Pre-Contract Cost Planning and Control 施工合約前的成本計畫及控制

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13 Mar 2020: Usual payment terms added.

26 Feb 2020: Minor adjustments made.

20 Dec 2014: Moved from wiki.

Cost geometry

  1. Note the effect of different site areas for the same building
    • ​​​​​​​​​​​​​​​​​​​​​
  2. Note the effect of doubling the number of storeys
  3. Note the effect of elongating the building without increasing the floor area
  4. Unit cost per floor area
    • Construction costs are usually compared based on unit cost per floor area.
    • The above suggests that the unit cost per floor area cannot be a constant for the same type of buildings of different forms and shapes.
  5. Impact on design
    • Whether a building is more economical or expensive than the other for the same floor area and type would primarily depend on the ratios of the numbers, lengths, areas and volumes of the building components to the floor areas, and then on the materials and standards.

Most significant cost parameters

  1. Appreciate which cost portions should bear more direct proportions to each parameter
    • ​​​​​​​​​​​​​
  2. Floor area (above ground + below ground)


  3. Ground area (= roof area) 

    地面面積 (=屋面面積)

  4. Transfer structure area


  5. External elevation area 


  6. Basement screen wall area or more effectively basement volume of excavation


  7. Site area


  8. External area (site area - ground area) 


  9. Number of equipment 


  10. Refrigeration Tonnage 


  11. Other elemental quantities 


  12. (To enable quick estimating and to benchmark project costs)​​​​​​​

Principal cost management tasks during the Pre-Contract Stage

  1. Prepare cost estimates
  2. Prepare cash flow tables
  3. Attend design meetings
  4. Monitor the design
  5. Adjust the cost estimates and reconciling
  6. Compare alternatives

Need for pre-construction cost estimates

  1. Know the costs for investment decisions: 
    • Calculate land bid price 
    • Calculate acceptable rental 
    • Evaluate the feasibility of the investment 
  2. Establish a project (development) budget 
  3. Obtain funding
  4. Borrow money from the bank
  5. Formulate a design brief which defines the scope and standard of the project 
  6. Monitor the design development to control the costs within budget
  7. Estimate fees 

Best time to plan and control the costs

  1. As early as possible during the development process 
  2. Better chances to make design changes to find a better solution 
  3. To reduce abortive design costs 

Estimating motto

  1. From big to small 


  2. From rough to fine 


  3. Focusing on the important 


  4. Making bold assumptions 


  5. Verifying carefully 


  6. Comparing with the unlike 


  7. Conducting self checking 


  8. Reconciling with the previous 


  9. Empathizing with the Client


Different names of pre-construction cost estimates

  1. Rough Indication of Costs ("RIC")
  2. Preliminary Indication of Costs 
  3. Preliminary Cost Estimates 
  4. Elemental Cost Estimates 
  5. Cost Plans
  6. Cost Models (An American term) 
    成本模型 (美式用詞)
  7. Pre-tender Estimates 

Cost estimates, cost plans and budgets

  1. A cost estimate is a forecast of the probable ultimate cost based on the current design.
  2. It is required to be done throughout the pre-construction stages as well as the construction stage until the estimated costs become fixed prices.
  3. A cost plan is a detailed cost framework for controlling future design.
  4. A budget is the maximum sum a Developer is willing and able to spend on a project.
  5. A cost estimate for now, if satisfactory and approved, will become the cost plan for the future design.
  6. Approximate estimates should be done using expedient methods, approximations and shortcuts to reduce estimating time and costs in order to afford more estimates.
  7. A pre-tender estimate is no longer an approximate estimate and is prepared by pricing the bills of quantities ready for issuance or already issued for tendering.
  8. A logical sequence is like this:
    • Rough Indication of Costs => Detailed Cost Estimate => Cost Plan / Budgetary Estimate
  9. Rough indication of costs ("RIC")
    • It may be just based on unit cost / number or unit cost / floor area or unit cost / other functional unit to be used in the feasibility study or early design stage based on some ideas or sketch designs.
  10. Detailed cost estimate
    • It is a more detailed cost estimate prepared when the design is more developed.
    • Some consultants call it "Preliminary Cost Estimate", and some call it "Cost Plan".
    • HK ArchSD still calls it "Rough Indication of Costs" in spite of the level of details.
    • It may become the Budgetary Estimate if approved.
  11. Cost plan
    • It sets out the portions of the total budget allocated to different parts of the construction so as to serve as the cost limits to the relevant parts of the construction.
    • It may just be based on some interpolation from the cost data of other projects or may be based on some detailed cost estimate specifically prepared for the relevant design.

Construction floor area and gross floor area in Hong Kong

  1. For costing, leasing and sales of buildings and related land, people usually have to refer to unit cost or price per floor area of the buildings.
  2. However, there are many types of floor areas being defined for different purposes in Hong Kong or other places outside Hong Kong. An understanding of their possible differences is important.
  3. Quantity Surveyors measure the construction floor area (CFA) in order to estimate the total construction cost of a building.
  4. Lands leased by the Government in Hong Kong are subject to limitation on the gross floor areas (lease GFA) of the buildings which may be built on the land. Some of the construction floor area is not accountable for the lease GFA. The Lands Department is responsible for the control. Read the Lands Department's Practice Note on Accountable and Non-Accountable GFA under Lease at
  5. Building plans have to be submitted to the Buildings Department for approval and consent before construction. The gross floor areas (GFA) are also controlled by the Buildings Regulations. Read the Buildings Department's Practice Note on Calculation of Gross Floor Area and Non-accountable Gross Floor Area at
  6. The Lands Department's Practice Note says while the Lands Department is usually prepared to follow the Buildings Department's ruling in exemptions from GFA calculations, it reserves its right and absolute discretion to do otherwise in individual cases.
  7. There are further complications due to the use of saleable area for residential properties. See Cap. 621 Residential Properties (First-hand Sales) Ordinance at

International Property Measurement Standards

  1. The various International Property Measurement Standards at intend to unify the rules of measurement of various kinds of floor areas for different types of buildings. IPMS 1 (gross external floor area) and IPMS 2 (gross internal floor area) are referred to by ICMS. They should be the same for all types of buildings, but because of the different types of publications of the various IPMS standards, the text may vary. Read the latest standards to appreciate the diagrammatic illustration. CFA in Hong Kong is close to IPMS 1 with one exception: accessible rooftop terraces are included in IPMS 1 but not in Hong Kong CFA.

Need for historical cost analyses

  1. Benchmark new projects
  2. Provide cost data for new estimates
  3. Provide cost parameters for new estimates​​​​​​​​​​​​​​​​​​​​​​

Cost analysis

  1. It analyses the awarded or final prices of a project and re-classify the costs following the same classification used for the detailed cost estimates or cost plans.
  2. When prepared in elemental format, the cost of each element or sub-element is summarised into a single line item where a single quantity x single all-inclusive rate = cost of that element or sub-element
  3. The single quantity is called "Elemental Quantity" in Hong Kong.
  4. The single all-inclusive rate is called "Elemental Unit Rate" in Hong Kong.
  5. The elemental unit rates are very useful when the cost of a new project is required to be estimated before any detailed design is available. 
  6. Elemental quantities can be measured for the new project and priced at elemental unit rates of the reference projects.
  7. There are not too many items of elemental quantities to be measured. The cost estimating process can therefore be very fast.
  8. Of course, the elemental unit rates may not be directly applicable to the new project. It should at least be adjusted for the changes in the price levels from the times it was applicable to the reference project to the time of the new project, and then for other changed factors.
  9. A cost analysis should also contains quantity ratios or factors such as:
    • elevation area : floor area
    • concrete volume per floor area
    • formwork area per concrete volume or floor area
    • rebar weight per concrete volume or floor area
    • etc.  
  10. These quantity ratios can serve as useful references when estimating the costs of new projects.
  11. Apart from using the data in a cost analysis to estimate the cost of a new project in the absence of detailed design, the data can also be used to benchmark the cost of a new project after a more detailed cost estimate is done to ensure that the new project would not go out of order.
  12. Hong Kong Government uses this technique to control the costs of new project at the design stage.

Adjust for time differences

  1. There can be up or down fluctuations of costs and prices over time. When using past cost data for the present or future work, adjustments should be made for the time differences.

Different methods of cost estimating

  1. Unit method
    • The estimated cost of a building is calculated based on the number of functional units provided by the building x unit cost per functional unit.
    • ICMS (as introduced below) has suggested the following functional units for buildings: number of occupants | number of bedrooms | number of hospital beds | number of hotel rooms | number of car parking spaces | number of classrooms | number of students | number of passengers | number of boarding gates.
    • The unit method is a crude method serving as an early indication of the probable order of cost of the average building of the relevant type.
    • It is not useful for forecasting with high degree of accuracy the costs of newly proposed buildings of the same type because their designs can be very different.
    • However, it may be used by clients and in particular government departments to serve as a cost yardstick controlling the budget of newly proposed projects.
    • It is still also useful to serve a check that a unit cost per floor area may sound reasonable but, when expressed in unit cost per functional unit, the unit cost can be out of order because of excessive floor area per functional unit.  
  2. Superficial method or area method 
    • The estimated cost of a building is calculated based on the floor area of the building x unit cost per floor area.
    • This is the most commonly used method, possibly because the sales and rental prices are also expressed in unit cost per floor area.
    • Note however that there are many definitions of "floor area". The same definition should be consistently applied.
  3. Cubic method (seldom used now) 
    • The estimated cost of a building is calculated based on the volume of the building x unit cost per volume.
    • In theory, the volume can take care of the different storey heights of the building.
    • This is not commonly used probably because the floor areas are more readily available, and calculating the volumes would mean a further step to be done.
    • The cubic method may be useful for site formation works or civil engineering works involving massive volume of work.
  4. Storey enclosure method (seldom used now) 
    • In essence, the estimated cost of a building is calculated based on the total of the weighted areas of bottom slabs (basement or ground), suspended floor slabs, roof slabs, and walls below and above ground x unit cost per total weighted area.
    • Each type of slabs or walls are given different fixed weightings to reflect their relative ratios of costs.
    • The calculation is much more complicated than the superficial method or the cubic method.
    • With so many varieties of construction components and materials, whether the fixed weightings can truly reflect the relative ratios of costs is doubtful.
    • This method is seldom used these days.
  5. Elemental quantity method 
    • The building cost is classified into different elements ("Sections" in the following example).
    • Each element is represented by an appropriate elemental quantity.
    • The estimated cost of a building is calculated based on the total of (elemental quantity x elemental unit rate).
    • It takes into account the different forms, provisions and standard of the proposed new building better than the average unit cost per floor area.
    • It is therefore a more accurate method than the superficial method.
    • However, while the elemental quantities are simple to measure, the elemental unit rates would rely on reliable cost data from other projects or may need careful build-ups.
    • This method should only be used at the early stage of design.
  6. Approximate quantity method 
    • The estimated cost of a building is calculated based on the total of (approximate quantity of major item of work x unit rate per quantity of major item of work inclusive of costs of minor items).
    • As the design is more developed, it is possible to measure the work constituting the building more accurately and apply more appropriate unit rates relevant to the materials and standard chosen.
    • The quantities are approximate to reduce the time to measure so that a quicker cost estimate can be produced to reflect the updated cost of the design and enable any subsequent measures to control any unexpected costly design.
  7. Condensed elemental method using the most significant cost parameters
    • Users of the elemental quantity method may find that many elemental quantities are the same for different elements and can in fact be reduced into the most significant cost parameters listed above.
    • The estimated cost of a building is calculated based on the total of (quantity of the above cost parameter x composite unit rate per quantity of cost parameter).
    • This can provide a quick and equally reliable cost estimate though not as detailed as the elemental quantity cost estimate.
  8. Pre-tender estimate 

Use composite rates

  1. It is possible to use composite rates to simplify measurement of details:


  2. Allow in quantities or rates for unmeasured items

Contents of cost estimate

Grand Summary: 

  1. Total Cost of Each Section of the Project 
  2. Floor Area of Each Section 
  3. Unit Cost per Floor Area 


  1. Project Name 
  2. Project Location 
  3. Scope of the Estimate 
  4. Areas: 
    • Construction Floor Area / Covered Floor Area 
    • Ground Area 
    • Site Area 
    • Lease Gross Floor Area 
    • (Non-)Accountable GFA 
    • Bay Window Area 
  5. Basis of the Estimate:
    • Drawings used 
  6. Price Levels:
    • Current Prices 
    • Fluctuations from Date of Preparing the Estimate to Tendering 
    • Fluctuations from Tendering to Completion of Construction 
  7. Outline Specification of Design and Materials 
  8. Finishes Schedule 
  9. Exclusions 

Elemental Summary of each Section: 

  1. Floor Area of the Section 
  2. Total Cost of Each Element of the Section 
  3. Unit Cost per Floor Area 
  4. % Proportion of each Element 

Detailed Build-up: 

(Arranged by Elements or Cost Groups) 

  1. ​Item Reference 
  2. Descriptions 
  3. Quantities, rounded off to tens or thousands 
  4. Rates, round off to two significant figures 
  5. Extension, rounded off 
  6. Elemental Totals 

Possible additional information: 

  1. Elemental Quantities
  2. Unit Costs per Elemental Quantities 

​​​​​​​Adjust published unit costs per floor area

  1. Some Consultant QS firms publish unit costs per floor area for public information
  2. When using these unit costs, care should be exercised to understand the scope of inclusions and exclusions, and their applicability
  3. The General Practice Division of the Hong Kong Institute of Surveyors has published a Building Cost Pro-Forma for Private Sector Developments in Hong Kong.pdf
  4. This should serve as a useful checklist, but the items and figures suggested there should be verified for individual project

Build-up of elemental unit rates

  1. Note:
    • At the time of the elemental quantity cost estimates, there would not be much details to measure approximate quantities and one has to rely on past cost analyses or some estimated quantity factors and ratios to estimate the elemental unit rates.
    • The elemental unit rates, quantity factors and ratios should be critically reviewed to see whether they should remain unchanged or adjusted when the design of the building is changed even though the elemental quantities can remain unchanged.
    • The price levels of past projects must be adjusted to the present day for use.
  2. Example build-up of elemental unit rate for “Foundation piling” per construction floor area
    • unit cost per construction floor area based on some similar projects x construction floor area
  3. Example build-up of elemental unit rate for “Frames and slabs” per construction floor area
    • concrete volume per m2 floor area x rate per m3 concrete
    • formwork per m2 floor area x rate per m2 formwork 
    • reinforcement kg per m3 concrete x rate per kg reinforcement
    • (The quantity ratios are usually based on some similar projects or by sampling based on a typical bay.)
  4. Example build-up of elemental unit rate for “External elevations” per elevation area:
    • aluminium windows = a% @ $/m2
    • finishes on structural walls, columns and beams = b% @ $/m2
    • external non-structural walls and finishes = c% @ $/m2
    • roller shutters = d% @ $/m2
    • (a%+b%+c%+d% = 100% of the elevation area)
    • (The percentages are approximate proportions of the total elevation area of a sampled section of the elevation.)
  5. Example build-up of elemental unit rate for “Internal divisions” per construction floor area
    • internal non-structural concrete walls = m2 walls / m2 floor area @ $/m2 wall
    • internal brick walls = m2 walls / m2 floor area @ $/m2 wall
    • doors = No. doors / m2 floor area @ $/No. door
    • etc.
    • (The quantity factors are based on a similar project or approximate wall areas per construction floor area of a sampled floor, which layout may be just an educated guess.)
  6. Example build-up of elemental unit rate for “Internal divisions” per wall areas without deducting door openings
    • internal non-structural concrete walls = a% @ $/m2 concrete wall
    • internal brick walls = b% @ $/m2 brick wall
    • extra for doors = No. doors / m2 walls @ $/No. door (after deducting cost of wall)
    • (a% + b% = 100%)
    • (The percentages are approximate proportions of the total wall area of a sampled floor, which layout may be just an educated guess.)
  7. Example build-up of elemental unit rate for “Floor finishes” per construction floor area
    • floor finish A = a% @ $/m2
    • floor finish B = b% @ $/m2
    • floor finish C = c% @ $/m2
    • add 10% for skirting
    • (a%+b%+c% = an estimated percentage of the construction floor area after deducting void, wall and column areas)
  8. Example build-up of elemental unit rate for “Ceiling finishes” per construction floor area
    • Similar to the floor finishes but the total ceiling area should be bigger than the construction floor area.
  9. Example build-up of elemental unit rate for “Wall finishes” per construction floor area
    • Wall finish A = m2 wall finish A / m2 floor area @ $/m2 wall finish A
    • Wall finish B = m2 wall finish B / m2 floor area @ $/m2 wall finish B
    • Wall finish C = m2 wall finish C / m2 floor area @ $/m2 wall finish C
    •  (The quantity factors are based on a similar project or approximate internal wall finishes areas per construction floor area of a sampled floor, which layout may be just an educated guess. Note the approximate formula: internal wall finishes = internal wall area x 2 + external wall area. False ceiling voids and unfinished lift shafts would affect this formula.)
  10. Example build-up of elemental unit rate for “Ceiling finishes” per construction floor area
    • Similar to the floor finishes but the total ceiling area should be bigger than the construction floor area.
  11. Other items
    • Follow the above examples.

Build-up of composite rates using property set out dimension tables

  1. ​​​​​​​
  2. Note that in Hong Kong, beam concrete and formwork are measured those parts below slab soffit. Beam reinforcement includes those at the intersection of slab and beam.
    • ​​​​​​​​​
  3. Note that a typical bay of 6 x 6 m is measured to average out the beam quantities.
  4. Note also that the four beams around each typical bay are shared with adjacent slabs, and their quantities are therefore halved.
  5. ​​​​​​​

Build-up of composite rates using compact format for showing in the Cost Estimate

  1. The following shows another method to present the composite rate calculations in the Cost Estimate.
  2. Note that the reinforcement refers to the concrete quantities already calculated at cells E15 and E23 above.
  3. Note that the function FORMULATEXT() is used to display the formula of the quantity of 0.48 above for checking. The cell entry must be preceded with "=" for it to be recognised as a formula.
  4. Using this function will eliminate the need to type the formula separately as an explanation in addition to entering the formula in the calculation cell and risking mismatch errors.
  5. The formula column can be hidden or deleted when issuing the Cost Estimate.
  6. Note also that the estimated costs have been rounded to the nearest 10,000, using the formula "=ROUND(Rate*Qty, -4)".
  7. This would give the image that the figure is an approximate estimate rather than an accurate figure.

Prepare cash flow tables 編製資金流量表

Use S-curve

  1. ​​​​​​​​​​​​​​Divide the horizontal axis into parts equal to the number of months of construction
  2. For each month, interpolate from the curve the cumulative payment percentage on the vertical axis
  3. Find the monthly payment percentages from the cumulative percentages; and
  4. Apply the monthly payment percentages to the total cost to obtain the monthly payment values

Use Bar Chart Programmes

  1. Follow the bar chart programme, assign the monthly payment percentages for each activity bar
  2. Apply the monthly payment percentages to the total cost of each activity bar to obtain the monthly payment values
  3. Ensure that the total of each activity bar is correct

For both methods

  1. Separate stage payments
  2. Separate Retention
  3. Watch out time lag between work carried out, payment certification and honouring of payment

Payment terms

  1. Usual payment terms for construction contracts in Hong Kong

    • no advance payment; 
    • monthly payments for materials delivered to site and work done subject to 10% retention on the gross total up to a maximum equal to 5% of the original Contract Sum; 
    • half of the retention to be released upon Practical Completion / Substantial Completion (*); and 
    • the balance to be released upon the issue of the Defects Rectification Certificate / Certificate of Completion of Making Good Defects / Maintenance Certificate (*) after rectification of defects found during the Defects Liability Period / Maintenance Period (*) usually of 12 months.
    • (*) = Different terms used by different standard forms of contract.

  2. Possible payment terms for lift and escalator contracts / sub-contracts

    • 10% upon award;
    • 20% when ready for shipment;
    • 30% on delivery to site;
    • 25% on issue of Use Permit by the EMSD;
    • 10% on Practical Completion / Substantial Completion; and
    • balance upon the issue of the Defects Rectification Certificate (as above).
  3. Suppliers usually require deposits or advance payments which can be moderately up to 30% or sometimes up to 50%.

  4. Lower tiers sub-contractors require shorter payment periods and no retention.


  1. Presented vertically: 
  2. Presented side by side: 

Pre-tender Estimate

  1. By pricing the Bills of Quantities before formal issue of tender documents or before return of tenders 
  2. For checking whether the cost so priced is within the previous estimate and the Budget 
  3. For making design changes and issuing tender addendum to keep the costs within the Budget 
  4. For checking against tenders returned for reasonableness 

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