SM014 - Cost Estimation Manual

Page i

NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

Document management plan

1) Purpose

This management plan outlines the updating procedures and contact points for the document.

2) Document

information

Document name

Cost estimation manual

Document number

SM014

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

Document sponsor

National Manager Professional Services

Amendments and review strategy

All corrective action/improvement requests (CAIRs) suggesting changes will be acknowledged by the
document owner.

Comments

Frequency

Amendments (minor
revisions)

Updates incorporated immediately they occur.

As required.

Review
(major revisions)

Amendments fundamentally changing the content or structure of the document will be
incorporated as soon as practicable. They may require coordinating with the review
team timetable.

At least annually.

Other information (at document owner’s discretion)

There will be occasions, depending on the subject matter, when amendments will need to be worked
through by the review team before the amendment is actioned. This may cause some variations to the
above noted time frames.

Page iv

NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

Contents

Part A – Introduction

1.0

Introduction

2.0

Terminology and abbreviations

3.0

Estimate definitions

Part B – Roles and responsibilities

4.0

Roles and responsibilities

Part C – Procedures

5.0

Purpose of cost estimates

6.0

Estimates

7.0

Escalation

8.0

Land and property

9.0

Risk analysis and contingency calculation

10.0

Reporting estimates

11.0

Estimate audit trail

12.0

Peer reviews and parallel estimates

13.0

Scope and cost control process

Part D – Guidelines

14.0

Estimate guidelines

Appendices

Page 1

NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

Part A – Introduction

1.0

Introduction

1.1

General

1.2

Manual background

2.0

Terminology and abbreviations

2.1

Terminology

2.2

Abbreviations

3.0

Estimate definitions

3.1

General

3.2

Project life cycle

In this part

Section

Page

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NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

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
status

This manual has the status of a ‘standard’ as defined in the NZTA 's Register of network
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
manual users

This manual is intended to be a used by anyone preparing estimates for the NZTA.

1.1.5 Communication

and

amendment control

Manual users may communicate via email at the address given on the amendment
control sheet. All amendments to this manual will be documented in the record of
amendments table at the start of this manual.

1.1.6 Manual

review process

The manual owner is responsible for the review and update of this manual. The review
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

with other

manuals

This manual contains procedures for preparing cost estimates. In addition consultants
shall refer to other NZTA’s manuals, standards and guidelines including, but not limited
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).

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NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

Feedback form

Cost estimation manual (SM014) owner, NZ Transport Agency

Attention Bill

Hewitt

Fax number

06 345 7151

Subject

Cost estimation manual (SM014) feedback form

From (name and company)

Contact number

Contact email

Contact address

Manual reference

Comment and/or
description of problem

Describe what you would like
to happen/suggest change

Feedback ID

Action

(for internal use only)

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NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

2.0

Terminology and abbreviations

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.

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Estimate types
continued

Pre-design estimate (PE) – prepared during the I&R phase. It is an estimate of the approved project option, updated to
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.

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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
centre

Cost centre for project property costs including property acquisition, property compensation, property owner
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
estimate

Note that the 5th percentile estimate is only required for funding applications, and only in relation to the estimate of
construction and property costs.

95th percentile
estimate

The expected estimate plus an allowance for funding risk, calculated according to the guidelines in this manual. Note that
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
contingency

Out-dated terminology for funding risk.

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NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

2.2

Abbreviations

ACENZ

Association of Consulting Engineers New Zealand

AEE

Assessment of environmental effects

BCR

Benefit cost ratio

Construction estimate

Cost indices

D&PD

Design and project documentation

Design estimate

Feasibility estimate

FCWP

Forward capital works programme (now 10-year forecast)

HNO

Highways and Network Operations group

I&R

Investigation and reporting

LTPP

NZTA’s Long Term Procurement Plan

MSQA

Management, surveillance and quality assurance

NOR

Notice of requirement for designation

Option estimate

PADS

Property acquisition and disposal system

Pre-design estimate

PFR

Project feasibility report

PROMAN

State Highway Project Financial Management System

SAR

Scheme assessment report

Scheme estimate

SEP

Schedule of elemental prices

NZTA

NZ Transport Agency

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NZ Transport Agency’s Cost estimation manual (SM014)

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Effective from November 2010

Figure 2: Project management structure

NZ Transport Agency

Consultant

Phase

Commission PFR

Estimate

Produce PFR

Accept FE

Produce/review FE

Prepare funding request

Consider I&R funding

PFR

Approve I&R funding

Commission I&R

Commence I&R

Produce/review OE

Produce scoping report

Complete SAR/AEE

Produce/review SE

Review scoping report and

accept OEs

Accept SE

Check SE is produced in

accordance with manual

Is SE <$4.5 million

Yes

Is SE >$20 million

Parallel

estimate

External

peer review

Yes

Confirm SE

Confirm designation

Accept PE

Prepare funding request

Consider D&PD funding

Produce/review PE

I&R

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NZ Transport Agency’s Cost estimation manual (SM014)

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Effective from November 2010

Figure 2: Project management structure continued

NZ Transport Agency

Consultant

Phase

Estimate

Approve D&PD funding

Commission D&PD

Commence D&PD

Produce DE

Complete D&PD

Complete/review DE

Accept DE

Check DE is produced in

accordance with manual

Is DE <$4.5 million

Yes

Peer review

Is DE >$20 million

and

Has the project undergone a

significant scope change?

Would the project benefit

from a parallel estimate?

Yes

Parallel estimate

Confirm DE

Prepare funding request

Consider construction funding

Commence MSQA

Tender/evaluate

Produce/review CE

Award contract(s)

Manage/complete contract(s)

Confirm out-turn cost

Complete

NZ Transport Agency

elemental costing model

Commission MSQA

Accept CE

Is funding sufficient?

Consider additional funding

Approve additional funding

Yes

Forward elemental costs to the

NZ Transport Agency

Commercial Engineer

Approve construction

funding

NST

ION

OUT-

TURN
COST

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NZ Transport Agency’s Cost estimation manual (SM014)

First edition, Amendment 0

Effective from November 2010

Part C – Procedures

5.0

Purpose of cost estimates

6.0

Estimates

6.1

General

6.2

Resource input for estimates

6.3

Estimate responsibility and ownership

6.4

Consultant performance

6.5

Project scope and functionality

7.0

Escalation

8.0

Land and property

8.1

Property purchase

8.2

Net property cost

8.3

Total property cost

8.4

Property acquisition fees

9.0

Risk analysis and contingency calculation

9.1

General

9.2

Terminology

9.3

The risk management approach for calculating contingency

9.4

Calculating likelihood and consequence

9.5

Sensitivity analysis

10.0

Reporting estimates

10.1

General

10.2

Reporting FE and OE

10.3

Elemental breakdown

10.4

Estimated costs

In this part

Section

Page

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NZ Transport Agency’s Cost estimation manual (SM014)

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Effective from November 2010

10.5

Funding application

10.6

Cash flow/Accrual reporting

10.7

Management of contingency

10.8

NZTA’s elemental cost database

11.0

Estimate audit trail

11.1

General

11.2

Estimates updates

12.0

Peer reviews and parallel estimates

12.1

General

12.2

Internal peer review

12.3

External peer review

12.4

Parallel estimates

13.0

Scope and cost control process

13.1

General

13.2

The records

13.3

Monthly reporting requirements

13.4

The process

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NZ Transport Agency’s Cost estimation manual (SM014)

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Effective from November 2010

5.0

Purpose of cost estimates

Cost estimates are required for:



financial planning



programming



option selection



project specification



funding approval



committing contracts



cost control.

Financial planning

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.

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NZ Transport Agency’s Cost estimation manual (SM014)

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Effective from November 2010

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

To maintain optimal programme performance cost estimates, including annual cash
flows, need to be continually updated during project delivery. Good cost control is
demonstrated through regular (at least quarterly) update of the cost estimate during
project delivery.

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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

Phase

Type

Purpose of cost estimate

Confidence level

Input/output documentation

PFR

Long-term financial planning.

Optimising timing of project development.

Determine likely scope of project.

Determine possible options for investigation.

Obtain funding for investigation.

Determine when to investigate.

I&R

Optional

Some I&R investigation is done in PFR to
produce more defined scheme and a more
reliable feasibility estimate (FE).

Expected estimate
and 95th percentile
estimate.

Contingency and
funding risk
assessed.

Input:



Risk management process commenced.



The NZTA may use benchmark estimator as
yardstick.

Output:



Project feasibility report (PFR).



I&R Funding Application form (with PFR)

Confirm strategy.

Project definition (including scope and
functionality).

Optimising timing of project development
option selection.

Determine when to design and construct.

Obtain funding for design and property.

Expected estimate
and 95th percentile
estimate

Contingency and
funding risk
assessed.

Input:



Risk management process continued.



The NZTA may use benchmark estimator as
yardstick.



Value management.

Output:



Report(s) detailing differences between FE,
option estimate (OE) and scheme estimate (SE).



Monthly reporting.



Quarterly estimate updates.



Scoping report (if required).



Scheme assessment report (SAR)/Assessment of
environmental effects (AEE).



Land designation and resource consent
conditions.



D&PD funding application form (with pre-design
estimate (PE)).

D&PD

Confirm project.

Optimising timing of project development.

Project specification.

Obtain funding for construction.

Determine when to construct.

Committing contracts.

Expected estimate
and 95th percentile
estimate.

Contingency and
funding risk
assessed.

Input:



Risk management process continued.



Value engineering.

Output:



Report detailing differences between PE and
design estimate (DE).



Monthly reporting.



Quarterly estimate updates.



Project documentation.



Construction funding application form (with DE).

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Effective from November 2010

Figure 3: Purpose, confidence and documentation for estimates continued

Phase

Type

Purpose of cost estimate

Confidence level

Input/output documentation

Construction

Reassessment of contingency and risks.

Managing cash flow.

Reviewing allocation.

Tender price is base
physical works
estimate.

Expected estimate
and 95th percentile
estimate.

Contingency and
funding risk
assessed.

Input:



Risk management process continued,
incorporating tender and tendered prices.

Output:



Report detailing differences between DE and CE.



Accrual reports.



Contingency management reports.



Out-turn cost.

The estimate life cycle of a project is illustrated below, together with the perceived
amount of risk at each phase.

Figure 4: Estimate life cycle with indicative uncertainty curves

6.2

Resource input for estimates

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.

Cost

Project

completion

Timeline

Expected cost

Optimistic cost estimate

Pessimistic cost estimate

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Effective from November 2010

6.3

Estimate responsibility and ownership

6.3.1 Estimate

responsibility

The consultant is responsible for the estimates prepared during the phase(s) for which
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
ownership

The entire project team must take ownership of the estimate and ‘buy-in’ to the
estimate.

6.4

Consultant’s performance

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.

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Effective from November 2010

8.0

Land and property

8.1

Property purchase

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

Net property cost

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.

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8.2.2 Net

property costs

Nett property cost is defined as the market value, at the base date, of any property
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

. 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

compensation

costs

In certain circumstances the Act considers other losses apart from the market value of
the property taken. This is termed ‘property compensation’ and may include:



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

owner

accommodation

works costs

During the property acquisition process, the NZTA may agree to carry out works as
part of a property purchase or compensation agreement. For instance, an agreement
might require the NZTA to erect fencing or construct driveways before or during
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.

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.

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8.3

Total property cost

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.

8.4

Property acquisition fees

Property acquisition fees may include:



property acquisition agent’s fees



other professional fees, eg the NZTA’s legal, valuation, specialists and survey fees



Land Information New Zealand (LINZ) title and other disbursements



advertising, eg section 23 notices.

All of these fees shall be separately and individually identified in the I&R, D&PD and
construction phase estimates under consultancy fees. Note that as these are property
purchase costs, they will normally be funded from the project property cost centre.

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9.3

The risk management approach for calculating contingency

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.

Estimate

< $4.5 million

$4.5–$10 million

> $10 million

FE Informal/General

General

OE Informal/General

General/Advanced

SE General

General/Advanced

Advanced

PE General

Advanced

DE General

Advanced

CE General

Advanced

Figure

Use of informal, general or advanced approach to risk management

Where informal/general or general/advanced is detailed as the applicable approach,
the NZTA’s project manager shall determine the most appropriate of the two
approaches.

9.3.1 Informal

approach

The informal approach consists of the management of existing procedures and
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
approach

The general approach is to be used for all NZTA’s projects where the informal
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.

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9.3.3 Advanced

approach

The advanced approach is quantitative. It is based around the modelling of individual
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.

9.4

Calculating likelihood and consequence

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.

9.5

Sensitivity analysis

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.

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10.0 Reporting estimates

10.1

General

Cost estimates need to be prepared and presented using a standardised industry
format. This is essential to improve understanding of estimates and to reduce the risk
of items being left out of presented costs.

Consultants are to use the templates included in this manual:



Elemental breakdown (appendix B).



Estimated costs (appendix C).



Funding applications (appendix D).



Cash flow/accrual reporting (appendix E).



Elemental cost database (appendix F).



Cost reporting and scope management (appendix H).

For projects incorporating a number of contracts, the consultant will present each
contract separately and then summarise all the contracts on a main form. This provides
a ready reference from which an overall understanding of the estimated/actual out-
turn cost for a project can be gained.

All cost estimates shall be accompanied by a report that as a minimum shall include:



scope and functionality statement and assumptions



the base estimate



the risk register



the risk-adjusted programme



residual risks for costing



the pricing of residual risks



expected and 95th percentile estimates



date and cost index



ranked sensitivity analysis on risks that have the greatest financial impact



exclusions and assumptions



peer reviews.

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10.2

Reporting FE and OE

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.

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).

95th percentile estimate

$45 million

$25 million

Option A: ‘preferred’
60% probability of
being able to achieve

Overall project curve

Option B:
25% probability
of being able to
achieve

Project ML

Option C:
15% probability
of being able to
achieve

$10 million

$5 million

$30 million

$15 million

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10.3

Elemental breakdown

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 Estimated costs

10.4.1 Estimated

property

acquisition costs

Example forms are included in the appendices to present the estimated project
property costs and the total purchase cost of property.

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
of estimated

costs

The consultant must use the appropriate form for the phase of the project life cycle to
report the estimated costs. More information as to which form to use is detailed in
section 3 of this manual. Appendix C contains example forms for the following project
estimates:



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

estimates

These are required at different stages of the development of a project:



FE (form A)



OE (form B)



SE (form C)



PE (form D)



DE (form E)



CE (form F).

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10.4.5 Capital project estimating – Navigation diagram

Project estimate

(2)

Project I&R

Phase estimate

Project D&PD

Phase estimate

Project construction

Phase estimate

Land purchase
estimate

I&R contract estimate

(1)

I&R phase NZTA-managed costs

D&PD contract estimate

(1)

D&PD phase NZTA-managed costs

MSQA contract estimate

(1)

Construction phase NZTA-managed

costs and consent monitoring fees

Physical works contract estimate

Base contract estimate (in RFT)

Contingencies and escalation
estimate

Funding risk estimate

Base contract estimate (in RFT)

Contingencies and escalation
estimate

Funding risk estimate

Base contract estimate (in RFT)

Contingencies and escalation
estimate

Funding risk estimate

Base contract estimate (in RFT)

Contingencies and escalation
estimate

Funding risk estimate

Expected I&R

Contract estimate

95% I&R contract estimate

Expected D&PD

Contract estimate

95% D&PD contract estimate

Expected MSQA

Contract estimate

95% contract estimate

Expected physical works

Contract estimate

95% physical works contract 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.

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10.5

Funding application

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.

10.6

Cash flow/Accrual reporting

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.

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11.0 Estimate audit trail

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

Estimate updates

11.2.1 Estimate

stage updates

The consultant is to prepare and update a formal estimate report at each of the project
hold points throughout the project life cycle. The update report must include:

scope of work the estimates are based upon

summary and breakdown of current estimate

assumptions made in preparing the estimate

list of estimate exclusions

residual risk register

risk-adjusted programme

contingency and funding risk allowance derived by risk assessment or risk
analysis

changes between current and previous estimates including reason for change

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

updates

The consultant is required to update the estimate at any other point in the project life
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

reports

For all projects, the consultant must include a summary of the current project estimate
and a list of concerns or issues that may impact on the out-turn cost with the formal
monthly project report.

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12.0 Peer reviews and parallel estimates

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.

12.2

Internal peer review

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

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

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.

12.3

External peer review

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.

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13.0 Scope and cost control process

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.

13.2

The records

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.

13.3

Monthly reporting requirements

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.

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Part D – Guidelines

14.0

Estimate guidelines

14.1

Schedules of prices

14.2

Use and application of historic rates

14.3

NZTA-managed costs and consultancy fees

14.4

Buildability

14.5

Preliminaries and general

14.6

Earthworks

14.7

Services relocation and protection

14.8

Temporary erosion and sediment control

14.9

Urban design

In this part

Section

Page

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14.0 Estimate guidelines

14.1

Schedules of prices

The following information provides guidance on good estimating practice. The
NZ Transport Agency (NZTA) will develop this section over the life of the manual.

14.2

Use and application of historic rates

The following factors must be considered in deciding whether it is appropriate for a
historical rate or price to be applied to a new estimate:



direct costs (labour, plant and materials)



onsite overheads (indirect costs)



offsite overheads and profit



market conditions



age of data



similarity of work items



changes in technology, methodology, materials, plant and machinery.

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.

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Offsite overheads and profit

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.

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14.3

NZTA-managed costs and consultancy fees

The NZTA-managed costs and consultancy fees

are likely to be provided as a

combined effort by both the NZTA’s project manager and the consultant responsible
for the project or phase of the project. While difficult to estimate, these costs should
not be considered impossible to estimate reliably.

Examples of what should be included in these costs include the following:



The NZTA-managed costs:

– tendering costs

– consultation costs

– safety audit costs

– peer review costs

– public relations costs

– legal costs

– principal-arranged insurance costs (physical works contracts <$50 million)

– consent monitoring costs

– post-construction works costs (eg noise monitoring and traffic counts)

– miscellaneous other costs.



Consultancy fees:

– scope of services

– contract management

– investigation and reporting (I&R)

– design and project documentation (D&PD)

– management surveillance and quality assurance (MSQA)

– geotechnical testing schedule

– additional services, eg risk management, value engineering

– provisional sums.

The simplest way to estimate these costs is to refer to previous, similar completed
projects for the costs of work items. As out-turn costs, these will provide a basis to
work from. The estimator should then take into account inflation and recognise the
differences between the projects in order to adjust the estimate accordingly.

An alternative method is to assess the expected labour hours required for the individual
work items and apply current market rates for the type of work being carried out. This
method should be easier to carry out with both the consultant and the NZTA’s project
manager discussing the type of work, the expected duration and applicable rates.
Where specialist work is being undertaken, for example risk management, the most
reliable estimate is likely to come from a specialist undertaking that work. As such, it is
sensible to consult with such a specialist when pricing those works.

Note: Care should be taken when estimating these costs if the next phase of the
project is to be let by tender and the expected procurement model weights ‘price of
tender’ as a factor in selection.

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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.

14.5

Preliminaries and general

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’).

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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.

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14.7

Services relocation and protection

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.

14.8

Temporary erosion and sediment control

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.

14.9

Urban design

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.

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Appendices

Appendix A: Example of the NZ Transport Agency’s Cost estimation manual

(SM014) procedure

Appendix B: Example of elemental breakdown for construction costs form

Appendix C: Example of estimated costs forms

Appendix D: Example of funding application forms

Appendix E: Example cash flow/Accrual reporting form

Appendix F: Elemental costings

Appendix G: Escalation calculation example

Appendix H: Cost report and scope control forms

Appendix I: Example of peer review form

100

Appendix J: Cost estimate external peer review methodology

101

Appendix K: The NZ Transport Agency’s estimate peer reviewers and

industry experts

105

Appendix L: Parallel estimate methodology

107

Title

Page

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Appendix A: Example of the NZ Transport Agency's Cost estimation
manual (SM014) procedure

Estimate procedure – example $20 million >pre-design estimate >$10 million

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.

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).

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.

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:

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Property purchase costs

Land and improvements including chattels

$490,000

Less disposal value

$350,000

Nett property cost

$140,000

Property compensation costs

Solatium (payable to property owner in residence only)

$2000

Disturbance costs including relocation

$2500

Legal costs

$5000

Total $9500

Property owner accommodation works Nil

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 purchase costs

Lessor's interest in required road corridor

$450,000

Lessor's interest in severance land

$100,000

Lessee's interest in land

$35,000

Lessee's interest in buildings

$565,000

Nett property cost

$1,150,000

Property compensation costs

Lessee's interest in relocation expenses

$35,000

Property owner accommodation works Nil

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:

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Project name

Nett property costs

Property

acquisition

reference

Property requirements

Purchased

Property

purchase costs

(A)

(Less) disposal

value

(B)

Nett property

purchase costs

(A-B=C)

Property

compensation

costs (D)

Property owner

accommodation

works (E)

Nett project

property cost

(C+D+E=F)

Residential lifestyle block

Land and improvements including chattels

490,000

350,000

140,000

Solatium (payable to property owner and residents only)

2000

Disturbance costs including relocation

2500

Legal costs

5000

Commercial property

Lessor's interest in required road corridor

450,000

Lessor's interest in severance land

100,000

Lessee's interest in land

35,000

Lessee's interest in buildings

565,000

Lessee's interest in relocation expenses

35,000

Residential property

Land and improvements including chattels

15,000

Injurious affection

50,000

Legal and valuation costs

10,000

Disturbance costs

2,000

2000

Relocate glasshouse

2,000

2000

Install new fence

5,000

5000

Construct new driveway

7,000

7000

Replace planting

3,000

3000

Fees

Property acquisition agents fees

300,000

Base estimate

1,655,000

350,000

1,305,000

106,500

17,000

1,728,500

Contingency

270,000

Expected estimate

1,998,500

Funding risk

195,000

95th percentile estimate

2,193,500

Note: These estimates are exclusive of escalation and GST.

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Project name

Total property costs

Property acquisition

reference

Property requirements

Purchased

Property purchase costs

(A)

Property compensation

costs (B)

Property owner

accommodation works

(C)

Total property cost

(A+B+C=D)

Residential lifestyle block

Land and improvements including chattels

490,000

Solatium (payable to property owner and residents only)

2000

Disturbance costs including relocation

2500

Legal costs

5000

Commercial property

Lessor's interest in required road corridor

450,000

Lessor's interest in severance land

100,000

Lessee's interest in land

35,000

Lessee's interest in building

565,000

Lessee's interest in relocation expenses

35,000

Residential property

Land and improvements

15,000

Injurious affection

50,000

Legal and valuation costs

10,000

Disturbance costs

2000

Relocate glasshouse

2000

Install new fence

5000

Construct new driveway

7000

Replace planting

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

Funding risk

225,000

95th percentile estimate of total property costs

2,623,500

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Project name:

Item Description

Base estimate

Contingency

Funding risk

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

630,000

Contingency (Assessed/Analysed) (Consultancy fees)

70,000

Escalation (Consultancy fees)

20,400

Expected D&PD contract estimate

D1 = (A1+B1+C1)

720,400

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

415,000

Contingency (Assessed/Analysed) (NZTA-managed costs)

45,000

Escalation (NZTA-managed costs)

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)

60,000

Escalation (Consultancy fees)

10,700

95th percentile D&PD contract estimate

M1 = (D1+K1+L1)

791,100

Funding risk (Assessed/Analysed) (NZTA-managed costs)

43,000

Escalation (NZTA-managed costs)

7,750

95th percentile NZTA-managed costs

Q1 = (H1+N1+P1)

524,150

95th percentile D&PD phase estimate

R1 = (M1+Q1)

1,315,250

Date of estimate

Cost index

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA project manager

Signed

Note: (1) These estimates are exclusive of GST.

(3) Once a tender price is available it is substituted for the base contract estimate, and the expected estimate is updated on this
sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Assessment form H

Design and project documentation

Project phase funding application

Base D&PD contract estimate/tTender price A1

NZTA-managed costs E1

(2) Base contract estimate (A1) is displayed in request for tender. For multiple phase professional services contracts the base
contract estimate is the sum of the estimates for each phase.

&PD

Post-tender with tender price

Pre-tender with base contract estimate

(Tick as appropriate)

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Form D

Project name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

1,728,500

270,000

195,000

Investigation and reporting:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total investigation and reporting

Nil

Design and project documentation:

- consultancy fees

630,000

115,000

103,000

- the NZTA-managed costs

415,000

Total design and project documentation

1,045,000

115,000

103,000

Construction

MSQA

- consultancy fees

350,000

- the NZTA-managed costs

30,000

- consent monitoring fees

20,000

Sub-total base MSQA

400,000

Physical works

Environmental compliance

400,000

Earthworks

2,600,000

Ground improvements

200,000

Drainage

1,500,000

Pavement and surfacing

2,400,000

Bridges

Retaining walls

Traffic services

900,000

Service relocations

500,000

Landscaping

100,500

Traffic management and temporary works

500,000

Preliminary and general

500,000

Extraordinary construction costs

Sub-total base physical works

9,600,500

Total construction

10,000,500

890,000

610,900

Project base estimate (A+C+D)

12,774,000

Contingency (Assessed/Analysed)

(A+C+D)

1,275,000

Project expected estimate

(E+F)

14,049,000

Project property cost expected estimate

1,998,500

Investigation and reporting expected estimate

Nil

Design and project documentation expected estimate

1,160,000

Construction expected estimate

10,890,500

Funding risk (Assessed/Analysed)

(A+C+D)

908,900

95th percentile project estimate

(G+H)

14,957,900

Project property cost 95th percentile estimate

2,193,500

Investigation and reporting 95th percentile estimate

Nil

Design and project documentation 95th percentile estimate

1,263,000

Construction 95th percentile estimate

11,501,400

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.
(2) Investigation and reporting project phase estimates are set to nil as these are now sunk costs.

Project estimate

Pre-design estimate

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Completing the estimate and writing the report

Obtain an internal peer review from an experienced estimator, either from your own company or an
external company if that experience is not available. Reconcile any differences that exist.

The external peer reviewer, commissioned by the NZTA, should be provided all information and
assistance to enable them to perform their review. Reconcile any differences that exist between the
external peer review and consultant’s estimate.

Complete the boxes at the bottom of the PE form, including:



date of estimate



state the current cost index (Qtr/Year)



name and signatures of:

–

estimate preparer

–

internal peer reviewer

–

external peer reviewer

–

provide a report, which at minimum must include:

scope and functionality statement and assumptions

base, expected and 95th percentile estimates

residual risk register and pricing thereof

risk-adjusted programme

date and cost index

ranked sensitivity analysis on the risks that have the greatest financial impact, including a

discussion

peer reviews including a discussion on any unreconciled differences.

Note: This is a manufactured example and does not cover all possible scenarios. Descriptions and costs
are fictitious and bear no resemblance to any actual or expected values.

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Form A

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation

and

reporting:

- consultancy fees
- the NZTA-managed costs

Total investigation and reporting

Design and project documentation:

- consultancy fees
- the NZTA-managed costs

Total design and project documentation

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA
Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+B+C+D)

Contingency (Assessed/Analysed)

(A+B+C+D)

Project expected estimate

(E+F)

Funding risk (Assessed/Analysed)

(A+B+C+D)

95th percentile project estimate

(G+H)

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.

Project Estimate

Feasibility estimate

Project property cost expected estimate

Project Name:

Construction 95th percentile estimate

Investigation and reporting expected estimate
Design and project documentation expected estimate
Construction expected estimate

Project property cost 95th percentile estimate
Investigation and reporting 95th percentile estimate
Design and project documentation 95th percentile estimate

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Form B

Project Name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation

and

reporting:

- consultancy fees
- the NZTA-managed costs

Total investigation and reporting

Design and project documentation:

- consultancy fees
- the NZTA-managed costs

Total design and project documentation

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA
Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+B+C+D)

Contingency (Assessed/Analysed)

(A+B+C+D)

Project expected estimate

(E+F)

Project property cost expected estimate
Investigation and reporting expected estimate
Design and project documentation expected estimate
Construction expected estimate

Funding risk (Assessed/Analysed)

(A+B+C+D)

95th percentile Project Estimate

(G+H)

Project property cost 95th percentile estimate
Investigation and reporting 95th percentile estimate
Design and project documentation 95th percentile estimate
Construction 95th percentile estimate

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.

Project Estimate

Options Estimate

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Form C

Project name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation

and

reporting:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total investigation and reporting

Nil

Design and project documentation:

- consultancy fees
- the NZTA-managed costs

Total design and project documentation

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA
Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+C+D)

Contingency (Assessed/Analysed)

(A+C+D)

Project expected estimate

(E+F)

Project property cost expected estimate

Nil

Funding risk (Assessed/Analysed)

(A+C+D)

95th percentile Project Estimate

(G+H)

Nil

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.
(2) Investigation and reporting project phase estimates are set to nil as these are now sunk costs.

Investigation and reporting 95th percentile estimate
Design and project documentation 95th percentile estimate
Construction 95th percentile estimate

Project estimate

Project property cost 95th percentile estimate

Construction expected estimate

Investigation and reporting expected estimate
Design and project documentation expected estimate

Scheme estimate

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Form D

Project name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation and reporting:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total investigation and reporting

Nil

Design and project documentation:

- consultancy fees
- the NZTA-managed costs

Total design and project documentation

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA

Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+C+D)

Contingency (Assessed/Analysed)

(A+C+D)

Project expected estimate

(E+F)

Project property cost expected estimate

Investigation and reporting expected estimate

Nil

Design and project documentation expected estimate

Construction expected estimate

Funding risk (Assessed/Analysed)

(A+C+D)

95th percentile project estimate

(G+H)

Project property cost 95th percentile estimate

Investigation and reporting 95th percentile estimate

Nil

Design and project documentation 95th percentile estimate

Construction 95th percentile estimate

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.
(2) Investigation and reporting project phase estimates are set to nil as these are now sunk costs.

Project estimate

Pre-design estimate

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Project name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation

and

reporting:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total investigation and reporting

Nil

Design and project documentation:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total design and project documentation

Nil

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA
Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+D)

Contingency (Assessed/Analysed)

(A+D)

Project expected estimate

(E+F)

Project property cost expected estimate
Investigation and reporting expected estimate

Nil

Design and project documentation expected estimate

Nil

Construction expected estimate

Funding risk (Assessed/Analyser)

(A+D)

95th percentile project estimate

(G+H)

Project property cost 95th percentile estimate
Investigation and reporting 95th percentile estimate

Nil

Design and project documentation 95th percentile estimate

Nil

Construction 95th percentile estimate

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.
(2) Investigation and reporting, and design and project documentation project phasesestimates are set to nil as these are now sunk costs.
(3) Include a project phase funding application assessment form I with the DE.

Project estimate

Form E

Design estimate

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Form F

Project name:

Item Description

Base estimate

Contingency

Funding risk

Nett project property cost

Investigation and reporting:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total investigation and reporting

Nil

Design and project documentation:

- consultancy fees

Nil

- the NZTA-managed costs

Nil

Total design and project documentation

Nil

Construction

MSQA

    - consultancy fees
    - the NZTA-managed costs
    - consent monitoring fees

Sub-total base MSQA

Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Sub-total base physical works

Total construction

Project base estimate (A+D)

Contingency (Assessed/Analysed)

(A+D)

Project expected estimate

(E+F)

Project property cost expected estimate
Investigation and reporting expected estimate

Nil

Design and project documentation expected estimate

Nil

Construction expected estimate

Funding Risk (Assessed/Analysed)

(A+D)

95th percentile Project Estimate

(G+H)

Project property cost 95th percentile estimate
Investigation and reporting 95th percentile estimate

Nil

Design and project documentation 95th percentile estimate

Nil

Construction 95th percentile estimate

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA

Signed

Note:

(1) These estimates are exclusive of escalation and GST.
(2) Investigation and reporting, and design and project documentation project phase estimates are set to nil as these are now sunk costs.

Project estimate

Construction estimate

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Effective from November 2010

Project phase funding application

Assessment form G

Item Description

Base estimate

Contingency

Funding risk

Consultancy fees

1.1

Scope of services

1.2

Contract management

1.3

I&R

1.4

Preliminary design drawings

1.5

Geotechnical testing schedule

1.6

Provisional sums

Contingency (Assessed/Analysed) (Consultancy fees)

Escalation (Consultancy fees)

Expected I&R contract estimate

D = (A+B+C)

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

Contingency (Assessed/Analysed) (NZTA-managed costs)

Escalation (NZTA-managed costs)

Expected estimate (NZTA-managed costs)

H = (E+F+G)

Expected I&R phase estimate

J = (D+H)

Funding risk (Assessed/Analysed) (Consultancy fees)

Escalation (Consultancy fees)

95th percentile I&R contract estimate

M = (D+K+L)

Funding risk (Assessed/Analysed) (NZTA-managed costs)

Escalation (NZTA-managed costs)

95th percentile NZTA-managed costs

Q = (H+N+P)

95th percentile I&R phase estimate

R = (M+Q)

Date of estimate

Cost index

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA project manager

Signed

Note: (1) These estimates are exclusive of GST.

Investigation and reporting

Project name:

(2) Base contract estimate (A) is displayed in request for tender. For multiple phase professional services contracts the base
contract estimate is the sum of the estimates for each phase.
(3) Once a tender price is available it is substituted for the base contract estimate, and the expected estimate is updated on this
sheet and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Base I&R contract estimate/Tender price A

NZTA-managed costs E

I&R

Pre-tender with base contract estimate

Post-tender with tender price

(Tick as appropriate)

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Project name:

Item Description

Base estimate

Contingency

Funding risk

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

Contingency (Assessed/Analysed) (Consultancy fees)

Escalation (Consultancy fees)

Expected D&PD contract estimate

D1 = (A1+B1+C1)

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

Contingency (Assessed/Analysed) (NZTA-managed costs)

Escalation (NZTA-managed costs)

Expected estimate (NZTA-managed costs)

H1 = (E1+F1+G1)

Expected D&PD phase estimate

J1 = (D1+H1)

Funding risk (Assessed/Analysed) (Consultancy fees)

Escalation (Consultancy fees)

95th percentile D&PD contract estimate

M1 = (D1+K1+L1)

Funding risk (Assessed/Analysed) (NZTA-managed costs)

Escalation (NZTA-managed costs)

95th percentile NZTA-managed costs

Q1 = (H1+N1+P1)

95th percentile D&PD phase estimate

R1 = (M1+Q1)

Date of estimate

Cost index

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA project manager

Signed

Note: (1) These estimates are exclusive of GST.

Assessment form H

Design and project documentation

Project phase funding application

Base D&PD contract estimate/tTender price A1

NZTA-managed costs E1

(2) Base contract estimate (A1) is displayed in request for tender. For multiple phase professional services contracts the base
contract estimate is the sum of the estimates for each phase.

&PD

Post-tender with tender price

Pre-tender with base contract estimate

(Tick as appropriate)

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Project name:

Item Description

Base estimate

Contingency

Funding risk

Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Base physical works contract estimate/Tender price A2

Contingency (Assessed/Analysed) (Physical works)

Escalation (Physical works)

Expected physical works contract estimate

D2 = (A2+B2+C2)

H2 = (E2+F2+G2)

Expected construction phase estimate

J2 = (D2+H2)

Funding risk (Assessed/Analysed) (Physical works)

Escalation (Physical works)

95th percentile Physical Works Contract Estimate

M2 = (D2+K2+L2)

Escalation base MSQA (consultancy fees, NZTA-managed costs, consent monitoring fees)

Q2 = (H2+N2+P2)

95th percentile construction phase estimate

R2 = (M2+Q2)

Date of estimate

Cost index

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA project manager

Signed

Note: (1) These estimates are exclusive of GST.

Funding risk (Assessed/Analysed) base MSQA (consultancy fees, NZTA-managed costs, consent
monitoring fees)

95th percentile MSQA estimate (consultancy fees, NZTA-managed costs, consent monitoring
fees)

(4) For the NZTA-managed costs see forms G and H for list of typical cost items.

(2) Base contract estimate (A2) is displayed in request for tender. For multiple phase professional services contracts the base
contract estimate is the sum of the estimates for each phase.
(3) Once a tender price is available it is substituted for the base contract estimate and the expected estimate is updated on this sheet
and transferred to appendix V of the NZTA's Contract procedures manual (SM021).

Expected MSQA estimate (consultancy fees, NZTA-managed costs,
consent monitoring fees)

Base MSQA estimate (consultancy fees, NZTA-managed costs (4),
consent monitoring fees)

Project phase funding application

Assessment form I

Contingency (Assessed/Analysed) base MSQA (consultancy fees, NZTA-
managed costs, consent monitoring fees)
Escalation base MSQA (consultancy fees, NZTA-managed costs, consent
monitoring fees)

Construction

(Tick as appropriate)

Pre-tender with base contract estimate

Post-tender with tender price

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Effective from November 2010

Item

Description

Base estimate

5th%

Contingency Funding risk

Nett project property cost
Construction

1 MSQA, NZTA-managed costs and consent

monitoring fees

Physical works

Environmental compliance

Earthworks

Ground improvements

Drainage

Pavement and surfacing

Bridges

Retaining walls

Traffic services

Service relocations

Landscaping

Traffic management and temporary works

Preliminary and general

Extraordinary construction costs

Total construction

Total base estimate

Total 5th percentile estimate

Contingency

0
0

Total expected estimate

Funding risk

0
0
0

Total 95th percentile estimate

Date of estimate

Cost index (Qtr/Year)

Estimate prepared by

Signed

Estimate internal peer review by

Signed

Estimate external peer review by

Signed

Estimate accepted by the NZTA project manager

Signed

Note: These estimates are exclusive of escalation and GST.

Construction and property estimate

Project property cost expected estimate

Construction 95th percentile estimate

Project name:

Supplied with funding application for (tick one): Investigation Design Construction

Estimate stage (tick one) FE OE SE PE DE CE

Construction expected estimate

Project property cost 95th percentile estimate

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Effective from November 2010

Phase

Prior years

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

June

Year 2

Year 3

Year 4

Total

Aallocation

I&R

Base allocation

Contingency allocation

Expected out-turn cost

D&PD

Base allocation

Contingency allocation

Expected out-turn cost

Construction

MSQA

Physical works

Base allocation

Contingency allocation

Expected out-turn cost

Note:

Equals actual

Equals forecast current month

Equals forecast future expenditure

Project name

Cashflow for monthly report dated dd/mm/yy

Project phase or summary

Current year (Year 1)

Future years

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Effective from November 2010

Appendix F: Elemental costings

Elemental costings and benchmark estimator

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.

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NZ Transport Agency elemental costing model

Project description

Provide the following project information:

a. project name

b. the NZTA’s contact person and contact details
c. commencement and practical completion dates (design and construction phases)

d. project type, X lane motorway, X lane expressway X lane highway, passing lane, road reconstruction

e. project particulars, rural versus urban, terrain type, location, specific project information impacting on the unit costs of the above elements
f. details of all structures (eg span, superstructure type, foundation details)

g. out-turn cost/tender cost (and reasons for difference, eg additional scope/functionality or changes within the scope) (I&R, D&PD and

construction phases)

h. actual duration/planned duration (I&R, D&PD and construction phases)
i. procurement model (design and construct (D&C), alliance, measure and value, lump sum short-listed)

j. cost indices (CI) at date of composite rates.

Note: Items a to f include information required by the database user, and items g to i include information required for analysis.

Item

Description

Quantity

Unit

Composite
rate

Amount

1 Development

(non-construction

costs)

1.1 I&R

1.2 Detailed

design

1.3 MSQA

Development tool

Construction

2.1 Environmental

compliance

2.2 Earthworks

2.3 Ground

improvements

2.4 Drainage

2.5

Pavement and surfacing

2.6. Bridge(s)/structure

(s)

2.7 Retaining

walls

2.8 Traffic

services

2.9 Service

relocations/protection

2.10 Landscaping

2.11 Traffic

management

Construction subtotal (excluding preliminary and general)

2.12 Preliminaries

and

general

Construction total (including preliminary and general)

Extraordinary project costs

3.1

Abnormal costs (to be detailed in full)

Development costs exclude land purchase. This information shall be obtained from the NZTA’s property acquisition agents.

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Description definitions

Development (non-construction costs)

1.1

Investigation and reporting:



planning and consents



iwi



designation and resource consent preparation, and lodgement (including hearings)



fees (designation and environment court)



legal costs (including environment court)



Mana Whenua, Waahi Tapu, Kōiwi and Mauri fees and costs



reviews and audits



geotechnical elements



survey elements



public relations



the consultant’s input before contract award (D&C contracts only, include specimen design)



speed surveys



council costs/expenses



heritage costs



mitigation costs



supplementary investigation during the investigation phase.

1.2 Detailed

design:



design



Mana Whenua, Waahi Tapu, Kōiwi and Mauri fees and costs



professional fees (project management, risk management, value management and peer reviews)



legal



resource consent costs (including fees)



building consent costs



reviews and audits



public relations



contractor’s detailed design (D&C contracts only)



advertising (radio, newspapers)



economic assessments



heritage costs



mitigation costs



supplementary investigation during the detailed design.

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

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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.

2.3 Ground

improvements:



site decontamination



ground improvement (eg drainage blankets, wick drains and geotextiles)



geotechnical monitoring (inclinometers piezometers)



dewatering bores and buttress drains.

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.

2.5

Pavement and surfacing:



sub-grade stabilisation (aggregate, lime or cement)



sub-grade preparation



sub-base



base course



surfacing (chip seal, asphaltic concrete, Stone Mastic Asphalt (SMA))



upgrade existing carriageway(s)



ancillary roadworks.

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).

2.7 Retaining

walls:



timber piled walling



concrete piled walling including ground anchors



gabion walling



crib walling



mechanically stabilised earth (MSE) walling



backfill behind retaining walls.

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2.8 Traffic

services:



barrier (median barrier and verge barrier)



pavement markings and markers



road signs and gantries



traffic signals



marker posts



lighting



emergency crossovers and phones



traffic communication services.

2.9 Service

relocations/protection:



The NZTA’s cost for relocation and protection of all local authority and utility companies services (after cost share), and
contractors own costs.

2.10

Landscaping and urban design:



Landscaping (aesthetic and environmental)



grassing, hydro-seeding, planting and revegetation



architecture



fencing



streetscaping



property owner accommodation works (property adjustment)



footpaths and cycleways



building relocations.

2.11 Traffic

management:



temporary traffic diversions



traffic management physical works costs.

2.12 Preliminaries

and

general:



establishment, disestablishment, clean-up, temporary accommodation and other site operating costs



contractor’s supervision, on-site staffing, prescribed specialists and other time-related costs



insurances, bonds warranties/guarantees, as-built requirements and non-time related costs



temporary works and contractor’s design



project plans, quality assurance, traffic management plans, environmental management plans, programming and reporting,
consent fees, stakeholder management, health and safety, security management, contractor’s escrow tender documents



escalation (where required to be included in tender price)



network maintenance



survey and set-out.

Extraordinary project costs

Extraordinary project costs may include special items such as rock avalanche cover, tunnels, rail bridges, rail level crossings, mine hazard
mitigation, ie this item is for significant non-roading expenses.

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Unit definitions

Development (non-construction costs)

1.1

Investigation and reporting:



Percentage of construction total including preliminaries and general.



The amount entered in the quantity column shall be the construction total, including preliminaries and general items and
including extraordinary project costs.

1.2 Detailed

design:



Percentage of construction total including preliminaries and general.



The amount entered in the quantity column shall be the construction total, including preliminaries and general items and
including extraordinary project costs.

1.3 MSQA:



Percentage of construction total including preliminaries and general.



The amount entered in the quantity column shall be the construction total, including preliminaries and general items and
including extraordinary project costs.

Construction

2.1 Environmental

compliance:

Project length, excluding side roads and accommodation works.

2.2 Earthworks:

The greater of either a) or b):

a. Total M3 of cut material + borrow material + imported material.

b. Total M3 of fill material + cut to waste.

Note: The volume of cut and borrow material shall be measured in the cut. The volume of fill and imported material shall be
measured in the fill. Quantity excludes multiple handling. Any material that is double handled, for example preloading shall only be
included once in the quantity measured.

2.3 Ground

improvements:

Square metre area of ground being treated. In the case of dewatering boreholes an assessment shall be made of the area being
treated.

2.4 Drainage:

Project length excluding side roads and accommodation works.

Note: For multi-laned projects the total lane kilometres (km) shall also be recorded separately.

2.5

Pavement and surfacing:

Total m

of surfaced quantity width, for example width of seal or asphaltic concrete multiplied by length (centre line of

carriageway).

2.6 Bridge(s):

Area calculation: length between abutment expansion joints, multiplied by width between inner faces of edge protection, or joint
with existing structure, if widening.

2.7 Retaining

walls:

Total m

of exposed retaining wall surface area.

2.8 Traffic

services:

Project length excluding side roads and accommodation works.

Note: For multi-laned projects the total lane km shall also be recorded separately.

2.9 Service

relocations/protection:

Project length excluding side roads and accommodation works.

Note: For multi-laned projects the total lane km shall also be recorded separately.

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Appendix G: Escalation calculation example

Note: Method has been simplified to allow yearly estimates of escalation.

Information

Date of estimate preparation

30 November 2005

Expected estimate (excluding escalation)

$200 million (M)

95th percentile estimate (excluding escalation)

$225M

Estimated cost indices (CI) @ November 2002

2050

Actual CI @ July 2002

2035

Expected completion date

30 April 2008

95th percentile completion date

31 January 2009

Expected estimate annual expenditure

Actual to date (to December 2005)

December 2005 to end June 2006

July 2006 to end June 2007

July 2007 to end April 2008

100

Escalation December 2005 to June 2006

Cost: December 2005 to end June 2006

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

2.5

Cost: Future years

185

2.5

185

Months December 2005 to June 2006 (3.5% inflation)

7/12*3.5%

0.05

3.78

Escalation total December 2005 to June 2006

3.83 M

Escalation July 2006 to June 2007

Cost: July 2006 to end June 2007 + escalation from December 2005
to June 2006

88.78 M

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

44.39 M

Cost: Future years

100

44.39

100

Months July 2006 to June 2007 (3.5% inflation)

3.5%

1.55

3.50

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Escalation total July 2006 to June 2007

5.05 M

Escalation July 2007 to April 2008

Cost: July 2007 to end April 2008 + Escalation from July 2006 to
June 2007

103.50 M

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

51.75

Months July 2007 to April 2008 (3.5% inflation)

10/12*3.5%

Escalation total July 2007 to April 2008

1.51 M

Total expected escalation

10.39 M

Expected estimate including escalation

210.39 M

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.

95th percentile estimate annual expenditure

Actual to date (to December 2005)

December 2005 to end June 2006

July 2006 to end June 2007

July 2007 to end June 2008

July 2008 to end Jan 2009

Escalation December 2005 to June 2006

Cost: December 2005 to end June 2006

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

2.5

Cost: Future years

210

2.5

210

Months December 2005 to June 2006 (3.5% inflation)

7/12*3.5%

0.05

4.29

Escalation total December 2005 to June 2006

4.34 M

Escalation July 2006 to June 2007

Cost: July 2006 to end June 2007 + escalation from December 2005
to June 2006

79.29

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

39.64

Cost: Future years

135

39.64

135

Months July 2006 to June 2007 (3.5% inflation)

3.5%

1.39

4.73

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Escalation total July 2006 to June 2007

6.11 M

Escalation July 2007 to June 2008

Cost: July 2007 to end June 2008 + Escalation from July 2006 to
June 2007

89.73

0.5

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

44.86

Cost: Future years

44.86

Months July 2007 to June 2008 (3.5% inflation)

3.5%

1.57

1.75

Escalation total July 2007 to June 2008

3.32 M

Escalation July 2008 to Jan 2009

Cost: July 2008 to end Jan 2009 + Escalation from July 2007 to
June 2008

51.75

0.50

Note: As this money will be spread throughout the year, it could be
assumed that only half will attract escalation.

25.88

Months July 2008 to Jan 2009 (3.5% inflation)

7/12*3.5%

Escalation total July 2008 to Jan 2009

0.53

Total 95th percentile escalation

14.30 M

95th percentile estimate including escalation

239.30 M

Information example calculations of using CI to discount project estimates

Estimate prepared

30 November 2005

Estimated CI

2050

Expected out-turn cost

$200M

95th percentile estimate

$225M

Economic analysis

July 2005

Actual CI

2020

Expected out-turn estimate (July 2005)

2020 / 2050 * $200M = $197.1M

95th percentile out-turn estimate (July 2005)

2020 / 2050 * $225M = $221.7M

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Cost control procedure - Project scope definition

Project title

Project manager

Project number

Consultant

Team leader

Subject

Project phase

Scope description

Scope definition documents

Scope definition agreement

Name

Date

Signature

Consultant team leader

NZTA’s project manager

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Project cost control schedule

Project title

Project number

Project manager

Consultant

Initial estimate type

OE PE

Initial estimate value

Estimate index date

Scope change
number

Date raised

Raised by

Description

Reason
C/S/D/O

NZTA
agreement

Date
agreed

Cost
estimate

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Cost control record form

Project title

NZTA’s project manager

Consultant

Scope change number

Date

Reason for change

Change raised by

Client instruction (C)

Yes

Revision of standards (S)

Yes

Design development (D)

Yes

Other (O)

Yes

Detailed description of change and its effects

Mitigation measures considered

Effects on project risk profile

Assumptions made in cost estimate

Estimate total

Estimate index date

Estimate at initial estimate index date

Scope definition agreement

Name

Date

Signature

Consultant team leader

NZTA’s project manager

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Appendix I: Example of peer review form

Estimate peer review

Project title:

Project number:

NZTA’s project manager:

Consultant project manager:

Estimate originator:

Verifier:

Internal/External review:

Peer review activities

Verifier initials

Date

Project documentation:



receive documentation from project consultant



review above documentation.

Defined scope of work:



attend peer review briefing with project consultant and visit site



confirm scope of work is adequately defined



confirm scope of work has been fully translated into measured schedule of quantities.

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.

Construction methodology and programme:



review and comment on the appropriateness of the construction methodology and programme.

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.

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.

Cost estimate outputs:



comment on the overall appropriateness of the expected estimate and 95th percentile estimate
(are they ‘Fit for purpose?’).

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.

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Appendix J: Cost estimate external peer review methodology

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

Receive the following documentation from the project consultant:

Cost estimate report in accordance with SM014 (refer to section 10 in SM014).

Risk register.

Analysis of contingency and funding risk, including inputs and outputs from the statistical analysis if

applicable in sufficient detail to be able to recreate a comparative model.

Internal peer review of cost estimate, including internal peer review checklist (refer to appendix K in

SM014).

Scheme assessment and assessment of environmental effects (AEE) reports/construction tender

documents/design philosophy statement (dependant on phase of project).

Proposed construction methodology and programme.

Any other documentation that may impact on the cost of the project, eg:

–

geotechnical report

–

property acquisition strategy highlighting current status of negotiations

–

designation and resource consent conditions

–

safety audits (if issues raised in the audit have not been closed out).

Review the above documentation.

Defined scope of work

Organise and attend a peer review briefing with the project consultant. This briefing shall also include a
visit to the site to gain an understanding of the project.

Confirm that the scope of work is adequately defined.

Confirm that the scope of work has been fully translated into the measured schedule of quantities.

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Analysis of risk

If appropriate participate in the project risk management workshop. Participation is considered
unnecessary on low-cost/low-risk projects, but necessary on high-risk/high-cost projects, therefore
participation at this workshop will depend upon:

the nature of the project

the cost of the project, and

when the external peer reviewer is appointed.

Review and comment on the appropriateness of workshop attendees (eg on a major earthworks project,
was the geotechnical consultant in attendance) and the adequacy of identified risks.

Review and comment on the appropriateness of likelihood allowances (in percentage terms) for risk items
that may impact on the cost estimate.

Review and comment on the appropriateness of consequence allowances (in cost terms) for risk items
that may impact on the cost estimate.

10.

Comment on the cost allowances included for unknown risks.

11.

Confirm the risk assessment/analysis has been prepared in accordance with SM014.

12.

Comment on the appropriateness of the contingency and funding risk allowances (include comment on
the shape of the probability curve, eg large versus small range and/or short versus overly conservative
tail).

Construction methodology and programme

13.

Review and comment on the appropriateness of the construction methodology and programme:

Construction methodology:

- earthworks mass/haul assessment (if the project is predominantly earthworks)

- constructability

- temporary works

- traffic management.

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:

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

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.

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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:

property estimates

inclusion of post construction works items (eg noise monitoring and traffic counts)

buildability

assumptions

exclusions

market rates used

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:

property purchase

investigation and reporting (I&R) phase

design and project documentation (D&PD)phase, and

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:

Review and comment on the process/methodology used in estimating rates.

Where rates are based on external contractors/suppliers estimates, confirm the appropriateness of

these estimates and that an appropriate audit trail exists.

Confirm that the Internal peer reviewer has verified the rates.

If concerned about the estimated rates for large cost items then re-estimate these rates from first

principles, based on the design documentation received, to confirm their appropriateness

Cost estimate outputs

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:

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)?

Has scope been ignored/omitted from the estimate to keep the estimate at the set budget?

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:

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Appendix K: The NZ Transport Agency’s estimate peer reviewers and
industry experts

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.

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Applicant

(Name)

NZTA’s Project team manager
endorsement

(Name)

Professional qualification(s)

MIPENZ

NZIQS

MRICS

MICE

Other

(Please state)

Years experience in estimating

1-5

5-7

7-10

10-15 15-20 20+

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

(includes engineers estimates, tender estimates or peer
reviews)

1-2

4-5

5-10

10-20

20+

Areas of estimating expertise and risk

(tick as many as appropriate, minimum 1 estimate must have been completed in each area claimed within the last 3 years)

$3-10 million (low risk)

$10-50 million (low risk)

$50 million + (low risk)

$3-10 million (medium risk)

$10-50 million (medium risk)

$50 million + (medium risk)

$3-10 million (high risk)

$10-50 million (high risk)

$50 million + (high risk)

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Appendix L: Parallel estimate methodology

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:

establishing confidence in the definition of the full extent of the scope

gaining confidence in the schedule of quantities (item coverage, rates and quantities)

establishing confidence in the proposed construction methodology and programme

gaining confidence that the design represents value for money

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

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:

a. undertake optimal 10-year programming, and

b. meet performance requirements with respect to out-turn costs against construction estimate (CE), design

estimate (DE) and scheme estimate (SE).

To achieve these objectives through the industry expert, we will:

a. ensure the industry expert is introduced into the cost estimating process at the appropriate time and that the

consultant fully understands and accepts the industry expert’s purpose and role

b. ensure the industry expert works in parallel with the consultants developing estimates but that the consultant

retains ownership of the estimate

c. clearly understand whether or not the consultant has provided the right amount of time and energy into the

estimating process, and

d. validate an out-turn estimate (fully all risk inclusive).

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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.

Industry expert’s output

An all risk inclusive out-turn cost estimate of a project. The estimate shall include:

design costs

MSQA costs

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

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.

Design estimate (DE)

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.

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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:

preliminary

independent

reconciliation.

Preliminary phase

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.

Construction methodology plans and reports, eg earthworks mass/hauls, temporary traffic

management plans, temporary works planning, and timeline programmes showing the subsequent D

& DP phase, tender process and construction phase.

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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.

Photos, including aerial photos with the project outline overlaid.

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).

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:

Assisting in assessing and evaluating the risk profile for the works in relation to work scope, design

adequacy and detail, and scope definition.

Input into value engineering exercises on key components of the works (eg a major structure).

Estimation of the MSQA costs for input into the industry expert’s base estimate.

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.

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.

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.

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.

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.

The consultant shall provide the project risk register to the industry expert (excluding risk amounts, and
probabilities of occurrence, consequences and valuations).

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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

The industry expert will independently develop and value the base estimate on the basis set out above.

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.

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.

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.

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 95

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 95

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

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.

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.

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.

Document Outline