Capital Works Management Framework Guidance Note. Planning and Control of Capital Costs GN 2.2

Transcription

1 Capital Works Management Framework Guidance Note Planning and Control of Capital Costs GN 2.2

2 Planning and Control of Capital Costs Document Reference GN 2.2. V September Department of Public Expenditure and Reform Published by: Department of Public Expenditure and Reform Government Buildings Upper Merrion Street Dublin 2 This document is not to be taken as a legal interpretation of the provisions governing public procurement. All parties must rely exclusively on their own skills and judgement or upon those of their advisors when making use of this document. The Government Construction Contracts Committee (GCCC), the National Public Procurement Policy Unit (NPPPU) and the Department of Public Expenditure and Reform and any other contributor to this guidance note do not assume any liability to anyone for any loss or damage caused by any error or omission, whether such error or omission is the result of negligence or any other cause. Any and all such liability is disclaimed. GN 2.2 v1.1 29/09/2011 2

3 Contents Capital Works Management Framework Guidance Note Planning and Control of Capital Costs...1 GN Contents...3 Foreword...4 1: Introduction to Cost Control Overview Project Reviews and Capital Cost Planning and Control Critical Success Factors Managing Value and Complexity Cost Control in Design Development Roles and Responsibilities : Cost Control in Design Development Overview Cost Control in Design Development Roles and Responsibilities The Outline Cost Plan and Related Activities Developed Cost Plan / Outline Cost Plan (revised) and Related Activities Review of Developed Cost Plan / Outline Cost Plan (revised) Detailed Cost Check and Pre-Tender Cost Check Whole Life Cost Appraisal Integrating Whole Life Cost Management with Cost Plans Managing Corrective Action and Change Control Overview Change Management during the Planning Developed Stage Recording Change in the Budget Change Record Risk Management Tasks Risk Management and Cost Control in Design...60 Appendix: Standard Templates for Cost Planning and Control...64 GN 2.2 v1.1 29/09/2011 3

4 Foreword Purpose of this document This document deals with the planning and control of capital budgets for public works projects, both building and civil engineering, through all stages in the design process. It is one of a number of guidance notes aimed at facilitating the implementation of the measures in the Capital Works Management Framework (CWMF) introduced to achieve greater cost certainty and better value for money on publicly funded projects. See Design Development Process (GN 2.1) for more information on how design is progressed. Traditional and design-and-build projects This guidance note deals with design conducted by Clients in both traditional (Employer-designed) projects and in design-and-build (Contractor-designed) projects. In the case of the latter, however, much or all of the design and the accompanying cost control is carried out by the Contractor; so for that reason, this guidance note is only relevant to cost management and design work carried out by the Client before the design risk is transferred to the Contractor under a design and build contract. Audience This document is intended primarily for the guidance of Sponsoring Agencies embarking on capital works projects. However, the role of the Sanctioning Authorities and any external consultants appointed in relation to the capital works projects is also considered. Terminology in this guidance note The Sponsoring Agency becomes the Contracting Authority for a project once it becomes a party to any contract relating to the project. And from the time the Works Contract is signed, the Sponsoring Agency is referred to as the Employer. The term Client is used throughout this guidance note as a generic term to cover the Sponsoring Agency / Contracting Authority / Employer. References in this document Throughout this document references are made to other documents, including other guidance notes. These references should be understood as referring to the most up to date version in each case. GN 2.2 v1.1 29/09/2011 4

5 Foreword, Continued What is the Capital Works Framework The Capital Works Management Framework (CWMF) is a structure that has been developed to deliver the Government s objectives in relation to public sector construction procurement reform. It consists of a suite of best practice guidance, standard contracts and generic template documents that form four pillars that support the Framework; the pillars are: 1. A suite of standard forms of construction contracts and associated model forms, dispute resolution rules, model invitations to tender, forms of tender and schedules; 2. The standard conditions of engagement for consultants, dispute resolution rules, model invitations to tender, forms of tender and schedules; 3. Standard templates to record cost planning and control information; and for suitability assessment; and 4. Extensive guidance notes covering the various activities in a project delivery process. Capital Works Management Framework Public Works Contracts Contracts, Model Forms, Arbitration Rules, Invitations to Tender (works), Forms of Tender & Schedules (works) Standard Conditions of Engagement Standard Conditions, Arbitration Rules, Invitations to Tender (services), Forms of Tender & Schedules (services) Cost Planning & Control / Suitability Assessment Cost Control & Planning Forms, and Suitability Assessment Questionnaires Guidance Notes GN 2.2 v1.1 29/09/2011 5

6 Foreword, Continued What is the Capital Works Framework (continued) The content of the four pillars is outlined below. The constituent documents are coded according to the following scheme: Code Description Code Description PW- CF Public Works Contract Form COE Standard Conditions of Engagement MF Model Form GN Guidance Note AR Arbitration Rules CO Cost Planning / Control Form ITTS Invitation To Tender, Services ITTW Invitation To Tender, Works QC Questionnaire: Suitability Assessment for Service Provider QW FTS Form of Tender and Schedule GL Glossary WE Data on Weather Events Questionnaire: Suitability Assessment for Works Contractor CWMF Pillar 1 Public Works Contracts Contracts, Model Forms, Arbitration Rules, Invitations to Tender (works), and Forms of Tender & Schedules (works) Contracts PW-CF1 PW-CF2 PW-CF3 PW-CF4 PW-CF5 PW-CF6 PW-CF7 PW-CF8 PW-CF9 WE 1.0 Public Works Contract for Building Works designed by the Employer Public Works Contract for Building Works designed by the Contractor Public Works Contract for Civil Engineering Works designed by the Employer Public Works Contract for Civil Engineering Works designed by the Contractor Public Works Contract for Minor Building and Civil Engineering works designed by the Employer Public Works Short Form of Contract Public Works Investigation Contract Public Works Short Form of Investigation Contract Public Works Framework Agreement Weather Events Met Éireann s calculations of Weather Events GN 2.2 v1.1 29/09/2011 6

7 Foreword, Continued CWMF Pillar 1 (continued) MF 1.0 MF 1.1 MF 1.2 MF 1.3 MF 1.4 MF 1.5 MF 1.6 MF 1.7 MF 1.8 MF 1.9 MF 1.10 MF 1.11 MF 1.12 MF 1.13 MF 1.14 MF 1.15 MF 1.16 MF 1.17 AR 1.0 ITTW 1 ITTW 2 ITTW 3 FTS 1 FTS 2 FTS 3 FTS 4 FTS 5 FTS 6 FTS 7 FTS 8 Model Forms Model Forms (compendium of all model forms) Bid Bond Letter to Apparently Unsuccessful Tenderer Letter of Intent Letter of Acceptance Letter to Tenderers Notifying Award Performance Bond Parent Company Guarantee Novation and Guarantee Agreement Novation Agreement Appointment of Project Supervisor Professional Indemnity Insurance Certificate Collateral Warranty Rates of Pay and Conditions of Employment Certificate Bond Unfixed Works Items Retention Bond Appointment of Conciliator Bond Conciliator s Recommendation Arbitration Rules Arbitration Rules Invitations to Tender (works) Invitation to Tender for Works, Restricted Procedure Invitation to Tender for Works, Open Procedure Invitation to Tender, Investigation Contract under an Open Procedure Forms of Tender and Schedules Form of Tender and Schedule: Public Works Contract for Building Works designed by the Employer Form of Tender and Schedule: Public Works Contract for Building Works designed by the Contractor Form of Tender and Schedule: Public Works Contract for Civil Engineering Works designed by the Employer Form of Tender and Schedule: Public Works Contract for Civil Engineering Works designed by the Contractor Form of Tender and Schedule: Public Works Contract for Minor Building and Civil Engineering Works designed by the Employer Form of Tender and Schedule: Public Works Short Form of Contract Form of Tender and Schedule: Public Works Investigation Contract Form of Tender and Schedule: Public Works Short Form of Investigation Contract GN 2.2 v1.1 29/09/2011 7

8 Foreword, Continued CWMF Pillar 2 Standard Conditions Standard Conditions of Engagement, Arbitration Rules, Invitations to Tender (services), and Forms of Tender & Schedules (services). Standard Conditions COE 1 COE 2 AR 1.0 ITTS 1 ITTS 2 FTS 9 FTS 10 Standard Conditions of Engagement for Consultancy Services (Technical) Standard Conditions of Engagement for Archaeology Services Arbitration Rules Arbitration Rules Invitations to Tender (services) Invitation to Tender for Services, Restricted Procedure Invitation to Tender for Services, Open Procedure Forms of Tender & Schedule (services) Form of Tender and Schedule, Consultancy Services (Technical) Form of Tender and Schedule, Archaeology Services GN 2.2 v1.1 29/09/2011 8

9 Foreword, Continued CWMF Pillar 3 Cost Planning & Control/ Suitability Assessment Cost Control & Planning Forms; and Suitability Assessment Forms for works and services. Cost Planning & Control Forms CO 1 CO 1.1 CO 2 CO 2.1 CO 2.2 CO 2.3 QW 1 QW 2 QW 3 QC 1 QC 2 QC 3 QC 4 How to Use the Costing Document (Building Works) Template Costing Document (Building Works) How to Use the Costing Document (Civil Engineering Works) Template Costing Document (Civil Engineering Works, Roads) Costing Document (Civil Engineering Works, Water Sector) Costing Document (Civil Engineering Works, Marine) Suitability Questionnaires (works) Questionnaire: Suitability Assessment for Works Contractor, Restricted Procedure Questionnaire: Suitability Assessment for Works Contractor, Open Procedure Questionnaire: Suitability Assessment for Works Specialist for specialist area Suitability Questionnaires (services) Questionnaire: Suitability Assessment for Service Provider, Restricted Procedure Questionnaire: Suitability Assessment for Service Provider, Open Procedure Questionnaire: Suitability Assessment for Service Provider, Independent PSDP Questionnaire: Suitability Assessment for Service Provider, Independent PSCS GN 2.2 v1.1 29/09/2011 9

10 Foreword, Continued CWMF Pillar 4 Guidance Notes GN 1.0 GN 1.1 GN 1.2 GN 1.3 GN 1.4 GN 1.5 GN 1.6 GN GN GN 1.7 GN 2.1 GN 2.2 GN 2.3 GN GN GN 2.4 GN 3.1 GN 4.1 GL 1.0 Guidance Notes Introduction to the Capital Works Management Framework Project Management Project Definition and Development of the Definitive Project Brief Budget Development Procurement and Contract Strategy for Public Works Contracts Public Works Contracts Procurement Strategy for Consultancy Services (Technical) Assessment of Construction Service Providers, Restricted Procedure Assessment of Construction Service Providers, Open Procedure Standard Conditions of Engagement, Guidance Note and Sample Schedules Design Development Process Planning and Control of Capital Costs Procurement of Works Contractors Assessment of Works Contractors, Restricted Procedure Assessment of Works Contractors, Open Procedure Tender Process Implementation Process Project Review Glossary Glossary GN 2.2 v1.1 29/09/

11 Foreword, Continued Strategic Objectives of the CWMF The strategic objectives of the Government s Capital Works Management Framework are to ensure: Greater cost certainty at contract award stage; Better value for money at all stages during project delivery, particularly at handover stage; and More efficient end-user delivery. Provided there is a comprehensive definition of the Client s requirements in terms of output specifications, and adequate pre-tender detail design input (in the cast of traditional contracts), the new public works contracts will enable the key objectives outlined above be achieved. The degree to which output specifications and the pre-tender detailed design input is developed is determined by the following guiding principles which underpin the new contracts: To ensure as far as practicable that the accepted tender prices and the final outturn costs are the same; and To allocate risk so that there is optimal transfer of risk to the Contractor. The public sector Client or is called the Employer in the new public works contracts. The achievement of optimal risk transfer is dependent on the Employer providing complete and detailed information in the tender documentation: For design-and-build projects, the Employer must provide detailed output specifications; and For traditional projects, the Employer must provide comprehensive input designs and specifications Then in responding to an invitation to tender, prospective contractors can assess the impact of the risks being transferred and build the costs of such risks into their tender price. Content The topics dealt with in this document are as follows: Chapter 1: Introduction to Cost Control Deals with principles of capital cost planning and controlling costs. 2: Cost Control in Design Development Deals with capital cost planning and control in the design development phase See Page GN 2.2 v1.1 29/09/

12 Foreword, Continued Content (continued) Chapter 3. Whole Life Cost Appraisal Deals with tasks in whole life cost appraisal 4. Managing Corrective Action and Change Control Deals with procedure for budget change 5. Risk Management Tasks Deals with risk management tasks relating to cost control Appendix: Standard Templates for Cost Planning and Control Deals with the use of standard templates for the main cost report activities and their output documents. See Page GN 2.2 v1.1 29/09/

13 Appraisal Project Stages Capital Works Management Framework Main Project Processes Approval in Principle Project Management Design Activities (Building) Design Activities (Civil Eng.) Cost Control Activities Risk and Value Management Documents for Approval Stage 1 Planning Initial Stage I Feasibility Study / Preliminary Report Stage II Design Manage outputs: Project Definition (through 16 N o overall parameters) Manage technical experts appointment (if required) Conduct Feasibility Studies Develop Definitive Project Brief Appoint technical experts (if required) Appoint PSDP (if required) Conduct Preliminary Report Conduct design studies Develop Definitive Project Brief Appoint technical experts (if required) Appoint PSDP (if required) Conduct cost assessment of Feasibility Studies / Preliminary Report (capital and maintenance costs) Project Review 1: Confirm approval for design expenditure (Report to Sanctioning Authority and await approval prior to proceeding) VM: Confirm strategic functional performance Review Feasibility Studies / Preliminary Report options Identify VM strategies Develop functional performance model RM: Identify and assess risk relating to the Project Execution Plan Develop high-level Risk Management Plan Project Management Structure Preliminary Project Brief Preliminary Output Specification Feasibility Study and Cost Plan Design Brief Final Output Specification Definitive Project Brief Project Execution Plan Risk Management Plan Stage 2 Planning Developed Capital Appraisal Standard Conditions of Engagement Manage procurement strategy Manage design consultant appointment Manage assessment of output requirements Appoint Design Team / Design Team Leader Assess output requirements Appoint Design Team / Lead Consultant Develop design standards Assess output requirements Check / assess budget VM: Consider VM in relation to procurement strategy RM: Identify risk in relation to procurement Agree risk allocation Definitive Procurement Strategy Contract Type Proposal Project Team Selection Report Project Review 2: Confirm requirements; review procurement strategy ( C ertify compliance to Sanctioning Authority; and proceed after agreed period provided no queries / hold from Sanctioning Authority) Manage Outline Design process Develop Outline Sketch Scheme Appoint PSDP (if not appointed earlier) Develop Preliminary Planning Appoint PSDP (if not appointed earlier) Develop Outline Cost Plan VM: Consider VM in relation to Outline Sketch Scheme / Preliminary Planning Outline Sketch Scheme (Building) Preliminary Planning drawings RM: Consider RM in (C. Eng.) relation to Outline Sketch Scheme Outline Cost Plan Project Review 3: Assess project design and Outline Cost Plan ( Certify compliance to Sanctioning Authority; and proceed after agreed period provided no queries / hold from Sanctioning Authority) Manage Developed Design process Manage procurement process Develop Developed Sketch Scheme Prepare submission for statutory approval Continue Preliminary Planning Prepare submission for statutory approval Develop Developed Cost Plan Develop Whole Life Cost Appraisal VM: Carry out value engineering Assess buildability of the design Consider VM in relation to Detailed Sketch Scheme RM: Identify residual risks Consider RM in relation to Detailed Sketch Scheme Suitability assessment of contractors Developed Sketch Scheme Developed Cost Plan Statutory Approval Submission Design and Build Project Review 4: Assess project prior to statutory approval (Report to Sanctioning Authority and await approval prior to proceeding) Manage statutory submission process Submit for statutory approval Review statutory approval outcome Submit for statutory approval Review statutory approval outcome Review Developed Cost Plan VM: Review any planning conditions for value management impact. RM: Review any planning conditions for risk impact. Developed Cost Plan (reviewed) Project Review 5: Assess outcome from statutory approval ( Certify compliance to Sanctioning Authority; and proceed after agreed period provided no queries / hold from Sanctioning Authority) Stage 3 Implemention Stage 4 Review Stage III Tender Stages IV and V Construction and Handover Manage the Detailed Design Process Develop Detailed Design (not designand-build) Prepare tender documents Develop Detailed Planning (Design) (not design-and-build) Prepare tender documents Conduct Detailed and Pre-Tender Cost Checks and Whole Life Cost Update in advance of preparing tender documents VM: Review suitability assessment of Tender Documentation contractors for VM potential Detailed Pre-tender Cost Check RM: Review suitability Whole Life Cost Update assessment of contractors for risk Contractor List Selection impact Project Review 6: Approve detailed design solution; review pre-tender cost check; review risk (Report to Sanctioning Authority and await approval prior to proceeding) Manage the Tender Process Issue tender documents Issue tender documents Develop Tender Cost Analysis VM: Assess tender Tender Assessment Criteria Assess tender returns Assess tender returns Develop Tender Report returns for VM potential Tender Analysis And Report Recommend successful tenderer Recommend successful tenderer RM: Assess tender Contractor Recommendation returns for risk impact Project Review 7: Review tender returns in advance of awarding the contract (Report to Sanctioning Authority and await approval prior to proceeding) Manage the implementation / Develop Detailed Design (Design and Develop Detailed Planning (Design Manage change control for costs VM: Carry out value Various contract management construction process Build) and Build) Prepare final account engineering (for design and build reports Manage change control Implement design Implement design projects only) Manage contract RM: Manage residual risk Manage construction risk Manage th Project Review Conduct design review Conduct design review Develop Analysis of Outturn Cost VM: Evaluate value achieved Project Outturn Review RM: Evaluate the risk management and risk mitigation process Consider operational risk reviews

14 1: Introduction to Cost Control 1.1 Overview Stages in capital works management The four major stages in the delivery life cycle of a public works project are set out in the Department of Finance s Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector (February 2005). The four stages are: Capital Works Management Framework Stage What happens 1. Appraisal The needs are identified, the broad parameters of a solution are agreed, and a decision-in-principle is made to proceed. 2. Planning The needs are quantified and assumptions verified, the desired outputs are specified, and the solution is designed. 3. Implementation The solution is constructed. 4. Post-project review An assessment is carried out of how successfully the delivered solution addresses the needs. The planning and control of capital costs activities described in this guidance note take place during the Planning stage. Purpose of capital cost planning and control The planning and control of capital costs is a key requirement of good governance and should be a priority for all capital works projects. The primary aim of implementing cost planning and cost control procedures in the management of capital projects is to ensure that cost certainty and value for money are achieved. By adopting best practice procedures in the management of capital expenditure through the use of cost planning and cost control, the Project Coordinator can minimise the financial risks involved in undertaking capital works projects. GN 2.2 v1.1 29/09/

15 1.1 Overview, Continued Definitions of cost control and cost planning Cost planning For the purposes of this document, the planning of capital costs or cost planning as it is more commonly known can be defined as a system of integrating cost-based intelligence into the design process. To maximise its value, cost planning should be based on a series of cost holding categories appropriate for a particular project design. Each cost holding category should be allocated a value (a target cost) that represents a reasonable proportion of the budget and also represents value for money. The aggregate value of the target costs should not exceed the overall approved budget for the project. Once an Outline Cost Plan is established, the cost holding categories should be continually assessed to ensure that the integrity of the project budget continues to hold true. Cost control For the purposes of this document cost control can be defined as the management of the costs associated with the design process (in each cost holding category) to achieve a predefined approved capital budget. Continuous assessment of the cost holding categories during the Planning Developed stage (including preparation of tender documentation) will test the robustness of the costs in these categories that make up the approved budget. Cost control is dependent on two key factors: information and action. In order to have successful cost control, it is essential to have the necessary information and to take appropriate action based on that information. If the relevant information is not available or if the required action is inefficiently executed, then the risk to cost control on a project is raised considerably. GN 2.2 v1.1 29/09/

16 1.1 Overview, Continued Scope of costs for inclusion The costs covered by this guidance document are those capital costs properly accruing to the Sponsoring Agency and /or the Sanctioning Authority in connection with public works projects. The costs can be divided into two distinct categories: Category Description 1. Capital costs Capital costs are those costs that are necessarily incurred in providing and equipping a construction facility. They do not include any costs properly chargeable to current expenditure for example, expense costs such as rent for temporary accommodation. 2. Whole life costs For a more detailed, although not exhaustive, listing of project costs, see Budget Development (GN 1.3). In addition to all capital costs as outlined above, whole life cost includes all costs incurred with a planned maintenance programme and operational costs over the functional life of a facility. Whole life cost is expressed in terms of net present value. See Chapter 3 below for more information on whole life costs. Contents This chapter covers four topics as follows: Topic 1.2 Project Reviews and Capital Cost Planning and Control Describes how capital cost planning and control integrates with the project review cycle. 1.3 Critical Success Factors Outlines some of the critical success factors relating to cost planning and control on a project. 1.4 Managing Value and Complexity Deals with managing projects with different profiles in relation to risk, value and whole life cost. 1.5 Cost Control in Design Development Roles and Responsibilities Outlines the roles and responsibilities of the Sanctioning Authority, the Sponsoring Agency and the Design Team in relation to cost planning and control. See Page GN 2.2 v1.1 29/09/

17 1.2 Project Reviews and Capital Cost Planning and Control Overview Project Reviews are a means to allow Sponsoring Agencies ensure their projects remain on track to deliver their objectives (see Process Map). There is a direct correlation between Project Reviews 3 to 7 and the cost planning and cost control activities that are carried out in the Planning Initial and Developed stages in the delivery life cycle of a public works project. Cost planning and control is an activity that takes place between project reviews, and its overall output is a key determining factor at review stage in deciding whether or not a project proceeds to the next stage or is sent back for reassessment. The Cost Planning and Control Activity..... is aligned with: Outline Cost Plan Project Review 3 Developed Cost Plan/Outline Cost Plan (revised) Project Review 4 Building: Developed Cost Plan Building: Pre-Tender Cost Check Price Pricing Document and update Developed Cost Plan [revised] Civil Engineering: Outline Cost Plan (revised) amended following statutory approval Civil Engineering: Pre-Tender Cost Check Price Pricing Document and update Outline Cost Plan [revised]) Project Review 5 Project Review 6 Tender Cost Analysis Project Review 7 Project reviews and procurement strategy Project reviews 1 to 7 are all appropriate to traditional, Employer-designed projects. For design-and-build projects, Project reviews 1, 2 and 7 are always appropriate. Project Reviews 3, 4, 5 and 6 are appropriate only while the Client continues to retain the design risk. Traditional / Employer-designed Project Review 1 Project Review 2 Project Review 3 Project Review 4 Project Review 5 Project Review 6 Design and-build / Contractor-designed Appropriate only while the Client retains the design risk. Project Review 7 GN 2.2 v1.1 29/09/

18 1.2 Project Reviews and Capital Cost Planning and Control, Continued Project Review 1 Project Review 1 is a mandatory red light review that takes place after the Definitive Project Brief (and design standards, in the case of civil engineering projects) has been developed when approval for design expenditure is needed. Its function is to confirm that the project is in line with the Approval in Principle, that the preferred design option is capable of being further developed through the design and statutory process, and that delivery of the project is realistic relative to the detailed budget set when the Approval in principal was granted. If Project Review 1 reveals a conflict with the project appraisal or the assumptions underlying the Approval in Principle, or if support for the preferred project solution cannot be obtained, then project work should be suspended and the project should be referred back to the Appraisal stage for reassessment.. Project Review 2 Project review 2 is an amber light review which takes place after the procurement strategy is agreed and the Design Team has been appointed. The purpose of this review is for the Design Team to check that the requirements (as specified in the Definitive Project Brief and after design standards have been established [civil engineering]) and the approved budget are adequate and to review the procurement strategy. Conducting Project Review 2 is one of the first tasks undertaken by the Design Team after their appointment. It takes place before the commencement of any design work and before any formal planning and cost control activities associated with such work are initiated. During the review, the budget might be found to be inadequate or excessive: Inadequate budget Excessive budget If the Design Team finds that the budget is inadequate, they should quantify the deficit and seek an increase in the budget from any contingency monies that the Sponsoring Agency might have. (See Chapter 4 for details of the change control mechanisms that are appropriate in such a situation.) Alternatively, the project should be referred back to the Appraisal stage for reassessment. If the Design Team finds that the capital budget is in excess of what is required, they should quantify and report the excess to the Sponsoring Agency who should remove it from the budget. GN 2.2 v1.1 29/09/

19 1.2 Project Reviews and Capital Cost Planning and Control, Continued Start of Cost Planning and Cost Control Activities Following a positive outcome to Project Review 2, the Sponsoring Agency certifies compliance to the Sanctioning Authority. After a period of time (agreed beforehand with the Sanctioning Authority), the Sponsoring Agency instructs the Design Team Leader / Lead Consultant in writing to proceed with the project in accordance with Stage (ii) Design in Schedule B of the Conditions of Engagement, (including cost planning and control activities) provided the Sanctioning Authority has no queries and does not issue an instruction to put the project on hold. The detailed project budget has already been developed, checked and verified by the Design Team as part of Project Review 2, and a framework for cost planning and control can now be established this is the first formal step in cost planning and control activities as described in this guidance note. The framework is based on best practice, as outlined in the guidance note Budget Development (GN 1.3) and extends to the start of the tendering process. Note: In some projects the detailed budget may have been developed to an advanced stage earlier during the Appraisal stage this is to facilitate the making of the approval in principal decision. Project Reviews 3 6 The Cost Planning and Control elements of Project Reviews 3 6 are described in more detail below: For Project Review 3, see 2.3 The Outline Cost Plan and Related Activities on page 36; For Project Review 4, see 2.4 Developed Cost Plan / Outline Cost Plan (revised) and Related Activities on page 42; For Project Review 5, see 2.5 Review of Developed Cost Plan / Outline Cost Plan (revised)on page 46; and For Project Review 6, see 2.6 Detailed Cost Check and Pre-Tender Cost Check on page 48. Project Review 7 takes place after the tender returns have been reviewed and in advance of the contract award. Discussion of Project Review 7 is not germane to this guidance note. For more information, see Tender Process (GN 2.4). GN 2.2 v1.1 29/09/

20 1.2 Project Reviews and Capital Cost Planning and Control, Continued Design-andbuild: transferring risk to the Contractor For design-and-build projects, the Sponsoring Agency may decide to cease design work after Project Review 2 and to transfer complete design and statutory approval risk to the successful design-and-build Contractor who emerges from the tender process. In this case, the management and establishment of project costs transfer initially to the design-and-build tenderers and ultimately to the successful Contractor that emerges at the end of the tender process. The Design Team will continue to remain in place to: Prepare tender documents (based on the Sponsoring Agency s output requirements, and pricing templates) for design-and-build tenderers; Evaluate tender designs and prices when they come in; and Monitor construction, administer the contract and settle the final account (where they have not been novated to the design and build contractor). The Sponsoring Agency will also be required to appoint a Project Supervisor for the Design Process (PSDP) to address Health and Safety design issues in the tender documents for more information see Design Development Process (GN 2.2). GN 2.2 v1.1 29/09/

21 1.3 Critical Success Factors Introduction Robust cost planning and strong cost control are dependent on a wide range of factors that can change in importance throughout the design life cycle of a project. However, there are a number of critical success factors that have a determining role; these include: The quality of the Definitive Project Brief and the detailed budget; Deciding on a clear procurement strategy; Appointing skilled Cost Advisers; Identifying a detailed and clear list of assumptions and exclusions; Clear procedures for risk management and change management Project Programme (design and tender process stages) Each of these factors is described below. Detailed budget and Definitive Project Brief The detailed budget is formulated at Definitive Project Brief stage within the approved budget limits for which the approval in principle was granted. If the budget has already been broken down to a level of detail at Appraisal stage (in advance of the approval in principle), then it must be reassessed at the Definitive Project Brief stage to confirm that all cost conclusions arrived at earlier continue to hold true. The detailed budget acts as the foundation stone for costs on a capital project. For a number of reasons, it is very important to get the detailed budget right before design work starts. To avoid project delays / abandonment that might arise from lack of funding To preempt the risk of good value for money not being achieved; and To ensure that quality standards do not suffer. The guidance document Budget Development (GN 1.3) sets out procedures for establishing the overall budget. In addition to establishing a detailed budget, the Definitive Project Brief should also be a clear, comprehensive and explicit statement of the user requirements, function, specification and physical output which form the basis of a project design. GN 2.2 v1.1 29/09/

22 1.3 Critical Success Factors, Continued Procurement Strategy The procurement strategy appropriate to a project is decided after Project Review 1, during the Planning Initial stage. The choice of procurement strategy is the key determinant of who is to be responsible for design: Employer An Employer-designed (or traditional ) project is one where the Contractor is responsible for providing the construction services to deliver a facility designed by (or on behalf of) the Client (Employer). Contractor A Contractor-designed (or design-and-build ) project is one where the Contractor is responsible (subject to the terms of contract) for the design, management and delivery of the project, on time and within the contract sum, taking into account whole-life costs and fitness for purpose in accordance with a predefined output specification provided by the Client (Employer) The Definitive Project Brief (and design standards, in the case of civil engineering projects) is the basis for project design irrespective of whether the design is to be performed by the Employer or by the successful Contractor who emerges from the tender process. For more information on the criteria on which the choice of procurement strategy for a particular project might be based, see Procurement Strategy for Public Works Contracts (GN 1.4). Skill base of Cost Advisers To carry out proper cost planning and cost control on a project it is essential that expert Cost Advisers are appointed to carry out this work either from within the Client body or externally. These advisers should be appointed at the earliest possible stage (preferably at the same time as the appointment of the Design Team) and their responsibilities should be clearly assigned. Cost Advisers must be skilled in the areas of cost management; value management; and risk management, including whole life cost analysis. Ideally, they should have experience of projects of a similar size, nature and complexity to that proposed. Assumptions and exclusions At all stages in the design process it is essential that costs are reported comprehensively, with a clear list of assumptions on which the budgetary figures are based, and any items that are excluded. Such assumptions and exclusions should normally be standard for the project type and they should be acceptable in relation to the context of the project. Sanctioning Authorities and Sponsoring Agencies should maintain a central list of acceptable items that may be excluded from cost reports. GN 2.2 v1.1 29/09/

23 1.3 Critical Success Factors, Continued Risk and contingency management The management of risk is critical to the success of any cost planning and control exercise. Risk management requires a high level of skill in the identification, quantification, mitigation and financial assessment of project risks. In the case of traditional contracts, the combination of mitigation measures and financial assessment will play an important management role throughout the life cycle of the project design. Contingency management and risk management on a traditional project are inextricably linked to each other and the refinement and resolution of both these elements is also linked to the Project Programme (design and tender processes). Both contingency and risk must be managed in tandem to ensure the smooth and orderly transition of a project through its various design stages. See chapter 6 of Project Management (GN 1.1) for details of the role of risk management in the life cycle of a project. Change management There should be no major change in scope to a project once the user requirements, function, specification and physical output which forms the basis of a project design are established in the Definitive Project Brief. In a situation where a necessary change in project scope is identified during the design process, it should first be approved by the Sanctioning Authority and then managed in such a way so as to minimise the extent of the design work that has to be redone. If a change in project scope becomes necessary during the construction stage, it is essential that this is managed within a rigorous verification procedure that is fully compliant with the contract conditions. Any major changes to a project must be approved by the Sanctioning Authority before the project may proceed. See Chapter 4 for details relating to change management. GN 2.2 v1.1 29/09/

24 1.3 Critical Success Factors, Continued Project Programme There are two factors that require consideration in relation to cost and time during the design and tender processes. The first is the ongoing refinement of the design and specifications leading to greater cost certainty and less reliance on the contingency allowance as the project moves through the design process. The second is the clear correlation between the cost of a project and the time it takes to complete the design and tender processes. For that reason it is essential that the Project Programme for the design and tender processes is properly managed with appropriate project management tools to ensure that deadlines are strictly adhered to. The total performance period for the project is established at the time the Design Team is appointed, along with the individual performance periods for each service stage of the project (including the design and tender processes). For each project, these are set out in Schedules A and B of the Standard Conditions of Engagement for Consultancy Services (Technical) (COE 1). GN 2.2 v1.1 29/09/

25 1.4 Managing Value and Complexity Appropriate measures It is important to recognise that the time and money invested in cost planning and control exercises should be appropriate to the value and complexity of the project. Projects with a high value and a high complexity require different procedures to those with low value or low complexity. Value threshold For the purposes of this guidance note, the low value threshold is 5 million (ex. VAT) in line with the threshold for the use of the Public Works Contract for Minor Building and Civil Engineering works designed by the Employer (PW-CF 5) and the Public Works Short Form of Contract (PW-CF 6) see Traditional Contracts in Public Works Contracts (GN 1.5). Measuring complexity Project complexity is more difficult to quantify and differs from sector to sector. For this reason the general guidance would be that low complexity would involve a project with a simple low level design requirement and a clear, accessible, independent and vacant site whereas high complexity could involve intricate high level design input and/or a difficult site and/or interfacing with existing live facilities. It is envisaged that, other than in exceptional cases, projects under 1 million will fall into Category 1 Low Value / Low Complexity. Each Sanctioning Authority should set specific guidelines on project complexity within their sector as guidance to Sponsoring Agencies. Note: As with the forms of contract it is open to Sponsoring Agencies to adopt the procedures for high-value projects or low-value projects as they consider appropriate. GN 2.2 v1.1 29/09/

26 1.4 Managing Value and Complexity, Continued Value / complexity threshold The following diagram presents a value/complexity matrix, with indications of the different management levels that apply to each. Value CATEGORY 3 HIGH Value LOW Complexity CATEGORY 4 HIGH Value HIGH Complexity Level 2 Risk Management Level 3 Value Management Level 2 Whole Life Cost Analysis CATEGORY 1 LOW Value LOW Complexity Level 1 Risk Management Level 1 Value Management Level 1 Whole Life Cost Analysis Level 3 Risk Management Level 3 Value Management Level 3 Whole Life Cost Analysis CATEGORY 2 LOW Value HIGH Complexity Level 3 Risk Management Level 1 Value Management Level 1 Whole Life Cost Analysis Complexity Figure 1: Value / complexity matrix Details of levels that apply to risk management, value management and whole life costs analysis are listed below. Risk management levels The following is a summary of the levels appropriate for risk management. Level 1 Level 2 Level 3 Risk Management should be a constant agenda item at Design Team meetings. With the cooperation of the Design Team, the risks should be identified and discussed, and strategies should be developed to minimise, mitigate or manage the risk Level 1 procedures plus Establish a formal Risk Register with the nature of each risk defined, quantified and valued, and a strategy for dealing with each of them should be developed. Level 1 and 2 procedures plus Run Risk Workshops using an experienced risk management expert not directly involved in the project. GN 2.2 v1.1 29/09/

27 1.4 Managing Value and Complexity, Continued Value management levels The following is a summary of the levels appropriate for value management. Level 1 Level 2 Level 3 In addition to the cost/ m 2, cost/km, unit cost etc., benchmarks as a basis for estimation the benchmark should also be used as a tool for reviewing value for money compared to other updated similar projects. Level 1 procedures plus Other benchmarking tools should be used including Functional Analysis to understand the Sponsoring Agency s interpretation of Value. Value engineering option appraisal should also be carried out. Level 1 and 2 procedures plus Run Value Management Workshops that focus on value for money as part of an ongoing process. This involves a review of the design to identify areas of improvements. Whole life costs analysis levels The following is a summary of the levels appropriate for whole life costs analysis. Level 1 Level 2 Level 3 As a matter of best practice, ensure that affordable, sustainable design solutions are included. Level 1 procedures plus Develop a Schedule of Whole Life Cost options with indicative orders of costs and payback terms for review with the Sponsoring Agency. As Level 2 procedures with increased analysis proportionate to the project size.. GN 2.2 v1.1 29/09/

28 1.5 Cost Control in Design Development Roles and Responsibilities Overview The roles and responsibilities of the Sanctioning Authority, the Sponsoring Agency (including the Project Coordinator) and the Design Team in relation to cost control during the design development process are detailed below. See Design Process (GN 2.1) for details of roles and responsibilities in relation to design development. Sanctioning Authority: roles and responsibiliti es It is the Sanctioning Authority s role to determine the outcome of any issue which impacts on a project arising out of a change in any of the components or circumstances on which the Approval in Principle was based. The Sanctioning Authority s particular responsibilities in relation to Project Reviews are outlined below. Project Reviews and the Sanctioning Authority Project Reviews 1, 4, 6 and 7 are red reviews red light reviews. These require the Sponsoring Agency to prepare a report for the Sanctioning Authority to approve in order for the project to proceed further. The report enables the Sanctioning Authority to evaluate the business case and the project parameters, to confirm the budget, and to determine whether or not the project should proceed. Project Reviews 2, 3 and 5 are amber light reviews. These require formal collection and reporting of evidence within the Sponsoring Agency and the Design Team to confirm that the project is on track. At each amber light review, the Sponsoring Agency should provide the Sanctioning Authority with verification that the project continues to be achievable within the budget, programme and scope constraints previously approved. The Sanctioning Authority retains the right to request additional information from the Sponsoring Agency at any project review. In this regard, Sanctioning Authorities should give particular consideration to the submission prior to the application for statutory planning approvals. This is an important stage because once a project passes into the statutory planning process it becomes more difficult to make changes to the scheme and details of the project are made public. The Sanctioning Authority s assessment can include an examination of the Design Team s report and the Sponsoring Agency s review of that report. The assessment should focus on the key requirements in terms of quality (including function), programme and cost. GN 2.2 v1.1 29/09/

29 1.5 Cost Control in Design Development Roles and Responsibilities, Continued Sanctioning Authority: roles and responsibiliti es (continued) Due diligence on large projects For large projects (greater than 30m) a more formal due diligence assessment should be carried out, which should include the following: Cost Benefit analysis; Assessment of the achievement of the Definitive Project Brief objectives (and design standards in the case of civil engineering projects); Assessment of the completeness of the tender documentation; and Assessment of the project s risk profile. Risk Assessment: the role of the Sanctioning Authority The Sanctioning Authority should periodically assess the Sponsoring Agency s risk management approach and the sufficiency of any mitigation measures it has adopted. The Sanctioning Authority should also periodically assess the adequacy of the ongoing contingency. Arising from such assessment by the Sanctioning Authority, there may be a requirement to put in place change control systems and other procedures. When this occurs, it must be recorded using an agreed documentation and recording procedure. Sponsoring Agency: roles and responsibiliti es The Sponsoring Agency is the key Client body with responsibility for initiating and monitoring the delivery of a capital project. In fulfilling this function the Sponsoring Agency, and in particular the Project Coordinator (the person charged with the day-to-day monitoring and approvals) must have appropriate systems and procedures in place to monitor and approve designs and costs. See the Budget Template in Appendices A and B of the guidance note Budget Development (GN1.3) for a non-exhaustive list of the costs to be monitored. It is also the Sponsoring Agency s responsibility to seek the approval of the Sanctioning Authority for any material change or change in circumstance which impact on the project for which Approval in Principle was granted. Communications In relation to communications it is important to note the provisions in clause 7, [7] to [10] of the Standard Conditions of Engagement for Consultancy Services (Technical) (COE 1) which states: The Client may respond to Consultant s communications with comments, questions, objections, to which the Consultant shall reply. A Client s response or failure to respond to any communication from the Consultant does not constitute or imply any review or verification by the Client, or relieve the Consultant from any responsibility or liability. GN 2.2 v1.1 29/09/

30 1.5 Cost Control in Design Development Roles and Responsibilities, Continued Sponsoring Agency: roles and responsibiliti es (continued) Progressing a project The way the project progresses will depend on when the Client gives permission for a stage to start. Clause 4 [1] of the Standard Conditions of Engagement for Consultancy Services (Technical) (COE 1) states: The Consultant shall start its Services for each Stage when the Client gives permission, perform them regularly, meet each milestone within the Stage, and complete the Services for the Stage with the Performance Period scheduled for it. The timing of each permission to start is the Client s choice [but clause 5 gives the Consultant rights in respect of the Scheduled Total Performance Period]. Systems and procedures The Sponsoring Agency in fulfilling its responsibility during the design process should have systems and procedures that include the following steps: Steps 1 Cost Planning and Cost Control 2 Programme confirmation Systems and procedures This step follows confirmation by the Design Team that the key deliverables of Quality (including function), Programme and Cost are realistic and capable of delivery. The Sponsoring Agency should have decided the extent of cost planning and cost control it requires on a project before it appoints the Design Team. It is critical that the Cost Plans and Cost Check reports are reviewed at the appropriate time to confirm that the project is within budget. The Cost Plans and Cost Checks should state that they are based on the drawings and information issued by the Design Team and that the notes and exclusions are not lengthy, exclude too much or are unacceptably onerous for a Sponsoring Agency to accept. The Sponsoring Agency should regularly review project progress against the project master programme and identify any time lost or gained since the previous stage. In reviewing the programme the Design Team should offer practical suggestions as to how lost time might be made up in order to bring the project back on track. The Sponsoring Agency should include in their formal approval any programme adjustments necessary (accelerations / overlapping of tasks and so on) to maintain the master programme end date. GN 2.2 v1.1 29/09/