Manual Estimation

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Cost Estimation Manual Manual Number SM014

Issue 2 June 2003 Printed 17/06/03

Cost Estimation Manual

Manual Number: SM014

Status: Issue 2 May 2003

Manual Owner: Procurement Manager

Transit New Zealand

PO Box 5084

WELLINGTON

NEW ZEALAND

Telephone: (04) 499 6600

Facsimile: (04) 496 6666


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Issue 2 June 2003 Page i ofix Printed 17/06/03

Foreword

Working Towards Better Estimates

The cost estimate for capital projects is a vital factor in the development and management ofNew Zealands state highway network. Determining a projects priority within the National

Land Transport Programme, selecting a preferred design solution, ensuring projects arecompleted at the optimum time and securing funding, all hinge on the cost estimate. Thatcost estimates are accurate, is critical.

The Better Estimates project is a partnership initiative of Transit, Transfund and ACENZwhere we have joined forces to enhance skill levels within the industry to achieve greater

accuracy. This comes at a time when the price of inconsistent cost estimating performancehas proven to be high.

In thoroughly reviewing industry practice, we see evidence of inconsistency reflected in:

cost estimates increasing as projects develop through their life cycles residual risks either not adequately identified and managed or being treated

inconsistently

design estimates exceeding scheme estimates and out-turns exceeding design budget.Cumulatively, improvements in each of these areas has the opportunity to lead to the very

limited funds available for roading projects being invested in the best projects and the bestoptions for projects. This is the overarching aim of the Better Estimates partners. Morespecifically the projects objectives are to:

review cost estimating practices and define key policies for this manual ensure cost estimates are accurate right from the earliest stages in the project life cycle ensure cost estimates are focused on out-turn costs (that they account for both known

and unknown risks)

standardise the structure of all cost estimates on the same elemental basis so we cancompare current and past projects

build the industrys reputation for reliable and complete cost estimates.

Highly skilled teams have tackled each of these Better Estimates objectives, eachcontributing their specialist knowledge to this important project. Their efforts will ensurethat we as an industry achieve the desired progress in this important area.

Their work so far sees the revision of the definition of estimate types with titles moreaccurately reflecting their purpose and with an added emphasis on strong and consistent risk

management. The scoping of projects is confirmed as the foundation for accuracy, togetherwith bolstered requirements for constant monitoring and recording of any changes and theirimpacts throughout the project life cycle. We have defined what we expect in terms of

estimate confidence, introducing and defining the 95 percentile Estimate and Expected


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Estimate. The way we use these estimates helps to make clearer the role they play in theprogramming and funding of projects.

WhileBetter Estimatesplaces the responsibility for cost estimation with the consultant, thisproject is focused on the efforts of all the partners working together. The guidelines

contained in this manual clearly show that consultants will be supported in their task byrobust procedures. The Better Estimates team is excited about the web-based traininginitiative which complements the manuals release.

This manual forms a core component in our efforts to build the cost estimation skills of our

industry. Our success in these efforts will see funding invested in the right projects at theright time something all New Zealand road users have an interest in. I encourage you to

invest the time in learning about the developments both now and as further enhancementsare included over time. This competency will rapidly become an expected pre-requisite forthose involved in the development of Transit projects.

Rick van Barneveld

National Highway Manager


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Preamble

The content of the Cost Estimation Manual is based on Transits 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 ensurecontinuous improvement in best practice.

While all care has been taken in formulating this manual, the Transit Authority accepts noresponsibility 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 ofcircumstances.

Copyright in this manual remains with Transit New Zealand. No reproduction of thecontents of this manual is authorised in whole or part. Communications about this manual

should, in the first instance, be directed to Transit New Zealand ([email protected]).


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Issue 2 June 2003 Page iv ofix Printed 17/06/03

Cost Estimation Manual

Amendment Control Sheet

This document is a controlled document as defined in the Transit Corporate ServicesManual. It is therefore subject to review and amendment from time to time. Amendmentswill be recorded on this Amendment Control Sheet. Amendment Notices, detailing thechanges, 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 protected] with your contact details: name, organisation and email address.Please ensure that you notify Transit of any subsequent changes to these contact details.

All individuals seeking to rely on, or implement, the Transit Cost Estimation Manual, or anyother manual referred in this document, have a duty to ensure they are familiar with the mostrecent amendments.

AmendNo.

Subject EffectiveDate

UpdatedBy

Date

1 General update 12 May 03 Susan Chamberlain May 03


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Issue 2 June 2003 Page v ofix Printed 17/06/03

Manual Management Plan for Cost Estimation

Manual SM 014

Date of Issue: May 2003Manual Owner: Susan Chamberlain (Procurement Manager)Sponsor Endorsement: Rick van Barneveld (National Highway Manager)

1. PurposeThis is the Manual Management Plan for the above SHMD Manual. (In accordance withTransits ISO 9001 Quality System).

2. Document information

Manual Name Cost Estimation Manual

Manual No. SM 014

Regional Champions Regional Project Managers

Review Team Members Colin Crampton, Susan Chamberlain

3. Amendment and Review StrategyAll Corrective Action/Improvement Requests (CAIRS) suggesting changes will beacknowledged by manual owner.

Comments FrequencyAmendments(of minornature)

Incorporation in Annual Review mayrequire co-ordinating with BPG or Transit

Authority Submission timetable.

As required. No more thanannual, date to be agreed

with sponsor.

Review(majorchanges)

Amendment fundamentally changing thecontent or structure of the manual will be

incorporated as soon as possible. Mayrequire co-ordinating with BPG or TransitAuthority Submission timetable.

As Required

4. Other Information

There will be occasions, depending on the subject matter, when amendments will need tobe worked through by a Best Practice Group under the direction of the Review Teambefore the amendment is actioned. This may cause some variation to the above notedtimeframes.

Special Instructions: Copies of Manual Management Plan are to be included in the Manual itself and on

the Intranet at the next opportunity and sent to:

National Quality Manager (NQM)

Sponsor

Review Team Members

Corporate Services Manager (CSM)

Regional Champion

Office File


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Issue 2 June 2003 Page vi ofix Printed 17/06/03

Contents

Foreword i

Preamble iii

Amendment Control Sheet iv

Manual Management Plan for Cost Estimation v

Contents vi

Index of Figures ix

Part A Introduction 1

1 Introduction 1

1.1 General 1

1.2 Manual Background 4

2 Terminology and Abbreviations 5

2.1 Terminology 5

2.2 Abbreviations 10

3 Project Definition 11

3.1 General 11

3.2 Project Life Cycle 11

Part B Roles and Responsibilities 14

4 Roles and Responsibilities 14

Part C Procedures 17

5 Estimate Use 17

5.1 Purpose of Cost Estimates 17

6 Estimates 19

6.1 General 19

6.2 Resource Input for Estimates 20

6.3 Estimate Responsibility and Ownership 206.3.1 Estimate Responsibility 20

6.3.2 Estimate Ownership 21


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6.4 Consultant Performance 21

6.5 Project Scope 21

7 Escalation 22

8 Land and Property 238.1 Property Purchase 23

8.2 Nett Property Cost 238.2.1 General 238.2.2 Nett Property Costs 248.2.3 Property Compensation Costs 248.2.4 Property Owner Accommodation Works 25

8.3 Total Property Costs 25

8.4 Property Acquisition Fees 25

9 Risk Analysis and Assessment of Contingency 27

9.1 General 27

9.2 Terminology 27

9.3 The Application of Risk Analysis or Assessment of Contingency 28

9.4 Assessment of Risk Impacts 29

9.5 Analysis of Risk Impacts 299.5.1 Risk Identification 299.5.2 Risk Likelihood 299.5.3 Risk Consequence 309.5.4 Distribution 309.5.5 Correlation 319.5.6 Results 319.5.7 Sensitivity 31

10 Reporting Estimates 32

10.1 General 32

10.2 Elemental Breakdown 32

10.3 Estimated Costs 3310.3.1 Estimated Property Acquisition Costs 3310.3.2 Summary of Estimated Costs 33

10.4 Funding Applications 33

10.5 Accrual Reporting 33

10.6 Management of Contingency 3410.7 Transit Elemental Cost Model 35

11 Estimate Audit Trail 36

11.1 General 36

11.2 Estimate Updates 3611.2.1 Estimate Stage Updates 3611.2.2 Other Updates 3611.2.3 Quarterly Updates 3711.2.4 Monthly Reports 37

12 Peer Reviews and Parallel Estimates 38

12.1 General 38


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12.2 Internal Peer Reviews 38

12.3 External Peer Reviews 38

12.4 Parallel Estimates 39

Part D Guidelines 41

13 Estimate Guidelines 41

13.1 Schedules of Prices 41

13.2 Use and Application of Historic Rates 41

13.3 Transit Managed Costs and Consultancy Fees 43

13.4 Buildability 44

13.5 Preliminaries and General 45

13.6 Earthworks 45

13.7 Services Relocation and Protection 46

13.8 Temporary Erosion and Sediment Control (ESC) 46

Appendices 47

Appendix A: Policy Statement 48

Part 1: Cost Estimation 49

Part 2: Programming and Funding 50

Appendix B: Example of Cost Estimation Manual Procedure 51

Appendix C: Example Elemental Breakdown for Construction Costs Form 59

Appendix D: Example Estimated Costs Forms 64

Appendix E: Example Funding Application Forms 72

Appendix F: Example Cashflow/Accrual Reporting Form 76

Appendix G: Example Cost Reporting/Management of Contingency Forms 78

Appendix H: Elemental Costings 82

Appendix I: Escalation Calculation Example 90

Appendix J: Cost Escalation Indices 94

Appendix K: Example Peer Review Form 96

Appendix L: Cost Estimate External Peer Review Methodology 98

Appendix M: Transit Estimate Peer Reviewers and Industry Experts 103

Appendix N: Parallel Estimate Methodology 108


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Issue 2 June 2003 Page ix ofix Printed 17/06/03

Index of Figures

Figure 1: Traditional and Design and Construct Contract Delivery Timeline with EstimateDeliverable 12

Figure 2: Project Management Structure cntd. 16

Figure 3: Purpose, Confidence Levels and Documentation for Estimates 19

Figure 4: Estimate Life Cycle with Indicative Uncertainty Curves 20

Figure 5: Risk Analysis Terminology 28

Figure 6: Use of Assessment or Analysis 28

Figure 7: Contingency Management 34

Figure 8: Example Project Property Cost Forms 55

Figure 9: Example Pre-design Estimate Form 57


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Issue 2 June 2003 Page 1 of 113 Printed 17/06/03

Part A Introduction

1 Introduction

1.1 General

1.1.1 PurposeThe purpose of this manual is to outline the minimum requirements in preparing project costestimates for Transit New Zealand (Transit).

1.1.2 Objective

The primary objective of this manual is to ensure the consistent application of estimatingprocedures on Transit projects.

1.1.3 Manual StatusThis manual has the status of a Standard as defined in Transit New Zealand's Standardsand Guidelines Manual. The authority to amend or vary the manual has been delegated tothe Sponsor of this manual. This manual is a controlled document in accordance withTransits Corporate Services Manual.

1.1.4 Intended Manual UsersThis manual is intended to be a used by anyone preparing estimates for Transit.

1.1.5 Communication and Amendment ControlManual users may communicate via email at the address given on the amendment controlsheet. All amendments to this manual will be documented in the record of amendments tableat the start of this manual.

1.1.6 Manual Review ProcessThe manual owner is responsible for the review and update of this manual; the review will

be carried out in conjunction with Transits Capital Best Practice Group. The purpose ofreviews is to allow feedback from our suppliers, and Transit regions, and 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 regionaloffice contact, who will determine the appropriate course of action, or via email to theaddress given on the amendment control sheet

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 Transits consultants and registered manual holders will be informed of thechange and issued with the new manual.


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1.1.7 Interrelationships with other manualsThis manual contains Transits procedures for preparing cost estimates. In addition

consultants shall refer to other Transit manuals, standards and guidelines including, but notlimited to the following:

a. SM011 Transit New Zealand Project Management Manual;

b. SM018 Transit New Zealand Annual Plan Instructions Manual;

c. SM021 Transit New Zealand Contract Procedures Manual;

d. SM030 Transit New Zealand Professional Services Contract Pro Forma Manual;

e. Transit New Zealand Long Term Procurement Strategy;

f. Transfund New Zealand Programme and Funding Manual;

g. Transfund New Zealand Project Evaluation Manual.

1.1.8 Document Availability

SM014 is available, in .pdf form on the Transit website (www.transit.govt.nz). SM014 example forms are available to Transits consultants in MS Excel format via the

Transit project manager responsible for their commission.

The example forms are held on the Head Office server (filepath T:\common\Manualsand Forms\SM014\file name).

SM014 is available to Road Controlling Authorities (RCAs). RCAs should contact, inwriting, the manual owner at Transit head office. A cost may apply.

1.1.9 FeedbackTransit welcomes feedback about this manual. Please send feedback via email to

[email protected], alternatively complete the following feedback form and fax toTransit.


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Cost Estimation Manual Feedback Form

To SM014 Manual Owner, Transit New Zealand

Attention Susan Chamberlain

Fax Number: 04 499 6666

Subject: SM014 Cost Estimation Manual Feedback Form

From (Name & Company)

Contact Number

Contact email

Contact Address

Manual Reference

Comment and/orDescription of problem

Describe what you wouldlike to happen / suggestchange

Feedback ID

(For internal use only)

Action

(For internal use only)


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1.2 Manual Background

The Cost Estimation Manual has been produced jointly by Transfund, Transit and ACENZ.

These organisations have an interest in the accuracy of cost estimates for roading projectsand have agreed a set of policies that are the basis of this manuals guidelines (see AppendixA).

Transfund is a Crown entity established by the Transit New Zealand Amendment Act 1995.Transfunds role is to allocate funds to achieve a safe and efficient roading system. Each

year it approves and purchases a National Land Transport Programme based on the fundingapplications received from Transit, territorial authorities, regional councils and others.

Transit is a Crown entity established under the Transit New Zealand Act 1989. Theprincipal objective of Transit is to operate a safe and efficient state highway system.

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

Transit owns and manages this manual, which supersedes the Transit Management ofContingency Allowances for Capital Works Projects Manual SM014. Every person

producing, reviewing or submitting estimates for a Transit project must do so with referenceto 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 guidanceon 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 underany procurement method.

The principles of estimating can be applied to Block and Non-Block Funded Projects.

Internal and external peer reviews and independent parallel estimates conducted byexperienced practitioners are a vital element of the estimation process. This manual also

provides guidance as to the timing and requirements of these processes.


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2 Terminology and Abbreviations

2.1 Terminology

The following terms are used throughout this manual.

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

Base Estimate The total sum of the elements that make up an estimate. For example, inphysical works, it is the sum of the calculated quantities from a drawingmultiplied by the current market rates for each work item.

BenchmarkEstimator

Benchmark Estimator Roadworks Strategic Manageris a resource-basedestimating software package that will be used by Transit to validate FEs.

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

parties.

Contingency An additional allowed cost for known/unknown risks between the Base andExpected Estimates. This may also be referred to as the Risk Contingency

or an allowance to cover the statistical mean of risks and opportunities.

ElementalCosting Estimates of project out-turn costs prepared using composite rates formajor components of a project.

Escalation An additional allowance to cover for inflation.

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 95 thpercentile Estimate.

Generally, these estimates are prepared using elemental costs. Major risksmust be identified and their impact on the out-turn cost assessed and

included in the estimate.

Benchmark Estimator/elemental cost information will be used to review

the FE. Transits Contract Coordinator will manage this process.


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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 an out-turn cost estimate and an engineers estimate1for each

physical works contract is derived from the DE, prior to issuing the tender

documents. The engineers estimate is to reflect the expected tender priceand will be used for making comparisons during the tender evaluation

period.

Construction Estimate (CE) prepared during the tender evaluationperiod and updated 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 an out turn cost estimate and does not focus solely onconstruction costs.

The CE includes an Expected Estimate and a 95 thpercentile Estimate. TheCE also includes escalation and information received during the physical

works tender process. All risks must be reviewed, based on the preferredtender and any new issues that arise from the selection of the physicalworks contractor. The impact of these risks on the out-turn cost must be

assessed / analysed 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 includedwhen they submit the CE.

1 Engineers estimate an estimate based on the tender documents where the consultant rates the Schedule of Prices.


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ExpectedEstimate

The base estimate plus an allowance for contingency calculated accordingto the guidelines in this manual. Contingency is based on:

an assessment of the expected cost impact of risk [OR] a risk analysis to calculate the statistical average (mean) of the cost

impact of risk.

Note: Escalation is excluded from the Expected Estimate, unless stated

otherwise (for example, escalation is included for funding applications).

FundingApplications

Funding applications are required for these phases of a project:

I&R D&PD Construction (MSQA and physical works).All funding applications include Expected and 95

th

percentile Estimates.Escalation is added to these estimates (for funding applications).

Transit also needs Expected and 95thpercentile Estimates (includingescalation) for the purchase of property interests required to build the

project.

Funding Risk An additional allowed cost for known/unknown risk between the Expected

and 95th percentile Estimates. This may also be referred to as the 95thpercentile risk contingency or an allowance to cover the differencebetween the statistical mean and the statistical 95% percentile of risks andopportunities.

Out-turn Cost These costs include all actual costs. The only exclusions are GST and anyTransit administration and overhead costs. Transit managed costs, as

defined below, are to be included in the out-turn cost.

Project CostCentre

Cost centre for project costs, excluding property acquisition (as defined inProject Property Cost Centre below) but including property owneraccommodation works that form part of the physical work contract.

ProjectProperty 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 againstthe project cost centre) and professional services costs (includingvaluations, legal surveys and management costs).

Sunk Costs Costs irrevocably committed which have no salvage value or realisablevalue (for example investigation, research and design costs alreadyincurred). Sunk costs are included in an out turn estimate or cost but are

not included in economic evaluations.

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

sunk cost.


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TransitManaged

Costs

Includes all project costs incurred by Transit that are not managed by theconsultant and that are not part of Transits administration costs. These

may include:

Miscellaneous out-source costs not included elsewhere, e.g. partneringfacilitation costs

Out-of-office costs during the project, e.g. travel and accommodationcosts related to the project

Hire of external meeting venues and catering.The Transit project manager will provide these cost estimates to theconsultant responsible for the project estimate.

95thPercentile

Estimate

The Expected Estimate plus an allowance for funding risk, calculatedaccording to the guidelines in this manual. Funding Risk is based on

either:

a 95thpercentile assessment of the cost impact of risk [OR] a risk analysis to calculate the statistical 95thpercentile cost impact of

risk.

Note: Escalation is excluded from the 95thPercentile Estimate, unless

stated otherwise (for example, escalation is included for fundingapplications).


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2.2 Abbreviations

ACENZ Association of Consulting Engineers New Zealand

AEE Assessment of Effects on the EnvironmentBCR Benefit Cost Ratio

CE Construction Estimate

CI Cost Indices

D&PD Design and Project Development

DE Design Estimate

FCWP Forward Capital Works Programme

FE Feasibility Estimate

I&R Investigation and Reporting

LTPS Transit Long Term Procurement Strategy

MSQA Management, Surveillance and Quality Assurance

NLTP National Land Transport Programme

NOR Notice of Requirement for Designation

OE Option Estimate

PADS Property Acquisition and Disposal System

PE Pre-design Estimate

PEM Transfund Project Evaluation Manual

PFM Transfund Programme and Funding Manual

PFR Project Feasibility Report

PROMAN Project Management System

SAR Scheme Assessment Report

SE Scheme Estimate

SEP Schedule of Elemental Prices

Transfund Transfund New Zealand

Transit Transit New Zealand


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3 Project Definition

3.1 General

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

follows:

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, as follows, for each of the above six cost estimates:

1. the Expected Estimate (i.e. on average, across the State Highway Programme, abouthalf of the time the out-turn cost will come in under the expected estimate and abouthalf of the time the expected estimate will be exceeded)

2. the 95th percentile Estimate (i.e. 1 in 20 times the 95 th percentile estimate will beexceeded).

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:

Project feasibility Investigation and reporting

Scoping

Scheme assessment and/or assessment of environmental effects

Notice of requirement for designation

Design and project documentation Construction (MSQA and physical works).Transit applies hold points at various stages of a project, typically at the end of each of theabove phases and at other critical milestones. For the success of the project reliable costestimates are required at each of these hold points.

The following diagram of timelines shows the project stages from inception to completion

for traditional and design/construct procurement models and how estimates fit into thelifecycle.


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PFR PFR

Traditional Contract Design and Construct Contract

I&R I&R

I&R I&R

D&PD

D&PD

Tender

Tender

Construction

Design and

construct

OUT-TURNCOST

OUT-TURN

COST

FE

(optional)

OESE

PE

Detailed DesignDocumentation

DE

CE

FE

(optional)

OESE

PE

Specimen DesignPrincipals Requirements

DE

CE

T

I

M

E

Figure 1: Traditional and Design and Construc t 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 towhich it relates. During the earliest phases of a project more than one OE may be preparedto allow for a number of potential solutions for the project.

Projectfeasibility

The project feasibility stage concludes with the production of a PFR andan associated FE. Usually the FE is based on limited knowledge of the

project.

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

Notice of Requirement for Designation is lodged.

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

D&PD Once an option is approved it will progress to detailed design. At theend of this phase a DE is produced and used to secure construction


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phase funding.

Construction During this phase the design is tendered out to the market. After receiptof tenders and before the contract is awarded, the estimate will be

revised to a CE, which the Transit project manager and the consultantthen manage until completion of the project.


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Part B Roles and Responsibilities

4 Roles and Responsibilities

Each project shall have the following management structure.

The Transit project manageris responsible for:

checking that the estimate has been produced according to the guidance given in thismanual

implementing external peer reviews and parallel estimates at appropriate times providing cost information for Transit-managed costs on previous project expenditure benchmarking estimates against elemental cost data.The consultant team leaderis responsible for:

establishing the scope of work in consultation with the Transit project manger 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

reconciliating differences with external peer reviewer and independent estimator.

See Figure 2 for a flowchart of the complete project management structure of a project fromPFR to completion.


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Transfund Transit Consultant Phase Estimate

Consider I&R funding

Commission PFR

Accept FE

Prepare funding request

Produce PFR

Produce / review FEPFR

FE

Approve I&R fund ing

Consider D&PD funding

Commission I&R

Accept SE

Check SE is produced inaccordance with manual

Is SE < $5M

Yes No

Is SE > $50 M

No Yes

Peer review

Parallelestimate

Confirm SE

Confirm Designation


Commence I&R

Produce / review OE

Produce scoping report

Complete SAR / AEE

Produce / review SE

Produce / review PE

I&R

OE

SE

PE

Figure 2: Project Management Struct ure (cntd . over)


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Transfund Transit Consultant Phase Estimate

Approve D&PD fund ing

Consider construction funding

Commission D&PD

Accept DE

Check DE is produced inaccordance with manual

Is DE < $5M?

Yes No

Peer review

Is DE < $50Mand

Has the project undergone asignificant scope change?

orWould the project benefit from a

parallel estimate?

Yes No

Parallel estimate

Confirm DE


Commence D&PD

Produce DE

Complete D&PD

Complete/review DE

D&PD

DE

Approve con str uction funding

Consider additional funding

Approve additional funding

Commission MSQA

Accept CE

Is funding sufficient?

No Yes

Forward elemental costs toTransit Contracts Coordinator

Commence MSQA

Tender / evaluate

Produce / review CE

Award contract(s)

Manage/complete contract(s)

Confirm out-turn cost

Complete Transit elementalcosting model

CONSTRUCTION

CE

OUT-TURNCOST

Figure 2: Project Management Structure (cntd.)


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Part C Procedures

5 Estimate Use

5.1 Purpose of Cost Estimates

Cost estimates are required for:

financial planning programming option selection

project specification funding approval committing contractsFinancial Planning:Transfund and Transit require cost estimates of all projects in Transitslong-term programme to help with financial planning. Transfund and Transit require

expenditure forecasts so they can advise Government of long-term revenue requirements andfor Transit to arrange alternative funding where appropriate.

Once a particular project is identified and a PFR completed, the project is programmedaccording to its priority. Transit manages a FCWP using its PROMAN reportingmanagement system. The FCWP is continually updated as more information on individual

projects is gained and as project priorities change. Any changes to a project estimate arereflected in a change to the FCWP. Each phase of each project is included in the FCWP soreliable estimates of each phase are therefore required. The Expected Estimate will be used

in the FCWP and for long-term financial planning.

Programming: As the Crown agency responsible for managing and developing the statehighway network, Transit works to achieve government priorities. Because of the limitedfunding available for roading projects Transit uses prioritisation processes based on the NewZealand Transport Strategy and the BCR formula to determine the optimum timing of

projects to give effect to these priorities. Transits use of the BCR requires reliableestimates of cost throughout the development of projects so that they can be advanced forinvestigation, design and ultimately construction at the optimum time.

The Expected Estimate will be used in the economic analysis. The consultant must

undertake a sensitivity test of the BCR using the 95thpercentile Estimate.

Option Selection:The cost estimates of options are used to select the preferred option forthe development of each project. In particular, reliable estimates are required of the

differences in option costs to compare with the differences in option benefits. Estimates ofthe costs of options are generally required during the investigation phase, initially where

options are being short-listed and later when the preferred option is being selected.


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Project Specification:Transit uses cost estimates to help determine appropriate standardsand mitigation measures to be adopted for each project.Funding Approval: Transit requires reliable cost estimates in order to seek funding

approval for these phases: I&R D&PD Construction (including MSQA).The funding allocation for each phase is based on the Expected Estimate includingescalation. The cashflow forecasts are based on the Expected Estimate of expenditure in

each year. Each funding allocation must also advise the 95thpercentile Estimate includingescalation.

Committing Contracts: The cost estimate is updated once tenders are received andevaluated. By this time, any pricing risk has been closed out and some risks may havechanged as a consequence of tender offers. Cost estimates need to be updated following

selection of preferred tenders to adjust funding allocations, if necessary, and makeappropriate contingency provisions.

Cost Control: To maintain optimal programme performance, cost estimates includingannual cashflows need to be continually updated during project delivery. Good cost controlis demonstrated through regular update of the cost estimate during project delivery.


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6 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.

Phase Type Purpose of Cost Estimate Confidence Level Input / Output Documentation

PFR

Long term financial planning

Optimising timing of projectdevelopment

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 done inPFR to produce more definedscheme and a more reliable FE.

Expected Estimate and 95thpercentile Estimate

Contingency and fundingrisk based on assessmentof risks

Input:

Risk management process commenced

Transit to use Benchmark Estimator as yardstick

Output:

Project feasibility report

I&R

OE

SE

PE

Confirm strategy

Project definition

Optimising timing of projectdevelopment option selection

Determine when to design andconstruct

Obtain funding for design andproperty


Contingency and fundingrisk based on assessmentor analysis of risks

Input:

Risk management process continued

Transit to use Benchmark Estimator as yardstick

Value management

Output:Report(s) detailing differences between FE, OE and SE

Monthly reporting

Quarterly estimate updates

Scoping Report (if required)

SAR / AEE

Land Designation Conditions

D&PD

DE Confirm project

Optimising timing of projectdevelopment

Project specification

Obtain funding for construction

Determine when to construct

Committing contracts



Input:


Value engineering

Output:

Report detailing differences between PE and DE

Monthly reporting

Quarterly estimate updates

Project documentation

Construction

CE Reassessing contingency andrisks

Managing cashflow

Reviewing allocation

Tender price is baseestimate



Input:


Output:

Report detailing differences between DE and CE

Accrual reports

Contingency management reports

Out turn cost

Figure 3: Purpose, Confidence Levels and Documentation for Estimates


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

FE OE SE PE DE CECost

ProjectCompletion

Timeline

Expected Out-turn Cost

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. Whenplanning or pricing consultancy services, the consultant must allow for sufficient time andresources to reflect the importance of the 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 phaseestimate(s), the consultant is to provide the previous estimate, having updated it to include

any 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.

Transits project manager will provide all actual cost information from the previous projectphase(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.


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6.3.2 Estimate Ownership

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

6.4 Consultant Performance

ACENZ and Transit have agreed that Transit will assess the performance of consultantsbased on their track record in estimating costs. Transit will therefore monitor cost estimates

against subsequent estimates and final out-turn costs.

Transfund intends to publish the accuracy of estimates. The pricing indicator of estimatingperformance will be the construction cost estimate at out-turn and the DE measured againstthe SE.

Transfund will also measure the out-turn cost against the FE although this will not be aperformance measure. While it is inherently recognised the FE is based on an educatedguess particularly for larger transportation problems, the industry needs to note the FE is

used to allocate I&R funds.

6.5 Project Scope

The starting point for any estimate is definition of the project scope. Scope definitionrequires an understanding of the project objectives and the means by which those objectiveswill be delivered. The amount of information available and hence the degree of scopedefinition achievable, varies depending on the phase of the project.

Definition of project scope is an important aspect of producing a reliable estimate. It isessential that, even at the Project Feasibility phase, the project scope is known and

understood in sufficient detail to allow the production of a meaningful estimate. Anychanges in scope 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, an increasein the extent of work on local side roads. If this is impractical, consultants must qualify

project estimates or specifically exclude these items from the project estimate so that Transit

and Transfund can fully understand the limitations of the current scope of works andtherefore the project estimate.

Transit also wishes to monitor the variations between FE and out-turn across the project

portfolio.


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7 Escalation

Escalation is an additional allowance to cover for inflation.

Transit provides the economic information consultants are to use to calculate escalation.

Escalation is calculated cumulatively over the predicted life of the project and consultantsneed to assess escalation with respect to the timing of project delivery and expectedcashflow. Escalation shall be applied from the base date of estimate preparation through tothe expected completion of the phase that funding is being requested for.

Escalation is applied to the Expected and 95th percentile estimates for all fundingapplications. See Appendix E for an example funding application form.

To be consistent with Transfunds PEM, escalation is excluded from any economic analyses(BCR).

Expected estimates, without the addition of escalation, shall be used for long termprogramming purposes. Transit will escalate expected estimates to common base dates forportfolio analyses and update them by index adjustment at dates to be agreed withTransfund.

Expected estimates with the addition of escalation shall be used for allocating professionalservices (I&R and D&PD) and construction funds.

Transit will provide consultants with the appropriate cost indices.

See Appendix I for an escalation calculation example and Appendix J for Transits costescalation indices.


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8 Land and Property

8.1 Property Purchase

Transit 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 the above cost centres.

Applications to Transfund for Project Cost Centre funding normally exclude any costs

associated with property purchase (e.g. valuations, legal surveys, management fees,

acquisitions and compensation) but normally include property owner accommodation worksto be undertaken as part of the project physical works contract.

Transit is block funded nationally for property acquisition and any Project Property CostCentre needs to be prioritised within this fund. Nevertheless, property purchase costs are an

important component of a project cost and Transit has its own system PADS to managethese costs.

Property interests are purchased by the Crown so that Transit can carry out its statutoryfunctions and responsibilities in developing New Zealands state highway network.Currently, those interests are acquired using the provisions of the Public Works Act 1981.

The Acts provisions take a number of forms but primarily involve the acquisition of thefreehold or leasehold title. Acquisition of these interests and the settling of compensationissues normally involve costs that need to be included in the project cost estimates.

Transit uses the services of specialists in the Public Works Act to conduct Crown propertyacquisition negotiations. This ensures that property owners are correctly informed of theirrights. As described in SM030, Transit project managers, consultants and property advisersare 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.

8.2 Nett Property Cost

8.2.1 General

Property costs required for the project estimate and the projects economic evaluation can bedivided into:

Nett Property Costs


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Property Compensation Costs (refer to section 2 for definition) Property owner Accommodation Works Costs (refer to section 2 for definition).The Nett Property Cost shall be included in the total project out-turn cost and therefore

updated in parallel with the project estimate phases.

8.2.2 Nett Property Costs

Nett property cost is defined as the market value, at the base date, of any property purchasedor required to be purchased for a project, less the market value of any surplus property. i.e.

Nett Property only includes the corridor required.

For economic evaluation purposes, the Transfund PEM states that where property has to beacquired, its resource cost is assumed to equate to its market value2. Similarly, where

property becomes available for disposal, it is included as a cost saving in the economicevaluation.

Property already purchased for a project shall be included in the project estimate at itsmarket value at the base date.

8.2.3 Property Compensation Costs

In certain circumstances the Public Works Act considers other losses apart from the marketvalue 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 nottoo 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 relevantcompensation costs and make due allowance in the estimates.

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


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It may be necessary to also compensate for disturbance and/or damage to various interestsresulting 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

During the property acquisition process, Transit may agree to carry out works as part of aproperty purchase or compensation agreement. For instance, an agreement might requireTransit 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 compensationentitlement. 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 befunded from the Project Cost Centre.

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

8.3 Total Property Costs

At the outset of a project, Transit needs to understand the amount of funding necessary to

purchase the property required for the project. This is needed to set the budget for theProject Property Cost Centre and for programming purposes. This allows Transit to

collectively consider all Project Property Cost Centres competing for funding and makedecisions 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 theroad corridor required. In these cases the remaining property will at some stage be declaredsurplus and sold. The realisable value of the surplus property is not credited to the particularProject 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 Transit property purchase agent.

8.4 Property Acquisition Fees

Property acquisition fees may include:

Property acquisition agents fees Other professional fees e.g. Transits legal, valuation, specialists, survey fees Land Information New Zealand (LINZ) title and other disbursements Advertising e.g. section 23 notices


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All of these fees shall be separately and individually identified in the I&R, D&PD andConstruction estimates under Consultancy Fees. Note that as these are property purchase

costs, they will normally be funded from the Project Property Cost Centre.


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9 Risk Analysis and Assessment of Contingency

9.1 General

Transits Minimum Standard Z/10 Guideline (Transit manual SM030) describes the best

practice risk management procedures required for Transit capital works projects. Thismanual is supplementary to those guidelines.

For cost estimation, risk is the chance of something happening that will have a beneficialor detrimental impact on the final out-turn cost. Both the consequence and likelihood of therisk needs to be assessed.

Risks can be classified as known risks and unknown risks. Known risks are thoseidentified during the risk management process as an unplanned event that could occur in the

project. Unknown risks are those that cannot be specifically identified and therefore cannotbe assessed and quantified, for example, design errors, design omissions and incompletedesign.

Known risks can be managed. However, consultants must include the cost of suchmanagement and the cost consequence of the risk in the project cost estimate. Includingunknown risks in the estimate is more subjective. One approach to estimating the cost

impact of unknown risks is to consider how previous projects have been affected by theidentified unknown risks.

Allocation increases for I&R, D&PD and construction will be treated as a simple increasethrough Transfunds review process, without the need for further justification, so long as:

Any increase above the expected estimate is consistent with the risk profile of theI&R, D&PD and construction phases, taking into account escalation and

Any increase is within the 95th percentile estimate of the I&R, D&PD andconstruction phases, taking into account escalation.

9.2 Terminology

The figure below shows the terminology used for risk analysis in cost estimates.


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Distribution

Expected Estimate

95th percentile Estimate

Base

Estimate

Transit ManagedContingency

Transfund Managed Funding Risk

Figure 5: Risk Analysis Terminology

In this manual, the terms are defined as:

Contingency an additional allowed cost for known/unknown risks between the Base andExpected Estimates. This may also be referred to as the Risk Contingencyor an allowance to cover the statistical mean of risks and opportunities.

Funding risk an additional allowed cost for known/unknown risk between the Expected

and 95

th

percentile Estimates. This may also be referred to as the 95

th

percentile risk contingency or an allowance to cover the differencebetween the statistical mean and the statistical 95% percentile of risks andopportunities.

9.3 The Application of Risk Analysis or Assessment of Contingency

The following table details the methodology that shall be used to calculate contingency andfunding risk at the various stages of the project life cycle.

Note: Segment values are the construction phase costs of the Expected Estimate.

Estim ate < $3M > $3M < $10M > $10M

FE Assessment Assessment Assessment

OE Assessment Assessment / Analysis Assessment / Analysis

SE Assessment Assessment / Analysis Analysis

PE Assessment Analysis Analysis

DE Assessment Analysis Analysis

CE Assessment Analysis Analysis

Figure 6: Use of Assessment or Analysis


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Where Assessment/Analysis is detailed as the applicable methodology, the Transit Project

Manager, in conjunction with the project consultant, shall determine the most appropriatemethodology. Typically projects assessed as being of Very High Risk or Extreme Risk

in terms of Transits Minimum Standard Z/10 (Transit manual SM030) shall be analysed.Lower risk projects should typically be assessed.

9.4 Assessment of Risk Impacts

Where assessments are used to calculate contingency and funding risk, the risks must beidentified according to Transits Minimum Standard Z/10 (Transit manual SM030).

The consultant needs to assess their possible impact on the estimate and include anappropriate contingency and funding risk in the estimate. This assessment can be based on

percentages, lump sums or the Hong Kong Government Works Branch method, but mustrecognise the impact the identified risks may have on the out-turn cost.

9.5 Analysis of Risk Impacts

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

Where analyses are used to calculate contingency and funding risk, the consultant is to usethe following procedure:

risk identification the likelihood of the risk the consequence of the risk distribution correlation results sensitivity.

9.5.1 Risk IdentificationTo identify risks the consultant is required to follow the processes detailed in TransitMinimum Standard Z/10.

The consultant needs to separate the risks that have a cost impact on the estimate into aresidual risk register so the impacts can be analysed.

9.5.2 Risk Likelihood

To determine the likelihood of a risk occurring an estimator can take a number of

approaches including:


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relative frequency looking at historical events and noting what has occurred in thepast

subjectivity where inaccurate or no historical information exists, experiencedjudgement can be a reliable means of estimating probability

fault or event trees.

9.5.3 Risk Consequence

To provide realistic out-turn cost estimates the consultant must estimate the total cost ofconsequences the identified risk would cause, including any indirect costs.

The consequence on price of risk may be estimated using one of the following methods:

lump sums percentage of total cost or element which the risk issue would affect elemental cost schedule of prices.For example, where the consultant identifies a risk of increased work scope that is likely to

prolong a project, they need to consider costs such as:

the additional physical works costs extension of time to the contractor, in terms of general items. Note: if the additional

work extends the project into an additional construction season this may result in a

substantial cost to the project out-turn estimate.

any additional consultant fees any additional resource consent and/or legal fees.Once the likelihood and consequence of residual risks are estimated, the consultant canapply a distribution to each risk to produce a value or values. The resulting values are to be

included in the risk model.

9.5.4 Distribution

The consultant can use any of the following distribution formula:

discrete triangular trigen normal uniform pert log normal.


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9.5.5 Correlation

Risks must be correlated where two or more risks are related or where the occurrence of onerisk prevents (or results in) the occurrence of another. For example, when risk A

distribution returns a high value the related risk B distribution shall also return a high value,or, when risk C distribution returns a value the related risk D distribution shall not.

To show correlation, the consultant can use either a correlation matrix, or include ifstatements in the distribution formula.

9.5.6 Results

The consultant is required to show the results in tabular or graph form. These need to

include outputs for each phase, i.e. I&R, property purchase, D&PD and construction, as wellas a total project output.

9.5.7 Sensitivity

The consultant is also required to undertake a sensitivity analysis to identify the risks thathave the greatest impact on the out-turn cost. The consultant must use linear regressiontheory to do this.

The estimate report must include the resulting sensitivity comments.


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10 Reporting Estimates

10.1 General

Cost estimates need to be prepared and presented using a standardised industry format and

be easily understood by the reader. This is essential to improve understanding of estimatesand to reduce the risk of items being left out of presented costs.

Consultants are to use templates similar to those included in the appendices for:

Elemental Breakdown (Appendix C) Estimated Costs (Appendix D) Funding Applications (Appendix E) Cashflow/Accrual Reporting (Appendix F) Cost Reporting/Management of Contingency (Appendix G) Transit Elemental Cost Model (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 readyreference 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 statement and assumptions the base estimate the risk register residual risks for costing the pricing of residual risks Expected and 95 percentile estimates date and Cost Index peer reviews.

10.2 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 Transit

intends to hold at a national level for each element.

The consultant is required to use an elemental breakdown form to prepare an estimate and tosupply it to the peer reviewer and Transit project manager so they can understand what isincluded in the out-turn cost estimate.


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10.3 Estimated Costs

10.3.1 Estimated Property Acquisition Costs

Example forms are included in the appendices to present the estimated project property costsand 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.

A total purchase cost of property form must be submitted to identify the cashflow requiredfor the purchase of property.

10.3.2 Summary of Estimated Costs

The consultant must use forms to present each project estimate:

Feasibility Estimate (FE) Option Estimate (OE) Scheme Estimate (SE) Pre-design Estimate (PE) Design Estimate (DE) Construction Estimate (CE).The I&R, D&PD and MSQA fee sections are to be rolled up and summarised as single lineitems. Physical works must be broken down into the element headings for a project.

10.4 Funding Applications

The consultant must use a funding application form to present estimates. Transit uses these

to obtain funding approval from Transfund. Example funding forms are included in theAppendices for the following funding submissions:

I&R D&PD construction.The consultant is to update all funding application estimates quarterly during the delivery ofthat phase to identify whether the funding levels need to be reviewed. The update is toinclude the movement in the Base Estimate, Contingency and Funding Risk.

10.5 Cashflow/Accrual Reporting

The consultant is to submit with each estimate the likely expenditure of the out-turn costestimate (cashflow) over the project life and provide monthly reports of accruals.

Definitions of the costs to be included in the monthly reports are:


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Actual: past years and months Accrual: value of work done this month and to date Forecasts: future months and years

Base Allocation: the base estimate for this phase/project Contingency Allocation: contingency allowance for this phase/project 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 forms included in the appendices present the cashflow in a format compatiblewith Transits PROMAN system and separate expenditure of the base estimate fromexpenditure of the contingency allowance.

Separate cashflows are to be prepared for separate contracts/phases, along with a total report

summarising the contracts/phases.

Consultants shall estimate forward cashflows in accordance with a methodology appropriateto 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 eachindividual programme item. For some projects, applying standard s curve methodology

may be more appropriate.

10.6 Management of Contingency

Contingency between the Base and Expected Estimate should be shown as a single line itemin reports. Contingency cannot be transferred from one phase to another on a project as each

phase is funded separately.

Transit Managed Contingency Transfund Managed Funding Risk

Base Estimate Expected Estimate 95th percentile Estimate

Consultant Operational Contingency

Figure 7: Contingency Management

Transits Professional Services Contract Proforma Manual (SM030) provides for the Transit

Project manager and the consultant to agree an allocation for each physical works contract


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that includes the contract price and an operating contingency over which the consultant hascontrol. However, the consultant is required to report on any high cost variations and the

allocation will be reviewed as the contract progresses.

The Transit project manager manages the contingency allowance. Transfund manages thefunding risk element of the out-turn estimate.

Transit may seek additional funds to cover expenditure above the Expected Estimate at anytime during the project. Any allocation increase above the Expected Estimate that is

consistent with the risk profile of the project phases, taking into account escalation, and iswithin the 95thpercentile estimate of the project phases, taking into account escalation, will

be treated as a simple increase through Transfunds review process and will not requirefurther justification.

10.7 Transit Elemental Cost Model

The consultant shall complete the Schedule of Elemental Prices form included in AppendixH at the end of each project using project out-turn costs. Transit will collect such cost

information nationally to build its database of project costs. The Transit project managerwill then forward this information to Transits Contract Coordinator.

Elemental costs of relevant projects in the database will be made available to consultants toenable FE to be prepared with greater reliability and allow a comparison of estimated projectcosts at an early I&R stage.


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11 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 beimplemented 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 holdpoints 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. contingency and funding risk allowance derived by risk assessment or risk analysis

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

8. peer review.

The consultant and the Transit project manager must sign off on the consultants reportbefore 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 significantchange in scope is required. The update must include a report as in 11.2.1 above.


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11.2.3 Quarterly Updates

Additional to estimate stage updates, the consultant must update the project estimate everythree months for rate and item appropriateness, movement in the CI and assessed/analysed

contingency and funding risk allowances. The consultant is to submit these updates in timeto meet the Transit May/November requirements for long-term planning of projects.

11.2.4 Monthly Reports

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

project report.


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12 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 $5M at the SE stage, it shall be externally peer reviewed.When the expected estimate of the construction phase exceeds $50M at the SE stage, it shall

be checked by an independent parallel estimating process.

12.2 Internal Peer Reviews

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 consultants ownorganisation or an independent person, nominated by the consultant and agreed by the

Transit project manager. The reviewer must be able to demonstrate independence from theconsultants project development team.

The peer review is required to provide Transit assurance that good practice has beenfollowed both in terms of this manual and any internal requirements the consultant may havein 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 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 all external price enquiries that may have been incorporated in the estimate to

confirm their scope, price, and appropriateness for inclusion

check that an arithmetical 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, drawings, etc. to confirm they arecommensurate with the type of estimate and estimate deliverable review the estimate inclusions and exclusions review the appropriateness of the assessment/analysis of risk impact.A sample peer review form is provided in Appendix K.

12.3 External Peer Reviews

The Transit project manager will obtain external peer reviews of cost estimates prior to any

funding request if:


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there are serious discrepancies between the estimate and the elemental cost data the construction phase of the Expected Estimate is less than $5 million and either the

internal peer reviewer or Transit 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 $5 million and lessthan $50 million.

The external peer reviewer will be included on the Transit Estimate Peer Reviewer Register.

These reviews do not remove responsibility or accountability from the consultant whoprepared 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 peer reviewer is to supply a copy of the peer review report to the consultant so they canreconcile any differences. If the reviewer and consultant cannot reach agreement, theconsultant must report clearly the areas of disagreement to the Transit project manager witha full explanation of why they disagree.

A sample peer review form is provided in Appendix K, Transits cost estimation externalpeer review methodology in Appendix L and a register of estimate peer reviewers and

industry experts in Appendix M.

12.4 Parallel Estimates

The Transit project manager will commission a parallel estimate for comparison at the SEstage of a project if:

the construction phase of the Expected Estimate is greater than $50 million the Transit project manager considers the project would benefit from a parallel

estimate being prepared.

The independent estimator will be included on the Transit Estimate Peer Reviewer Register.

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

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

Additional parallel estimates will only be requested if:

the project has undergone a significant scope change the Transit project manager considers the project would benefit from a further parallel

estimate being prepared.


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A copy of the parallel estimate will be provided to the consultant. The consultant is thenrequired 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 areasof disagreement to the Transit project manager with a full explanation of why they disagree.

Transits parallel estimate methodology is provided in Appendix N.


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Part D Guidelines

13 Estimate Guidelines

The following information provides guidance on good estimating practice. Transit willdevelop this section over the life of the manual.

13.1 Schedules of Prices

Schedules of prices are to be detailed appropriately for the phase of the project.

When preparing schedules of prices the consultant must: measure all quantities accurately from the drawings and specifications for the project keep lump sum items to a minimum and only use where the works cannot be suitably

quantified or where strong incentives can be created to drive better value for moneyresults

keep dayworks and provisional sums to a level that reasonably reflects the proposedscope of works. Consultants must ensure that dayworks and provisional sums aretaken into account in the risk register and risk assessment to ensure that contingency

allowances are not double counted.

13.2 Use and Application of Historic Rates

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

direct costs (labour, plant and materials) on-site overheads (indirect costs) off-site overheads and profit market conditions age of data similarity of work items changes in technology, methodology, materials, plant and machinery


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Direct Costs The costs involved in constructing a work item. These costs normallyinclude 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 ratemay include excavation, loading, haulage, spreading, drying andcompaction 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 haveincluded 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 orcontingency allowances specific to a particular project, or alternativelymake no allowance for these.

Onsite Overheads(Indirect Costs)

Includes both the fixed costs associated with establishing the site (e.g.

setting up site accommodation and facilities) and time related costsassociated with running the site during construction of the project (e.g.

site management and supervision, quality control). It also includesother associated project costs such as insurances and bonds.

Again, in tendering situations, the contractor may or may not haveincluded some proportion, or all, of their indirect costs within the work

items.

Offsite Overheads

and ProfitBoth 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 notgenerally possible to identify the amount of such allowances.

MarketConditions

When using historic cost data, the estimator must be aware of themarket 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 thepossibility that the allowances for overheads and profit have not beenequally spread over all of the rates.

Age of Data Costs for the same work varies with the passage of time (inflation) andthe older the data, the less reliable it will be. An appropriateallowance for inflation must be made whenever historical cost data is

used.


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Similarity ofWork Items

When using historic cost data, the estimator must be aware of the siteconditions 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 valleysand ridges.

When preparing an estimate using historic cost data, the consultant isrequired to price direct and indirect costs separately. The abovefactors must be considered when applying historic cost data to ensurethe most appropriate rates are used.

Offsite overheads and profit can be included in the make-up of aconsultants rate or as a percentage added onto the sum of direct and

indirect costs.

13.3 Transit Managed Costs and Consultancy Fees

Transit Managed Costs and Consultancy Feesare likely to be provided as a combined effortby both the Transit project manager and the consultant responsible for the project or phase

of the project. While difficult to estimate, these costs should not be considered impossibleto estimate reliably.

Examples of what should be included in these costs are:

Transit Managed Costs Tendering Costs

Consultation Costs

Safety Audit Costs

Peer Review Costs

Public Relations Costs

Legal Costs

Miscellaneous Other Costs

Consent Monitoring.

Consultancy Fees Scope of Services Contract Management

Investigation and Reporting

Design and Project Documentation

Management Surveillance and Quality Assurance

Geotechnical Testing Schedule

Additional Services, e.g. risk management, value engineering

Provisional Sums.


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13.5 Preliminaries and General

When preparing estimates for Preliminaries and General (P&G) the estimator must takeaccount of:

the size, nature and location of the project the allowances within individual rates incorporated in the estimate e.g. off site

overheads, profit and manual labour (both plant operators and labour working on the

tools.

The estimator should clarify separately the items included within the P&G section. Thefollowing is a standard (but not comprehensive) list of P&G items:

Site establishment, operation (e.g. Time related costs like site sheds, phones orphotocopying), disestablishment and cleanup

Site management (non manual labour) Bonds and insurances Consents if not already obtained (e.g. Building consents and tree removal consents) The cost of preparing and maintaining quality, health & safety, security, temporary

erosion and sediment control, temporary traffic management plans, programming andreporting

Public relations costs Any other costs associated with running the construction side of a projectThe P&G section is an important component of any cost estimate as it in

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Manual Estimation

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