Costs and value
What does a cost plan for a home project contain?
Short answer
A cost plan is a structured estimate of what a project will cost, prepared before any contractor has priced it. The RICS standard for it, NRM 1, divides the total into separate parts: facilitating works, the building works, the main contractor's preliminaries, overheads and profit, project and design team fees, other project costs, risk allowances and inflation. VAT is assessed separately, and the report must say what is included and what is left out.
At the start it is an order of cost estimate: a floor area multiplied by a cost per square metre, with the other parts added. As the design develops it becomes an elemental cost plan, priced element by element. Neither is a tender. A tender is a contractor's offer to carry out defined work for a price.
The parts, in the order NRM 1 builds them
NRM 1 (3rd edition, effective from 1 December 2021) sets out the constituents of an order of cost estimate as a running sum. On a home project they come out like this.
| Part | What it covers on a house extension or renovation |
|---|---|
| Facilitating works | Work needed before building can start: demolition, removal of asbestos or other hazardous materials |
| Building works | The new and altered building, by element: substructure, frame and walls, roof, windows and doors, stairs, internal finishes, fittings, services, work to the existing building, external works and drainage |
| Main contractor's preliminaries | The cost of running the site: management, scaffolding, welfare, temporary protection, skips |
| Main contractor's overheads and profit | The contractor's business costs and margin |
| Project and design team fees | Design, structural engineering, surveys, the principal designer roles, cost advice |
| Other project costs | Costs that are part of the project but not the works or fees, for example planning fees, party wall costs, insurances and the cost of moving out during the works |
| Risk allowances | Design development risks, construction risks, client change risks and other client risks, each assessed separately |
| Inflation | Tender inflation to the date tenders come back, then construction inflation to the mid-point of the build |
| VAT assessment | Shown separately. NRM 1 recommends VAT is excluded from the estimate and that specialist advice is taken on the rates |
The sum of the first six parts is what NRM 1 calls the base cost estimate, and it carries no allowance for risk or inflation. Risk and inflation are added on top to reach the cost limit. Keeping them visible stops them being buried in the rates, where nobody can see them being spent.
Exclusions are part of the plan
NRM 1 section 2.19 says items included or excluded should be clearly communicated to the client, and lists a statement of inclusions and exclusions among the contents of the report. On a home project, check where these sit: loose furniture, appliances, landscaping beyond the immediate works, finance costs, and anything that depends on surveys not yet done. An exclusion is not a saving. It is a cost you will meet from another budget, so it needs a line of its own in your own figures.
Order of cost estimate, cost plan and tender
These three are often called "the price". They are different things, produced at different times with different information.
| Order of cost estimate | Elemental cost plan | Tender | |
|---|---|---|---|
| When | Before design, or at the start of it | As the design develops | Once the construction information is complete |
| Basis | Floor area times a cost per m2, plus the other parts | Quantities measured from drawings, priced per element | The contractor's own pricing of the drawings, specification and schedule of works |
| Who produces it | The cost consultant or design team | The cost consultant or design team | Each contractor invited to price |
| What it is for | Testing whether the project is affordable and setting a cost limit | Keeping the design inside the cost limit | Choosing a contractor and fixing the contract sum |
NRM 1 places the order of cost estimate at stages 0 and 1 of the RIBA Plan of Work 2020, and formal cost plans at stages 2, 3 and 4. Each formal cost plan develops the previous one, and changes should be reconciled and explained, including any transfers into or out of the risk allowances. The tender then tests the plan against the market. How to run that step is in how to tender building work.
Why a good estimate gives a range
Early in a project much of what drives cost is still unknown: the ground, the condition of the existing structure, the level of finish you will choose, and the market at the date of tender. NRM 1 says the risk allowance at the earliest stages can be a significant percentage of the estimate, falling to zero once the accounts are settled. It also recommends that risk allowances are assessed for the project, not applied as a standard percentage.
The RICS professional standard on cost prediction (1st edition, effective from 1 July 2021) says that "initially, ranges should be used". A single figure at concept stage suggests a certainty that does not exist. A range, with a statement of what would move the figure up or down, tells you more: where the uncertainty sits and what would narrow it, such as a measured survey, a structural engineer's early view or a trial pit.
How much to hold back for the unknowns is covered in contingency. The fees that sit inside the plan are set out in design and professional fees, and the VAT treatment in VAT on building work.
What this means for you
Ask for the estimate in this structure, with the exclusions listed and the risk and inflation allowances shown as separate lines. Check the date the rates were current (NRM 1 calls it the estimate base date) and how inflation was carried forward from it. Treat the low end of any range as the figure that only holds if nothing goes wrong.