date of the estimate and include no allowance for escalation.

10.4.4 Project phase estimates and contract estimates

These are required when ready to seek a funding allocation for any contract and forms G, H and I are used depending on the phase of the project being contracted. The NZTA-calculated base contract estimate (for professional services) or the consultants-calculated base contract estimate (for physical works) are used to complete the assessment of the funding allocation required.

Once funding has been approved, evaluation of the tenders completed and a preferred tenderer’s price available, these forms are updated by inserting the tender price in box A, replacing the previous base contract estimate. The NZTA’s project manager (for professional services) and the consultant (for physical works) will reassess the adequacy of the previously assessed allowances for contingencies and confirm the expected contract estimate and the expected phase estimates. These reassessed estimates are transferred to appendix V of the NZTA’s Contract procedures manual (SM021) prior to contract award.


10.4.5 Capital project estimating – Navigation diagram

Project estimate(2)

Project I&R

Phase estimate

Project D&PD

Phase estimate

Project construction

Phase estimate

Land purchase estimate

I&R contract estimate(1)

I&R phase NZTA-managed costs

D&PD contract estimate(1)

D&PD phase NZTA-managed costs

MSQA contract estimate(1)

Construction phase NZTA-managed

costs and consent monitoring fees

Physical works contract estimate

Base contract estimate (in RFT)

Contingencies and escalation estimate

Funding risk estimate










Expected I&R

Contract estimate

95% I&R contract estimate

Expected D&PD

Contract estimate

95% D&PD contract estimate

Expected MSQA

Contract estimate

95% contract estimate

Expected physical works

Contract estimate

95% physical works contract estimate

(1) Professional services may be contracted in one or multiple contracts, ie the I&R, D&PD and MSQA project phases, and may be combined into one contract estimate.

(2) The project estimate at the end of the PFR is the FE as per the NZTA’s Cost estimation manual (SM014).

The project estimate at the end of the scoping phase is the OE as per SM014.

The project estimate at the end of the I&R phase is the SE as per SM014 with I&R costs sunk to nil.

The project estimate at the commencement of the D&PD phase is the PE as per SM014 with I&R costs sunk to nil.

The project estimate at the end of the D&PD phase is the DE as per SM014 with I&R and D&PD costs sunk to nil.

The project estimate at the commencement of the construction phase is the CE as per SM014 with I&R and D&PD costs sunk to nil.


10.5 Funding application

The consultant must use a funding application form to present estimates. The NZTA uses these to obtain funding approval. Example funding forms are included in the appendices for the following funding submissions:

I&R (submitted with PFR) D&PD (submitted with PE) construction (submitted with DE).

All funding applications for projects over the block cost threshold ($4.5 million) are to be accompanied by a separate estimate of the construction phase of the project. This estimate is to include all property costs and show the expected, 5th and 95th percentile costs of the construction phase of the project. An example form for this purpose is included in appendix D.

For the majority of projects, there will only be one contract per phase, however, for more complex projects requiring the services of more than one contract, each contract for a phase shall be identified separately on the appropriate funding application form. This will enable the base estimate for each contract to be able to be transferred directly to in appendix V form of the NZTA’s Contract procedures manual (SM021) for tender evaluation and comparison purposes.

During tender evaluation of the contract, after opening the price envelopes, and prior to award, the base estimate, contingency and funding risk for the contract shall be reviewed, taking into account the tender and tender price of the preferred tenderer.

10.6 Cash flow/Accrual reporting

The consultant is to submit with each estimate the likely expenditure of the expected cost estimate (cash flow) over the project life and provide monthly reports of accruals. Definitions of the costs to be included in the monthly reports are:

actual – past years and months accrual – value of work done this month and to date forecasts – future months and years escalation – inflation total allocation – financial allocation for this phase/project accepted contract price retentions held (physical works contracts) variations forecast final out-turn cost.

The example form included in appendix E present the cash flow in a format compatible with PROMAN.


Separate cash flows are to be prepared for separate contracts/phases, along with a total report summarising the contracts/phases.

Consultants shall estimate forward cash flows in accordance with a methodology appropriate to the type, scale and stage of the project. One such methodology may include the derivation of a project programme and applying the applicable estimated cost(s) to each individual programme item. For some projects, applying standard‘s curve methodology may be more appropriate.

10.7 Management of contingency

Contingency between the base and expected estimates should be shown as a single-line item in reports. Contingency cannot be transferred from one phase to another on a project as each phase is funded separately.

Figure 7: Contingency management

The NZTA’s State highway professional services contract proforma manual (SM030) provides information for the NZTA’s project manager and the consultant to agree an allocation for each physical works contract that includes the contract price, and an operating contingency over which the consultant has control. However, the consultant is required to report on any high-cost variations and the allocation will be reviewed as the contract progresses.

The NZTA’s project manager manages the contingency allowance. The NZTA manages the funding risk element of the out-turn estimate.

NZTA-managed contingency NZTA-managed funding risk

Base estimate Expected estimate

Consultant operational contingency



10.8 NZTA’s elemental cost database

The NZTA maintains an elemental cost database which records tendered and out-turn costs against the elements listed in appendix F. The database supports the production of elemental estimates, which create a consistent and standardised framework for all consultants.

The database is a tool for the preparation of estimates early in a project’s life cycle. The database provides comparisons between projects at an elemental level, and comparisons between tendered and out-turn costs. Early estimates will then be developed through the project’s life cycle following the elemental format.

To facilitate the collection of input data, the consultant shall complete the questionnaire (appendix F) at the end of each project including all supporting information and forward to the NZTA’s project manager with a copy to the commercial engineer. It is important that this be completed as soon as possible, before consultant personnel move away from the project and the information/data becomes more difficult to compile or is sent to archive. From the information supplied in the questionnaire, the NZTA will update their elemental costs database.

The elemental cost database is available on the NZTA’s website and should be used by consultants (to enable FE to be prepared with greater reliability and allow a comparisonof estimated project costs at an early I&R phase).


11.0 Estimate audit trail

11.1 General

The project estimate changes during the project life cycle to reflect the development of a defined scope of works.

Any changes must be recorded and presented in a manner that allows an audit trail to be implemented and the project manager to sign off any revised value.

Management of the estimating process, recording and documenting the basis of the estimate, and regular monitoring and review of the design documents including the source of data used, help to minimise significant cost over-runs.

11.2 Estimate updates

11.2.1 Estimate stage updates

The consultant is to prepare and update a formal estimate report at each of the project hold points throughout the project life cycle. The update report must include:

1. scope of work the estimates are based upon

2. summary and breakdown of current estimate

3. assumptions made in preparing the estimate

4. list of estimate exclusions

5. residual risk register

6. risk-adjusted programme

7. contingency and funding risk allowance derived by risk assessment or risk analysis

8. changes between current and previous estimates including reason for change

9. peer review.

The consultant and the NZTA’s project manager must sign off on the consultant’s report before the project proceeds to the next stage.

11.2.2 Other updates

The consultant is required to update the estimate at any other point in the project life cycle, where necessary. For example, if the risk profile significantly changes or if a significant change in scope is required. The update must include a report as in 11.2.1 above.

11.2.3 Monthly reports

For all projects, the consultant must include a summary of the current project estimate and a list of concerns or issues that may impact on the out-turn cost with the formal monthly project report.


12.0 Peer reviews and parallel estimates

12.1 General

All cost estimates shall be internally peer reviewed. In addition, where the expected estimate of the construction phase exceeds $4.5 million at the SE stage or where the project has a number of risks, complexities or items of material effect that could substantially influence the estimate (eg significant traffic volumes, environmental issues, large number of directly affected parties), it shall be externally peer reviewed.

When the expected estimate of the construction phase exceeds $20 million at the SE stage, it shall be checked by an independent parallel estimating process. For projects with an expected estimate between $4.5 million and $20 million, consideration should also be given to a parallel estimating process where the project has a number of risks, complexities or items of material effect that could substantially influence the estimate (eg significant traffic volumes, environmental issues, large number of directly affected parties, items that are particularly susceptible to changes in quantity or rate).

Independent peer reviewers and independent parallel estimators must be registered on the database provided in this manual (appendix K). Details of reviewers currently on this list, and the criteria required to be included on this list, are included in appendix K.

12.2 Internal peer review

The consultant managing the estimate is to obtain an internal peer review of the estimate at each update. The peer reviewer may be a person from within the consultant’s own organisation or an independent person, nominated by the consultant and agreed by the NZTA’s project manager. The reviewer must be able to demonstrate independence from the consultant’s project development team.

The peer review is required to provide the NZTA assurance that good practice has been followed both in terms of this manual and any internal requirements the consultant may have in place.

The reviewer is required to report any problems with the project estimate and, as a minimum:

gain a satisfactory understanding of the project to permit the peer review to proceed

undertake a site visit with the consultant (if relevant) review the estimate scope for adequacy and completeness check that a bulk quantity check has been carried out by a suitably experienced

person review the appropriateness of the rates and prices used review the appropriateness of the lump sum and provisional sum items


review all external price enquiries that may have been incorporated in the estimate to confirm their scope, price and appropriateness for inclusion

check that an arithmetic check has been undertaken undertake comparisons of estimate outputs with known costs (this applies only

where the project has similarities to previous projects) confirm that any estimate check list has been fully considered review the scope definition statements and drawings to confirm that they are

commensurate with the type of estimate and estimate deliverable review the estimate inclusions and exclusions review the appropriateness of the contingency and funding risk allowances.

A sample peer review form is provided in appendix I.

12.3 External peer review

The NZTA’s project manager will obtain external peer reviews of cost estimates prior to any funding request if:

there are serious discrepancies between the estimate and the elemental cost data the construction phase of the expected estimate is less than $4.5 million and either

the internal peer reviewer or the NZTA’s project manager considers there are risks, complexities or items of material effect that could substantially influence the estimate

the construction phase of the expected estimate is greater than $4.5 million and less than $20 million.

These reviews do not remove responsibility or accountability from the consultant who prepared the estimate.

Peer reviews are to concentrate on:

methodology used to prepare the estimate methodology used to calculate contingency and funding risk the appropriateness of the output results.

The consultant shall provide the external peer reviewer with a fully functional electronic copy of the risk model, or sufficiently detailed hard copies for the external peer reviewer to recreate a comparative model to review the assumptions used in the calculation of the contingencies and funding risks within the estimate.

The external peer reviewer is to supply a copy of the peer review report to the consultant so they can reconcile any differences. If the reviewer and consultant cannot reach agreement, the consultant must report clearly the areas of disagreement to the NZTA’s project manager with a full explanation of why they disagree.

A sample peer review form is provided in appendix I, the NZTA’s cost estimation external peer review methodology in appendix J and a register of estimate peer reviewers and industry experts in appendix K.


12.4 Parallel estimates

The NZTA’s project manager will commission a parallel estimate for comparison at the SE stage of a project if:

the construction phase of the expected estimate is likely to be greater than $20 million, or

the NZTA’s project manager considers the project would benefit from a parallel estimate being prepared.

These parallel estimates do not remove responsibility or accountability from the consultant who prepared the project estimate.

Parallel estimates are to be at least as descriptive and detailed as the SE prepared by the consultant.

Additional parallel estimates will only be requested if:

the project has undergone a significant scope change, or the NZTA’s project manager considers the project would benefit from a further

parallel estimate being prepared.

A copy of the parallel estimate will be provided to the consultant. The consultant is then required to reconcile any differences they may have with the parallel estimator. If the estimator and consultant cannot reach agreement, the consultant must report clearly the areas of disagreement to the NZTA’s project manager with a full explanation of why they disagree.

The NZTA’s parallel estimate methodology is provided in appendix L.


13.0 Scope and cost control process

13.1 General

This process is focussed on the I&R and D&PD phases of the project life cycle. It has two main goals:

To ensure scope changes are identified, scrutinised, agreed and costed at the appropriate time.

To ensure that there is a robust updated project cost estimate available at all times.

During the construction phase the engineer’s representative or client’s agent should set up a system with the contractor to record cost changes so there is a robust current project out-turn cost reported on a monthly basis.

13.2 The records

Three forms have been produced as templates for development and use in all projects throughout the I&R and D&PD phases:

Initial project scope – This form should be used to record the agreed project scope at the start of each phase.

Project cost control schedule – A new schedule should be set up for each phase of the project. This schedule is used to record scope changes and the updated project cost estimate.

Cost control record form – This form is used to record in detail each individual scope change.

13.3 Monthly reporting requirements

In order for this process to achieve our objectives it is important that project managers and consultants regularly review and agree on the identified scope changes. Therefore, as a minimum, consultants should include in their monthly report and progress meeting a section entitled ‘project cost control’. We would expect that the following be reported and discussed as appropriate:

Initial estimate. Current estimate. Scope changes identified in the month and whether currently agreed or not. Previously identified scope changes still to be agreed.

This list is not exhaustive and where discussion of specific scope changes takes place we would also expect further information recorded, such as mitigation measures and effects on the project risk profile.


13.4 The process

The following flow chart details the process and those responsible for the individual actions required.

Cost control process - I&R and D&PD phases

Review of potential mitigation measures

Scope definition form to be completed and

cost control schedule to be set up

Identify scope changes, eg client decision, change of standards and design development

Complete individual scope change record

form

Amend individual cost control record form if

required

Obtain client’s sign-off on agreed scope

change and costings

Update project cost control schedule

Monthly project reporting to include cost

control update

ClientConsultant

Notes:


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Part D – Guidelines

14.0 Estimate guidelines 48

14.1 Schedules of prices 48

14.2 Use and application of historic rates 48

14.3 NZTA-managed costs and consultancy fees 50

14.4 Buildability 51

14.5 Preliminaries and general 51

14.6 Earthworks 52

14.7 Services relocation and protection 53

14.8 Temporary erosion and sediment control 53

14.9 Urban design 53



14.0 Estimate guidelines

14.1 Schedules of prices

The following information provides guidance on good estimating practice. The NZ Transport Agency (NZTA) will develop this section over the life of the manual.

14.2 Use and application of historic rates

The following factors must be considered in deciding whether it is appropriate for a historical rate or price to be applied to a new estimate:

direct costs (labour, plant and materials) onsite overheads (indirect costs) offsite overheads and profit market conditions age of data similarity of work items changes in technology, methodology, materials, plant and machinery.

Direct costs

The costs involved in constructing a work item. These costs normally include materials, plant and labour.

It is not always apparent from the title of a work item precisely what the rate includes. For example, if an item reads ‘cut to fill’ the rate may include excavation, loading, haulage, spreading, drying and compaction from a ‘cut to a fill’ that is either near at hand or some distance from the source. The rate could include double handling, adjustments for a particularly wet or dry site and an allowance for wastage. In tendering situations, the contractor may or may not have included some proportion of their indirect or offsite overheads and profit costs within the work items.

In addition to the above, historical cost data may contain risk or contingency allowances specific to a particular project, or alternatively make no allowance for these.

Onsite overheads (indirect costs)

This includes both the fixed costs associated with establishing the site (eg setting up site accommodation and facilities) and time-related costs associated with running the site during construction of the project (eg site management and supervision, and quality control). It also includes other associated project costs such as insurances and bonds.

Again, in tendering situations, the contractor may or may not have included some proportion, or all, of their indirect costs within the work items.


Offsite overheads and profit

Both direct and indirect costs will be subject to the addition of allowances for the tenderers offsite (head office) overheads and profit. Depending on the conditions set out in the contract documents, it is not generally possible to identify the amount of such allowances.

Market conditions

When using historic cost data, the estimator must be aware of the market conditions prevailing at the time of the tender. For example, competitive market conditions lead to a reduction in the allowances for offsite overheads and profit. The estimator must also consider the possibility that the allowances for overheads and profit have not been equally spread over all of the rates.

Age of data

Costs for the same work varies with the passage of time (inflation) and the older the data, the less reliable it will be. An appropriate allowance for inflation must be made whenever historical cost data is used.

Consultants should take care when using estimates and quotes from external parties, as these can change substantially in short periods of time.

Similarity of work items

When using historic cost data, the estimator must be aware of the site conditions that impacted on the make-up of rates at that time. For example, a rate for ‘cut to fill’ will differ if the work is undertaken on an open flat site compared with a confined sloping site with valleys and ridges.

When preparing an estimate using historic cost data, the consultant is required to price direct and indirect costs separately. The above factors must be considered when applying historic cost data to ensure the most appropriate rates are used.

Offsite overheads and profit can be included in the make-up of a consultant’s rate or as a percentage added onto the sum of direct and indirect costs.

Changes in technology, methodology, materials, plant and machinery

When preparing an estimate, the consultant shall be mindful to capture any changes in technologies, methodologies, materials, plant and machinery that may affect the scope of the works or the construction methodology that may influence the estimate. This is essential when there is a significant time gap between the project conception and construction.


14.3 NZTA-managed costs and consultancy fees

The NZTA-managed costs and consultancy fees are likely to be provided as a combined effort by both the NZTA’s project manager and the consultant responsible for the project or phase of the project. While difficult to estimate, these costs should not be considered impossible to estimate reliably.

Examples of what should be included in these costs include the following:

The NZTA-managed costs:

– tendering costs

– consultation costs

– safety audit costs

– peer review costs

– public relations costs

– legal costs

– principal-arranged insurance costs (physical works contracts <$50 million)

– consent monitoring costs

– post-construction works costs (eg noise monitoring and traffic counts)

– miscellaneous other costs. Consultancy fees:

– scope of services

– contract management

– investigation and reporting (I&R)

– design and project documentation (D&PD)

– management surveillance and quality assurance (MSQA)

– geotechnical testing schedule

– additional services, eg risk management, value engineering

– provisional sums.

The simplest way to estimate these costs is to refer to previous, similar completed projects for the costs of work items. As out-turn costs, these will provide a basis to work from. The estimator should then take into account inflation and recognise the differences between the projects in order to adjust the estimate accordingly.

An alternative method is to assess the expected labour hours required for the individual work items and apply current market rates for the type of work being carried out. This method should be easier to carry out with both the consultant and the NZTA’s project manager discussing the type of work, the expected duration and applicable rates. Where specialist work is being undertaken, for example risk management, the most reliable estimate is likely to come from a specialist undertaking that work. As such, it is sensible to consult with such a specialist when pricing those works.

Note: Care should be taken when estimating these costs if the next phase of the project is to be let by tender and the expected procurement model weights ‘price of tender’ as a factor in selection.


14.4 Buildability

Unreliable estimates can result from overlooking buildability issues. Simply measuring the necessary quantities of a structure without recognising the difficulties and other costs associated with its construction may lead to an underestimate of project cost.

The NZTA recommends that:

a separate buildability assessment be undertaken on all project work staging/sequencing diagrams or methodology should be prepared, quantified and

priced site yards, sediment controls and stockpile areas within the construction area are

identified the base estimate includes any buildability items required for the construction of

the works. Any buildability issues which do not form part of the actual construction works shall be included in the temporary works and traffic management section of the cost estimate, or if they are considered risk items then they should be priced accordingly in the analysis of risk impacts.

Fixed and/or variable temporary works and traffic management costs include:

traffic management plans (preparation, client and local government approval, management and updating)

public notification lane changeovers road diversions plant and equipment hire costs (eg cones, barriers and vehicle attenuator) temporary construction (roads, bailey bridges and footpaths) site labour.

Buildability is a critical issue. Where consultants have any doubts, they should have the estimate reviewed by an experienced practitioner.

14.5 Preliminaries and general

When preparing estimates for the preliminaries and general section the estimator must take account of:

the size, nature and location of the project the allowances within individual rates incorporated in the estimate, eg offsite

overheads, profit and manual labour (both plant operators and labour working on the ‘tools’).


The estimator should clarify separately the items included within the preliminaries and general section. The following is a typical (but not comprehensive) list of preliminaries and general items:

Site establishment, operation (eg time-related costs like site sheds, phones or photocopying), disestablishment and clean-up.

Site management (non-manual labour). Bonds and insurances. Consents if not already obtained (eg building consents). The cost of preparing and maintaining quality, health and safety, security,

temporary erosion and sediment control, temporary traffic management plans, programming and reporting.

Public relations costs. Any other costs associated with running the construction side of a project.

The preliminaries and general section is an important and significant component of any cost estimate as it includes items/costs that are required to run and manage the physical works both fixed and/or time-related.

Therefore, preliminaries and general costs should be individually assessed for each project and then compared to similar historical projects to gain confidence in the estimated out-turn cost, instead of basing preliminaries and general costs on historical data alone.

14.6 Earthworks

When preparing estimates for earthworks the consultant must take account of:

location of site relative to quarry or dump (haulage distance) difficulty of terrain access/egress to site and working space weather and length of season unsuitable material undercut allowances rock excavation slope stability conditioning requirements for the material (eg drying) land for drying material or locating stockpiles temporary erosion and sediment control.

In general, better site/geotechnical knowledge will result in more reliable estimates. Investment in site investigation should be made at the earliest possible stage so that estimates can be prepared with a better knowledge of site conditions.

A check that can be applied to historical rates is to use resource-based estimating and haulage diagrams that assess the amount of labour and plant needed to undertake the earthworks in the programmed construction period.


14.7 Services relocation and protection

Service costs include all adjustments, replacements, relocations, protection and the like of existing services that are required as a consequence of the project. These costs can relate to services undertaken by the responsible service authority, a contractor engaged by that authority or by the main contractor (or their subcontractor) of the project.

Care must be taken to produce a correct scope of works for the services that are contained within the project corridor. Correspondence with the various service providers should be clearly documented and shall be appended to the cost estimate. Consideration also needs to be given to the impact of staging and temporary works on the services (new and existing).

It is often difficult to determine the potential costs for works to existing services. For example, problems arise when the service authority estimate does not reflect the actual cost of relocation, or existing location drawings do not contain accurate information. The consultant must consider these risk items when analysing risk impacts.

14.8 Temporary erosion and sediment control

Protecting the environment is a key consideration in all roading projects. Cost estimates need to include for the preparation (plans), installation, monitoring, maintenance and removal of temporary erosion and sediment control (ESC) measures from project conception through to completion. Many factors will influence the allocations for environmental mitigation including: type of project (earthworks cut/fill volumes) size of open areas geographical location type of terrain proximity to waterways/sensitive areas season and construction duration sensitivity of project.

14.9 Urban design

The NZTA is a signatory to the New Zealand Urban Design Protocol. Urban design is an important consideration when developing a project. This aspect can be easily overlooked in costing a project in the early development phases. When preparing estimates for urban design, the consultant should take account of: location of the site relative to built-up areas proximity to significant environmental or heritage areas consistency with adjacent sections of state highway significance of structural elements (size and form).

If in doubt, discuss potential urban design scope with the NZTA’s project manager.


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Appendices

Appendix A: Example of the NZ Transport Agency’s Cost estimation manual (SM014) procedure 56

Appendix B: Example of elemental breakdown for construction costs form 67

Appendix C: Example of estimated costs forms 69

Appendix D: Example of funding application forms 79

Appendix E: Example cash flow/Accrual reporting form 84

Appendix F: Elemental costings 86

Appendix G: Escalation calculation example 93

Appendix H: Cost report and scope control forms 96

Appendix I: Example of peer review form 100

Appendix J: Cost estimate external peer review methodology 101

Appendix K: The NZ Transport Agency’s estimate peer reviewers and industry experts 105

Appendix L: Parallel estimate methodology 107

Title Page


Appendix A: Example of the NZ Transport Agency's Cost estimation manual (SM014) procedure

Estimate procedure – example $20 million >pre-design estimate >$10 million

1. Background information

Determine the phase of the project and the type of estimate required. In this example, the investigation and reporting phase (I&R) has been completed at a cost of $107,500 following the successful outcome of an Environment Court hearing.

The estimate required will be a pre-design estimate (PE). The PE is used to obtain funding for the design and project documentation (D&PD) phase.

2. Determine which forms are required

Use the following forms to produce the out-turn estimate:

- Elemental breakdown.

- Nett property costs.

- Total property cost (for the NZ Transport Agency’s (NZTA) project property cost centre purposes).

- Funding application (D&PD).

- Pre-design estimate (PE).

3. Elemental breakdown

Estimate the physical works costs by calculating the expected quantities from drawings (or other sources of information) and assess the market rates for each measured item. Update the costs of the previously expected consent conditions with those known from the outcome of the Environment Court.

Consultants can use the elemental cost database on the NZTA’s website (on the same page as this manual) to assist with the compiling the elemental breakdown.

The base estimate for each element of construction is transferred to the elemental breakdown (items 1–14) under the construction heading in the PE form. Total construction, contingency and funding risk allowances calculated using the advanced approach (Monte Carlo simulation) is transferred to item D of the PE form.

4. Project property costs

4.1 Nett property costs

Obtain all relevant property cost information from the NZTA’s property acquisition agent, or where agreed with the NZTA’s project manager, use property specialists.

In this example, several properties will be affected by the proposed road realignment and property acquisition is necessary.

Property A is a residential lifestyle block on which a dwelling, garage and workshop and situated. The property will be bisected by the proposed realignment and there will be significant severance, including the residence. Freehold interest of the property is being acquired (ie total acquisition) with the balance of the property outside the corridor required for the realignment to be disposed of. Property compensation costs are expected but no property owner accommodation works are necessary. The estimated costs, exclusive of contingencies, escalation and goods and services tax (GST) are as follows:


Property purchase costs Land and improvements including chattels $490,000

Less disposal value $350,000

Nett property cost $140,000

Property compensation costs Solatium (payable to property owner in residence only) $2000

Disturbance costs including relocation $2500

Legal costs $5000

Total $9500

Property owner accommodation works Nil

Property B is a commercial property. The freehold interest (lessor’s interest) is owned by company X who wish to sell their total interest in the property, including the severance, on the grounds that the balance of the property outside the required road corridor (severance area) is not an economic property holding. The leasehold interest (lessee’s interest) in the property is owned by company Y who has 15 years of their 20 year lease remaining. company Y has developed a light commercial building on the site that has been leased to company Z. The lessor’s and lessee’s interests are required to be acquired (ie total acquisition). No property outside the corridor required for the realignment can be disposed of. Property compensation costs are expected but no property owner accommodation works are necessary. The estimated costs, exclusive of contingencies, escalation and GST, are as follows:

Property purchase costs Lessor's interest in required road corridor $450,000

Lessor's interest in severance land $100,000

Lessee's interest in land $35,000

Lessee's interest in buildings $565,000

Nett property cost $1,150,000

Property compensation costs Lessee's interest in relocation expenses $35,000

Property owner accommodation works Nil

Property C is a residential property on which a dwelling and garage are situated. The front garden of the property only is required to be acquired. The dwelling and garage will be unaffected but a glasshouse is required to be relocated, a new fence installed, a new driveway constructed and planting replaced. The partial freehold interest of the property is being acquired (ie partial acquisition). There will be no surplus property. Property compensation costs are expected, as are property owner accommodation works. The estimated costs, exclusive of contingencies, escalation and GST, are as follows:


Property purchase costs Land and improvements $15,000

Property compensation costs Injurious affection $50,000

Legal and valuation costs $10,000

Disturbance costs $2000

Total $62,000

Property owner accommodation works

Relocate glasshouse $2000

Install new fence $5000

Construct new driveway $7000

Replace planting $3000

Total $17,000

The estimated property costs are transferred to the nett property costs form, The contingency and funding risk are to be assessed using the advanced approach (Monte Carlo simulation) to give the appropriate contingency and funding risk allowances.


Project name Nett property costs

Property acquisition reference

Property requirements Purchased Property

purchase costs (A)

(Less) disposal value

(B)

Nett property purchase costs

(A-B=C)

Property compensation

costs (D)

Property owner accommodation

works (E)

Nett project property cost

(C+D+E=F)

A Residential lifestyle block Land and improvements including chattels No 490,000 350,000 140,000 0 0 140,000 Solatium (payable to property owner and residents only) No 0 0 0 2000 0 2000 Disturbance costs including relocation No 0 0 0 2500 0 2500 Legal costs No 0 0 0 5000 0 5000 B Commercial property 0 Lessor's interest in required road corridor No 450,000 0 450,000 0 0 450,000 Lessor's interest in severance land No 100,000 0 100,000 0 0 100,000 Lessee's interest in land No 35,000 0 35,000 0 0 35,000 Lessee's interest in buildings No 565,000 0 565,000 0 0 565,000 Lessee's interest in relocation expenses No 0 0 0 35,000 0 35,000 C Residential property

Land and improvements including chattels No 15,000 0 15,000 0 0 15,000 Injurious affection No 0 0 0 50,000 0 50,000 Legal and valuation costs No 0 0 0 10,000 0 10,000 Disturbance costs No 0 0 0 2,000 0 2000 Relocate glasshouse No 0 0 0 0 2,000 2000 Install new fence No 0 0 0 0 5,000 5000 Construct new driveway No 0 0 0 0 7,000 7000 Replace planting No 0 0 0 0 3,000 3000 Fees Property acquisition agents fees - - - - - - 300,000

Base estimate 1,655,000 350,000 1,305,000 106,500 17,000 1,728,500

Contingency 270,000

Expected estimate 1,998,500

Funding risk 195,000 95th percentile estimate 2,193,500

Note: These estimates are exclusive of escalation and GST.


The base estimate, contingency and funding risk allowances from the nett property costs form (column F) are transferred to item A in the PE form.

4.2 Total property costs

Total property costs are calculated for programme of funding within NZTA’s block funded property budget, using figures from the nett property costs sheet, and reassessing the contingency and funding risk figures using the advanced approach (Monte Carlo simulation). These figures are not transferred into the PE form. This form is included within the estimate report for the NZTA’s internal property programming budget.


Project name Total property costs

Property acquisition reference

Property requirements Purchased Property purchase costs

(A) Property compensation

costs (B)

Property owner accommodation works

(C)

Total property cost (A+B+C=D)

A Residential lifestyle block Land and improvements including chattels No 490,000 0 0 490,000 Solatium (payable to property owner and residents only) No 0 2000 0 2000 Disturbance costs including relocation No 0 2500 0 2500 Legal costs No 0 5000 0 5000 B Commercial property Lessor's interest in required road corridor No 450,000 0 0 450,000 Lessor's interest in severance land No 100,000 0 0 100,000 Lessee's interest in land No 35,000 0 0 35,000 Lessee's interest in building No 565,000 0 0 565,000 Lessee's interest in relocation expenses No 0 35,000 0 35,000 C Residential property Land and improvements No 15,000 0 0 15,000 Injurious affection No 0 50,000 0 50,000 Legal and valuation costs No 0 10,000 0 10,000 Disturbance costs No 0 2000 0 2000 Relocate glasshouse No 0 0 2000 2000 Install new fence No 0 0 5000 5000 Construct new driveway No 0 0 7000 7000 Replace planting No 0 0 3000 3000

Fees Property acquisition agents fees - - - - 300,000

Base estimate of total property costs 1,655,000 106,500 17,000 2,078,500

Contingency 320,000 Expected estimate of total property costs 2,398,500 Funding risk 225,000 95th percentile estimate of total property costs 2,623,500


5. Funding application (D&PD)

The funding application form is used to estimate the base estimate, contingency and funding risk allowances for inclusion in the PE.

Estimate the D&PD costs with the assistance of the NZTA’s project manager. Each cost element included must be appropriate for the amount of work being performed during the D&PD phase. Remember to include all other consultant’s fees, such as specialist consultants, within the estimate.

Assess the contingency and funding risk figures using the advanced approach (Monte Carlo simulation). Transfer the base estimate, contingency and funding risk to item C of the PE form.

Calculate future escalation on both the contingency and funding risk. In this case, the design phase is expected to take 18 months to complete. Escalation during this time is expected to be 4 percent per annum but could be as high as 6 percent per annum.


Project name:

Item Description Base estimate Contingency Funding risk

1 Consultancy fees 1.1 Contract management 20,0001.2 D&PD 440,0001.3 Construction drawings 50,0001.4 Statutory applications 50,0001.5 Additional geotechnical testing 30,0001.6 Provisional sums 40,000

630,000

Contingency (Assessed/Analysed) (Consultancy fees) B1 70,000Escalation (Consultancy fees) C1 20,400

Expected D&PD contract estimate D1 = (A1+B1+C1) 720,400

2 NZTA-managed costs 2.1 Tendering costs 15,0002.2 Consultation costs 100,0002.3 Safety audit costs 15,0002.4 Peer review costs (Economics) 5,0002.5 Peer review costs (Estimate) 10,0002.6 Peer review costs (Other)2.7 Hearing costs2.8 Environmental court costs2.9 Public relations costs 50,000

2.10 Legal costs 200,0002.11 Miscellaneous other costs 20,000

415,000

Contingency (Assessed/Analysed) (NZTA-managed costs) F1 45,000Escalation (NZTA-managed costs) G1 13,400

Expected estimate (NZTA-managed costs) H1 = (E1+F1+G1) 473,400

Expected D&PD phase estimate J1 = (D1+H1) 1,193,800

Funding risk (Assessed/Analysed) (Consultancy fees) K1 60,000Escalation (Consultancy fees) L1 10,700

95th percentile D&PD contract estimate M1 = (D1+K1+L1) 791,100

Funding risk (Assessed/Analysed) (NZTA-managed costs) N1 43,000Escalation (NZTA-managed costs) P1 7,750

95th percentile NZTA-managed costs Q1 = (H1+N1+P1) 524,150

95th percentile D&PD phase estimate R1 = (M1+Q1) 1,315,250

Date of estimate Cost indexEstimate prepared by Signed

Estimate internal peer review by Signed

Estimate external peer review by SignedEstimate accepted by the NZTA project manager Signed

Note: (1) These estimates are exclusive of GST.

(3) Once a tender price is available it is substituted for the base contract estimate, and the expected estimate is updated on this sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Assessment form HDesign and project documentation

Project phase funding application

Base D&PD contract estimate/tTender price A1

NZTA-managed costs E1

(2) Base contract estimate (A1) is displayed in request for tender. For multiple phase professional services contracts the base contract estimate is the sum of the estimates for each phase.

D&PDPost-tender with tender pricePre-tender with base contract estimate (Tick as appropriate)


6. PE form

Compile the above estimate, contingency and funding risks and insert into the PE form:

Item A : from the nett property costs.

Item B : I&R sunk costs – nil.

Item C : from the D&PD funding application form, excluding escalation.

Item D : from the elemental costs.

Item F : sum of all the contingency amounts from above.

Item I : sum of all the funding risks amounts from above.


Form DProject name:


A Nett project property cost 1,728,500 270,000 195,000 Investigation and reporting:

- consultancy fees Nil Nil Nil - the NZTA-managed costs Nil Nil Nil

B Total investigation and reporting Nil Nil Nil Design and project documentation:

- consultancy fees 630,000 115,000 103,000 - the NZTA-managed costs 415,000

C Total design and project documentation 1,045,000 115,000 103,000Construction

MSQA - consultancy fees 350,000 - the NZTA-managed costs 30,000 - consent monitoring fees 20,000Sub-total base MSQA 400,000Physical works

1 Environmental compliance 400,0002 Earthworks 2,600,0003 Ground improvements 200,0004 Drainage 1,500,0005 Pavement and surfacing 2,400,0006 Bridges7 Retaining walls8 Traffic services 900,0009 Service relocations 500,000

10 Landscaping 100,50011 Traffic management and temporary works 500,00012 Preliminary and general 500,00013 Extraordinary construction costs 0

Sub-total base physical works 9,600,500 0 0

D Total construction 10,000,500 890,000 610,900

E Project base estimate (A+C+D) 12,774,000

F Contingency (Assessed/Analysed) (A+C+D) 1,275,000

G Project expected estimate (E+F) 14,049,000

Project property cost expected estimate 1,998,500Investigation and reporting expected estimate NilDesign and project documentation expected estimate 1,160,000Construction expected estimate 10,890,500

H Funding risk (Assessed/Analysed) (A+C+D) 908,900

I 95th percentile project estimate (G+H) 14,957,900

Project property cost 95th percentile estimate 2,193,500Investigation and reporting 95th percentile estimate NilDesign and project documentation 95th percentile estimate 1,263,000Construction 95th percentile estimate 11,501,400

Date of estimate Cost index (Qtr/Year)

Estimate prepared by Signed


Estimate external peer review by Signed

Estimate accepted by the NZTA Signed

Note: (1) These estimates are exclusive of escalation and GST.(2) Investigation and reporting project phase estimates are set to nil as these are now sunk costs.

Project estimatePE

Pre-design estimate


7. Completing the estimate and writing the report

Obtain an internal peer review from an experienced estimator, either from your own company or an external company if that experience is not available. Reconcile any differences that exist.

The external peer reviewer, commissioned by the NZTA, should be provided all information and assistance to enable them to perform their review. Reconcile any differences that exist between the external peer review and consultant’s estimate.

Complete the boxes at the bottom of the PE form, including:

date of estimate state the current cost index (Qtr/Year) name and signatures of:

– estimate preparer

– internal peer reviewer

– external peer reviewer

– provide a report, which at minimum must include:

o scope and functionality statement and assumptions

o base, expected and 95th percentile estimates

o residual risk register and pricing thereof

o risk-adjusted programme

o date and cost index

o ranked sensitivity analysis on the risks that have the greatest financial impact, including a discussion

o peer reviews including a discussion on any unreconciled differences.

Note: This is a manufactured example and does not cover all possible scenarios. Descriptions and costs are fictitious and bear no resemblance to any actual or expected values.


Appendix B: Example of elemental breakdown for construction costs form


Appendix C: Example of estimated costs forms


Form A


A Nett project property cost Investigation and reporting:

- consultancy fees

- the NZTA-managed costs

B Total investigation and reporting Design and project documentation:

- consultancy fees - the NZTA-managed costs

C Total design and project documentationConstruction

MSQA - consultancy fees - the NZTA-managed costs - consent monitoring feesSub-total base MSQAPhysical works

1 Environmental compliance2 Earthworks3 Ground improvements4 Drainage5 Pavement and surfacing6 Bridges7 Retaining walls8 Traffic services9 Service relocations

10 Landscaping11 Traffic management and temporary works12 Preliminary and general13 Extraordinary construction costs

Sub-total base physical worksD Total construction

E Project base estimate (A+B+C+D)

F Contingency (Assessed/Analysed) (A+B+C+D)

G Project expected estimate (E+F)

H Funding risk (Assessed/Analysed) (A+B+C+D)

I 95th percentile project estimate (G+H)






Note: (1) These estimates are exclusive of escalation and GST.

Project Estimate

Feasibility estimate

Project property cost expected estimate

Project Name:

Construction 95th percentile estimate

Investigation and reporting expected estimateDesign and project documentation expected estimateConstruction expected estimate

Project property cost 95th percentile estimateInvestigation and reporting 95th percentile estimateDesign and project documentation 95th percentile estimate

FE


Form B Project Name:



- consultancy fees


B Total investigation and reporting Design and project documentation:

- consultancy fees







E Project base estimate (A+B+C+D)

F Contingency (Assessed/Analysed) (A+B+C+D)


Project property cost expected estimate Investigation and reporting expected estimateDesign and project documentation expected estimateConstruction expected estimate

H Funding risk (Assessed/Analysed) (A+B+C+D)

I 95th percentile Project Estimate (G+H)

Project property cost 95th percentile estimateInvestigation and reporting 95th percentile estimateDesign and project documentation 95th percentile estimateConstruction 95th percentile estimate






Note: (1) These estimates are exclusive of escalation and GST.

Project Estimate

OEOptions Estimate


Form C Project name:











E Project base estimate (A+C+D)

F Contingency (Assessed/Analysed) (A+C+D)


Project property cost expected estimate Nil

H Funding risk (Assessed/Analysed) (A+C+D)


Nil







Investigation and reporting 95th percentile estimateDesign and project documentation 95th percentile estimateConstruction 95th percentile estimate

Project estimate

Project property cost 95th percentile estimate

Construction expected estimate

SE

Investigation and reporting expected estimateDesign and project documentation expected estimate

Scheme estimate


Form DProject name:






C Total design and project documentation 0 0 0Construction

MSQA - consultancy fees - the NZTA-managed costs - consent monitoring feesSub-total base MSQA 0Physical works


10 Landscaping11 Traffic management and temporary works12 Preliminary and general13 Extraordinary construction costs 0

Sub-total base physical works 0 0 0

D Total construction 0

E Project base estimate (A+C+D) 0

F Contingency (Assessed/Analysed) (A+C+D) 0

G Project expected estimate (E+F) 0

Project property cost expected estimate 0Investigation and reporting expected estimate NilDesign and project documentation expected estimate 0Construction expected estimate 0

H Funding risk (Assessed/Analysed) (A+C+D) 0

I 95th percentile project estimate (G+H) 0

Project property cost 95th percentile estimate 0Investigation and reporting 95th percentile estimate NilDesign and project documentation 95th percentile estimate 0Construction 95th percentile estimate 0







Project estimatePE

Pre-design estimate


Project name:






C Total design and project documentation Nil Nil NilConstruction




Sub-total base physical works

D Total construction

E Project base estimate (A+D)

F Contingency (Assessed/Analysed) (A+D)


Project property cost expected estimate Investigation and reporting expected estimate NilDesign and project documentation expected estimate NilConstruction expected estimate

H Funding risk (Assessed/Analyser) (A+D)

I 95th percentile project estimate (G+H)

Project property cost 95th percentile estimateInvestigation and reporting 95th percentile estimate NilDesign and project documentation 95th percentile estimate NilConstruction 95th percentile estimate






Note: (1) These estimates are exclusive of escalation and GST.(2) Investigation and reporting, and design and project documentation project phasesestimates are set to nil as these are now sunk costs.(3) Include a project phase funding application assessment form I with the DE.

Project estimate Form E DE

Design estimate


Form FProject name:






C Total design and project documentation Nil Nil NilConstruction





E Project base estimate (A+D)

F Contingency (Assessed/Analysed) (A+D)


Project property cost expected estimate Investigation and reporting expected estimate NilDesign and project documentation expected estimate NilConstruction expected estimate

H Funding Risk (Assessed/Analysed) (A+D)


Project property cost 95th percentile estimateInvestigation and reporting 95th percentile estimate NilDesign and project documentation 95th percentile estimate NilConstruction 95th percentile estimate






Note: (1) These estimates are exclusive of escalation and GST.(2) Investigation and reporting, and design and project documentation project phase estimates are set to nil as these are now sunk costs.

Project estimate

CEConstruction estimate


Appendix D: Example of funding application forms


Project phase funding application Assessment form G


1 Consultancy fees 1.1 Scope of services1.2 Contract management1.3 I&R1.4 Preliminary design drawings1.5 Geotechnical testing schedule1.6 Provisional sums

Contingency (Assessed/Analysed) (Consultancy fees) BEscalation (Consultancy fees) CExpected I&R contract estimate D = (A+B+C)2 NZTA-managed costs

2.1 Tendering costs2.2 Consultation costs2.3 Safety audit costs2.4 Peer review costs (Economics)2.5 Peer review costs (Estimate)2.6 Peer review costs (Other)2.7 Hearing costs2.8 Environmental court costs2.9 Public relations costs

2.10 Legal costs2.11 Miscellaneous other costs

Contingency (Assessed/Analysed) (NZTA-managed costs) FEscalation (NZTA-managed costs) G

Expected estimate (NZTA-managed costs) H = (E+F+G)

Expected I&R phase estimate J = (D+H)

Funding risk (Assessed/Analysed) (Consultancy fees) KEscalation (Consultancy fees) L

95th percentile I&R contract estimate M = (D+K+L)

Funding risk (Assessed/Analysed) (NZTA-managed costs) NEscalation (NZTA-managed costs) P

95th percentile NZTA-managed costs Q = (H+N+P)

95th percentile I&R phase estimate R = (M+Q)

Date of estimate Cost index




Estimate accepted by the NZTA project manager Signed


Investigation and reporting

Project name:

(2) Base contract estimate (A) is displayed in request for tender. For multiple phase professional services contracts the base contract estimate is the sum of the estimates for each phase.(3) Once a tender price is available it is substituted for the base contract estimate, and the expected estimate is updated on this sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Base I&R contract estimate/Tender price A

NZTA-managed costs E

I&RPre-tender with base contract estimate Post-tender with tender price (Tick as appropriate)


Project name:


1 Consultancy fees 1.1 Contract management1.2 D&PD1.3 Construction drawings1.4 Statutory applications1.5 Additional geotechnical testing1.6 Provisional sums

0

Contingency (Assessed/Analysed) (Consultancy fees) B1Escalation (Consultancy fees) C1

Expected D&PD contract estimate D1 = (A1+B1+C1) 0

2 NZTA-managed costs 2.1 Tendering costs2.2 Consultation costs2.3 Safety audit costs2.4 Peer review costs (Economics)2.5 Peer review costs (Estimate)2.6 Peer review costs (Other)2.7 Hearing costs2.8 Environmental court costs2.9 Public relations costs

2.10 Legal costs2.11 Miscellaneous other costs

0

Contingency (Assessed/Analysed) (NZTA-managed costs) F1Escalation (NZTA-managed costs) G1

Expected estimate (NZTA-managed costs) H1 = (E1+F1+G1) 0

Expected D&PD phase estimate J1 = (D1+H1) 0

Funding risk (Assessed/Analysed) (Consultancy fees) K1Escalation (Consultancy fees) L1

95th percentile D&PD contract estimate M1 = (D1+K1+L1) 0

Funding risk (Assessed/Analysed) (NZTA-managed costs) N1Escalation (NZTA-managed costs) P1

95th percentile NZTA-managed costs Q1 = (H1+N1+P1) 0

95th percentile D&PD phase estimate R1 = (M1+Q1) 0

Date of estimate Cost indexEstimate prepared by Signed


Estimate external peer review by SignedEstimate accepted by the NZTA project manager Signed


(3) Once a tender price is available it is substituted for the base contract estimate, and the expected estimate is updated on this sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Assessment form HDesign and project documentation

Project phase funding application

Base D&PD contract estimate/tTender price A1

NZTA-managed costs E1

(2) Base contract estimate (A1) is displayed in request for tender. For multiple phase professional services contracts the base contract estimate is the sum of the estimates for each phase.

D&PDPost-tender with tender pricePre-tender with base contract estimate (Tick as appropriate)


Project name:


Physical works 1 Environmental compliance2 Earthworks3 Ground improvements4 Drainage5 Pavement surfacing6 Bridges7 Retaining walls8 Traffic services9 Service relocations


Base physical works contract estimate/Tender price A2

Contingency (Assessed/Analysed) (Physical works) B2Escalation (Physical works) C2

Expected physical works contract estimate D2 = (A2+B2+C2)

F2

G2

H2 = (E2+F2+G2)

Expected construction phase estimate J2 = (D2+H2)

Funding risk (Assessed/Analysed) (Physical works) K2Escalation (Physical works) L2

95th percentile Physical Works Contract Estimate M2 = (D2+K2+L2)

N2

Escalation base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees) P2

Q2 = (H2+N2+P2)

95th percentile construction phase estimate R2 = (M2+Q2)

Date of estimate Cost index






Funding risk (Assessed/Analysed) base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees)

95th percentile MSQA estimate (consultancy fees, NZTA-managed costs, consent monitoring fees)

(4) For the NZTA-managed costs see forms G and H for list of typical cost items.

(2) Base contract estimate (A2) is displayed in request for tender. For multiple phase professional services contracts the base contract estimate is the sum of the estimates for each phase.(3) Once a tender price is available it is substituted for the base contract estimate and the expected estimate is updated on this sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Expected MSQA estimate (consultancy fees, NZTA-managed costs, consent monitoring fees)

Base MSQA estimate (consultancy fees, NZTA-managed costs (4), consent monitoring fees)

Project phase funding application Assessment form I

Contingency (Assessed/Analysed) base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees)

Escalation base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees)

Construction(Tick as appropriate)Pre-tender with base contract estimate Post-tender with tender price

E2


Item Description Base estimate 5th% Contingency Funding risk

A Nett project property cost

Construction

1 MSQA, NZTA-managed costs and consent monitoring fees

Physical works2 Environmental compliance3 Earthworks4 Ground improvements5 Drainage6 Pavement and surfacing7 Bridges8 Retaining walls9 Traffic services

10 Service relocations11 Landscaping12 Traffic management and temporary works13 Preliminary and general14 Extraordinary construction costs

B Total construction 0

Total base estimate 0

Total 5th percentile estimate 0

C Contingency 0

0

0

Total expected estimate 0

D Funding risk 0

0

0

Total 95th percentile estimate 0






Note: These estimates are exclusive of escalation and GST.

Construction and property estimate

Project property cost expected estimate

Construction 95th percentile estimate

Project name:Supplied with funding application for (tick one): Investigation Design Construction

Estimate stage (tick one) FE OE SE PE DE CE

Construction expected estimate

Project property cost 95th percentile estimate


Appendix E: Example cash flow/Accrual reporting form


Phase Prior years Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Year 2 Year 3 Year 4Total

Aallocation

I&R 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Base allocation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Contingency allocation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Expected out-turn cost 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

D&PD 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Base allocation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0



Construction

MSQA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Physical works 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Base allocation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0



Note:

Equals actual

Equals forecast current month

Equals forecast future expenditure

Project nameCashflow for monthly report dated dd/mm/yy

Project phase or summary

Current year (Year 1) Future years


Appendix F: Elemental costings

Elemental costings and benchmark estimator

An elemental estimate improves the reliability of project estimates by using out-turn costs as an input when preparing an estimate. The elemental estimate also creates a consistent, standardised framework for consultants compiling physical works tender documents. The schedule of elemental prices (SEP) provides a checklist for consultants preparing tender documents and assists tenderers pricing works by structuring pricing schedules in a similar order. Elemental costing enables comparisons of project costs to be made and improves the consistency of data collected. These benefits lead to an improvement in the accuracy of project estimates.

The NZTA has developed guidelines for the calculation and reporting of elemental costs for use in screening new project estimates. These guidelines define a SEP in a standard format.

Elemental costings will be prepared and used in the following manner:

The SEP will be prepared at the end of the physical works contract by the consultant administering the contract.

A record of estimates at the various stages of a project will also be retained in the same format. This allows changes to be tracked and data to be available to provide an indication of ‘risk costs’ that arose as the project developed.

Access to the database containing the SEP (out-turn costs and estimates) is available on the NZTA’s website, on the same page as this manual. The main use of this elemental cost data will be in the preparation of estimates early in the project life cycle, ie feasibility estimate (FE) and option estimate (OE). As more detail becomes available during project development, the estimates based on elemental information will be updated and superseded by more detailed estimates that reflect the improved definition of the project.

The standard format and schedule of definitions developed for the SEP shall be presented in the mandatory format shown in appendix G. This format meets the data collection requirements of the elemental costing system.

The NZTA has also evaluated the Benchmark Estimator software (a resource-based estimating package) and concluded that it may be used, if required by the NZTA’s project manager, to review cost estimates prepared by consultants. Where substantial differences occur, the consultant shall explain all differences in a report included in the estimate deliverables.

It should be noted that both the elemental costing database and estimates prepared using the Benchmark Estimator are tools provided to assist in the development of estimates. It is expected they will add the greatest value early in the project development cycle. They are not a substitute for properly structured estimates, which shall remain the responsibility of the appointed consultant.


NZ Transport Agency elemental costing model

Project description

Provide the following project information:

a. project name b. the NZTA’s contact person and contact details c. commencement and practical completion dates (design and construction phases) d. project type, X lane motorway, X lane expressway X lane highway, passing lane, road reconstruction e. project particulars, rural versus urban, terrain type, location, specific project information impacting on the unit costs of the above elements f. details of all structures (eg span, superstructure type, foundation details) g. out-turn cost/tender cost (and reasons for difference, eg additional scope/functionality or changes within the scope) (I&R, D&PD and

construction phases) h. actual duration/planned duration (I&R, D&PD and construction phases) i. procurement model (design and construct (D&C), alliance, measure and value, lump sum short-listed) j. cost indices (CI) at date of composite rates.

Note: Items a to f include information required by the database user, and items g to i include information required for analysis.

Item Description Quantity Unit Composite rate

Amount

1 Development (non-construction costs)2

1.1 I&R %

1.2 Detailed design %

1.3 MSQA %

Development tool

2 Construction

2.1 Environmental compliance km

2.2 Earthworks m3

2.3 Ground improvements m2

2.4 Drainage km

2.5 Pavement and surfacing m2

2.6. Bridge(s)/structure (s) m2

2.7 Retaining walls m2

2.8 Traffic services km

2.9 Service relocations/protection km

2.10 Landscaping km

2.11 Traffic management km

Construction subtotal (excluding preliminary and general)

2.12 Preliminaries and general %

Construction total (including preliminary and general)

3 Extraordinary project costs

3.1 Abnormal costs (to be detailed in full) %

2 Development costs exclude land purchase. This information shall be obtained from the NZTA’s property acquisition agents.


Description definitions

1 Development (non-construction costs)

1.1 Investigation and reporting: planning and consents iwi designation and resource consent preparation, and lodgement (including hearings) fees (designation and environment court) legal costs (including environment court) Mana Whenua, Waahi Tapu, Kōiwi and Mauri fees and costs reviews and audits geotechnical elements survey elements public relations the consultant’s input before contract award (D&C contracts only, include specimen design) speed surveys council costs/expenses heritage costs mitigation costs supplementary investigation during the investigation phase.

1.2 Detailed design: design Mana Whenua, Waahi Tapu, Kōiwi and Mauri fees and costs professional fees (project management, risk management, value management and peer reviews) legal resource consent costs (including fees) building consent costs reviews and audits public relations contractor’s detailed design (D&C contracts only) advertising (radio, newspapers) economic assessments heritage costs mitigation costs supplementary investigation during the detailed design.

1.3 MSQA: consultant surveillance during construction phase legal iwi liaison (during construction) regional council monitoring archaeological fees reviews and audits public relations the consultant’s input following contract award (D&C contracts only) advertising (radio, newspapers) newsletters (copying and delivery) noise monitoring complaints heritage costs mitigation costs supplementary investigation during the construction phase


2 Construction

2.1 Environmental compliance: construct permanent erosion and sediment control measures, maintenance and monitoring noise attenuation.

2.2 Earthworks: site clearance and/or demolition topsoil stripping cut to fill cut to waste borrow to fill imported fill resoiling reclamation works foreshore works temporary earthworks construct, maintain and remove temporary sediment control measures, temporary sediment control ponds, including temporary

hydro-seeding, rock check dams and silt fencing archaeological.

2.3 Ground improvements: site decontamination ground improvement (eg drainage blankets, wick drains and geotextiles) geotechnical monitoring (inclinometers piezometers) dewatering bores and buttress drains.

2.4 Drainage: stormwater drainage and culverts including headwalls and chambers and temporary stream diversions subsoil and pavement drains kerbing/edgestrip surface water channel erosion control flumes.

2.5 Pavement and surfacing: sub-grade stabilisation (aggregate, lime or cement) sub-grade preparation sub-base base course surfacing (chip seal, asphaltic concrete, Stone Mastic Asphalt (SMA)) upgrade existing carriageway(s) ancillary roadworks.

2.6 Bridge(s)/Structure(s): substructure (includes piling, foundations piers, abutments and bearings) superstructure, (includes beams, finishings, tensioning, waterproofing, expansion joints, edge protection and graffiti guard).

2.7 Retaining walls: timber piled walling concrete piled walling including ground anchors gabion walling crib walling mechanically stabilised earth (MSE) walling backfill behind retaining walls.


2.8 Traffic services: barrier (median barrier and verge barrier) pavement markings and markers road signs and gantries traffic signals marker posts lighting emergency crossovers and phones traffic communication services.

2.9 Service relocations/protection: The NZTA’s cost for relocation and protection of all local authority and utility companies services (after cost share), and

contractors own costs.

2.10 Landscaping and urban design: Landscaping (aesthetic and environmental) grassing, hydro-seeding, planting and revegetation architecture fencing streetscaping property owner accommodation works (property adjustment) footpaths and cycleways building relocations.

2.11 Traffic management: temporary traffic diversions traffic management physical works costs.

2.12 Preliminaries and general: establishment, disestablishment, clean-up, temporary accommodation and other site operating costs contractor’s supervision, on-site staffing, prescribed specialists and other time-related costs insurances, bonds warranties/guarantees, as-built requirements and non-time related costs temporary works and contractor’s design project plans, quality assurance, traffic management plans, environmental management plans, programming and reporting,

consent fees, stakeholder management, health and safety, security management, contractor’s escrow tender documents escalation (where required to be included in tender price) network maintenance survey and set-out.

3 Extraordinary project costs

Extraordinary project costs may include special items such as rock avalanche cover, tunnels, rail bridges, rail level crossings, mine hazard mitigation, ie this item is for significant non-roading expenses.


Unit definitions

1 Development (non-construction costs)

1.1 Investigation and reporting: Percentage of construction total including preliminaries and general. The amount entered in the quantity column shall be the construction total, including preliminaries and general items and

including extraordinary project costs.

1.2 Detailed design: Percentage of construction total including preliminaries and general. The amount entered in the quantity column shall be the construction total, including preliminaries and general items and


1.3 MSQA: Percentage of construction total including preliminaries and general. The amount entered in the quantity column shall be the construction total, including preliminaries and general items and


2 Construction

2.1 Environmental compliance:

Project length, excluding side roads and accommodation works.

2.2 Earthworks:

The greater of either a) or b):

a. Total M3 of cut material + borrow material + imported material.

b. Total M3 of fill material + cut to waste.

Note: The volume of cut and borrow material shall be measured in the cut. The volume of fill and imported material shall be measured in the fill. Quantity excludes multiple handling. Any material that is double handled, for example preloading shall only be included once in the quantity measured.

2.3 Ground improvements:

Square metre area of ground being treated. In the case of dewatering boreholes an assessment shall be made of the area being treated.

2.4 Drainage:

Project length excluding side roads and accommodation works.

Note: For multi-laned projects the total lane kilometres (km) shall also be recorded separately.

2.5 Pavement and surfacing:

Total m2 of surfaced quantity width, for example width of seal or asphaltic concrete multiplied by length (centre line of carriageway).

2.6 Bridge(s):

Area calculation: length between abutment expansion joints, multiplied by width between inner faces of edge protection, or joint with existing structure, if widening.

2.7 Retaining walls:

Total m2 of exposed retaining wall surface area.

2.8 Traffic services:


Note: For multi-laned projects the total lane km shall also be recorded separately.

2.9 Service relocations/protection:




2.10 Landscaping:



2.11 Traffic management:



2.12 Preliminaries and general: Percentage of construction cost excluding preliminaries and general. The amount entered in the quantity column shall be the construction total, excluding development items, preliminaries and

general items, and including extraordinary project costs.

3 Extraordinary non-construction costs

Percentage of construction cost including preliminaries and general.

The amount entered in the quantity column shall be the construction total, excluding development items and including preliminaries and general items.


Appendix G: Escalation calculation example

Note: Method has been simplified to allow yearly estimates of escalation.

Information

Date of estimate preparation 30 November 2005

Expected estimate (excluding escalation) $200 million (M)

95th percentile estimate (excluding escalation) $225M

Estimated cost indices (CI) @ November 2002 2050

Actual CI @ July 2002 2035

Expected completion date 30 April 2008

95th percentile completion date 31 January 2009 Expected estimate annual expenditure

Expected estimate annual expenditure

Actual to date (to December 2005) $ 10 M

December 2005 to end June 2006 $ 5 M

July 2006 to end June 2007 $ 85 M

July 2007 to end April 2008 $ 100 M

Escalation December 2005 to June 2006

Cost: December 2005 to end June 2006 $ 5 M

0.5 Note: As this money will be spread throughout the year, it could be assumed that only half will attract escalation. $ 2.5 M

Cost: Future years $ 185 M

$ 2.5 M 185

Months December 2005 to June 2006 (3.5% inflation) 7/12*3.5% 7/12*3.5%

$ 0.05 M $ 3.78

Escalation total December 2005 to June 2006 $ 3.83 M

Escalation July 2006 to June 2007

Cost: July 2006 to end June 2007 + escalation from December 2005 to June 2006 $ 88.78 M



$ 44.39 M $ 100 M

Months July 2006 to June 2007 (3.5% inflation) 3.5% 3.5%

$ 1.55 M $ 3.50 M


Escalation total July 2006 to June 2007 $ 5.05 M

Escalation July 2007 to April 2008

Cost: July 2007 to end April 2008 + Escalation from July 2006 to June 2007 $ 103.50 M


Months July 2007 to April 2008 (3.5% inflation) 10/12*3.5%

Escalation total July 2007 to April 2008 $ 1.51 M

Total expected escalation $ 10.39 M

Expected estimate including escalation $ 210.39 M

Note: For escalation calculation, only 50% of the forecast expenditure in any given year shall be escalated. This is due to expenditure being spread over that year rather than as one payment at the end of the year. Escalation is therefore only accrued on part of the yearly expenditure. While this method does not give an accurate value for escalation it does provide a reliable estimate upon which justifiable decisions can be made.

95th percentile estimate annual expenditure

Actual to date (to December 2005) $ 10 M

December 2005 to end June 2006 $ 5 M



July 2008 to end Jan 2009 $ 50 M

Escalation December 2005 to June 2006

Cost: December 2005 to end June 2006 $ 5 M



$ 2.5 M 210

Months December 2005 to June 2006 (3.5% inflation) 7/12*3.5% 7/12*3.5%

$ 0.05 M $ 4.29

Escalation total December 2005 to June 2006 $ 4.34 M


Cost: July 2006 to end June 2007 + escalation from December 2005 to June 2006 $ 79.29 M



$ 39.64 M $ 135 M


$ 1.39 M $ 4.73 M




Cost: July 2007 to end June 2008 + Escalation from July 2006 to June 2007 $ 89.73 M



$ 44.86 M $ 50 M


$ 1.57 M $ 1.75 M


Escalation July 2008 to Jan 2009

Cost: July 2008 to end Jan 2009 + Escalation from July 2007 to June 2008 51.75

0.50 Note: As this money will be spread throughout the year, it could be assumed that only half will attract escalation. 25.88

Months July 2008 to Jan 2009 (3.5% inflation) 7/12*3.5%

Escalation total July 2008 to Jan 2009 0.53

Total 95th percentile escalation $ 14.30 M

95th percentile estimate including escalation $ 239.30 M

Note: For escalation calculation, only 50% of the forecast expenditure in any given year shall be escalated. This is due to expenditure being spread over that year rather than as one payment at the end of the year. Escalation is therefore only accrued on part of the yearly expenditure. While this method does not give an accurate value for escalation it does provide a reliable estimate upon which justifiable decisions can be made.

Information example calculations of using CI to discount project estimates

Estimate prepared 30 November 2005

Estimated CI 2050

Expected out-turn cost $200M

95th percentile estimate $225M

Economic analysis July 2005

Actual CI 2020

Expected out-turn estimate (July 2005) 2020 / 2050 * $200M = $197.1M

95th percentile out-turn estimate (July 2005) 2020 / 2050 * $225M = $221.7M


Appendix H: Cost report and scope control forms


Cost control procedure - Project scope definition

Project title

Project manager Project number

Consultant Team leader

Subject

Project phase

Scope description

Scope definition documents

Scope definition agreement

Name Date Signature

Consultant team leader

NZTA’s project manager


Project cost control schedule

Project title Project number

Project manager Consultant

Initial estimate type FE OE PE Initial estimate value

Estimate index date

Scope change number

Date raised Raised by Description Reason C/S/D/O

NZTA agreement

Date agreed

Cost estimate


Cost control record form

Project title


Consultant

Scope change number Date

Reason for change Change raised by

Client instruction (C) Yes No

Revision of standards (S) Yes No

Design development (D) Yes No

Other (O) Yes No

Detailed description of change and its effects

Mitigation measures considered

Effects on project risk profile

Assumptions made in cost estimate

Estimate total Estimate index date

Estimate at initial estimate index date

Scope definition agreement

Name Date Signature

Consultant team leader



Appendix I: Example of peer review form

Estimate peer review

Project title:

Project number: NZTA’s project manager: Consultant project manager:

Estimate originator: Verifier: Internal/External review:

Peer review activities Verifier initials Date

1 Project documentation: receive documentation from project consultant review above documentation.

2 Defined scope of work: attend peer review briefing with project consultant and visit site confirm scope of work is adequately defined confirm scope of work has been fully translated into measured schedule of quantities.

3 Assessment/Analysis of risk: participation in risk management workshop (delete if not applicable) review and comment on the appropriateness of workshop attendees and adequacy of the

identified risks review and comment on the appropriateness of consequence and likelihood allowances for risk

items that may impact on the cost estimate comment on the cost allowances for unknown risks confirm risk assessment/analysis has been prepared in accordance with the NZTA’s Cost

estimation manual (SM014) comment on appropriateness of the contingency and funding risk allowances.

4 Construction methodology and programme: review and comment on the appropriateness of the construction methodology and programme.

5 Measurement: confirm that the method of measuring the quantum of work and estimating rates is appropriate

for the item of work they apply to confirm internal peer review has verified the measurement of quantities and undertaken

arithmetical check carry out sensibility check of the arithmetic and quantities measured for major items.

6 Estimated rates/Allowances: carry out a review of the estimated rates/allowances to confirm that they are reasonable/

appropriate for the item of work they apply to comment on the overall appropriateness of the base estimate out-turn cost.

7 Cost estimate outputs: comment on the overall appropriateness of the expected estimate and 95th percentile estimate

(are they ‘Fit for purpose?’).

8 Peer review report: prepare and send a draft peer review report to the project consultant and send a copy to the

NZTA’s project manager meet with project consultant, discuss peer review report and attempt to reconcile any

differences of opinions/issues. Report informally to the NZTA’s project manager prepare and send a final report to the NZTA project manager copying in the project consultant.


Appendix J: Cost estimate external peer review methodology

External peer reviews of both the scheme estimate and design estimate shall be undertaken on the NZ Transport Agency’s (NZTA) projects that have a construction cost estimate of between $4.5 million and $20 million, and on projects under $4.5 million if deemed necessary by the NZTA’s project manager and/or project consultant.

Refer to the NZTA’s Cost estimation manual (SM014) for the procedures necessary in preparing cost estimates and the guidelines an estimator should consider when preparing a cost estimate.

If the peer reviewer does not have the appropriate experience to review any - or part of a - section of the cost estimate, then they should commission a subconsultant to undertake that part of the review to enable the whole cost estimate to be reviewed appropriately.

The purpose of a peer review is to confirm that the cost estimate prepared by the project consultant:

includes the full scope of work required to deliver the whole project is a risk-based estimate has been prepared in accordance with SM014, and is fit for purpose, ie represents a reasonable estimate of the expected final out-turn cost and 95th percentile

final out-turn cost for the whole project.

With these functions in mind, the following methodology has been prepared for use by external consultants commissioned to carry out cost estimate peer reviews for the NZTA.

Project documentation

1. Receive the following documentation from the project consultant:

o Cost estimate report in accordance with SM014 (refer to section 10 in SM014).

o Risk register.

o Analysis of contingency and funding risk, including inputs and outputs from the statistical analysis if applicable in sufficient detail to be able to recreate a comparative model.

o Internal peer review of cost estimate, including internal peer review checklist (refer to appendix K in SM014).

o Scheme assessment and assessment of environmental effects (AEE) reports/construction tender documents/design philosophy statement (dependant on phase of project).

o Proposed construction methodology and programme.

o Any other documentation that may impact on the cost of the project, eg:

– geotechnical report

– property acquisition strategy highlighting current status of negotiations

– designation and resource consent conditions

– safety audits (if issues raised in the audit have not been closed out). 2. Review the above documentation. Defined scope of work

3. Organise and attend a peer review briefing with the project consultant. This briefing shall also include a visit to the site to gain an understanding of the project.

4. Confirm that the scope of work is adequately defined.

5. Confirm that the scope of work has been fully translated into the measured schedule of quantities.


Analysis of risk

6. If appropriate participate in the project risk management workshop. Participation is considered unnecessary on low-cost/low-risk projects, but necessary on high-risk/high-cost projects, therefore participation at this workshop will depend upon:

o the nature of the project

o the cost of the project, and

o when the external peer reviewer is appointed. 7. Review and comment on the appropriateness of workshop attendees (eg on a major earthworks project,

was the geotechnical consultant in attendance) and the adequacy of identified risks.

8. Review and comment on the appropriateness of likelihood allowances (in percentage terms) for risk items that may impact on the cost estimate.

9. Review and comment on the appropriateness of consequence allowances (in cost terms) for risk items that may impact on the cost estimate.

10. Comment on the cost allowances included for unknown risks.

11. Confirm the risk assessment/analysis has been prepared in accordance with SM014.

12. Comment on the appropriateness of the contingency and funding risk allowances (include comment on the shape of the probability curve, eg large versus small range and/or short versus overly conservative tail).

Construction methodology and programme

13. Review and comment on the appropriateness of the construction methodology and programme:

o Construction methodology:

- earthworks mass/haul assessment (if the project is predominantly earthworks)

- constructability

- temporary works

- traffic management.

o Programme:

- sensibility check on durations allowed for work items and overall project delivery.

Measurement

14. Confirm that the method of measuring the quantum of work and the method of estimating the rates is appropriate for the phase, status of design information and the nature of the works, eg.at the scheme estimate stage:

o if the project included the construction of a major bridge, the scheme estimate should be broken down into subelements (eg piles, piers, abutments, girders and decks), whereas

o the scheme estimate for bridges of a standard form on a major motorway project may only be broken down into elements (eg substructure and superstructure) and presented as a metre square rate based on the bridge deck area.

15. Confirm that the internal peer reviewer has verified the measurement of quantities and undertaken an arithmetical check.

16. Carry out a sensibility check of the arithmetic and quantities measured for major items, eg earthworks volumes, area of pavement and area of structures.


Estimated rates/Allowances

17. Carry out a review of the estimated rates/allowances to confirm that they are reasonable/appropriate for the item of work they apply to. This review should consider, at least:

o property estimates

o inclusion of post construction works items (eg noise monitoring and traffic counts)

o buildability

o assumptions

o exclusions

o market rates used

o lump sum and provisional item appropriateness 18. Carry out a review of the estimates for each phase of work to confirm that they are reasonable/

appropriate for the project. This review shall apply to the following sections of the base estimate:

o property purchase

o investigation and reporting (I&R) phase

o design and project documentation (D&PD)phase, and

o construction (management, surveillance and quality assurance (MSQA) and physical works) 19. Comment on the overall appropriateness of the base estimate out-turn cost for the project.

As part of the exercise confirming that the base estimate is ‘fit for purpose’ undertake the following tasks:

o Review and comment on the process/methodology used in estimating rates.

o Where rates are based on external contractors/suppliers estimates, confirm the appropriateness of these estimates and that an appropriate audit trail exists.

o Confirm that the Internal peer reviewer has verified the rates.

o If concerned about the estimated rates for large cost items then re-estimate these rates from first principles, based on the design documentation received, to confirm their appropriateness

Cost estimate outputs

20. Comment on the appropriateness of the expected estimate and 95th percentile estimate (are they ‘Fit for purpose?’).

Project drivers that should be considered when confirming that the cost estimate is ‘Fit for purpose’ are as follows:

o Has the estimate been reduced/increased to meet a previous budget (the NZTA’s project manager shall inform the external peer reviewer of previous budgets)?

o Has scope been ignored/omitted from the estimate to keep the estimate at the set budget?

o Has the funding risk allowance been conservatively calculated to produce an unnecessarily high 95th percentile estimate?

Peer review report

21. The following has been prepared as a minimum requirement for reporting. The extent of reports and the NZTA project manager’s involvement in the peer review process will be confirmed on a case by case basis.

Prepare and send a draft peer review report to the project consultant and send a copy to the NZTA’s project manager. This report shall include the following:


o List of documents reviewed.

o Confirmation that the peer review has been undertaken in accordance with this methodology.

o Comments on each review step of the peer review and the appropriateness of the expected estimate and 95th percentile estimate.

o Any other issues/concerns raised.

o Recommendations to facilitate reconciliation with the project consultant. 22. Meet with the project consultant, discuss the peer review report and attempt to reconcile any differences

of opinions/issues. Report informally to the NZTA’s project manager to keep them informed regarding progress of the reconciliation process.

23. Prepare and send a final report to the NZTA’s project manager copying in the project consultant. This report shall include the following:

o Confirmation that the peer review has been undertaken in accordance with this methodology.

o Confirmation that the cost estimate has been prepared in accordance with SM014.

o Comment on the appropriateness of the expected estimate and 95th percentile estimate. Are they ‘Fit for purpose?’

o Any unresolved issues from the reconciliation process.


Appendix K: The NZ Transport Agency’s estimate peer reviewers and industry experts

The NZ Transport Agency’s (NZTA) current register of estimate peer reviewers and industry experts is available on the NZTA’s website (on the same page as the NZTA’s Cost estimation manual (SM014)).

Suppliers wishing to have their name included on the register are required to provide the following

Written endorsement from their NZTA project team manager from the NZTA regional office where they propose to operate.

Curriculum vitae and up to five page submission detailing their relevant experience, track record, technical and management skills for undertaking estimate peer reviews. In addition they shall detail the methodology to be adopted in undertaking an estimate peer review. This is to ensure applicants meet the NZTA’s minimum quality criteria.

Satisfactorily meet the minimum criteria set out below.

To ensure currency of the register an estimate peer reviewer on the register shall meet the minimum criteria at any time. Those failing to meet any of the criteria shall be removed from the register.

Estimate peer reviews shall be carried according to, and meet the outcomes prescribed by NZTA’s current version of SM014.

Estimate peer reviewers shall satisfy the following minimum criteria. As estimate peer reviewers gain additional experiences they can request their details be updated on the register:

Be a qualified professional with at least a bachelor degree qualification, or be a member accredited to an appropriate professional body.

Have at least five years experience in estimating, preparing consultants estimates or reviewing cost estimates.

Have had formal training in estimating techniques. Have conducted at least three comparable peer reviews or contractor’s tenders or consultant construction

estimates within the last three years. Have the endorsement of the NZTA’s regional project team manager(s) from the region(s) in which they

operate.

In addition the following project specific minimum criteria must be met before carrying out any estimate peer review:

Have had experience in the type of project being reviewed. Be independent of the design consultant.


Applicant (Name)

NZTA’s Project team manager endorsement (Name)

Professional qualification(s) MIPENZ

NZIQS

MRICS

MICE

Other (Please state)

Years experience in estimating 1-5 5-7 7-10 10-15 15-20 20+

Formal training

(provide details of Internal company course(s) or external accredited course(s)attended, with year attended)

Construction estimates completed in last 3 years

(includes engineers estimates, tender estimates or peer reviews)

1-2

3

4-5

5-10

10-20

20+

Areas of estimating expertise and risk

(tick as many as appropriate, minimum 1 estimate must have been completed in each area claimed within the last 3 years)

$3-10 million (low risk) $10-50 million (low risk) $50 million + (low risk)

$3-10 million (medium risk) $10-50 million (medium risk) $50 million + (medium risk)

$3-10 million (high risk) $10-50 million (high risk) $50 million + (high risk)


Appendix L: Parallel estimate methodology

Purpose

The purpose of this appendix is to establish the role and methodology of the industry expert within the context of the NZ Transport Agency’s (NZTA) business processes.

Mandate

The industry expert’s role is established under the NZTA’s Cost estimation manual (SM014) which is mandatory across NZTA’s business.

Definitions

The industry expert is an individual with a support team who is able, from first principles, to estimate the risk-adjusted out-turn cost of a project at any point, but particularly at the scheme estimate stage of its developmental delivery cycle.

Objectives

The overall objective is to establish a high level of confidence in a project’s out-turn cost as estimated at the scheme estimate stage through:

1. establishing confidence in the definition of the full extent of the scope

2. gaining confidence in the schedule of quantities (item coverage, rates and quantities)

3. establishing confidence in the proposed construction methodology and programme

4. gaining confidence that the design represents value for money

5. gaining confidence that the risk register is robust and comprehensive, takes full cognisance of the scope (eg design development risks), includes both risks (downside) and opportunities (upside), and that the identified risks are quantified for consequence and likelihood of occurrence, and

6. provide increased confidence that all residual risks are identified, quantified and valued appropriately and subsequently analysed to achieve 95 percent confidence.

By meeting this objective the NZTA will be able to:

a. undertake optimal 10-year programming, and

b. meet performance requirements with respect to out-turn costs against construction estimate (CE), design estimate (DE) and scheme estimate (SE).

To achieve these objectives through the industry expert, we will:

a. ensure the industry expert is introduced into the cost estimating process at the appropriate time and that the consultant fully understands and accepts the industry expert’s purpose and role

b. ensure the industry expert works in parallel with the consultants developing estimates but that the consultant retains ownership of the estimate

c. clearly understand whether or not the consultant has provided the right amount of time and energy into the estimating process, and

d. validate an out-turn estimate (fully all risk inclusive).


Protocols

An industry expert will be appointed for each project by the NZTA to undertake the parallel estimate. Parallel estimates shall be prepared for all SEs during the investigation and reporting (I&R) phase of projects that have a construction phase estimate (excluding escalation but including management, surveillance and quality assurance (MSQA) and the NZTA’s costs) exceeding $20 million, and at other stages as deemed appropriate by NZTA’s project manager in accordance with the procedures set out in SM014.

The industry expert will be appointed at the time the preferred scheme is selected. The industry expert shall then work in parallel with the consultant until the SE is prepared.

The consultant will brief the industry expert on an as-required basis to provide an appropriate level of understanding of the project.

The industry expert shall interact with the consultant on the development of the scheme estimate, as opposed to reviewing the completed scheme estimate, which would be less efficient and may require costly rework by the consultant.

The industry expert shall report to the consultant responsible for the contract and copy to the NZTA’s project manager.

The industry experts shall attend regular briefings by the consultant and selected workshops (eg design development and review, value engineering, risk identification and assessment) either as observers or participants (as agreed). This will ensure that the industry experts gain the necessary level of understanding of key project issues, excluding discussions on project cost-related matters other than as specifically established in this methodology.

The NZTA’s commercial engineer shall be present at the initial briefing of the industry expert by the project team, and attend price exchanges and reconciliation, and generally have an overview of the process.

The industry expert shall have access to all relevant construction and contract-related material for the purpose of understanding the project.

The industry expert shall operate from an office separate from the consultant.

Industry expert’s output

An all risk inclusive out-turn cost estimate of a project. The estimate shall include:

1. design costs

2. MSQA costs

3. construction costs (including allowance for the constructor’s onsite overhead costs preliminary and general sts) and offsite overhead costs and profit (contractor’s margin), and

4. a contingency provision for the risks (including the opportunities), which shall be readily identifiable.

Two out-turn cost estimates shall be provided, including the expected estimate and the 95th percentile estimate.

The estimates shall exclude escalation provision unless specifically instructed otherwise by the NZTA’s project manager.

Design estimate (DE)

In theory the industry expert would not undertake a parallel estimate at the DE stage unless the scope of the scheme or some aspect changes significantly, meaning the SE no longer remains valid. In such cases the industry expert would re-estimate, from first principles, those components, which have changed and then update the balance of the items to current day costs using the NZTA’s escalation formula and appropriate indices.


While the NZTA migrates to full compliance with SM014 there will be cases where the DE is confirmed via the parallel estimating process of the industry expert. The objectives of the process remain unchanged except as noted below:

a. The level of detail supporting the estimate and the industry expert’s work will be greater, probably resulting in a greater time input by the industry expert.

b. The industry expert may be drawn into discussions on buildability where this is deemed appropriate.

c. The industry expert will be required to complete a fee estimate of their cost and time to undertaking the industry expert’s role.

d. The industry expert may also be engaged to carry out tasks not identified in the parallel estimate methodology but which the industry expert and the NZTA’s project manager agree are within the ability of the industry expert to undertake, such as reviewing any draft tender documents.

e. The requirement to include any escalation allowance in the DE shall be clarified with the NZTA’s project manager at an initial briefing.

Industry expert parallel estimate methodology

This methodology relates specifically to parallel estimates prepared in conjunction with SEs. The methodology for a parallel estimate prepared in conjunction with any other project phase (eg DE) will need to be customised to suit the specific objectives and requirements at that time.

This methodology shall be customised jointly by the industry expert and the consultant to suit the specific needs of the project, and its acceptance signed off by both parties and the NZTA’s project manager.

A parallel estimate will be undertaken in three phases:

1. preliminary

2. independent

3. reconciliation.

Preliminary phase

1. The consultant will provide the industry expert with information relevant to the parallel estimate process progressively and as soon as it becomes available. This information transfer continues up until a point to be agreed between the consultant and the industry expert at which time it will be ‘frozen’ and any changes will be dealt with by adjustment at the reconciliation meeting. Typically it would include the following:

a. Drawings and specifications for the work.

b. Schedules of quantities and any build-up of the quantities as would assist the industry expert in performing his task without compromising the independence of the process.

c. Proposed contractual arrangements such as the form and type of contract, basis of payment, risk sharing arrangements and any proposed special conditions of contract, which would ultimately affect the price of the works.

d. Investigation reports such as environmental, archaeological, traffic, geotechnical (both factual and interpretative), design, utilities reports and timeline-based work programme.

e. Outline plans and assessments of environmental effects (AEE) prepared in conjunction with a resource consent application, and any resource consent conditions if and when available.

f. Construction methodology plans and reports, eg earthworks mass/hauls, temporary traffic management plans, temporary works planning, and timeline programmes showing the subsequent D & DP phase, tender process and construction phase.


g. Market pricing if obtained for specialist or cost critical items such as abnormal pipe supply, specialist technical supply, eg post tensioning, soil nailing and wick drains.

h. Risk profile/register but excluding any allocation or evaluation of the likelihood of occurrence or the associated consequence. The purpose is to assist the industry expert in gaining a sufficient understanding of the project without compromising the independence of the cost estimating process.

i. Photos, including aerial photos with the project outline overlaid.

2. The general structure and basis of establishing the industry expert’s and consultant’s cost estimates is to discussed and agreed between the consultant and industry expert to ensure that the estimating methodologies employed are appropriate, and to ensure that the industry expert’s and consultant’s estimates can be directly compared during the reconciliation phase. For example, there needs to be a clear understanding of the composition of the preliminary and general, the inclusions in the direct work cost items, how specific work item contingency and unscheduled provisions (such as quality control testing, temporary traffic management) are to be handled, how and where the contractor’s onsite overhead, offsite overhead and profit provisions are to be incorporated in the estimate. The consultant and industry expert may adopt different methodologies for pricing individual work items (rating based on historical rates versus first principles build-up).

3. In general, the project design does not require being peer reviewed as part of the industry expert process. There may be situations where in order to establish confidence in the proposed design, key elements shall be peer reviewed. Where it is appropriate, a specialist design consultant shall be engaged for specific and selective tasks. The extent of any designer input into the process and selection of the design consultant will be agreed between the industry expert and the NZTA’s project manager. These could relate to the following:

o Assisting in assessing and evaluating the risk profile for the works in relation to work scope, design adequacy and detail, and scope definition.

o Input into value engineering exercises on key components of the works (eg a major structure).

o Estimation of the MSQA costs for input into the industry expert’s base estimate.

4. The industry expert will undertake a thorough review of the proposed timeline programme for the project including detailed design and construction phases. Agreement on the programme is considered to be fundamental to reconciling the SE and so is to be established as soon as possible. Agreement on the methodologies and management plans is not considered essential and the industry expert will base SE on their own assessments that may or may not correspond with those of the consultant.

5. The industry expert will review the scope of the proposed works, and confirm with the NZTA’s project manager that it fully satisfies their expectations.

6. The industry expert must then check that the elemental breakdown, or schedule of quantities, accurately reflects the intended work scope, and how risks and contingencies are managed within the schedule of quantities. Detailed take-offs and worksheets backing up the schedule of quantities for earthworks by material classification, concrete, formwork and resteel will be made available to the industry expert. A random audit of the quantities for high-risk/high-cost items should be undertaken. The method of measurement and basis of payment should be reviewed and commented on. In addition the composition of the preliminary and general section of the schedule of quantities shall be reconciled with the consultant.

7. All scoping documentation and briefs issued by the consultant to utility companies and the corresponding cost estimates received in response will be provided to the schedule of quantities. Random verification of key items should be undertaken.

8. The NZTA will provide to the industry expert the amount to be included in the parallel estimate for the NZTA-managed costs as defined in SM014.

9. The consultant shall provide the project risk register to the industry expert (excluding risk amounts, and probabilities of occurrence, consequences and valuations).


10. Other than to the extent described above, there is to be no discussion on actual pricing allowances prior to the reconciliation meeting.

Independent phase

1. The industry expert will independently develop and value the base estimate on the basis set out above.

2. The industry expert’s resource and time constraints will require them to focus on the high-cost and high-risk items. Other items may be priced on an elemental, parametric or historical rate basis using recent contract priced schedule rates made available by the NZTA.

3. The industry expert shall estimate items within the preliminary and general section from first principles based on the agreed work programme, with each item composition having been agreed between the industry expert and consultant during the preliminary phase.

4. The industry expert will independently estimate the cost of subsequent design and MSQA phases. If required, an independent design consultant experienced with the NZTA’s roading projects may be used to assist. This shall be considered subject to prior discussion and approval from the NZTA’s project manager.

5. The industry expert shall independently review the risk register to determine an appropriate level of risk. Using the consultant’s risk register as a reference, the industry expert shall independently establish a risk profile (register) and evaluate the risk contingency provision to be included in the estimate. The industry expert is free to add to or amend the risk schedule provided by the consultant.

The NZTA requires the quantification of two project out-turn costs, the expected estimate and the 95th percentile estimate. The Monte Carlo software programme may be used for this purpose in conjunction with the industry expert’s professional judgement to arrive at the contingency and funding risk provisions to be included in the expected and 95th percentile estimates. The analysis must take into account the allocation of the risk (between the NZTA and contractor), and the ability to manage or mitigate the ‘downside’ risk and/or realise the potential ‘upside’ opportunities, both of which are significantly influenced by the proposed procurement method and the conditions of contract (including any special conditions of contract).

Reconciliation phase

1. The industry expert, consultant and the NZTA’s project manager will meet at a predetermined date and time to exchange their summary schedules of the base estimate.

2. The NZTA’s expectation is that the two estimates will be reconciled to reach agreement on allowances for all key items and sections of the estimate. Any problems that arise which prevent reconciliation in the agreed time frame shall be reported to the NZTA’s project manager.

3. The consultant is responsible for compiling a report to the NZTA setting out the outcomes of the reconciliation process including the agreed summary schedule of prices, any unresolved monetary differences for key items or part of the works, with explanatory comment, conclusions and recommendations.

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