Manual Estimation

Cost Estimation Manual Manual Number SM014
Issue 2 June 2003 Printed 17/06/03

Cost Estimation Manual

Manual Number: SM014
Status: Issue 2 May 2003
Manual Owner: Procurement Manager
Transit New Zealand
PO Box 5084
WELLINGTON
NEW ZEALAND
Telephone: (04) 499 6600
Facsimile: (04) 496 6666

Issue 2 June 2003 Page i of ix Printed 17/06/03
Foreword
Working Towards Better Estimates
The cost estimate for capital projects is a vital factor in the development and management of
New Zealands state highway network. Determining a projects priority within the National
Land Transport Programme, selecting a preferred design solution, ensuring projects are
completed at the optimum time and securing funding, all hinge on the cost estimate. That
cost estimates are accurate, is critical.

The Better Estimates project is a partnership initiative of Transit, Transfund and ACENZ
where we have joined forces to enhance skill levels within the industry to achieve greater
accuracy. This comes at a time when the price of inconsistent cost estimating performance
has proven to be high.

In thoroughly reviewing industry practice, we see evidence of inconsistency reflected in:
cost estimates increasing as projects develop through their life cycles
residual risks either not adequately identified and managed or being treated
inconsistently
design estimates exceeding scheme estimates and out-turns exceeding design budget.

Cumulatively, improvements in each of these areas has the opportunity to lead to the very
limited funds available for roading projects being invested in the best projects and the best
options for projects. This is the overarching aim of the Better Estimates partners. More
specifically the projects objectives are to:
review cost estimating practices and define key policies for this manual
ensure cost estimates are accurate right from the earliest stages in the project life cycle
ensure cost estimates are focused on out-turn costs (that they account for both known
and unknown risks)
standardise the structure of all cost estimates on the same elemental basis so we can
compare current and past projects
build the industrys reputation for reliable and complete cost estimates.

Highly skilled teams have tackled each of these Better Estimates objectives, each
contributing their specialist knowledge to this important project. Their efforts will ensure
that we as an industry achieve the desired progress in this important area.

Their work so far sees the revision of the definition of estimate types with titles more
accurately reflecting their purpose and with an added emphasis on strong and consistent risk
management. The scoping of projects is confirmed as the foundation for accuracy, together
with bolstered requirements for constant monitoring and recording of any changes and their
impacts throughout the project life cycle. We have defined what we expect in terms of
estimate confidence, introducing and defining the 95 percentile Estimate and Expected

Issue 2 June 2003 Page ii of ix Printed 17/06/03
Estimate. The way we use these estimates helps to make clearer the role they play in the
programming and funding of projects.
While Better Estimates places the responsibility for cost estimation with the consultant, this
project is focused on the efforts of all the partners working together. The guidelines
contained in this manual clearly show that consultants will be supported in their task by
robust procedures. The Better Estimates team is excited about the web-based training
initiative which complements the manuals release.

This manual forms a core component in our efforts to build the cost estimation skills of our
industry. Our success in these efforts will see funding invested in the right projects at the
right time something all New Zealand road users have an interest in. I encourage you to
invest the time in learning about the developments both now and as further enhancements
are included over time. This competency will rapidly become an expected pre-requisite for
those involved in the development of Transit projects.

Rick van Barneveld
National Highway Manager


Issue 2 June 2003 Page iii of ix Printed 17/06/03
Preamble
The content of the Cost Estimation Manual is based on Transits current best business
practices. The manual will continue to evolve, and is subject to revision.

The owner of this manual shall be advised of any proposed amendments, to ensure
continuous improvement in best practice.

While all care has been taken in formulating this manual, the Transit Authority accepts no
responsibility for failure in any way related to the application of this manual, or any
reference documents noted in it. There is a need to apply judgement to each particular set of
circumstances.

Copyright in this manual remains with Transit New Zealand. No reproduction of the
contents of this manual is authorised in whole or part. Communications about this manual
should, in the first instance, be directed to Transit New Zealand (SM014@transit.govt.nz).


Issue 2 June 2003 Page iv of ix Printed 17/06/03
Cost Estimation Manual
Amendment Control Sheet
This document is a controlled document as defined in the Transit Corporate Services
Manual. It is therefore subject to review and amendment from time to time. Amendments
will be recorded on this Amendment Control Sheet. Amendment Notices, detailing the
changes, will be issued via email to registered manual holders and should be inserted behind
this page.

If you wish to be notified by email when any amendment is made, please email
SM014@transit.govt.nz with your contact details: name, organisation and email address.
Please ensure that you notify Transit of any subsequent changes to these contact details.

All individuals seeking to rely on, or implement, the Transit Cost Estimation Manual, or any
other manual referred in this document, have a duty to ensure they are familiar with the most
recent amendments.

Amend
No.
Subject Effective
Date
Updated
By
Date
1 General update 12 May 03 Susan Chamberlain May 03


Issue 2 June 2003 Page v of ix Printed 17/06/03

Manual Management Plan for Cost Estimation
Manual SM 014
Date of Issue: May 2003
Manual Owner: Susan Chamberlain (Procurement Manager)
Sponsor Endorsement: Rick van Barneveld (National Highway Manager)

1. Purpose
This is the Manual Management Plan for the above SHMD Manual. (In accordance with
Transits ISO 9001 Quality System).

2. Document information
Manual Name Cost Estimation Manual
Manual No. SM 014
Regional Champions Regional Project Managers
Review Team Members Colin Crampton, Susan Chamberlain

3. Amendment and Review Strategy
All Corrective Action/Improvement Requests (CAIRS) suggesting changes will be
acknowledged by manual owner.
Comments Frequency
Amendments
(of minor
nature)
Incorporation in Annual Review may
require co-ordinating with BPG or Transit
Authority Submission timetable.
As required. No more than
annual, date to be agreed
with sponsor.
Review
(major
changes)
Amendment fundamentally changing the
content or structure of the manual will be
incorporated as soon as possible. May
require co-ordinating with BPG or Transit
Authority Submission timetable.
As Required

4. Other Information
There will be occasions, depending on the subject matter, when amendments will need to
be worked through by a Best Practice Group under the direction of the Review Team
before the amendment is actioned. This may cause some variation to the above noted
timeframes.

Special Instructions: Copies of Manual Management Plan are to be included in the Manual itself and on
the Intranet at the next opportunity and sent to:
National Quality Manager (NQM)
Sponsor
Review Team Members
Corporate Services Manager (CSM)
Regional Champion
Office File


Issue 2 June 2003 Page vi of ix Printed 17/06/03
Contents
Foreword i
Preamble iii
Amendment Control Sheet iv
Manual Management Plan for Cost Estimation v
Contents vi
Index of Figures ix
Part A Introduction 1
1 Introduction 1
1.1 General 1
1.2 Manual Background 4
2 Terminology and Abbreviations 5
2.1 Terminology 5
2.2 Abbreviations 10
3 Project Definition 11
3.1 General 11
3.2 Project Life Cycle 11
Part B Roles and Responsibilities 14
4 Roles and Responsibilities 14
Part C Procedures 17
5 Estimate Use 17
5.1 Purpose of Cost Estimates 17
6 Estimates 19
6.1 General 19
6.2 Resource Input for Estimates 20
6.3 Estimate Responsibility and Ownership 20
6.3.1 Estimate Responsibility 20
6.3.2 Estimate Ownership 21

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6.4 Consultant Performance 21
6.5 Project Scope 21
7 Escalation 22
8 Land and Property 23
8.1 Property Purchase 23
8.2 Nett Property Cost 23
8.2.1 General 23
8.2.2 Nett Property Costs 24
8.2.3 Property Compensation Costs 24
8.2.4 Property Owner Accommodation Works 25
8.3 Total Property Costs 25
8.4 Property Acquisition Fees 25
9 Risk Analysis and Assessment of Contingency 27
9.1 General 27
9.2 Terminology 27
9.3 The Application of Risk Analysis or Assessment of Contingency 28
9.4 Assessment of Risk Impacts 29
9.5 Analysis of Risk Impacts 29
9.5.1 Risk Identification 29
9.5.2 Risk Likelihood 29
9.5.3 Risk Consequence 30
9.5.4 Distribution 30
9.5.5 Correlation 31
9.5.6 Results 31
9.5.7 Sensitivity 31
10 Reporting Estimates 32
10.1 General 32
10.2 Elemental Breakdown 32
10.3 Estimated Costs 33
10.3.1 Estimated Property Acquisition Costs 33
10.3.2 Summary of Estimated Costs 33
10.4 Funding Applications 33
10.5 Accrual Reporting 33
10.6 Management of Contingency 34
10.7 Transit Elemental Cost Model 35
11 Estimate Audit Trail 36
11.1 General 36
11.2 Estimate Updates 36
11.2.1 Estimate Stage Updates 36
11.2.2 Other Updates 36
11.2.3 Quarterly Updates 37
11.2.4 Monthly Reports 37
12 Peer Reviews and Parallel Estimates 38
12.1 General 38

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12.2 Internal Peer Reviews 38
12.3 External Peer Reviews 38
12.4 Parallel Estimates 39
Part D Guidelines 41
13 Estimate Guidelines 41
13.1 Schedules of Prices 41
13.2 Use and Application of Historic Rates 41
13.3 Transit Managed Costs and Consultancy Fees 43
13.4 Buildability 44
13.5 Preliminaries and General 45
13.6 Earthworks 45
13.7 Services Relocation and Protection 46
13.8 Temporary Erosion and Sediment Control (ESC) 46
Appendices 47
Appendix A: Policy Statement 48
Part 1: Cost Estimation 49
Part 2: Programming and Funding 50
Appendix B: Example of Cost Estimation Manual Procedure 51
Appendix C: Example Elemental Breakdown for Construction Costs Form 59
Appendix D: Example Estimated Costs Forms 64
Appendix E: Example Funding Application Forms 72
Appendix F: Example Cashflow/Accrual Reporting Form 76
Appendix G: Example Cost Reporting/Management of Contingency Forms 78
Appendix H: Elemental Costings 82
Appendix I: Escalation Calculation Example 90
Appendix J: Cost Escalation Indices 94
Appendix K: Example Peer Review Form 96
Appendix L: Cost Estimate External Peer Review Methodology 98
Appendix M: Transit Estimate Peer Reviewers and Industry Experts 103
Appendix N: Parallel Estimate Methodology 108


Issue 2 June 2003 Page ix of ix Printed 17/06/03
Index of Figures
Figure 1: Traditional and Design and Construct Contract Delivery Timeline with Estimate
Deliverable 12
Figure 2: Project Management Structure cntd. 16
Figure 3: Purpose, Confidence Levels and Documentation for Estimates 19
Figure 4: Estimate Life Cycle with Indicative Uncertainty Curves 20
Figure 5: Risk Analysis Terminology 28
Figure 6: Use of Assessment or Analysis 28
Figure 7: Contingency Management 34
Figure 8: Example Project Property Cost Forms 55
Figure 9: Example Pre-design Estimate Form 57


Issue 2 June 2003 Page 1 of 113 Printed 17/06/03
Part A Introduction
1 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 Transit New Zealand (Transit).

1.1.2 Objective
The primary objective of this manual is to ensure the consistent application of estimating
procedures on Transit projects.

1.1.3 Manual Status
This manual has the status of a Standard as defined in Transit New Zealand's Standards
and Guidelines Manual. 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
Transits Corporate Services Manual.

1.1.4 Intended Manual Users
This manual is intended to be a used by anyone preparing estimates for Transit.

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 Transits Capital Best Practice Group. The purpose of
reviews is to allow feedback from our suppliers, and Transit regions, and 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 amendment control sheet

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 Transits 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 Transits procedures for preparing cost estimates. In addition
consultants shall refer to other Transit manuals, standards and guidelines including, but not
limited to the following:
a. SM011 Transit New Zealand Project Management Manual;
b. SM018 Transit New Zealand Annual Plan Instructions Manual;
c. SM021 Transit New Zealand Contract Procedures Manual;
d. SM030 Transit New Zealand Professional Services Contract Pro Forma Manual;
e. Transit New Zealand Long Term Procurement Strategy;
f. Transfund New Zealand Programme and Funding Manual;
g. Transfund New Zealand Project Evaluation Manual.

1.1.8 Document Availability
SM014 is available, in .pdf form on the Transit website (www.transit.govt.nz).
SM014 example forms are available to Transits consultants in MS Excel format via the
Transit project manager responsible for their commission.
The example forms are held on the Head Office server (filepath T:\common\Manuals
and Forms\SM014\file name).
SM014 is available to Road Controlling Authorities (RCAs). RCAs should contact, in
writing, the manual owner at Transit head office. A cost may apply.

1.1.9 Feedback
Transit welcomes feedback about this manual. Please send feedback via email to
sm014@transit.govt.nz, alternatively complete the following feedback form and fax to
Transit.

Cost Estimation Manual Feedback Form

To SM014 Manual Owner, Transit New Zealand
Attention Susan Chamberlain
Fax Number: 04 499 6666
Subject: SM014 Cost Estimation Manual Feedback Form

From (Name & 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
(For internal use only)
Action
(For internal use only)


1.2 Manual Background
The Cost Estimation Manual has been produced jointly by Transfund, Transit and ACENZ.
These organisations have an interest in the accuracy of cost estimates for roading projects
and have agreed a set of policies that are the basis of this manuals guidelines (see Appendix
A).

Transfund is a Crown entity established by the Transit New Zealand Amendment Act 1995.
Transfunds role is to allocate funds to achieve a safe and efficient roading system. Each
year it approves and purchases a National Land Transport Programme based on the funding
applications received from Transit, territorial authorities, regional councils and others.

Transit is a Crown entity established under the Transit New Zealand Act 1989. The
principal objective of Transit is to operate a safe and efficient state highway system.

ACENZ is the professional body representing consulting engineers in New Zealand.
Members of ACENZ are usually engaged to provide cost estimates for Transit projects.

Transit owns and manages this manual, which supersedes the Transit Management of
Contingency Allowances for Capital Works Projects Manual SM014. Every person
producing, reviewing or submitting estimates for a Transit project must do so with reference
to this manual.

The manual is intended to be a concise, hands-on, user-friendly and non-prescriptive
resource, containing sufficient guidance to produce a reliable estimate. It provides guidance
on the types and use of project cost estimates and includes example estimate templates. The
guidance can apply to all roading projects, whether maintenance or capital, delivered under
any procurement method.

The principles of estimating can be applied to Block and Non-Block Funded Projects.

Internal and external peer reviews and independent parallel estimates conducted by
experienced practitioners are a vital element of the estimation process. This manual also
provides guidance as to the timing and requirements of these processes.


2 Terminology and Abbreviations
2.1 Terminology
The following terms are used throughout this manual.

Base Date Project costs shall be expressed in dollar values as at 1 J uly of the financial
year in which the estimate is being prepared.
Base Estimate

The total sum of the elements that make up an estimate. 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 a resource-based
estimating software package that will be used by Transit to validate FEs.
Consultant(s)

A specialist person or organisation who gives expert advice or information.
Consultant(s) are normally external to Transit but may also include internal
parties.
Contingency An additional allowed cost 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 inflation.
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 95
th
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.
Benchmark Estimator/elemental cost information will be used to review
the FE. Transits Contract Coordinator will manage this process.

Estimate
Types cont.
Option Estimate (OE) prepared during the I&R phase for each proposed
solution. These estimates are used for comparing project options.
The OE includes an Expected Estimate and a 95
th
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 / analysed and included in the estimate.
Benchmark Estimator/elemental cost information will be used to review
the OE(s). Transits Contract Coordinator will manage this process. The
OE(s) 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 SAR / AEE. The
SE must be used to support any NOR.
The SE includes an Expected Estimate and a 95
th
percentile Estimate. The
estimate is based on the known alignment, appropriate site information and
preliminary design drawings. All risks must be identified and their impact
on the out-turn cost assessed / analysed 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: Transit will measure the consultants performance from the SE
Pre-design Estimate (PE) prepared during the I&R phase. It is an
estimate of the approved project option, updated to include any imposed
hearing or Environment Court conditions (e.g. Notice of Requirement). It
is prepared prior to seeking funding for the design phase.
The PE includes an Expected Estimate and a 95
th
percentile Estimate. All
risks must be reviewed and their impact on the out-turn cost assessed /
analysed and included in the estimate.
The PE will be compared with the SE. If there are differences between the
when they submit the PE.
Design Estimate (DE) prepared during the 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 95
th
Detailed design documentation includes drawings, specifications,
schedule of prices and resource consent conditions. All risks must be
reviewed and their impact on the out-turn cost assessed / analysed and

included in the estimate.
The DE will be compared with the PE. If there are differences between the
when they submit the DE.
The DE is an out-turn cost estimate and an engineers estimate
1
for each
physical works contract is derived from the DE, prior to issuing the tender
documents. The engineers 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 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 an out turn cost estimate and does not focus solely on
construction costs.
The CE includes an Expected Estimate and a 95
th
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. The impact of these risks on the out-turn cost must be
assessed / analysed and included in the estimate.
The CE will be compared with the DE. If there are differences between the
when they submit the CE.

1
Engineers estimate an estimate based on the tender documents where the consultant rates the Schedule of Prices.

Expected
Estimate
The base estimate plus an allowance for contingency calculated according
to the guidelines in this manual. Contingency is based on:
an assessment of the expected cost impact of risk [OR]
a risk analysis to calculate the statistical average (mean) of the cost
impact of risk.
Note: Escalation is excluded from the Expected Estimate, unless stated
otherwise (for example, escalation is included for funding applications).
Funding
Applications
Funding applications are required for these phases of a project:
I&R
D&PD
Construction (MSQA and physical works).
All funding applications include Expected and 95
th
percentile Estimates.
Escalation is added to these estimates (for funding applications).
Transit also needs Expected and 95
th
percentile Estimates (including
escalation) for the purchase of property interests required to build the
project.
Funding Risk
An additional allowed cost for known/unknown risk between the Expected
and 95
th
percentile Estimates. This may also be referred to as the 95
th

percentile risk contingency or an allowance to cover the difference
between the statistical mean and the statistical 95% percentile of risks and
opportunities.
Out-turn Cost These costs include all actual costs. The only exclusions are GST and any
Transit administration and overhead costs. Transit 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 estimate or 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.

Transit
Managed
Costs
Includes all project costs incurred by Transit that are not managed by the
consultant and that are not part of Transits administration costs. These
may include:
Miscellaneous out-source costs not included elsewhere, e.g. partnering
facilitation costs
Out-of-office costs during the project, e.g. travel and accommodation
costs related to the project
Hire of external meeting venues and catering.
The Transit project manager will provide these cost estimates to the
consultant responsible for the project estimate.
95
th
Percentile
Estimate

The Expected Estimate plus an allowance for funding risk, calculated
according to the guidelines in this manual. Funding Risk is based on
either:
a 95
th
percentile assessment of the cost impact of risk [OR]
a risk analysis to calculate the statistical 95
th
percentile cost impact of
risk.
Note: Escalation is excluded from the 95
th
Percentile Estimate, unless
stated otherwise (for example, escalation is included for funding
applications).


2.2 Abbreviations
ACENZ Association of Consulting Engineers New Zealand
AEE Assessment of Effects on the Environment
BCR Benefit Cost Ratio
CE Construction Estimate
CI Cost Indices
D&PD Design and Project Development
DE Design Estimate
FCWP Forward Capital Works Programme
FE Feasibility Estimate
I&R Investigation and Reporting
LTPS Transit Long Term Procurement Strategy
MSQA Management, Surveillance and Quality Assurance
NLTP National Land Transport Programme
NOR Notice of Requirement for Designation
OE Option Estimate
PADS Property Acquisition and Disposal System
PE Pre-design Estimate
PEM Transfund Project Evaluation Manual
PFM Transfund Programme and Funding Manual
PFR Project Feasibility Report
PROMAN Project Management System
SAR Scheme Assessment Report
SE Scheme Estimate
SEP Schedule of Elemental Prices
Transfund Transfund New Zealand
Transit Transit New Zealand


3 Project Definition
3.1 General
There will normally be six out-turn cost estimates within the project development cycle, as
follows:
1. Feasibility Estimate (FE)
2. Option Estimate (OE)
3. Scheme Estimate (SE)
4. Pre-Design Estimate (PE)
5. Design Estimate (DE)
6. Construction Estimate (CE)

There will be two types of estimates, as follows, for each of the above six cost estimates:
1. the Expected Estimate (i.e. on average, across the State Highway Programme, about
half of the time the out-turn cost will come in under the expected estimate and about
half of the time the expected estimate will be exceeded)
2. the 95
th
percentile Estimate (i.e. 1 in 20 times the 95
th
percentile estimate will be
exceeded).

All cost estimates shall include an assessment of all residual risks (from the risk register) at
the time of estimating.
3.2 Project Life Cycle
Most projects are developed in four separate phases:
Project feasibility
Investigation and reporting
Scoping
Scheme assessment and/or assessment of environmental effects
Notice of requirement for designation
Design and project documentation
Construction (MSQA and physical works).

Transit applies hold points at various stages of a project, typically at the end of each of the
above phases and at other critical milestones. For the success of the project reliable cost
estimates are required at each of these hold points.

The following diagram of timelines shows the project stages from inception to completion
for traditional and design/construct procurement models and how estimates fit into the
lifecycle.



PFR PFR
Traditional Contract Design and Construct Contract
I&R I&R
I&R I&R
D&PD
D&PD
Tender
Tender
Construction
Design and
construct
OUT-TURN
COST
OUT-TURN
COST
FE
(optional)
OE
SE
PE
Detailed Design
Documentation
DE
CE
FE
(optional)
OE
SE
PE
Specimen Design
Principals Requirements
DE
CE
T
I
M
E

Figure 1: Traditional and Design and Construct Contract Delivery Timeline with Estimate Deliverable

Each project has one live estimate, which is updated progressively as the project develops.
This estimate is given different names depending on the project phase or the hold point to
which it relates. During the earliest phases of a project more than one OE may be prepared
to allow for a number of potential solutions for the project.

Project
feasibility
The project feasibility stage concludes with the production of a PFR and
an associated FE. Usually the FE is based on limited knowledge of the
project.
I&R The I&R phase includes the development of a Scoping Report, if
required, and a SAR / AEE.
The Scoping Report summarises the various options and includes OE(s)
for each option proposed. A Scoping Report is not always required.
A SE is prepared during the SAR / AEE production but before the
Notice of Requirement for Designation is lodged.
The project estimate has to be recalculated once the designation is
confirmed and all of the conditions are fully understood. This estimate
is the PE that Transit will use to secure funding for the design phase.
D&PD Once an option is approved it will progress to detailed design. At the
end of this phase a DE is produced and used to secure construction

phase funding.
Construction During this phase the design is tendered out to the market. After receipt
of tenders and before the contract is awarded, the estimate will be
revised to a CE, which the Transit project manager and the consultant
then manage until completion of the project.


Part B Roles and Responsibilities
4 Roles and Responsibilities
Each project shall have the following management structure.

The Transit project manager is responsible for:
checking that the estimate has been produced according to the guidance given in this
manual
implementing external peer reviews and parallel estimates at appropriate times
providing cost information for Transit-managed costs on previous project expenditure
benchmarking estimates against elemental cost data.

The consultant team leader is responsible for:
establishing the scope of work in consultation with the Transit project manger
preparing and checking the estimate according to the guidance given in this manual
collating estimate elements
checking the estimate is consistent with the scope of works and guidance given in this
manual
internal peer reviewing estimates
reconciliating differences with external peer reviewer and independent estimator.

See Figure 2 for a flowchart of the complete project management structure of a project from
PFR to completion.


Transfund Transit Consultant Phase Estimate

Consider I&R funding
Commission PFR
Accept FE
Prepare funding request
Produce PFR
Produce / review FE

P
F
R

FE
Approve I&R funding

Consider D&PD funding
Commission I&R

Accept SE
Check SE is produced in
accordance with manual
Is SE < $5M
Yes No
Is SE > $50 M
No Yes
Peer review
Parallel
estimate
Confirm SE
Confirm Designation
Commence I&R
Produce / review OE
Produce scoping report
Complete SAR / AEE
Produce / review SE

Produce / review PE
I
&
R

OE

SE

PE

Figure 2: Project Management Structure (cntd. over)

Transfund Transit Consultant Phase Estimate
Approve D&PDfunding

Consider construction funding
Commission D&PD
Accept DE
Check DE is produced in
accordance with manual
Is DE < $5M?
Yes No
Peer review

Is DE < $50M
and
Has the project undergone a
significant scope change?
or
Would the project benefit from a
parallel estimate?

Yes No
Parallel estimate

Confirm DE
Commence D&PD
Produce DE
Complete D&PD
Complete/review DE
D
&
P
D

DE
Approve construction funding

Consider additional funding
Approve additional funding
Commission MSQA
Accept CE
Is funding sufficient?
No Yes
Forward elemental costs to
Transit Contracts Coordinator
Commence MSQA
Tender / evaluate
Produce / review CE
Award contract(s)
Manage/complete contract(s)
Confirm out-turn cost
Complete Transit elemental
costing model
C
O
N
S
T
R
U
C
T
I
O
N

CE

OUT-
TURN
COST

Figure 2: Project Management Structure (cntd.)

Part C Procedures
5 Estimate Use
5.1 Purpose of Cost Estimates
Cost estimates are required for:
financial planning
programming
option selection
project specification
funding approval
committing contracts

Financial Planning: Transfund and Transit require cost estimates of all projects in Transits
long-term programme to help with financial planning. Transfund and Transit require
expenditure forecasts so they can advise Government of long-term revenue requirements and
for Transit to arrange alternative funding where appropriate.

Once a particular project is identified and a PFR completed, the project is programmed
according to its priority. Transit manages a FCWP using its PROMAN reporting
management system. The FCWP 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 FCWP. Each phase of each project is included in the FCWP so
reliable estimates of each phase are therefore required. The Expected Estimate will be used
in the FCWP and for long-term financial planning.

Programming: As the Crown agency responsible for managing and developing the state
highway network, Transit works to achieve government priorities. Because of the limited
funding available for roading projects Transit uses prioritisation processes based on the New
Zealand Transport Strategy and the BCR formula to determine the optimum timing of
projects to give effect to these priorities. Transits 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 test of the BCR using the 95
th

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 of 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 short-listed and later when the preferred option is being selected.


Project Specification: Transit uses cost estimates to help determine appropriate standards
and mitigation measures to be adopted for each project.
Funding Approval: Transit requires reliable cost estimates in order to seek funding
approval for these phases:
I&R
D&PD
Construction (including MSQA).

The funding allocation for each phase is based on the Expected Estimate including
escalation. The cashflow forecasts are based on the Expected Estimate of expenditure in
each year. Each funding allocation must also advise the 95
th
percentile Estimate including
escalation.

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 cashflows need to be continually updated during project delivery. Good cost control
is demonstrated through regular update of the cost estimate during project delivery.

6 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.

Phase Type Purpose of Cost Estimate Confidence Level Input / Output Documentation
P
F
R

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

FE
Optional
Some I&R investigation done in
PFR to produce more defined
scheme and a more reliable FE.
Expected Estimate and 95
th

percentile Estimate
Contingency and funding
risk based on assessment
of risks
Input:
Risk management process commenced
Transit to use Benchmark Estimator as yardstick
Output:
Project feasibility report
I
&
R

OE
SE
PE
Confirm strategy
Project definition
development option selection
Determine when to design and
construct
Obtain funding for design and
property
th

percentile Estimate
or analysis of risks
Input:
Risk management process continued
Transit to use Benchmark Estimator as yardstick
Value management
Output:
Report(s) detailing differences between FE, OE and SE
Monthly reporting
Quarterly estimate updates
Scoping Report (if required)
SAR / AEE
Land Designation Conditions
D
&
P
D

DE Confirm project
development
Project specification
Obtain funding for construction
Determine when to construct
Committing contracts
th

percentile Estimate
Input:
Value engineering
Output:
Report detailing differences between PE and DE
Monthly reporting
Quarterly estimate updates
Project documentation
C
o
n
s
t
r
u
c
t
i
o
n

CE Reassessing contingency and
risks
Managing cashflow
Reviewing allocation
Tender price is base
estimate
th

percentile Estimate
Input:
Output:
Report detailing differences between DE and CE
Accrual reports
Contingency management reports
Out turn cost
Figure 3: Purpose, Confidence Levels and Documentation for Estimates


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

FE OE SE PE DE CE
Cost
Project
Completion
Timeline
Expected Out-turn Cost

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 consultant must allow for sufficient time and
resources to reflect the importance of the estimate.
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 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.

Transits 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 Performance
ACENZ and Transit have agreed that Transit will assess the performance of consultants
based on their track record in estimating costs. Transit will therefore monitor cost estimates
against subsequent estimates and final out-turn costs.

Transfund 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.

Transfund 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.

6.5 Project Scope
The starting point for any estimate is definition of the project scope. Scope definition
requires an understanding of the project objectives and the means by which those objectives
will be delivered. The amount of information available and hence the degree of scope
definition achievable, varies depending on the phase of the project.

Definition of project scope is an important aspect of producing a reliable estimate. It is
essential that, even at the Project Feasibility phase, the project scope is known and
understood in sufficient detail to allow the production of a meaningful estimate. Any
changes in scope need to be recorded and agreed in order to provide an audit trail through
the life cycle of the project estimate.

Project estimates must take into consideration project scope creep, for example, an increase
in the extent of work on local side roads. If this is impractical, consultants must qualify
project estimates or specifically exclude these items from the project estimate so that Transit
and Transfund can fully understand the limitations of the current scope of works and
therefore the project estimate.

Transit also wishes to monitor the variations between FE and out-turn across the project
portfolio.

7 Escalation
Escalation is an additional allowance to cover for inflation.

Transit provides the economic information consultants are to use to calculate escalation.
Escalation is calculated cumulatively over the predicted life of the project and consultants
need to assess escalation with respect to the timing of project delivery and expected
cashflow. Escalation shall be applied from the base date of estimate preparation through to
the expected completion of the phase that funding is being requested for.

Escalation is applied to the Expected and 95
th
percentile estimates for all funding
applications. See Appendix E for an example funding application form.

To be consistent with Transfunds PEM, escalation is excluded from any economic analyses
(BCR).

Expected estimates, without the addition of escalation, shall be used for long term
programming purposes. Transit will escalate expected estimates to common base dates for
portfolio analyses and update them by index adjustment at dates to be agreed with
Transfund.

Expected estimates with the addition of escalation shall be used for allocating professional
services (I&R and D&PD) and construction funds.

Transit will provide consultants with the appropriate cost indices.

See Appendix I for an escalation calculation example and Appendix J for Transits cost
escalation indices.

8 Land and Property
8.1 Property Purchase
Transit 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 the above cost centres.

Applications to Transfund for Project Cost Centre funding normally exclude any costs
associated with property purchase (e.g. valuations, legal surveys, management fees,
acquisitions and compensation) but normally include property owner accommodation works
to be undertaken as part of the project physical works contract.

Transit 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 Transit has its own system PADS to manage
these costs.

Property interests are purchased by the Crown so that Transit can carry out its statutory
functions and responsibilities in developing New Zealands state highway network.
Currently, those interests are acquired using the provisions of the Public Works Act 1981.
The Acts 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.

Transit uses the services of specialists in the Public Works Act to conduct Crown property
acquisition negotiations. This ensures that property owners are correctly informed of their
rights. As described in SM030, Transit 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.

8.2 Nett Property Cost
8.2.1 General
Property costs required for the project estimate and the projects economic evaluation can be
divided into:
Nett Property Costs

Property Compensation Costs (refer to section 2 for definition)
Property owner Accommodation Works Costs (refer to section 2 for definition).

The Nett Property Cost shall be included in the total project out-turn cost and therefore
updated in parallel with the project estimate phases.

8.2.2 Nett Property Costs
Nett property cost is defined as the market value, at the base date, of any property purchased
or required to be purchased for a project, less the market value of any surplus property. i.e.
Nett Property only includes the corridor required.

For economic evaluation purposes, the Transfund PEM states that where property has to be
acquired, its resource cost is assumed to equate to its market value
2
. Similarly, where
property becomes available for disposal, it is included as a cost saving in the economic
evaluation.

Property already purchased for a project shall be included in the project estimate at its
market value at the base date.

8.2.3 Property Compensation Costs
In certain circumstances the Public Works 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.

2
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.

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
During the property acquisition process, Transit may agree to carry out works as part of a
property purchase or compensation agreement. For instance, an agreement might require
Transit 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.

8.3 Total Property Costs
At the outset of a project, Transit needs to understand the amount of funding necessary to
purchase the property required for the project. This is needed to set the budget for the
Project Property Cost Centre and for programming purposes. This allows Transit 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 Transit property purchase agent.

8.4 Property Acquisition Fees
Property acquisition fees may include:
Property acquisition agents fees
Other professional fees e.g. Transits legal, valuation, specialists, survey fees
Land Information New Zealand (LINZ) title and other disbursements
Advertising e.g. section 23 notices


All of these fees shall be separately and individually identified in the I&R, D&PD and
Construction estimates under Consultancy Fees. Note that as these are property purchase
costs, they will normally be funded from the Project Property Cost Centre.


9 Risk Analysis and Assessment of Contingency
9.1 General
Transits Minimum Standard Z/10 Guideline (Transit manual SM030) describes the best
practice risk management procedures required for Transit capital works projects. This
manual is supplementary to those guidelines.

For cost estimation, risk is the chance of something happening that will have a beneficial
or detrimental impact on the final out-turn cost. Both the consequence and likelihood of the
risk needs to be assessed.

Risks can be classified as known risks and unknown risks. Known risks are those
identified during the risk management process as an unplanned event that could occur in the
project. Unknown risks are those that cannot be specifically identified and therefore cannot
be assessed and quantified, for example, design errors, design omissions and incomplete
design.

Known risks can be managed. However, consultants must include the cost of such
management and the cost consequence of the risk in the project cost estimate. Including
unknown risks in the estimate is more subjective. One approach to estimating the cost
impact of unknown risks is to consider how previous projects have been affected by the
identified unknown risks.

Allocation increases for I&R, D&PD and construction will be treated as a simple increase
through Transfunds review process, without the need for further justification, so long as:
Any increase above the expected estimate is consistent with the risk profile of the
I&R, D&PD and construction phases, taking into account escalation and
Any increase is within the 95
th
percentile estimate of the I&R, D&PD and
construction phases, taking into account escalation.

9.2 Terminology
The figure below shows the terminology used for risk analysis in cost estimates.


Distribution
Expected Estimate
95th percentile Estimate
Base
Estimate
Transit Managed
Contingency
Transfund Managed Funding Risk

Figure 5: Risk Analysis Terminology

In this manual, the terms are defined as:
Contingency an additional allowed cost 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.
Funding risk an additional allowed cost for known/unknown risk between the Expected
and 95
th
percentile Estimates. This may also be referred to as the 95
th

percentile risk contingency or an allowance to cover the difference
between the statistical mean and the statistical 95% percentile of risks and
opportunities.

9.3 The Application of Risk Analysis or Assessment of Contingency
The following table details the methodology that shall be used to calculate contingency and
funding risk at the various stages of the project life cycle.

Note: Segment values are the construction phase costs of the Expected Estimate.

Estimate <$3M >$3M<$10M >$10M
FE Assessment Assessment Assessment
OE Assessment Assessment / Analysis Assessment / Analysis
SE Assessment Assessment / Analysis Analysis
PE Assessment Analysis Analysis
DE Assessment Analysis Analysis
CE Assessment Analysis Analysis
Figure 6: Use of Assessment or Analysis


Where Assessment/Analysis is detailed as the applicable methodology, the Transit Project
Manager, in conjunction with the project consultant, shall determine the most appropriate
methodology. Typically projects assessed as being of Very High Risk or Extreme Risk
in terms of Transits Minimum Standard Z/10 (Transit manual SM030) shall be analysed.
Lower risk projects should typically be assessed.

9.4 Assessment of Risk Impacts
Where assessments are used to calculate contingency and funding risk, the risks must be
identified according to Transits Minimum Standard Z/10 (Transit manual SM030).

The consultant needs to assess their possible impact on the estimate and include an
appropriate contingency and funding risk in the estimate. This assessment can be based on
percentages, lump sums or the Hong Kong Government Works Branch method, but must
recognise the impact the identified risks may have on the out-turn cost.

9.5 Analysis of Risk Impacts
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.

Where analyses are used to calculate contingency and funding risk, the consultant is to use
the following procedure:
risk identification
the likelihood of the risk
the consequence of the risk
distribution
correlation
results
sensitivity.

9.5.1 Risk Identification
To identify risks the consultant is required to follow the processes detailed in Transit
Minimum Standard Z/10.

The consultant needs to separate the risks that have a cost impact on the estimate into a
residual risk register so the impacts can be analysed.

9.5.2 Risk Likelihood
To determine the likelihood of a risk occurring an estimator can take a number of
approaches including:

relative frequency looking at historical events and noting what has occurred in the
past
subjectivity where inaccurate or no historical information exists, experienced
judgement can be a reliable means of estimating probability
fault or event trees.

9.5.3 Risk Consequence
To provide realistic out-turn cost estimates the consultant must estimate the total cost of
consequences the identified risk would cause, including any indirect costs.

The consequence on price of risk may be estimated using one of the following methods:
lump sums
percentage of total cost or element which the risk issue would affect
elemental cost
schedule of prices.

For example, where the consultant identifies a risk of increased work scope that is likely to
prolong a project, they need to consider costs such as:
the additional physical works costs
extension of time to the contractor, in terms of general items. Note: if the additional
work extends the project into an additional construction season this may result in a
substantial cost to the project out-turn estimate.
any additional consultant fees
any additional resource consent and/or legal fees.

Once the likelihood and consequence of residual risks are estimated, the consultant can
apply a distribution to each risk to produce a value or values. The resulting values are to be
included in the risk model.

9.5.4 Distribution
The consultant can use any of the following distribution formula:
discrete
triangular
trigen
normal
uniform
pert
log normal.


9.5.5 Correlation
Risks must be correlated where two or more risks are related or where the occurrence of one
risk prevents (or results in) the occurrence of another. For example, when risk A
distribution returns a high value the related risk B distribution shall also return a high value,
or, when risk C distribution returns a value the related risk D distribution shall not.

To show correlation, the consultant can use either a correlation matrix, or include if
statements in the distribution formula.

9.5.6 Results
The consultant is required to show the results in tabular or graph form. These need to
include outputs for each phase, i.e. I&R, property purchase, D&PD and construction, as well
as a total project output.

9.5.7 Sensitivity
The consultant is also required to undertake a sensitivity analysis to identify the risks that
have the greatest impact on the out-turn cost. The consultant must use linear regression
theory to do this.

The estimate report must include the resulting sensitivity comments.


10 Reporting Estimates
10.1 General
Cost estimates need to be prepared and presented using a standardised industry format and
be easily understood by the reader. 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 templates similar to those included in the appendices for:
Elemental Breakdown (Appendix C)
Estimated Costs (Appendix D)
Funding Applications (Appendix E)
Cashflow/Accrual Reporting (Appendix F)
Cost Reporting/Management of Contingency (Appendix G)
Transit Elemental Cost Model (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 statement and assumptions
the base estimate
the risk register
residual risks for costing
the pricing of residual risks
Expected and 95 percentile estimates
date and Cost Index
peer reviews.

10.2 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 Transit
intends to hold 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 Transit project manager so they can understand what is
included in the out-turn cost estimate.


10.3 Estimated Costs
10.3.1 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.

A total purchase cost of property form must be submitted to identify the cashflow required
for the purchase of property.

10.3.2 Summary of Estimated Costs
The consultant must use forms to present each project estimate:
Feasibility Estimate (FE)
Option Estimate (OE)
Scheme Estimate (SE)
Pre-design Estimate (PE)
Design Estimate (DE)
Construction Estimate (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 Funding Applications
The consultant must use a funding application form to present estimates. Transit uses these
to obtain funding approval from Transfund. Example funding forms are included in the
Appendices for the following funding submissions:
I&R
D&PD
construction.

The consultant is to update all funding application estimates quarterly during the delivery of
that phase to identify whether the funding levels need to be reviewed. The update is to
include the movement in the Base Estimate, Contingency and Funding Risk.

10.5 Cashflow/Accrual Reporting
The consultant is to submit with each estimate the likely expenditure of the out-turn cost
estimate (cashflow) 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
Base Allocation: the base estimate for this phase/project
Contingency Allocation: contingency allowance for this phase/project
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 forms included in the appendices present the cashflow in a format compatible
with Transits PROMAN system and separate expenditure of the base estimate from
expenditure of the contingency allowance.

Separate cashflows are to be prepared for separate contracts/phases, along with a total report
summarising the contracts/phases.

Consultants shall estimate forward cashflows in accordance with a methodology appropriate
to the type, scale and stage of the project. One such methodology may include the
derivation of a project programme and applying the applicable estimated cost(s) to each
individual programme item. For some projects, applying standard s curve methodology
may be more appropriate.

10.6 Management of Contingency
Contingency between the Base and Expected Estimate should be shown as a single line item
in reports. Contingency cannot be transferred from one phase to another on a project as each
phase is funded separately.

Transit Managed Contingency Transfund Managed Funding Risk
Base Estimate Expected Estimate
95th percentile Estimate
Consultant Operational Contingency

Figure 7: Contingency Management

Transits Professional Services Contract Proforma Manual (SM030) provides for the Transit
Project manager and the consultant to agree an allocation for each physical works contract

that includes the contract price and an operating contingency over which the consultant has
control. However, the consultant is required to report on any high cost variations and the
allocation will be reviewed as the contract progresses.

The Transit project manager manages the contingency allowance. Transfund manages the
funding risk element of the out-turn estimate.

Transit may seek additional funds to cover expenditure above the Expected Estimate at any
time during the project. Any allocation increase above the Expected Estimate that is
consistent with the risk profile of the project phases, taking into account escalation, and is
within the 95
th
percentile estimate of the project phases, taking into account escalation, will
be treated as a simple increase through Transfunds review process and will not require
further justification.

10.7 Transit Elemental Cost Model
The consultant shall complete the Schedule of Elemental Prices form included in Appendix
H at the end of each project using project out-turn costs. Transit will collect such cost
information nationally to build its database of project costs. The Transit project manager
will then forward this information to Transits Contract Coordinator.

Elemental costs of relevant projects in the database will be made available to consultants to
enable FE to be prepared with greater reliability and allow a comparison of estimated project
costs at an early I&R stage.

11 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:
1. scope of work the estimates are based upon
2. summary and breakdown of current estimate
3. assumptions made in preparing the estimate
4. list of estimate exclusions
5. residual risk register
6. contingency and funding risk allowance derived by risk assessment or risk analysis
7. changes between current and previous estimates including reason for change
8. peer review.

The consultant and the Transit project manager must sign off on the consultants 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 Quarterly Updates
Additional to estimate stage updates, the consultant must update the project estimate every
three months for rate and item appropriateness, movement in the CI and assessed/analysed
contingency and funding risk allowances. The consultant is to submit these updates in time
to meet the Transit May/November requirements for long-term planning of projects.

11.2.4 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.


12 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 $5M at the SE stage, it shall be externally peer reviewed.
When the expected estimate of the construction phase exceeds $50M at the SE stage, it shall
be checked by an independent parallel estimating process.

12.2 Internal Peer Reviews
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 consultants own
organisation or an independent person, nominated by the consultant and agreed by the
Transit project manager. The reviewer must be able to demonstrate independence from the
consultants project development team.

The peer review is required to provide Transit 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
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 all external price enquiries that may have been incorporated in the estimate to
confirm their scope, price, and appropriateness for inclusion
check that an arithmetical 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, drawings, etc. to confirm they are
commensurate with the type of estimate and estimate deliverable
review the estimate inclusions and exclusions
review the appropriateness of the assessment/analysis of risk impact.

A sample peer review form is provided in Appendix K.

12.3 External Peer Reviews
The Transit 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 $5 million and either the
internal peer reviewer or Transit 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 $5 million and less
than $50 million.

The external peer reviewer will be included on the Transit Estimate Peer Reviewer Register.
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 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 Transit project manager with
a full explanation of why they disagree.

A sample peer review form is provided in Appendix K, Transits cost estimation external
peer review methodology in Appendix L and a register of estimate peer reviewers and
industry experts in Appendix M.

12.4 Parallel Estimates
The Transit project manager will commission a parallel estimate for comparison at the SE
stage of a project if:
the construction phase of the Expected Estimate is greater than $50 million
the Transit project manager considers the project would benefit from a parallel
estimate being prepared.

The independent estimator will be included on the Transit Estimate Peer Reviewer Register.
These parallel estimates do not remove responsibility or accountability from the consultant
who prepared the project estimate.

Parallel estimates are to be at least as descriptive and detailed as the SE prepared by the
consultant.

Additional parallel estimates will only be requested if:
the project has undergone a significant scope change
the Transit project manager considers the project would benefit from a further parallel
estimate being prepared.


A copy of the parallel estimate will be provided to the consultant. The consultant is then
required to reconcile any differences they may have with the parallel estimator. If the
estimator and consultant cannot reach agreement, the consultant must report clearly the areas
of disagreement to the Transit project manager with a full explanation of why they disagree.

Transits parallel estimate methodology is provided in Appendix N.

Part D Guidelines
13 Estimate Guidelines
The following information provides guidance on good estimating practice. Transit will
develop this section over the life of the manual.

13.1 Schedules of Prices
Schedules of prices are to be detailed appropriately for the phase of the project.

When preparing schedules of prices the consultant must:
measure all quantities accurately from the drawings and specifications for the project
keep lump sum items to a minimum and only use where the works cannot be suitably
quantified or where strong incentives can be created to drive better value for money
results
keep dayworks and provisional sums to a level that reasonably reflects the proposed
scope of works. Consultants must ensure that dayworks and provisional sums are
taken into account in the risk register and risk assessment to ensure that contingency
allowances are not double counted.

13.2 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)
on-site overheads (indirect costs)
off-site 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)
Includes both the fixed costs associated with establishing the site (e.g.
setting up site accommodation and facilities) and time related costs
associated with running the site during construction of the project (e.g.
site management and supervision, 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.
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.

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
consultants rate or as a percentage added onto the sum of direct and
indirect costs.

13.3 Transit Managed Costs and Consultancy Fees
Transit Managed Costs and Consultancy Fees are likely to be provided as a combined effort
by both the Transit 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 are:
Transit Managed Costs
Tendering Costs
Consultation Costs
Safety Audit Costs
Peer Review Costs
Public Relations Costs
Legal Costs
Miscellaneous Other Costs
Consent Monitoring.
Consultancy Fees
Scope of Services
Contract Management
Investigation and Reporting
Design and Project Documentation
Management Surveillance and Quality Assurance
Geotechnical Testing Schedule
Additional Services, e.g. 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 Transit 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.

13.4 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.

Transit recommends that:
a separate buildability assessment be undertaken on all project work
staging/sequencing diagrams or methodology should be prepared, quantified and
priced
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/assessment of risk impacts.

Fixed and/or Variable Temporary Works and Traffic Management costs include:
traffic management plans (preparation, client & local government approval,
management and updating)
public notification
lane changeovers
road diversions
plant and equipment hire costs (e.g. Cones, barriers, vehicle attenuator, etc.)
temporary construction (roads, bailey bridges, footpaths, etc.)
site labour

Buildability is a critical issue. Where consultants have any doubts, they should have the
estimate reviewed by an experienced practitioner.


13.5 Preliminaries and General
When preparing estimates for Preliminaries and General (P&G) the estimator must take
account of:
the size, nature and location of the project
the allowances within individual rates incorporated in the estimate e.g. off site
overheads, profit and manual labour (both plant operators and labour working on the
tools.
The estimator should clarify separately the items included within the P&G section. The
following is a standard (but not comprehensive) list of P&G items:
Site establishment, operation (e.g. Time related costs like site sheds, phones or
photocopying), disestablishment and cleanup
Site management (non manual labour)
Bonds and insurances
Consents if not already obtained (e.g. Building consents and tree removal consents)
The cost of preparing and maintaining quality, health & 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 P&G section is an important component of any cost estimate as it includes any
items/costs that are required to run and manage the physical works both fixed and/or time
related.
Therefore, P&G 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
P&G costs on historical data alone.

13.6 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 (e.g. 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.

13.7 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 (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 or assessing risk impacts.

13.8 Temporary Erosion and Sediment Control (ESC)
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 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


Appendices

Appendix A: Policy Statement 48
Appendix B: Example of Cost Estimation Manual Procedure 51
Appendix C: Example Elemental Breakdown for Construction Costs Form 59
Appendix D: Example Estimated Costs Forms 64
Appendix E: Example Funding Application Forms 72
Appendix F: Example Cashflow/Accrual Reporting Form 76
Appendix G: Example Cost Reporting/Management of Contingency Forms 78
Appendix H: Elemental Costings 82
Appendix I: Escalation Calculation Example 90
Appendix J: Cost Escalation Indices 94
Appendix K: Example Peer Review Form 96
Appendix L: Cost Estimate External Peer Review Methodology 98
Appendix M: Transit Estimate Peer Reviewers and Industry Experts 103
Appendix N: Parallel Estimate Methodology 108

Appendix A: Policy Statement

Appendix A: Policy Statement
Part 1: Cost Estimation
1 There will be six cost estimates within the project development cycle, as follows:
Feasibility Estimate
Option Estimate
Scheme Estimate
Pre-Design Estimate
Design Estimate
Construction Estimate

2 There will be two types of cost estimates as follows:
the Expected Estimate (i.e. on average, across the State Highway Programme,
about half of the time the out-turn will come in under the expected and about
half of the time the expected will be exceeded)
the 95
th
percentile Estimate (i.e. 1 in 20 times the estimate will be exceeded).

3 All cost estimates shall include an assessment of all residual risks (from the risks
register) at the time of estimating.

4 The completeness and accuracy of cost estimates shall be the responsibility of the
professional services supplier (consultant) and the consultants performance will be
measured by comparison of Scheme Estimates against the Design Estimate and final
out-turn cost.

5 All cost estimates shall be internally peer reviewed, and above $5M externally peer
reviewed. When the expected estimate of the construction phase, at the Scheme
Estimate stage exceeds $50M, it shall be checked by an independent parallel
estimating process.

6 All cost estimates shall be accompanied by a report that at a minimum shall include:
scope statement and assumptions
the base estimate
the risk register
residual risks for costing
the pricing of residual risks
Expected and 95 percentile estimates
date and Cost Index
peer reviews.


Part 2: Programming and Funding
7 Expected cost estimates excluding escalation shall be used for economic analyses and
long term programming purposes. Transit will escalate expected estimates to common
base dates for portfolio analyses and update them by index adjustment at dates to be
agreed with Transfund.

8 Expected cost estimates plus escalation shall be used for allocating professional
services (I&R and D&PD) and construction funds.

9 So long as any allocation increase above the expected construction estimate plus
escalation is consistent with the risk profile of the project and within the 95
th

percentile Estimate plus escalation provided when construction funds were sought, the
increase in allocation will be treated as a simple allocation increase through
Transfunds review process without the need for further justification.


Appendix B: Example of Cost Estimation Manual Procedure

Appendix B: Example of Cost Estimation Manual Procedure
Estimate Procedure Example $50M >Pre-design Estimate >$10M
1 Determine the phase of the project and the type of estimate required.
Investigation and Reporting Phase (I&R) shortly after Environmental Court
Hearing.
Estimate type: Pre-design Estimate.

2 Use the following forms to produce the Base Estimate:
Nett Property Costs
Total Property Cost (for project property cost centre purposes)
Funding Applications: I&R, D&PD and Construction
Elemental Breakdown
Pre-design Estimate (PE).

Project Property Costs
Obtain all relevant property cost information from the property acquisition agent employed
by Transit or where agreed with the Transit project manager, use property specialists.

For example: Several properties will be affected by a 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 (i.e. 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 GST, are:

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)
$2,000
Disturbance costs including relocation $2,500
Legal costs $5,000
Total $9,500

Property owner
accommodation works
Nil
Property B is a commercial property. The freehold interest (lessors 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 (lessees 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 lessors and lessees
interests are required to be acquired (i.e. 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:

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

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 (i.e. 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:

Property Purchase Costs Land and improvements $15,000

Costs
Injurious affection $50,000
Legal and valuation costs $10,000
Disturbance costs $2,000
Total $62,000

Property owner
accommodation works
Relocate glasshouse $2,000
Install new fence $5,000
Construct new driveway $7,000
Replace planting $3,000
Total $17,000
The estimated property costs are transferred to the Nett Property Cost and Total Property
Cost forms, contingency and funding risk allowances assessed or analysed (as appropriate)

and the Project Property and Total Property costs determined. The Base Estimate,
Contingency and Funding Risk allowances are transferred to item A in the PE form.

Project Name
Nett Property Costs
Property
Acquisition
Reference
Property Requirements Pur
cha
sed
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)

A Residential Lifestyle Block
Land and improvements including chattels No 490,000 350,000 140,000 0 0 140,000
Solatium (payable to property owner and residents only) No 0 0 0 2,000 0 2,000
Disturbance costs including relocation No 0 0 0 2,500 0 2,500
Legal costs No 0 0 0 5,000 0 5,000
B Commercial Property
Lessor's interest in required road corridor No 450,000 0 450,000 0 0 450,000
Lessor's interest in severance land No 100,000 0 100,000 0 0 100,000
Lessee's interest in land No 35,000 0 35,000 0 0 35,000
Lessee's interest in buildings No 565,000 0 565,000 0 0 565,000
Lessee's interest in relocation expenses No 0 0 0 35,000 0 35,000
C Residential Property
Land and improvements No 15,000 0 15,000 0 0 15,000
Injurious affection No 0 0 0 50,000 0 50,000
Legal and valuation costs No 0 0 0 10,000 0 10,000
Disturbance costs No 0 0 0 2,000 0 2,000
Relocate glasshouse No 0 0 0 0 2,000 2,000
Install new fence No 0 0 0 0 5,000 5,000
Construct new driveway No 0 0 0 0 7,000 7,000
Replace planting No 0 0 0 0 3,000 3,000

Base Estimate 1,655,000 350,000 1,305,000 106,500 17,000 1,428,500

Assessed / Analysed Contingency 210,000
Expected Estimate 1,638,500

Assessed / Analysed Funding Risk 165,000
95th percentile Estimate 1,803,500

Date of Estimate Cost Index
Estimate prepared by Signed
Estimate internal peer review by Signed
Estimate external peer review by Signed
Estimate approved by Transit project manager Signed

Note: These estimates are exclusive of escalation and GST.



Project Name
Total Property Costs
Property
Acquisition
Reference
Property Requirements Pur
cha
sed
Property
Purchase
Costs
(A)
Property
Compensation
Costs
(B)
Property Owner
Accommodation
Works
(C)
Total
Property
Cost
(A+B+C=D)

A Residential Lifestyle Block
Land and improvements including chattels No 490,000 0 0 490,000
Solatium (payable to property owner and residents only) No 0 2,000 0 2,000
Disturbance costs including relocation No 0 2,500 0 2,500
Legal costs No 0 5,000 0 5,000
B Commercial Property
Lessor's interest in required road corridor No 450,000 0 0 450,000
Lessor's interest in severance land No 100,000 0 0 100,000
Lessee's interest in land No 35,000 0 0 35,000
Lessee's interest in buildings No 565,000 0 0 565,000
Lessee's interest in relocation expenses No 0 35,000 0 35,000
C Residential Property
Land and improvements No 15,000 0 0 15,000
Injurious affection No 0 50,000 0 50,000
Legal and valuation costs No 0 10,000 0 10,000
Disturbance costs No 0 2,000 0 2,000
Relocate glasshouse No 0 0 2,000 2,000
Install new fence No 0 0 5,000 5,000
Construct new driveway No 0 0 7,000 7,000
Replace planting No 0 0 3,000 3,000

Base Estimate of Total Property Costs 1,655,000 106,500 17,000 1,778,500

Assessed / Analysed Contingency 260,000
Expected Estimate of Total Property Costs 2,038,500

Assessed / Analysed Funding Risk 205,000
95th percentile Estimate of Total Property Costs 2,243,500



Figure 8: Example Project Property Cost Forms


Funding Applications (I&R, D&PD and Construction)
The funding application forms may be used to estimate the Base Estimate, Contingency and
Funding Risk allowances for inclusion in the PE.

Include either actual or future expected costs. At this stage (PE) of the I&R phase some
costs will have been expended, for example hearing and/or Environmental Court costs. A
small amount of work will be outstanding and this should also be recognised.

Estimate D&PD costs with the assistance of the Transit project manager. Each cost element
included must be appropriate for the amount of work being performed during the D&PD
phase.

Work with the Transit project manager to estimate MSQA, Transit Managed Costs and
Consent Monitoring fees. Each cost element included shall be appropriate for the amount of
work being performed during the construction phase.

Estimate the physical works costs using the advised Elemental Breakdown. The consultant
is to calculate expected quantities from drawings (or other sources of information) and
assess current market rates for each measured item. At the PE stage the consultant must
update the costs of the previously expected consent conditions with those known from the
hearing or Environment Court.


Item Description Base Estimate Contingency Funding Risk
A Project Property Cost 1,428,500 210,000 165,000
B Investigation and Reporting 100,000 10,000 10,000
C Design and Project Documentation 150,000 15,000 15,000
Construction
1 MSQA, Transit Managed Costs and Consent monitoring fees 150,000
Physical Works
2 Environmental Compliance 50,000
3 Earthworks 1,000,000
4 Ground Improvements 100,000
5 Drainage 200,000
6 Pavement and Surfacing 500,000
7 Bridges 300,000
8 Retaining Walls 50,000
9 Traffic Services 20,000
10 Service Relocations 20,000
11 Landscaping 50,000
12 Traffic Management and Temporary Works 30,000
13 Preliminary and General 200,000
14 Extraordinary Construction Costs 50,000
D Total Construction 2,720,000 300,000 500,000
Total Base Estimate 4,398,500
E Assessed / Analysed Contingency 235,000
Expected Estimate 4,633,500
F Assessed / Analysed Funding Risk 190,000
95
th
percentile Estimate 4,823,500
Project Name
Pre-design Estimate PE

Figure 9: Example Pre-design EstimateForm


3 The method used to calculate the Contingency and Funding Risk allowances will
depend on the construction phase cost of the estimate. In this example, i.e. project
>$10M, the contingency and funding risk is calculated by analysis of risks using
appropriate Monte Carlo distribution software as set out in the manual.
Both the Contingency and Funding Risk allowances must be calculated from the same
model.

4 Obtain an internal peer review from an experienced estimator either from your own
company or an external company if that experience is not available.

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

6 The consultant must provide the following information in the completed estimate:
Date of estimate
State the current Cost Index
Advise who carried out the estimate and obtain the signature of the person who
carried out the work.
Advise of the internal peer reviewer and obtain the signature of the person who
Advise of the external peer reviewer and obtain the signature of the person who

7 Provide a report, which at minimum must include:
Scope statement and assumptions
Base, Expected and 95
th
percentile Estimates
Residual Risk Register and pricing thereof
Date and Cost Index
Peer Review including 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.

Appendix C: Example Elemental Breakdown for Construction
Costs Form

Appendix C: Example Elemental Breakdown for Construction
Costs Form
Project Name
Elemental Breakdown for Construction Costs
Item Description Sub-Element
Totals
Element
Totals
1 Monitoring MSQA, Transit Managed Costs and Consent Monitoring fees $
1.1 MSQA $
1.2 Transit managed costs $
1.3 Consent monitoring fees $
Physical works
2 Environmental compliance $
2.1 Construct permanent erosion and sediment control measures, maintenance and monitoring $
2.2 Noise attenuation $
3 Earthworks $
3.1 Site clearance and/or demolition $
3.2 Topsoil stripping $
3.3 Cut to fill $
3.4 Cut to waste $
3.5 Borrow to fill $
3.6 Imported fill $
3.7 Resoiling $
3.8 Reclamation works $
3.9 Foreshore works $
3.10 Temporary earthworks $
3.11 Construct, maintain and remove temporary sediment control measures, temporary sediment
control ponds, including temporary hydroseeding, rock check dams, silt fencing etc.
$
3.12 Archaeological $
4 Ground improvements $
4.1 Site decontamination $
4.2 Ground improvement (e.g. drainage blankets, wick drains geotextiles) $
4.3 Geotechnical monitoring (inclinometers, piezometers etc.) $
4.4 Dewatering bores, buttress drains $
5 Drainage $
5.1 Stormwater drainage and culverts including headwalls and chambers, temporary stream
diversions
$
5.2 Subsoil and pavement drains $
5.3 Kerbing/edgestrip $
5.4 Surface water channel $
6 Pavement and surfacing $
6.1 Subgrade stabilisation (aggregate, lime or cement etc.) $
6.2 Subgrade preparation $
6.3 Sub base $
6.4 Base course $
6.5 Surfacing (chip seal, A/C, SMA) $
6.6 Upgrade existing carriageway(s) $
6.7 Ancillary roadworks
7 Bridge(s)/Structure(s) $

Project Name
Totals
Element
Totals
7.1 Substructure (includes piling, foundations, piers, abutments and bearings) $
7.2 Superstructure, (includes beams, finishings, tensioning, waterproofing, expansion joints,
edge protection, graffiti guard)
$
8 Retaining walls $
8.1 Timber piled walling $
8.2 Concrete piled walling including ground anchors $
8.3 Gabion walling $
8.4 Crib walling $
8.5 MSE walling $
8.6 Backfill behind retaining walls $
9 Traffic services $
9.1 Barrier (median barrier and verge barrier) $
9.2 Pavement markings and markers $
9.3 Road signs, gantries $
9.4 Traffic signals $
9.5 Marker posts $
9.6 Lighting $
9.7 Emergency cross-overs and phones $
9.8 Traffic communication services $
10 Services relocation/protection $
10.1 Transit cost for relocation and/or protection of all local authority and utility companies (after
cost share), and contractors on costs
$
11 Landscaping and urban design $
11.1 Landscaping (aesthetic and environmental) $
11.2 Grassing, hydro seeding, planting, revegetation $
11.3 Architecture $
11.4 Fencing $
11.5 Streetscaping $
11.6 Property accommodation costs (also refer Project Property Cost Funding) $
11.7 Footpaths and cycleways $
11.8 Building relocations
12 Traffic management and temporary works $
12.1 Temporary traffic diversions $
12.2 Traffic management physical works costs $
13 Preliminaries and general $
13.1 Establishment, disestablishment, clean up, temporary accommodation and other site
operating costs
$
13.2 Contractors supervision, on site staffing, prescribed specialists and other time related costs $
13.3 Insurances, bonds warranties/guarantees, as built requirements and non time related costs $
13.4 Temporary works and contractors design $
13.5 Project plans, quality assurance, traffic management plans, environmental management
plans, programming and reporting, consent fees, stakeholder management, health and
safety, contractors escrow tender documents
$
13.6 Escalation (where required to be included in tender price) $
13.7 Network maintenance $
13.8 Survey and setout $
14 Extraordinary construction costs $

Project Name
Totals
Element
Totals
14.1 Abnormal costs may include special items such as rock avalanche cover, tunnels, rail
bridges, rail level crossings, mine hazard mitigation etc. i.e. significant non-roading
expenses. Note: This is not for miscellaneous items.
$
Base estimate $

Date of estimate Cost index

Note: These estimates are exclusive of contingency, funding risk, escalation and GST.


Appendix D: Example Estimated Costs Forms

Project Name
Nett Property Costs

Property
Acquisition
Reference

Property Requirements

P
u
r
c
h
a
s
e
d

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)
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
Base Estimate 0 0 0 0 0 0

Assessed / Analysed Contingency
0
Expected Estimate
0

Assessed / Analysed Funding Risk
0
95
th
percentile Estimate
0

Estimate internal peer reviewby Signed
Estimate external peer reviewby Signed

A
p
p
e
n
d
i
x

D
:

E
x
a
m
p
l
e

E
s
t
i
m
a
t
e
d

C
o
s
t
s

F
o
r
m
s

C
o
s
t

E
s
t
i
m
a
t
i
o
n

M
a
n
u
a
l

M
a
n
u
a
l

N
u
m
b
e
r

S
M
0
1
4

I
s
s
u
e

2

J
u
n
e

2
0
0
3

P
a
g
e

6
4

o
f

1
1
3

P
r
i
n
t
e
d

1
7
/
0
6
/
0
3



Project Name
Total Property Costs
Property
Acquisition
Reference
Property Requirements
P
u
r
c
h
a
s
e
d
Property
Purchase
Costs
(A)
Property
Compensation
Costs
(B)
Property Owner
Accommodation
Works
(C)
Total
Property
Cost
(A+B+C=D)
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
Base Estimate of Total Property Costs 0 0 0 0

Assessed / Analysed Contingency 0
Expected Estimate of Total Property Costs 0

Assessed / Analysed Funding Risk 0
95
th
percentile Estimate of Total Property Costs 0




Project Name
Feasibility Estimate

FE

Item

Description

Base
Estimate

Contingency

Funding Risk

A Project Property Cost 0 0 0
B Investigation and Reporting 0 0 0
C Design and Project Documentation 0 0 0

Construction
1
MSQA, Transit Managed Costs and Consent Monitoring fees 0

Physical Works

2
Environmental Compliance 0
3
Earthworks 0
4
Ground Improvements 0
5
Drainage 0
6
Pavement and Surfacing 0
7
Bridges 0
8
Retaining Walls 0
9
Traffic Services 0
10
Service Relocations/Protection 0
11
Landscaping 0
12
Traffic Management and Temporary Works 0
13
Preliminary and General 0
14
Extraordinary Construction Costs 0

D
Total Construction 0

0 0
Total Base Estimate 0

E
Assessed / Analysed Contingency 0
Expected Estimate 0

F
Assessed / Analysed Funding Risk 0
95
th
percentile Estimate 0




Project Name
Options Estimate

OE

Item

Description

Base
Estimate

Contingency

Funding Risk


Construction
1 MSQA, Transit Managed Costs and Consent Monitoring fees 0

Physical Works

2 Environmental Compliance 0
3 Earthworks 0
4 Ground Improvements 0
5 Drainage 0
6 Pavement and Surfacing 0
7 Bridges 0
8 Retaining Walls 0
9 Traffic Services 0
10 Service Relocations/Protection 0
11 Landscaping 0
12 Traffic Management and Temporary Works 0
13 Preliminary and General 0
14 Extraordinary Construction Costs 0

D Total Construction 0

0 0

E Assessed / Analysed Contingency 0
Expected Estimate 0

F Assessed / Analysed Funding Risk 0
95
th



Project Name
Scheme Estimate

SE

Item

Description

Base
Estimate

Contingency

Funding Risk


Construction

Physical Works

3 Earthworks 0
5 Drainage 0
7 Bridges 0
8 Retaining Walls 0
11 Landscaping 0


0 0

Expected Estimate 0

95
th



Project Name
Pre-design Estimate

PE

Item

Description

Base
Estimate

Contingency

Funding Risk


Construction

Physical Works

3 Earthworks 0
5 Drainage 0
7 Bridges 0
8 Retaining Walls 0
11 Landscaping 0


0 0

Expected Estimate 0

95
th





Project Name
Design Estimate

DE

Item

Description

Base
Estimate

Contingency

Funding Risk


Construction

Physical Works

3 Earthworks 0
5 Drainage 0
7 Bridges 0
8 Retaining Walls 0
11 Landscaping 0


0 0

Expected Estimate 0

95
th




Project Name
Construction Estimate

CE

Item

Description

Base
Estimate

Contingency

Funding Risk


Construction

Physical Works

3 Earthworks 0
5 Drainage 0
7 Bridges 0
8 Retaining Walls 0
11 Landscaping 0


0 0

Escalation 0
Expected Estimate 0

Escalation 0
95
th



Appendix E: Example Funding Application Forms

Appendix E: Example Funding Application Forms
Project Name
Funding Application
Investigation &Reporting
I&R
1 Transit managed costs
1.1 Tendering costs 0
1.2 Consultation costs 0
1.3 Safety audit costs 0
1.4 Peer review costs
1.4.1 Economics 0
1.4.2 Estimate 0
1.4.3 Other 0
1.5 Hearing costs 0
1.6 Environmental Court costs 0
1.7 Public relations costs 0
1.8 Legal costs 0
1.9 Miscellaneous other costs 0
2 Consultancy fees
2.1 Scope of services 0
2.2 Contract management 0
2.3 Investigation and reporting 0
2.4 Preliminary design drawings 0
2.5 Geotechnical testing schedule 0
2.6 Property acquisition professional services 0
2.7 Provisional sums 0
Base estimate 0

Assessed / analysed contingency 0
Escalation 0
Expected estimate 0

Assessed / analysed funding risk 0
Escalation 0
95
th
percentile estimate 0


Note: These estimates are exclusive of GST.


Project Name
Funding Application
Design and Project Documentation
D&PD
1.1 Tendering costs 0
1.2 Consultation costs 0
1.3 Safety audit costs 0
1.4.1 Economics 0
1.4.2 Estimate 0
1.4.3 Other 0
1.5 Public relations costs 0
1.6 Legal costs 0
1.7 Miscellaneous other costs 0
2 Consultancy fees
2.1 Scope of services 0
2.2 Contract management 0
2.3 Design and project documentation 0
2.4 Detailed design drawings 0
2.5 Geotechnical testing schedule 0
2.6 Property acquisition professional services 0
2.7 Provisional sums 0
Base estimate 0

Escalation 0
Expected estimate 0

Escalation 0
95
th




Project Name
Funding Application
Construction
Construction
1 MSQA, Transit managed costs and consent monitoring fees,
property acquisition professional services
0
2 Environmental compliance 0
3 Earthworks 0
4 Ground improvements 0
5 Drainage 0
6 Pavement and surfacing 0
7 Bridges 0
8 Retaining walls 0
9 Traffic services 0
10 Service relocations 0
11 Landscaping 0
12 Traffic management and temporary works 0
13 Preliminary and general 0
14 Extraordinary construction costs 0
Base estimate 0

Escalation 0
Expected estimate 0

Escalation 0
95
th




Appendix F: Example Cashflow/Accrual Reporting Form

Appendix F: Example Cashflow/Accrual Reporting Form
Project Name
Cashflowfor Monthly Report dated dd/mm/yy
Project Phase or Summary
Current Year (Year 1) Future Years Phase Prior
years
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Year 2 Year 3 Year 4
Total
allocation

I&R

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Base
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Contingency
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Expected
out-turn cost
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

D&PD

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Base
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Contingency
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Expected
out-turn cost
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Construction
MSQA

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Physical
works
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Base
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Contingency
allocation
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Expected
out-turn cost
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Note:
Equals actual

Equals forecast current month

Equals forecast future expenditure


Appendix G: Example Cost Reporting/Management of
Contingency Forms

Appendix G: Example Cost Reporting/Management of
Contingency Forms
Project Name
Cost Report for Month Ending 31July 2002 I&R
Expenditure Out-turn Cost
Value of
work this
month
Value of
work to
date
Remaining
project
commitment

Allocation Variations Forecast
total out-
turn cost
A B GB=D Investigation and reporting E F E+F=G
0 0 0 1.1 Tendering costs 0 0 0
0 0 0 1.2 Consultation costs 0 0 0
0 0 0 1.3 Safety audit costs 0 0 0
0 0 0 1.4.1 Economics 0 0 0
0 0 0 1.4.2 Estimate 0 0 0
0 0 0 1.4.3 Other 0 0 0
0 0 0 1.5 Hearing costs 0 0 0
0 0 0 1.6 Environmental Court costs 0 0 0
0 0 0 1.7 Public relations costs 0 0 0
0 0 0 1.8 Legal costs 0 0 0
0 0 0 1.9 Property acquisition agent fees 0 0 0
0 1.10 Miscellaneous other costs 0 0 0
2 Consultancy fees
0 0 0 2.1 Scope of services 0 0 0
0 0 0 2.2 Contract management 0 0 0
0 0 0 2.3 Investigation and reporting 0 0 0
0 0 0 2.4 Preliminary design drawings 0 0 0
0 0 0 2.5 Geotechnical testing schedule 0 0 0
0 0 0 2.6 Provisional sums 0 0 0
0 0 0 Base cost 0 0 0

Contingency 0 0 0
Expected out-turn cost 0 0 0


Project Name
Cost Report for Month Ending 31July 2002 D&PD
Value of
work this
month
Value of
work to
date
Remaining
project
commitment

total out-
turn cost
A B GB=D Design and project documentation E F E+F=G
0 0 0 1.1 Tendering costs 0 0 0
0 0 0 1.2 Consultation costs 0 0 0
0 0 0 1.3 Safety audit costs 0 0 0
0 0 0 1.4.1 Economics 0 0 0
0 0 0 1.4.2 Estimate 0 0 0
0 0 0 1.4.3 Other 0 0 0
0 0 0 1.5 Public relations costs 0 0 0
0 0 0 1.6 Legal costs 0 0 0
0 0 0 1.7 Property acquisition agent fees 0 0 0
0 1.8 Miscellaneous other costs 0 0 0
2 Consultancy fees
0 0 0 2.1 Scope of services 0 0 0
0 0 0 2.2 Contract management 0 0 0
0 0 0 2.3 Design and project documentation 0 0 0
0 0 0 2.4 Detailed design drawings 0 0 0
0 0 0 2.5 Geotechnical testing schedule 0 0 0
0 0 0 2.6 Provisional sums 0 0 0
0 0 0 Base cost 0 0 0

Contingency 0 0 0
Expected out-turn cost 0 0 0


Project Name
Cost Report for Month Ending 31July 2002
Construction
Value of
work this
month
Value of
work to
date
Remaining
project
commitment

total out-
turn cost
A B GB=D Construction E F E+F=G
0 0 0 1 MSQA, Transit managed costs and consent monitoring fees 0 0 0
0 0 0 2 Environmental compliance 0 0 0
0 0 0 3 Earthworks 0 0 0
0 0 0 4 Ground improvements 0 0 0
0 0 0 5 Drainage 0 0 0
0 0 0 6 Pavement and surfacing 0 0 0
0 0 0 7 Bridges 0 0 0
0 0 0 8 Retaining walls 0 0 0
0 0 0 9 Traffic services 0 0 0
0 0 0 10 Service relocations/protection 0 0 0
0 0 0 11 Landscaping 0 0 0
0 0 0 12 Traffic management and temporary works 0 0 0
0 0 0 13 Preliminary and general 0 0 0
0 0 0 14 Extraordinary construction costs 0 0 0
0 0 0 15 Dayworks 0 0 0
0 0 0 Base cost including dayworks 0 0 0

Contingency 0 0 0
Retentions held 0 Expected out-turn cost 0 0 0


Appendix H: Elemental Costings

Appendix H: 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.

Transit 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 SEPs (out-turn costs and estimates) will be
available to consultants engaged to undertake similar Transit commissions. The main
use of this elemental cost data will be in the preparation of estimates early in the
project life cycle, i.e. FE and 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 SEPs shall be
presented in the mandatory format shown in Appendix G. This format meets the data
collection requirements of the elemental costing system.

Transit has also evaluated the Benchmark Estimator software (a resource-based estimating
package) and concluded that it may be used by project managers to screen cost estimates
prepared by consultants. Transit will use Benchmark Estimator to prepare an FE estimate
for projects with an expected out-turn cost greater than $10 million. This estimate may then
be used for comparison with the estimate(s) prepared by the consultant. 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
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.


Transit Elemental Costing Model
Project Description
Provide the following project information:
a) Project name
b) Transit 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, etc ...
e) Project particulars, rural v. urban, terrain type, location, specific project information impacting on the unit costs of the above
elements
f) Details of all structures (e.g. span, superstructure type, foundation details)
g) Out-turn cost / tender cost (and reasons for difference, e.g. additional scope 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 (D&C, Alliance, M&V, LS, short listed)
j) Cost Indices (CI) at date of Composite Rates
Note items af are information required by the database user. Items gi include information required for analysis.

Item Description Quantity Unit Composite Rate Amount
1 Development (non-construction costs)
3

1.1 Investigation and reporting %
1.2 Detailed design %
1.3 MSQA %
Development Total
2 Construction
2.1 Environmental compliance km
2.2 Earthworks m
3

2.3 Ground improvements m
2

2.4 Drainage km
2.5 Pavement and surfacing m
2

2.6. Bridge(s) / structure (s) m
2

2.7 Retaining walls m
2

2.8 Traffic services km
2.9 Service relocations/protection km
2.10 Landscaping km
2.11 Traffic management km
Construction subtotal (excluding P&G)
2.12 Preliminaries and general %
Construction Total (Including P&G)

3
Development costs exclude land purchase. This information shall be obtained fromthe Transit Property Group.


3 Extraordinary project costs
3.1 Abnormal costs (to be detailed in full) %
Extraordinary Project Costs

Description Definitions
1 Development (non-construction costs)
1.1 Investigation and reporting:
planning and consents
iwi
designation preparation and lodgement (including hearings)
fees (designation, environment court)
legal costs (including environment court)
Mana Whenua, Waahui Tapu, Koiui and Mauri fees and costs
reviews and audits
geotechnical elements
survey elements
public relations
the consultants 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, Waahui Tapu, Koiui and Mauri fees and costs
professional fees (project management, risk management, value management, peer reviews)
legal
resource consent costs (including fees)
building consent costs
reviews and audits
public relations
contractors 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 consultants 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
2 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, silt fencing, etc
archaeological.
2.3 Ground improvements:
site decontamination
ground improvement (e.g. drainage blankets, wick drains, geotextiles)
geotechnical monitoring (inclinometers, piezometers etc.)
dewatering bores, buttress drains.
2.4 Drainage:
stormwater drainage and culverts including headwalls and chambers, 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, etc.)
sub-grade preparation
sub-base
base course
surfacing (chip seal, A/C, 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, graffiti
guard).
2.7 Retaining walls:
timber piled walling
concrete piled walling including ground anchors
gabion walling
crib walling
MSE walling
backfill behind retaining walls.
2.8 Traffic services:
barrier (median barrier and verge barrier)
pavement markings and markers
road signs, gantries
traffic signals
marker posts
lighting
emergency cross overs and phones
traffic communication services
2.9 Service relocations/protection:
Transit 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, 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
contractors 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 contractors design
project plans, quality assurance, traffic management plans, environmental management plans, programming and
reporting, consent fees, stakeholder management, health and safety, security management, contractors escrow
tender documents
escalation (where required to be included in tender price)
network maintenance
survey and setout.
3 Extraordinary project costs
Abnormal costs may include special items such as rock avalanche cover, tunnels, rail bridges, rail level crossings, mine hazard
mitigation etc. i.e. this item is for significant non-roading expenses.
Note: This itemis not for miscellaneous items.

Unit Definitions
1 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:
%
1.3 MSQA:
%
2 Construction
2.1 Environmental compliance:
Project length excluding side roads and accommodation works.
km
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 borrowmaterial 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.
m
3

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.
m
2


Unit Definitions
2.4 Drainage:
Note: For multi-laned projects the total lane kmshall also be recorded separately.
km
2.5 Pavement and surfacing:
Total m
2
of surfaced quantity width, for example width of seal or A/C multiplied by length (centre line of
carriageway).
m
2

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.
m
2

2.7 Retaining walls:
Total m
2
of exposed retaining wall surface area.
m
2

2.8 Traffic services:
km
2.9 Service relocations/protection:
km
2.10 Landscaping:
km
2.11 Traffic management:
For multi-laned projects the total lane kmshall also be recorded separately.
km
2.12 Preliminaries and general:
Percentage of construction cost excluding Preliminaries and General.
The amount entered in the quantity column shall be the Construction Total, excluding development items,
excluding Preliminaries and General Items and including Extraordinary Project Costs.
%
3 Extraordinary non construction costs
Percentage of construction cost including Preliminaries and General.
The amount entered in the quantity column shall be the Construction Total, excluding development items, including Preliminaries and
General Items.


Appendix I: Escalation Calculation Example

Appendix I: Escalation Calculation Example
Note: Method has been simplified to allow yearly estimates of escalation.

Information
Date of Estimate Preparation 30 November 2002
Expected Estimate (excluding escalation) $200M
95
th
percentile Estimate (excluding escalation) $225M
Estimated CI @ November 2002 2050
Actual CI @ J uly 2002 2035
Expected Completion Date 30 April 2005
95
th
percentile Completion Date 31 J anuary 2006

Expected Estimate Annual
Actual to date (to Nov 2002) $10M
Dec 2002 to end June 2003 $5M
July 2003 to end June 2004 $85M
July 2004 to end April 2005 $100M
Escalation Dec 02 to June 03
Cost: Dec 2002 to end June 2003 $ 5 M
Note: as this money will be spread throughout the years it could
be assumed that only half will attract escalation
0.5
$ 2.5 M
$ 185 M
$ 187.5 M
Months Dec 02 to June 03
3.5% I nflation
* 7/ 12* 3.5%
Escalation Total Dec 02 to June 03 $ 3.8 M
Escalation July 03 to June 04
Cost: July 03 to end June 04 + Escalation from Dec 02 to June 03$ 88.8 M
0.5
$ 44.4 M
$ 100 M
$ 144.4 M
Months Dec 02 to June 03 incl.
3.5% I nflation
* 3.5%
Escalation Total July 03 to June 04 $ 5.1 M
Escalation July 04 to April 05
Cost: July 04 to end April 05 + Escalation from July 03 to June 04
105.1
0.5
$ 52.55 M
$ 0 M
$ 52.55 M
Months July 04 to April 05
3.5% I nflation
* 10/ 12* 3.5%
Escalation Total July 04 to April 05 $ 1.5 M
Expected Estimate incl Escalation $ 210.4 M

Note: For escalation calculation, only 50 percent 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 Nov 2002) $10M
Dec 2002 to end June 2003 $5M
July 2005 to end Jan 2006 $50M
Escalation Dec 02to June 03
Cost: Dec 2002 to end June 2003 $ 5 M
Note: as this money will be spread throughout theyears it could
0.5
$ 2.5 M
Note: $75M + $85M + $50M $ 210 M
$ 212.5 M
Months Dec 02 to June03 incl.
3.5% Inflation
* 7 / 12 * 3.5%
Escalation Total Dec 02to June 03 $ 4.3 M
Escalation July 03to June 04
Cost: July 2003 to end June 2004 + Escalation fromDec 02 to June 03 $ 79.3 M
0.5
$ 39.65 M
Note: $85M + $50M $ 135 M
$ 174.65 M
Months Dec 02 to June03 incl.
3.5% Inflation
* 3.5%
Escalation Total July 03to June 04 $ 6.1 M
Escalation July 04to June 05
Cost: July 2004 to end June 2005 + Escalation fromJuly 03 to June 04 91.1
0.5
$ 45.55 M
Note: $50M $ 50 M
$ 95.55 M
Months July 04 to June05 incl.
3.5% Inflation
* 3.5%
Escalation Total July 04to June 05 $ 3.3 M
Escalation July 05to Jan 06
Cost: July 2005 to end Jan 2006 + Escalation fromJuly 04 to June 05 53.3
0.5
$ 26.65 M
$ 0 M
$ 26.65 M
Months July 05 to Jan 06 incl.
3.5% Inflation
* 7 / 12 * 3.5%
Escalation Total July 05to Jan 06 $ 0.5 M
95
th
percentile Estimate including Escalation $ 239.3 M

Note: For escalation calculation, only 50 percent 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.


Example calculations of using CI to discount project estimates
Estimate Prepared: 30 November 2002
Estimated CI: 2050
Expected Out-turn Cost: $200 million
95
th
percentile Estimate: $225 million

Economic Analysis: J uly 2002
Actual CI: 2020
Expected Out-turn Estimate (J uly 2002): 2020 / 2050 * $200M =$197.1M
95th percentile Out-turn Estimate (J uly 2002): 2020 / 2050 * $225M =$221.7M


Appendix J: Cost Escalation Indices

Appendix J: Cost Escalation Indices

Under Construction


Appendix K: Example Peer Review Form

Appendix K: Example Peer Review Form
Estimate Peer Review
Project Title:
Project No.: Transit Project Manager: Consultant Project Manager:
Estimate Originator: Verifier: Internal/External Review
Peer ReviewActivities Verifiers Initials Date
1 Project Documentation
receive documentation from project consultant
review above documentation

2 Defined Scope of Work
attend peer review briefing with project consultant and visit site
confirm scope of work is adequate defined
confirm scope of work has been fully translated into measured Schedule of
Quantities

3 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 Cost
Estimation manual (SM014)
comment on appropriateness of the Contingency and Funding risk allowances

4 Construction Methodology and Programme
review and comment on the appropriateness of the construction methodology
and programme

5 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

6 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

7 Cost Estimate Outputs
comment on the overall appropriateness of the Expected Estimate and 95
th

Percentile Estimate (are they Fit for Purpose?)

8 Peer Review Report
prepare and send a draft peer review report to the project consultant and send
a copy to the Transit Project Manager
meet with project consultant, discuss peer review report and attempt to
reconcile any differences of opinions/issues. Report informally to Transit
Project Manager
prepare and send a final report to the Transit Project Manager copying in the
project consultant


Appendix L: Cost Estimate External Peer Review Methodology

Appendix L: Cost Estimate External Peer Review Methodology
External peer reviews of both the Scheme Estimate and Design Estimate shall be undertaken
on Transit New Zealand (Transit) projects that have a construction cost estimate of between
$5 million and $50 million and on projects under $5 million if deemed necessary by the
Transit Project Manager and/or Project consultant.

Refer to the Transit 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 sub-consultant 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 the Cost Estimation Manual (SM014); and
Is fit for purpose, e.g. Represents a reasonable estimate of the Expected Final Out-
turn cost and 95
th
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 Transit New
Zealand:
Project Documentation
1. Receive the following documentation from the project consultant:
Cost Estimate report in accordance with SM014 (Refer Section 10 of the Manual)
Risk Register
Assessment/analysis (dependant on phase of project & construction cost review
clause 9.3 of the manual) of Contingency and Funding Risk including inputs and
outputs from the statistical analysis if applicable
Internal peer review of cost estimate (including Internal Peer Review checklist
Refer Appendix K in SM014)
Scheme Assessment and 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, e.g.
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)


2. Review the above documentation.
Defined Scope of Work
3. 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.

4. Confirm that the scope of work is adequately defined.

5. Confirm that the scope of work has been fully translated into the measured Schedule of
Quantities.
Assessment/Analysis of Risk
6. 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.

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

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

9. 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 the Cost
Estimation Manual (SM014).

12. Comment on the appropriateness of the Contingency and Funding Risk allowances
(include comment on the shape of the probability curve e.g. 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 e.g.
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, e.g. At the Scheme Estimate stage.
If the project included the construction of a major bridge, the Scheme Estimate
should be broken down into sub elements, (e.g. piles, piers, abutments, girders, deck,
etc) whereas;
The Scheme Estimate for bridges of a standard form on a major motorway project
may only be broken down into elements (e.g. 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,
e.g. Earthworks volumes, area of pavement, area of structures, etc.
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 shall apply to the
following sections of the Base Estimate:
Property Purchase;
Investigation and Reporting phase;
Design and Project Documentation phase; and
Construction (MSQA and Physical Works)

18. 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
19. Comment on the appropriateness of the Expected Estimate and 95
th
Percentile Estimate
(Are they Fit for Purpose?).
Project drivers that should be considered when confirming that the Cost Estimate is
Fit for Purpose are:
- Has the estimate been reduced/increased to meet a previous budget (the Transit
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 assessed/analysed to
produce an unnecessarily high 95
th
Percentile Estimate
Peer Review Report
20. The following has been prepared as a minimum requirement for reporting and the extent
of reports and the Transit Project Managers involvement in the peer review process will
be confirmed on a case by case basis by the Transit Project Manager.
Prepare and send a draft peer review report to the project consultant and send a copy
to the Transit Project Manager. This report shall include the following:
- List of documents reviewed
- Confirmation that the Peer Review has been undertaken in accordance with this
methodology
- Comments on each review step of the peer review and the appropriateness of the
th
Percentile Estimate
- Any other issues/concerns raised
- Recommendations to facilitate reconciliation with the project consultant

21. Meet with the Project consultant, discuss the peer review report and attempt to reconcile
any differences of opinions/issues. Report informally to the Transit Project Manager to
keep them informed regarding progress of the reconciliation process.

22. Prepare and send a final report to the Transit Project Manager copying in the Project
consultant. This report shall include the following:
Confirmation that the Peer Review has been undertaken in accordance with this
methodology
Confirmation that the Cost Estimate has been prepared in accordance with the Cost
Estimation Manual.
Comment on the appropriateness of the Expected Estimate and 95
th
Percentile
Estimate. Are they Fit for Purpose?
Any unresolved issues from the reconciliation process.

Appendix M: Transit Estimate Peer Reviewers and Industry
Experts

Appendix M: Transit Estimate Peer Reviewers and Industry
Experts
Transits current register of estimate peer reviewers and industry experts is held by Transits
Contract Coordinator (Email SM014@transit.govt.nz). A copy of the register current at the
manual issue date is included in this appendix for your information.

Estimate Peer Reviewers

Name Company

Name Company
Alex Mackenzie Opus International Consultants

GrahamHobman Works Infrastructure
Allan Ladlow Works Infrastructure

Hong Tan Opus International Consultants
Andrew Skerrett Beca Carter Hollings & Ferner

Ian Bond Bond CM
Andy Mallard Mallard Cooke

Keith Atkinson Opus International Consultants
Anthony Parsons GHD

Laurie Mcdonald Opus International Consultants
Brad Hayes BloxamBurnett & Olliver

Les McCracken McCracken Consulting
Chris Bremner Chris Bremner Advisors

Mark Flower Smithbridge NZ
David Beachen Meritec

Neill Beattie Beca Carter Hollings & Ferner
David Blackmore URS New Zealand

Neville L Graham Rider Hunt
David Gardiner Beca Carter Hollings & Ferner

Paul Clark Opus International Consultants
David Spriggs Montgomery Watson Harza

Peter Crosby Montgomery Watson Harza
Delvin G Hogg Rider Hunt

Robert MacDonald Robert MacDonald & Associates
Garry Hadfield Beca Carter Hollings & Ferner

Simon Hunt Opus International Consultants
Gerard Lieshout Beca Carter Hollings & Ferner

Wen Ming Teo W M Teo

Industry Experts

Name Company

Name Company
Anthony Parsons GHD

Mike Howat Fulton Hogan
Ian Bond Bond CM

Suppliers wishing to have their name included on the register require the following

Written endorsement from their Transit Regional Project Manager from the Transit
regional office where they propose to operate.
Provide Transits Contract Coordinator with their CV and up to 5 page submission
detailing their relevant experience, track record, technical skills & 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
Transits 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
Transits Cost Estimation Manual, August 2002 (or subsequent amendments).

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 contractors tenders or
consultant construction estimates within the last three years;
Completed Transits web based training on Transits cost estimation manual within the
last 3 years.
Have the endorsement of Transits Regional Project 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,


Applicant (Name) Transit Regional Project Manager
Endorsement (Name)

Professional Qualification(s) MIPENZ ANZIQS 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 3 4-5 5-10 10-20 20+

$5-10m low risk $10-50m low risk $50+m low risk
$5-10m Medium risk $10-50m Medium risk $50+m Medium risk
Areas of Estimating Expertise
and Risk (circle as many as appropriate,
minimum 1 estimates must have been
completed in each area claimed within the
last 3 years)
$5-10m High risk $10-50m High risk $50+m High risk

Transit Web Training stages
completed within last 3 years
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7


Appendix N: Parallel Estimate Methodology

Appendix N: Parallel Estimate Methodology

Purpose
The purpose of this paper is to establish the role and methodology of the Industry Expert
(IE) within the context of Transits business processes
Mandate
The Industry Experts role is established under the Cost Estimation Manual SM014 which is
mandatory across Transits 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 ant any point, but particularly at the
scheme estimated stage of its developmental delivery cycle.
Objectives
The overall objective is to establish a high level of confidence in a projects out-turn cost as
estimated at the Scheme Estimate stage through:
1) Establishing confidence in the definition of the full extent of the scope;
2) Gaining confidence in the schedule of quantities, (item coverage, rates and quantities);
3) Establishing confidence in the proposed construction methodology and programme;
4) Gaining confidence that the design represents best value for money;
5) Gaining confidence that the risk register is robust and comprehensive, takes full
cognisance of the scope (e.g. design development risks), includes both risks (downside)
and opportunities (upside), and that the identified risks are quantified for consequence
and likelihood of occurrence; and
6) Provide increased confidence that all residual risks are identified, quantified and valued
appropriately and subsequently analysed to achieve 95% confidence.

By meeting this objective Transit will be able to:
(a) Undertake optimal 10 year programming; and
(b) Meet Transits performance requirements with respect to out-turn costs against CE, DE
and SEs.

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
Experts 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).
Protocols
An Industry Expert (IE) will be appointed for each project by Transit to undertake the
Parallel Estimate. Parallel Estimates shall be prepared for all Scheme Estimates (SEs)
prepared during the I & R phase of the project that have a construction phase estimate
(excluding escalation, including MSQA and Transit costs) exceeding $50million, and at
other stages as deemed appropriate by Transits Project Manager in accordance with the
procedures set out in SM014.

The IE will be appointed at the time the preferred scheme is selected. The IE shall then
work in parallel with the consultant until the SE is prepared.

The Consultant will brief the IE on an as-required basis to provide an appropriate level of
understanding of the project.

TheIE 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 IE shall report to the Consultant responsible for the contract, and copy to Transits
project manager

TheIE shall attend regular briefings by the Consultant and selected workshops (e.g. design
development and review; value engineering; risk identification and assessment) either as
observers or participants (as agreed) to gain the necessary level of understanding of key
project issues but excluding discussions on project cost related matters other than as
specifically established in this methodology.

Transits Contract Coordinator shall be present at the initial briefing of theIE by the project
team, and attend price exchanges and reconciliation and generally have an overview of the
process

The IE shall have access to all relevant construction and contract related material for the
purpose of understanding the project

TheIE shall operate from an office separate from the Consultant
Industry Experts Output
An all risk inclusive out-turn cost estimate of a project. The estimate shall include:
1. Design costs
2. MSQA costs,
3. Construction costs (including allowance for the constructors onsite overhead costs
(P&G costs) and offsite overhead costs and profit (contractors margin), and a
4. Contingency provision for the risks (including the opportunities), which shall be readily
identifiable.


Two out-turn cost estimates shall be provided - the Expected Estimate and the 95
th
percentile
Estimate as defined in Transits Cost Estimation Manual (SM014).

The estimates shall exclude escalation provision unless specifically instructed otherwise by
the Transit project manager
Design Estimate (DE)
In theory the IE 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 IE 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 Transit
escalation formula and appropriate indices.

While Transit migrates to full compliance with the Cost Estimation Manual there will be
cases where the DE is confirmed via the parallel estimating process of the IE. The
objectives of the process remain unchanged except as noted below:
(a) The level of detail supporting the estimate and the Industry Experts work will be
greater, probably resulting in a greater time input by he IE.
(b) The IE may be drawn into discussions on buildability where this is deemed
appropriate; and
(c) The IE will be required to complete a fee estimate of their cost and time to
undertaking the IE role.
(d) The IE may also be engaged to carry out tasks not identified in the IE parallel estimate
methodology but which the IE and Transit project manager agree are within the ability
of the IE 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 Transit 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 (e.g. DEs) will need to be customised to suit the specific objectives and
requirements at that time.

This methodology shall be customised jointly by the IE and Consultant to suit the specific
needs of the project and its acceptance signed off by both parties and the Transit Project
Manager.

A Parallel Estimate will be undertaken in three phases
Preliminary;
Independent; and
Reconciliation.

Preliminary Phase
1) The Consultant will provide the IE 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 IE at which time
it will be frozen and any changes dealt with by adjustment at the reconciliation
meeting. Typically it would include:
a) Drawings and specifications for the works;
b) Schedules of quantities and any build-up of the quantities as would assist the IE 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, timeline-based work
programme,
e) Outline plans and AEE prepared in conjunction with a resource consent application,
and any resource consent conditions if and when available
f) Construction methodology plans and reports including the likes of earthworks
mass/hauls; temporary traffic management plans, temporary works planning, and
time-line programmes showing the subsequent D & DP phase, tender process, and
construction phase.
g) Market pricing if obtained for specialist or cost critical items such as abnormal pipe
supply, specialist technical supply e.g. post tensioning, soil nailing, wick drains etc
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 IE in gaining
a sufficient understanding of the project without compromising the independence of
the cost estimating process.
i) Photos including aerial photos with the project outline overlaid.

2) The general structure and basis of establishing the IEs and Consultants cost estimates
is to discussed and agreed between the Consultant and IE to ensure that the estimating
methodologies employed are appropriate, and to ensure that the Industry Expert and
consultants estimates can be directly compared during the reconciliation phase. For
example, there needs to be a clear understanding of the composition of the P&G, 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 contractors onsite overhead, offsite overhead and
profit provisions are to be incorporated in the estimate. The Consultant and IE may
adopt different methodologies for pricing individual work items (rating based on
historical rates versus first principles build-up).

3) In general, the project design does not require being peer reviewed as part of the IE
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
IE and Transits Project Manager. These could relate to the likes of:
a) Assisting in assessing and evaluating the risk profile for the works in relation to
work scope, design adequacy and detail, scope definition;
b) Input into Value Engineering exercises on key components of the works (e.g. a major
structure)
c) Estimation of the MSQA costs for input into the IEs Expected Estimate (EE).

4) The IE 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 IE will base their SE on their own assessments that may or may not
correspond with those of the Consultant.

5) The IE will review the scope of the proposed works, and confirm with Transit Project
Manager that it fully satisfies their expectations.

6) The IE must then check that the Schedule of Quantities (SoQ) accurately reflects the
intended work scope, and how risks and contingencies are managed within the SoQ.
Detailed take-offs and worksheets backing up the SoQ for the likes of earthworks by
material classification, concrete, formwork, re-steel, etc. will be made available to the
IE. A random audit of the quantities for high risk/high cost items should be undertaken,
and the method of measurement and basis of payment reviewed and commented on. In
addition the composition of the P&G section of the SoQ shall be reconciled with the
consultant.

7) All scoping documentation, briefs etc issued by the Consultant to utility companies and
the corresponding cost estimates received in response will be provided to the IE.
Random verification should be undertaken of key items.

8) Transit will provide the IE the amount to be included in the parallel estimate for the
Transit Managed Costs as defined in SM014.

9) The IE shall review the robustness and completeness of the consultants risk allowance
(as set out in the project risk register), the consultant shall provide the project risk
register to the Industry Expert (excluding risk amounts, and probabilities of occurrence,
consequences and valuations).

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
1) The IE will independently develop and value the EE on the basis set out above.

2) The IEs 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 Transit.
3) The IE shall estimate items within the P&G section from first principles based on the
agreed work programme, with each item composition having been agreed between the
IE and Consultant during the Preliminary Phase.
4) The IE will independently estimate the cost of subsequent design and MSQA phases. If
required, an independent design consultant experienced with Transit roading projects
may be used to assist with this but shall be subject to prior discussion and approval from
the Transit project manager.
5) The IE shall independently review the risk register to determine an appropriate level of
risk. Using the consultants risk register as a reference, the IE shall independently
establish a risk profile (register), and evaluate the risk contingency provision to be
included in the estimate. TheIE is free to add too, or amend the risk schedule provided
by the consultant.

Transit requires the quantification of two project out-turn costs the first is to be inclusive
of the Mean Risk Contingency Provision (Expected Estimate) and the second inclusive of
the 95
th
percentile Risk Contingency Provision (95
th
percentile Estimate). The @Risk
software programme (or similar) may be used for this purpose in conjunction with the
Industry Experts professional judgement to arrive at the risk contingency provisions to be
included in the Expected and 95
th
percentile Estimates. The assessment of these risk
contingency provisions must take into account the allocation of the risk (between Transit
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
1) The IE, Consultant and Transits Project Manager will meet at a predetermined date and
time to exchange their summary schedules of the EE.
2) Transits 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 Transits Project
Manager.
3) The Consultant is responsible for compiling a report to Transit 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.

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Cost Estimation Manual Manual Number SM014

Issue 2 June 2003 Printed 17/06/03

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