1 COST LIMIT

(PRE AND POST CONTRACT)

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 INTRODUCTION
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 ‘Maximum expenditure’.
 Is a statement of the limit of cost for clearly defined
client requirement beyond which a client is not
prepared to enter into a building contract.
 It is that part of the client’s brief which having
specified the quantity of the requirement, direct the
architect to obtain an acceptable tender within the limit
of certain sum money.

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 INTRIDUCTION (CONT’D)
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 The cost limit will be very much influenced by:-

i) The floor space required
ii) The standard of accommodation
iii) The function of the building / use
iv) Either client type:-

a) Client – prescribed accommodation requirement but unaware of cost

implication
b) Client determines both the accommodation requirement and cost limit
through past experience
c) Client prescribed a cost limit, design team to produced standard
accommodation that can be provided for this sum
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 METHODS OF COST LIMIT
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1. Financial method
 ‘Developer equation’.
 Established by means of the developer budget.
 Is depends on the finance available for the project.
 This method is used only in the private sector where
profit making is the sole motive of any development
and this consideration determines the permissible
cost of a building
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 METHODS OF COST LIMIT
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2. Interpolation method
 Comparison with cost of similar buildings by
cost/m2 GFA adjusted for space, standard
and use.
 Assessed from a comparative study of known
costs of similar building.

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 PROCEDURE OF
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INTERPOLATION METHOD
 Collect all available cost analysis for buildings of similar use, update
and compile histogram. Example:
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No. of Buildings

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Common range
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20 30 40 50 60 70 80
0 0
Cost/m2 GFA
0 0 0 0 0
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Result: Most buildings – the range is between RM 400 – 600/m2
GFA
 PROCEDURE OF
INTERPOLATION METHOD
•
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(CONT’D)
Select/choose ONE cost analysis closest to proposed building in QUALITY.
• Isolate major difference between proposed building and cost analysis chosen.
 Difference:
1. GFA
2. Tender date
3. Items shown in analysis but NOT REQUIRED in proposed building
4. Item REQUIRED in proposed building but not provided in cost analysis
5. Significant differences in preliminaries and contingencies.

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 PREPARATION OF ‘FIRST
ESTIMATE’ BY
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‘INTERPOLATION METHPD’
1. A range of ‘Cost analysis’ of the same ‘type’ of building as the proposed
building is assembled.
2. This range is examined to find the ‘cost analysis’ of the building whose
‘quality’ approximates most closely to that desired by the client.
3. The initial brief of the proposed building and ‘all’ of the information given in
the cost analysis are studied in order to ‘isolate’ the ‘major differences’
between the two building.
4. ‘Allowances’ are made for each of these ‘major differences’ (including, of
course, differences in floor area and general market level).
5. Finally, an allowance is made as a reserve against price rises between the
general market price level at the date of ‘preparation’ of the ‘first estimate’
and the ‘contractor’s’ price level of the tender.
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 PRICE AND DESIGN RISK
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 In preparing cost limit and/or outline cost plan, an allowance should be

made for unforeseen difficulties, which may come to light later in the
design process, and price rises between the preparation of the cost limit
and the receipt of tender and between receipt of tender to the completion
of project.
1. Design contingencies
A percentage allowance should be allowed for changes that can occur for
unforeseen problems during the design period and the construction
period. Normally a well thought design scheme would carry a small
percentage than one where many problems have to be solved by the
design team. As the scheme progresses through the various stages of
design development, it can be expected that the percentage will fall to
reflect the greater certainty of the design decisions.
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 PRICE AND DESIGN RISK
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(CONT’D)
2. Contract contingencies (differences in contract
particulars)
 The magnitude of contract contingencies generally
reduces as the design progresses. In normal
circumstances, the percentage may range from around
5% in the early stages to fall to possibly as low as 1% in
the tender document stages, subject to assessments of the
possibility of unforeseen problems. A repetitive design
on a normal site, the percentage may be lower.

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 PRICE AND DESIGN RISK
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(CONT’D)
3. Price risks – escalation to tender date, contract cost adjustment
 Prices are expected to move between the preparation of outline cost plan
and the receipt of tender and between the date of tender and the
completion of the project.
 If the contract includes price fluctuation, then this amount will be paid
during the progress of the works in progress payment. If the contract
does not allow for price fluctuation, a percentage allowance should be
given by predicting the construction market from tender to completion of
project.
 The allowance made will be related to the length of construction time for
the project and the risk involved. It will increase the longer the time
needed to complete the works.
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 PRICE AND DESIGN RISK
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(SUMMARY)
1. Price Risk
• Adjustments of the cost analysis figure by multiplying the
appropriate figure by an index.
• Related to market condition
Example:
High inflation of 24% per annum
Costs are rising at 2% per annum
• An estimate prepared in January for tender in May will need
to add 10% just to cover for inflation.

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 PRICE AND DESIGN RISK
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(SUMMARY) (CONT’D)
2. Design Risk
• An allowance must be made for uncertainties in the proposed
design from finished design.
• Larger % of design needs to be added to cover design risk at
inception than at much later stages during design process.
• % depends on:
i) Client
ii) Type of project
iii) General familiarity of each consultant
• Almost negligible to some project but at certain circumstances
may represent 30 – 40% of estimates cost.
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 PRICE AND DESIGN RISK
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(SUMMARY) (CONT’D)
 ‘Price and design risk’ is allowed to take account:
• Type and complexity of design
• Nature of client
• Price trends
• Delay prior to receipt of tenders
 Percentage adjustments on price and design risk depend
on the experience of the designer and the QS familiarity
with the cost planning procedure.
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15 THE END