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Purpose

A pre-tender estimate is the last cost check of the project before it is issued to tender. The
design should be sufficiently developed to allow specification levels and construction
methodology to be determined, in this way the estimate should be a very accurate reflection of
the works.

During the detailed design process there are several factors that may have influenced the final
design and as a result the pre-tender estimate could be outside the cost plan range. For
example:

- additional site issues may have been uncovered through ground and site
investigations (obstructions in the ground, contamination, utility service lines, etc);
- client aspirations or instructions which may have altered the scope of the works;
- architectural design elements have been detailed so that they no longer represent
the intent reflected at cost plan stage;
- structural elements increased in size due to testing of preliminary design;
- services installations altered due to development of solutions;
- specialist lighting introduced with an extent beyond the cost plan provision;
- contingency review based on levels of information;

- review of the current state of the market against inflation allowances.

The pre-tender estimate is based on the tender information which will be significantly more
extensive than that at cost plan stage. In this respect it will have picked up all of the factors as
listed above. The output order of cost will determine the actions that need to be taken, in some
instances it may result in the tender release being held to allow budgetary issues to be
resolved.

It is important to identify the reasons for change in the scope of works, this will help identify
whether there are changes to the budget or whether the scope change represents deferred
work items and therefore not affecting the overall total budget.

In this respect the pre-tender estimate may be used to kick start a Value Engineering process
in order to bring the scheme back within budget. Similarly if the costs are below budget as a
result of changes the client may wish to add elements back into the works to maximise
commercial return.

In a significant number of cases the pre-tender estimate can be used to target potential Value
Engineering opportunities but the tender would still be issued to see if the competitiveness of
the market would bring the project back on budget, if not then the main Value Engineering
items have already been identified and these can be worked through with the selected
tenderer.

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Calculating a pre-tender estimate

A pre-tender estimate should be based on the same information as the tender information
pack. How the costs are derived is determined by what the tenderers have been asked to
provide. For example, fixed price lump sum, phasing or sequencing.

The pre-tender estimate will be based on the best information available at that time, ideally a
quantified bill of quantities. If quantified pricing schedules/documentation are not available then
it is necessary to measure the elements of the work to allow for pricing (much of this should be
available from the associated cost plan).

The method of calculating the pre-tender estimate is the same regardless of contract type and
whether the suite of documents include full bill of quantities or not.

- Package the works into trades

This will allow major elements and specialist items to be sent out to trade
contractors for market testing/ pricing check.
- Compare against other tender returns
Where possible compare the project and estimates with similar projects. It may be
that you are able to compare elements of the project which may be similar to
another project even though the whole project is not comparable.
- Review the structure of the works
Determine how the structure of the works is to be reflected in the estimate. In many
instances this will affect the unit rates of specific items. In some cases the effect will
be purely organisational.
- Available information
Consideration needs to be given to the quality/completeness of the tender
documentation.

It is common practice for someone not involved in the project to complete the pre-tender
estimate. This gives no prejudice to the order of costs and also provided a clarity and accuracy
check on the bill of quantities.

When comparing the pre-tender estimate against tender returns it was anticipated that it would
sit somewhere in the middle (neither the lowest nor the highest) and as such would be a mean
figure compared against the market.

When pricing the pre-tender estimate it was not intended to win the work, i.e. be the lowest
price, from a practical point of view if the pre-tender estimate was priced too keenly it would be
misrepresentative of the tender returns and could give a false expectation of what the tender
return would be. It does mean that when the tenders are being opened there is an amount of
trepidation particularly as the first tender opened is invariably the highest.

Not all works are tendered as complete projects. Large projects particularly are often tendered
on a trade package basis through construction management style contracts. In these cases
there would be a series of tender releases followed by various pre-tender estimates carried out
for the individual packages.

On these projects the pre-tender estimate is much more specific and the works are self
contained, there is no opportunity to balance the costs against other elements of work or

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preliminaries. Due to the focused nature of the tender, particularly for ground works and
structural trades, the methodology and sequence are extremely important.

For finishes trades the specification is paramount as this dictates how the works will be carried
out, for example, lift lobby glass wall panels are backed onto a separate wall lining on it?s own
independent frame to accommodate tolerances within the finishes and not to rely on
compounded tolerances from preceding trades such as concrete frame (core) and dry lining.

Inflation

The pre-tender estimate needs to reflect what the tenderers have been asked to price. If the
tender documentation asks for a lump sum fixed price contract then the pre-tender estimate
should be priced in the same way with allowance for fixed priced to be either included in the
individual rates and/or a single line provision in the general summary. It may be necessary to
add an allowance for risk if the contract asks for a Guaranteed Maximum Price (GMP).

On the other hand, if the contract allows for fluctuation then the pre-tender estimate would be
priced accordingly with no allowances made for fixed price. If this is the case then the project
should have a separate contingency fund to deal with any additional costs arising from this as
these would not be covered by the tender.

When pricing a pre-tender estimate many of the rates available will be historic or current day.
In this case due allowance should be made for either inflation or deflation. Guidance on the
rate of inflation can be sought through BCIS. The Building Cost Index allows for the inflation
during the course of a project which would be incorporated into the rate.

When looking at historical rates then it may be necessary to use the tender price index to base
date the historical tender to that of the pre-tender estimate. It is important to note, when using
inflation indices, that these are not generally tailored to specific rates but rather deal with a
project as a whole. It will average out the peaks and troughs in the elements.

This can cause an issue when looking at a project which has a heavy bias towards a certain
trade. For example if there was a disproportionate amount of mechanical and electrical
services then this would influence the distribution of the inflation allowance and would put the
increases outside that of an average building. This can also be the case with projects that
have a large amount of specialist and bespoke features, whether this is fa?ade cladding, i
ternal finishes or services installations. The nature of the design may limit who can m
nufacture the designed items which has the consequential effect of losing competitiveness i
the tender. Where elements of the building are no longer standard they should be priced a
cordingly and the rates will become bespoke and not necessarily relate to industry norms for i
flation.

State of the market

The public vote in favour of the UK leaving the EU has created difficult and uncertain times
within the industry particularly coming so closely after a prolonged global recession. The timing
of the EU referendum was not ideal as the industry had not recovered from the recession,
which has made the impact of the uncertainty that Brexit has created all the more difficult to
deal with. The prolonged negotiations between the UK and EU since Article 50 was invoked
has sustained a level of uncertainty and lack of confidence in the market which is preventing
investment and projects starting. These delays are having a negative impact on the industry
and has contributed to the loss of contractors which changes the complexion of the market
place. It is difficult to predict inflation and forecast costs allied with the negative impacts on the
value if sterling. Once a Brexit deal is struck the nature of the deal will become the driving
factor that could continue to have a long-term impact.

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The exchange rate of sterling is driving up the costs of imports and material prices. These
reduce margins and/or increase costs of projects. It also results in a volatility that makes
predicting fixed prices on projects difficult, particularly with projects that run for a number of
years.

Pre-tender estimates are more specific and go into a greater level of detail, these need to be
reviewed with a close eye on the state of the market, particularly as exchange rates have
differing effects on the various elements (depending on the extent of materials being
manufactured/sourced abroad). With uncertainty, the pauses in decision-making disrupt the
frequency of project starts, which creates pockets in workload. The workload gaps are not
uniform across the trades so there are times with the services trades are very busy when the
piling contractors have capacity. This needs to be considered when producing an estimate at
package level.

The state of the market extends beyond political ramifications, with changes in supply chain
and regulations having large impacts that are not always obvious. The closing of landfill sites
or concrete batching plants have a direct effect on groundworks and concrete works. This
impact will be felt in those respective trades and, therefore, this needs to be factored into any
final estimates. Similar over/under supply is not always evident without engagement with the
trades and emphasises the importance of regular engagement with the market, particularly in
these uncertain times.

Reporting a pre-tender estimate

Pre tender estimates should be reported in a similar way to cost reports. The executive
summary and introduction should state what is included within this particular pre-tender
estimate and what the allocated budget is.

The budget should be reconciled with the extent of works covered by the pre-tender estimate.
This may include transferring money in and/or out of the budget total. The budget starting point
should be the cost plan. The pre-tender estimate should be reconciled against the budget
highlighting unagreed areas of scope growth, client change and market movement. If the
pre-tender estimate is over budget then it is worth identifying potential value engineering
elements (time permitting).

When reporting on the costs particularly with respect to the overall building costs that the costs
are related to the building area. When reporting against floor areas it is necessary to define
under which code of measurement the areas have been measured (see RICS property
measurement (professional statement, 2015) and International Property Measurement
Standard (IPMS) for Office Buildings).

Areas of work which are covered by allowances should be identified indicating the extent of
work that needs to be detailed.

The summary should include comments on the financial risks associated with the design
information, for example, whether the design is complete, extent of provisional sums,
unnecessary complexity and specification level. The information used in producing the
pre-tender estimate should be scheduled with the revision numbers of each of the drawings
and documents shown.

It is important that sufficient time is allowed within the project programme to carry out the

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pre-tender estimate and deal with any potential outcomes.

Preparation of a pre-tender check list

There are a number of fundamental things that need to be established before starting a
pre-tender estimate.

You will need:

- a bill of quantities or pricing document. If this is not available you will need to
quantify the extent of works to allow pricing of the scheme;
- a clear scope of what elements of work will be covered (a bill of quantities or pricing
document should define the extent of work involved);
- a full set of drawings and specification that covers the extent of works. These should
be completed drawings and specification documents without ambiguity;
- a principle location for the project, for example, city, country;
- a site location. Is the site in a built up area or greenfield area? This will also indicate
restrictions such as building at the end of a one way street, adjacent busy road or
next to a river.;
- the work face location. Establishing the logistics associated with carrying out the
actual work. For example, if the works take place on the eighth floor;
- site investigations and photographs of the existing site. The report on the existing
site particularly geotechnical reports will help to determine the extent of temporary
measures required to carry out the works in the ground (dewatering and propping).
For refurbishment of existing buildings, the internal structural investigations will
highlight what temporary and permanent structures are required to facilitate the
proposed scheme (strengthening works and repairs);
- a programme or schedule for the works. If there is a shortened programme then this
will dictate how the work is carried out and whether special measures need to be
employed;
- to know about any other restrictions placed on the works such as phasing, occupied
portions of the site, limited working hours. These restrictions would need to be
factored in to the pre-tender estimate either as line items or as enhancement to the
measured work rates;
- to know about any previous contractor advice/methodologies which could be used to
help define the proposed approach to carrying out the works; and
- available relevant cost data.

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