1 Ministry of Education

Technological University
Department of Civil Engineering

CE-52012 Civil Engineering Management II

Chapter-1(The Concept of Cost Control)

Presented By:
Daw Cho Wai Phyo Kyaw
Demonstrator
Department of Civil Engineering
 Chapter-1 (The Concept of Cost Control)
CONTENTS
 The concept of cost control
 Historical development of cost control process
 Need for cost control
2  Main aims of cost control
 Role of Quantity Surveyor
 Tendering arrangements
 Types of contract
 Comparison of cost planning and approximate estimating
 Course Outcome
3 The Concept of Cost Control
Cost control aims - ensuring that resources are used to
the best advantage
- to operate an effective cost control procedure during the
design stage of a project to keep the total cost of scheme
within the building clients budget
4 Historical development of cost control process
 Cost planning, as at present operated , is the logical extension of a
process which has continued since the days of the eighteenth-century
measures, who were employed to measure and value the cost of the
work after it was both designed and executed.
 Main contractor system to became fully operative in the early
nineteenth century, implied price competition before construction which
previously rarely occurred.
5 Need for cost control
 There is greater urgency for the completion of projects to reduce the amount of
unproductive capital or borrowed money and few building clients have sufficient time for
the redesign of schemes consequent upon the receipt of excessively high tenders.

 Building client’s needs are becoming more complicated,more consultants are being
engaged and the estimation of probable costs becomes more difficult.

 Employing organisations,both public and private arethemselves adopting more

sophisticated techniques for the forecasting and control of expenditure and they in their
turn expect a high level of efficiency and expertise from their professional advisers for
building projects and require a board and comprehensive range of services.
6 Need for cost control
 The introduction of new constructional techniques materials and components
creates greater problems in assessing the capital and maintenance costs of
buildings.

 Changing prices,restrictions on the use of capital,variable interest rates and low

contractor’s profit margins all make effective cost control that more important.

 The move towards reduced waste and greater use of scarce resources creates
the need for more accurate forecasting and improved cost control.
7 Need for cost control
 There is an increasing demand for integrated design to secure an efficient combination
of building and services elements in complex developments, such as hospitals.

 Rising energy costs necessitate costing alter native heating and thermal insulation
measures.

 More attention is being paid to life cycle costing and total cost appraisal.

 Demand centre around theelements of value-added, finance , management and

investment.
8 Main Aims of Cost Control
To give the building client good value for money

To achieve a balanced and logical distribution of the available

funds between the various parts of the building

To keep total expenditure within the amount agreed by the client
 Role of Quantity Surveyor
9

Quantity surveyor is involved in the planning and design

stages of a project

Quantity surveyor can give advice on the strategic planning of

a project which may affect the decision whether or not to build
where to build how quickly to build and the effect of time on
costs or prices and on profitability.
 Role of Quantity Surveyor
10
In the exercise of cost planning techniques the quantity surveyor is concerned
with many issues of building economics,some involving returns as well as costs and
some of these are listed now:
1. Substitution between capital and running costs to secure the minimum total
cost.
2. Investigation of the different ways of producing the same building at lower cost.
3. Finding ways of slightly altering a building so that for the marginally greater use
of resources,the returns are more than proportionately increased.
4. Investigating methods of using the same resources to produce a different
building which could give greater returns.
 11

Tendering arrangements
All tendering procedures aim at selecting a suitable contractor and
obtaining from him at an appropriate time an acceptable offer, or tender,
upon which a contract can be let.

What is contract?
 Contract is an agreement enforceable by law.
 A contract is an exchange of promise between two or more parties to do.
 Contractors operate under a contract arrangement with the owner.
12 Types of Contract

1.Fixed - price contract (or) Lump sum contract

2.Cost reimbursable contract (or) Cost plus

contract
1.Fixed – price contract (or) Lump sum contract
 lump sum contract is an agreement in which one party
consents to pay another party a specified amount normally
established by competitive bidding.

 Generally this type of contract is used for small work.

13
 In a lump sum contract the owner has essentially assigned
all the risk to the Contractor.
2.Cost reimbursable contract (or)Cost plus contract

 In this type of contract all the cost that the contractor incurs during the
project are charge back to the client, and thus the contractor is
reimbursed costs.

14
15 Kinds of cost-reimbursable contracts

Cost plus
percentage contract

Cost-reimbursable
contract (or) Cost Cost plus fixed fee
plus contract contract

Cost plus
fluctuating fee
contract
Cost plus percentage contract (CPPC)

 Cost plus percentage contracts are those in which the contractor

is paid the actual cost of the work plus and agreed percentage of
the actual or allowable cost to cover overheads and profit.
 They are useful in emergency, when there is insufficient time
available to prepare detailed schemes prior to commencement of
16 the work, but it will be apparent that an unscrupulous contractor
could increase his profit by delaying the completion of the works.
 No incentive exists for the contractor to complete the works as
quickly as possible or try to reduce costs
17 Cost plus fixed fee contracts

 Cost plus fixed fee contracts are those in which the sum paid to
the contractor will be the actual cost incurred in the execution of the
work plus a fixed lump sum which has been previously agreed upon
and does not fluctuate with the final cost of the project.
 Although it is to his advantage to earn the fixed fee as quickly as
possible and so release his resources for other work
 It is superior to the cost plus percentage type of contract.
18 Cost plus fluctuating fee contracts

 Cost plus fluctuating fee contracts are those in which the

contractor is paid the actual cost of the work plus a fee,with the
amount of the fee beinng determined by reference to the allowable
cost by some form of sliding scale.
 Thus the lower the actual cost of the works, the greater will be
the value of the fee that the contractor receives
 An incentive, then exists for the contractor to carry out the work
as quickly and as cheaply as possible and it does constitute the
best form of cost plus contract from the employer’s viewpoint
 Other contracts
19

Measure Contracts based

on drawing and Design and
and value
specification build contracts
contract

Design and Develop and

manage Management
construct
contracts contracting
contracts
 Measure and value contract
 Contracts include those based on schedules of rates,
approximate quantities and bills of quantities
 The great merit of these contracts lies in the
predetermined nature of the mechanism for financial
control provided by the pre contract agreed rates.
20  The risk of making a profit or loss is with the contractor.
 Contracts based on drawing and specification

 Contracts are often described as lump sum contracts although

they may be subject to adjustment in certain instances.
 By entering into a lump sum contract the employer hoped to
place the onus on the contractor for deciding the full extent of
the works and the responsibility for covering any additional
21
costs which could not be foreseen before the works were
commenced.
 Design and Build Contracts
 These constitute a specialized form of contractual relationship in which
responsibility for design as well as construction is entrusted to the
contractor.
 First, a competition to find the contractor who can best satisfy the
functional, aesthetic and economic needs
 Second, a period of negotiation with the selected contractor using data,
22
especially prices, derived from the first stage
 Quantity surveyors can offer various services in connection with contractor
sponsored contracts at the pre contract, tender and contract stages
 Design and Manage Contracts
 The ‘design and management’ system combines some of the characteristics of
‘design and build’ with those of ‘management’.
 The main components of the system are:
 Establishing the need to build
 Determining the client’s requirements
 Selecting and inviting tenderers to bid
23  The contractor or contractors preparing their proposals for management, design,
time and cost
 Evaluation and acceptance of a tender which becomes a contract
 Management, design and construction of the works
24 Develop and Construct Contracts

 In this type of contract consultants design the building to a partial stage or scope
design, the competitive tenders are obtained from contractors that develop and
complete the design and then construct the building
 Develop and construct requires analysis/creativity of a design team
 And then, acceptance/implementation by a construction team which may also be
chosen in competition
 Management Contracting
 In management contracting the contractor is paid a fee to
manage the construction of a project on behalf of the client and
it is therefore a contract to manage, procure and supervise as
apposed to a contract to build.
 Thus the management contractor is a member of the client’s
25 team and works closely with the professional consultants
 Comparison of Cost Planning and Approximate Estimating

A number of terms are used widely in cost control work.

1.Cost Plan 7.Cost In Use
2.Cost Check 8.Cost Study
3. Analysis 9.Cost Control
4.Approximate Estimating 10.Cost Management
26
5.Element 11.Cost Planning
6.Cost Research
 Cost plan

A statement of the proposed expenditure on each

section or element of a new building related to a definite
standard of quality.

27
 Cost Check
The process of checking the estimated cost of each
section or element of the building as the detailed designs
are developed, against the cost target set against it in the
cost plan.
28
 Cost Analysis

 systematic breakdown of cost data, often on the

basic of elements, to assist in estimating the cost
and in the cost planning of future projects.

29
 Approximate Estimating

 Computing the probable cost of new building works at

some stage before the bill of quantities is produced. It is
an essential and integral part of the cost planning
process.
30
 Element

 A component or part of a building that fulfils a specific

function irrespective of it design, specification or
construction, such as wall, floors , and roofs. Many cost plan
and cost analyses are prepared on the elemental basis.
31
 Cost Research

 All methods of investigating building costs and their

interrelationship, including maintenance and running costs, in order
to build up a positive body of information which will form basic
guidelines in planning and controlling the cost of future projects.

32
 Cost in Use

 Investigating the total costs of building projects initial

capital costs and maintenance and running costs
throughout the predicted lives of the buildings.

33
 Cost Study
 To reveal the distribution of costs between the various parts of the
building.
 To relate the cost of any single part or element to its importance as a
necessary part of the whole building.
 To compare the costs of the same part or element in different building.
 To consider whether costs could have been apportioned to secure a
34
better building.
 To obtain and use cost data in planning future buildings and
 To ensure a proper balance of quantity and quality within the
appropriate cost limit.
 Cost Control

 All methods of controlling the cost of building projects

within the limits of predetermined sum, throughout the
design and construction stages.

35
36 Cost Management
 The synthesizing of traditional quality surveying skills with
structured cost reduction or substitution procedures using a multi-
disciplinary team.
37 Cost Planning
 Interpreted as controlling the cost of a project within a
predetermined sum during the design stage, and
normally envisages the preparation of a cost plan and the
carrying out of cost checks.
 Course Outcome

 To give overview knowledge of the concept of cost control.

38