(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)
Copyright information
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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
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This document is available on the NZTA’s website at
www.nzta.govt.nz
Page i
1) Purpose
This management plan outlines the updating procedures and contact points for the document.
2) Document information
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
Comments Frequency
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 spm021@nzta.govt.nz 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.
0 Issue 3 of the Highways and Network Operations Cost Estimation Manual is amended November 2010 Bill Hewitt
to become the first edition of the NZTA’s Cost estimation manual (SM014), including
minor amendments.
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 (spm021@nzta.govt.nz).
Contents
Part A – Introduction 1
1.0 Introduction 2
2.0 Terminology and abbreviations 6
3.0 Estimate definitions 10
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
Part D – Guidelines 47
14.0 Estimate guidelines 48
Appendices 55
Part A – Introduction
1.0 Introduction 2
1.1 General 2
2.1 Terminology 6
2.2 Abbreviations 9
3.1 General 10
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 This manual has the status of a ‘standard’ as defined in the NZTA 's Register of network
status 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 This manual is intended to be a used by anyone preparing estimates for the NZTA.
manual users
1.1.5 Communication Manual users may communicate via email at the address given on the amendment
and control sheet. All amendments to this manual will be documented in the record of
amendment control amendments table at the start of this manual.
1.1.6 Manual The manual owner is responsible for the review and update of this manual. The review
review process 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 This manual contains procedures for preparing cost estimates. In addition consultants
with other shall refer to other NZTA’s manuals, standards and guidelines including, but not limited
manuals 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 This manual is available as a PDF on the NZTA’s website (www.nzta.govt.nz).
availability 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
sm014@nzta.govt.nz, alternatively complete the following feedback form and fax to the
NZTA (this form is also available on the NZTA’s website).
Feedback form
Contact number
Contact email
Contact address
Manual reference
Comment and/or
description of problem
Feedback ID Action
(for internal use only) (for internal use only)
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.
2.1 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 Pre-design estimate (PE) – prepared during the I&R phase. It is an estimate of the approved project option, updated to
continued 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 Cost centre for project property costs including property acquisition, property compensation, property owner
centre 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 Note that the 5th percentile estimate is only required for funding applications, and only in relation to the estimate of
estimate construction and property costs.
95th percentile The expected estimate plus an allowance for funding risk, calculated according to the guidelines in this manual. Note that
estimate 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 Out-dated terminology for funding risk.
contingency
2.2 Abbreviations
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.
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.
PFR
Accept FE Produce/review FE
Produce/review OE OE
Complete SAR/AEE
Accept SE Produce/review SE
Check SE is produced in SE
accordance with manual
Is SE <$4.5 million
I&R
Yes No
Is SE >$20 million
Yes No
External
peer review
Parallel
estimate
Confirm SE
Accept PE
Produce DE
Accept DE
Complete D&PD
Check DE is produced in
accordance with manual
Complete/review DE
Is DE <$4.5 million
Yes No
Peer review
D&PD
Is DE >$20 million
and
Has the project undergone a
significant scope change? DE
or
Would the project benefit
from a parallel estimate?
Yes No
Parallel estimate
Confirm DE
Produce/review CE
Is funding sufficient?
No Yes Award contract(s)
Consider additional funding
Manage/complete contract(s)
Approve additional funding
Confirm out-turn cost
Part C – Procedures
6.0 Estimates 21
6.1 General 21
7.0 Escalation 25
9.1 General 29
9.2 Terminology 29
10.1 General 32
11.1 General 40
12.1 General 41
13.1 General 44
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
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
The estimate life cycle of a project is illustrated below, together with the perceived
amount of risk at each phase.
Cost FE OE SE PE DE CE
Expected cost
Project
completion
Optimistic cost estimate
Timeline
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.
6.3.1 Estimate The consultant is responsible for the estimates prepared during the phase(s) for which
responsibility 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 The entire project team must take ownership of the estimate and ‘buy-in’ to the
ownership estimate.
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.
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 works
and therefore, the project estimate.
The NZTA will monitor the variations between FE and out-turn cost across the project
portfolio.
7.0 Escalation
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.
8.2.1 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 Nett property cost is defined as the market value, at the base date, of any property
property costs 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 value 1. 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 In certain circumstances the Act considers other losses apart from the market value of
compensation the property taken. This is termed ‘property compensation’ and may include:
costs 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 During the property acquisition process, the NZTA may agree to carry out works as
owner part of a property purchase or compensation agreement. For instance, an agreement
accommodation might require the NZTA to erect fencing or construct driveways before or during
works costs 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.
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.
9.1 General
9.2 Terminology
The figure below shows the terminology used for risk-adjusted cost estimates.
Frequency
Expected estimate
Cost distribution
Base
estimate 95th percentile estimate
Cost ($)
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.
9.3.1 Informal The informal approach consists of the management of existing procedures and
approach 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 The general approach is to be used for all NZTA’s projects where the informal
approach 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 The advanced approach is quantitative. It is based around the modelling of individual
approach 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.
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.
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.
10.1 General
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.
$5 million $10 million $15 million $25 million $30 million $45 million
A ML B ML C ML
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).
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.
10.4.1 Estimated Example forms are included in the appendices to present the estimated project
property property costs and the total purchase cost of property.
acquisition costs 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 The consultant must use the appropriate form for the phase of the project life cycle to
of estimated report the estimated costs. More information as to which form to use is detailed in
costs 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 These are required at different stages of the development of a project:
estimates FE (form A)
OE (form B)
SE (form C)
PE (form D)
DE (form E)
CE (form F).
10.4.3 Project Property costs are to be estimated by the property acquisition agent.
estimates Professional services fees (I&R, D&PD and MSQA) to be estimated as a percentage of
continued 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 These are required when ready to seek a funding allocation for any contract and forms
phase estimates G, H and I are used depending on the phase of the project being contracted. The NZTA-
and contract calculated base contract estimate (for professional services) or the consultants-
estimates 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.
Land purchase
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.
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.
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.
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.
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.
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 comparison
of estimated project costs at an early I&R phase).
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.
11.2.1 Estimate The consultant is to prepare and update a formal estimate report at each of the project
stage updates 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 The consultant is required to update the estimate at any other point in the project life
updates 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 For all projects, the consultant must include a summary of the current project estimate
reports and a list of concerns or issues that may impact on the out-turn cost with the formal
monthly project report.
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.
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.
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.
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.
13.1 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.
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.
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.
The following flow chart details the process and those responsible for the individual actions required.
Consultant Client
Identify scope changes, eg client decision, change of standards and design development
Notes:
Part D – Guidelines
14.4 Buildability 51
14.6 Earthworks 52
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.
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.
14.4 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.
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.
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.
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.
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.
Appendices
Title Page
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 compensation costs Solatium (payable to property owner in residence only) $2000
Disturbance costs including relocation $2500
Legal costs $5000
Total $9500
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 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:
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 Property (Less) disposal Nett property Property Property owner Nett project
acquisition Property requirements Purchased purchase costs value purchase costs compensation accommodation property cost
reference (A) (B) (A-B=C) costs (D) works (E) (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
Contingency 270,000
Expected estimate 1,998,500
Funding risk 195,000
95th percentile estimate 2,193,500
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 owner
Property acquisition Property purchase costs Property compensation Total property cost
Property requirements Purchased accommodation works
reference (A) costs (B) (A+B+C=D)
(C)
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
Project name:
Item Description Base estimate Contingency Funding risk
1 Consultancy fees
1.1 Contract management 20,000
1.2 D&PD 440,000
1.3 Construction drawings 50,000
1.4 Statutory applications 50,000
1.5 Additional geotechnical testing 30,000
1.6 Provisional sums 40,000
Base D&PD contract estimate/tTender price A1 630,000
Contingency (Assessed/Analysed) (Consultancy fees) B1 70,000
Escalation (Consultancy fees) C1 20,400
Expected D&PD contract estimate D1 = (A1+B1+C1) 720,400
2 NZTA-managed costs
2.1 Tendering costs 15,000
2.2 Consultation costs 100,000
2.3 Safety audit costs 15,000
2.4 Peer review costs (Economics) 5,000
2.5 Peer review costs (Estimate) 10,000
2.6 Peer review costs (Other)
2.7 Hearing costs
2.8 Environmental court costs
2.9 Public relations costs 50,000
2.10 Legal costs 200,000
2.11 Miscellaneous other costs 20,000
NZTA-managed costs E1 415,000
Contingency (Assessed/Analysed) (NZTA-managed costs) F1 45,000
Escalation (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 60,000
Escalation (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 43,000
Escalation (NZTA-managed costs) P1 7,750
95th percentile NZTA-managed costs Q1 = (H1+N1+P1) 524,150
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.
Project estimate
Project name:
Form D PE
Pre-design estimate
Project Estimate
Project Name:
Form A
FE
Feasibility estimate
Project Estimate
Project Name:
Form B OE
Options Estimate
Project estimate
Project name:
Form C SE
Scheme estimate
Project estimate
Project name:
Form D PE
Pre-design estimate
Project estimate
Project name:
Form E
DE
Design estimate
Project estimate
Project name:
Form F CE
Construction estimate
Project name:
Item Description Base estimate Contingency Funding risk
1 Consultancy fees
1.1 Contract management
1.2 D&PD
1.3 Construction drawings
1.4 Statutory applications
1.5 Additional geotechnical testing
1.6 Provisional sums
Base D&PD contract estimate/tTender price A1 0
Contingency (Assessed/Analysed) (Consultancy fees) B1
Escalation (Consultancy fees) C1
Expected D&PD contract estimate D1 = (A1+B1+C1) 0
2 NZTA-managed costs
2.1 Tendering costs
2.2 Consultation costs
2.3 Safety audit costs
2.4 Peer review costs (Economics)
2.5 Peer review costs (Estimate)
2.6 Peer review costs (Other)
2.7 Hearing costs
2.8 Environmental court costs
2.9 Public relations costs
2.10 Legal costs
2.11 Miscellaneous other costs
NZTA-managed costs E1 0
Contingency (Assessed/Analysed) (NZTA-managed costs) F1
Escalation (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) K1
Escalation (Consultancy fees) L1
95th percentile D&PD contract estimate M1 = (D1+K1+L1) 0
Funding risk (Assessed/Analysed) (NZTA-managed costs) N1
Escalation (NZTA-managed costs) P1
95th percentile NZTA-managed costs Q1 = (H1+N1+P1) 0
Funding risk (Assessed/Analysed) base MSQA (consultancy fees, NZTA-managed costs, consent
N2
monitoring fees)
Escalation base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees) P2
95th percentile MSQA estimate (consultancy fees, NZTA-managed costs, consent monitoring
Q2 = (H2+N2+P2)
fees)
95th percentile construction phase estimate R2 = (M2+Q2)
Physical works
2 Environmental compliance
3 Earthworks
4 Ground improvements
5 Drainage
6 Pavement and surfacing
7 Bridges
8 Retaining walls
9 Traffic services
10 Service relocations
11 Landscaping
12 Traffic management and temporary works
13 Preliminary and general
14 Extraordinary construction costs
B Total construction 0
Total base estimate 0
C Contingency 0
Project property cost expected estimate 0
Construction expected estimate 0
Total expected estimate 0
D Funding risk 0
Project property cost 95th percentile estimate 0
Construction 95th percentile estimate 0
Total 95th percentile estimate 0
Project name
Cashflow for monthly report dated dd/mm/yy
Project phase or summary
Total
Phase Prior years Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Year 2 Year 3 Year 4
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
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
Contingency 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
Contingency allocation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Note:
Equals actual
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.
Project description
Note: Items a to f include information required by the database user, and items g to i include information required for analysis.
2
Development costs exclude land purchase. This information shall be obtained from the NZTA’s property acquisition agents.
Description definitions
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.
2.4 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.
2.6 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).
Unit definitions
2.10 Landscaping:
Project length excluding side roads and accommodation works.
Note: For multi-laned projects the total lane km shall also be recorded separately.
2.11 Traffic management:
Project length excluding side roads and accommodation works.
Note: For multi-laned projects the total lane km shall also be recorded separately.
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.
Information
Note: As this money will be spread throughout the year, it could be 0.5
assumed that only half will attract escalation. $ 2.5 M
Cost: Future years $ 185 M
$ 2.5 M 185
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.
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.
Project title
Subject
Project phase
Scope description
Scope change Date raised Raised by Description Reason NZTA Date Cost
number C/S/D/O agreement agreed estimate
Project title
Consultant
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.
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.
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
Analysis of risk
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:
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 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.
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)
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 1-2 3 4-5 5-10 10-20 20+
(includes engineers estimates, tender estimates or peer
reviews)
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:
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.
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.
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.
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.