Comparative Appraisal of BOQ and other Engineering …niqs.org.ng/wp-content/uploads/2015/08/PAPER-2.docx · Web viewComparative Appraisal of BOQ and other Engineering Cost Model

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Comparative Appraisal of BOQ and other Engineering Cost Model in the Costing of Engineering Project in NigeriaIbrahim Sadiq Itopa, B.Tech (Hons) QS, MNSE, RQS,

File Photo: A Model View of Eko Atlantic Project, Lagos –Nigeria

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Comparative Appraisal of BOQ and other Engineering Cost Model in the Costing of Engineering Project in Nigeria

Project appraisal is the process of assessing, in a structured way, the case for proceeding with a project or proposal by effort of calculating a project's viability. It often involves comparing various options, using economic appraisal or some other decision analysis technique. This paper thus appraises usage of Bill of Quantities and other Engineering Cost Model in the Costing of Engineering Project in Nigeria.Key Words. Appraisal; Projects Viability; Cost Model

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An aerial photograph of a Concrete Jetty and Shore line Protection works (sheet piling) at Federal Polytechnic Ekowe, Bayelsa State. Take note of the Main wall and the anchorage wall being connected by rods to resist shear water pressure of River Nun.

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Bills of Quantities, the Foundation of Cost Modelling for InfrastructuresGenerality of the world uses the Bills of Quantities for Procurement because Bills of Quantities (BOQ) are prepared to provide an extensive and itemised trade list, including a description and quantity, of each of the components or items required for a construction project according to the rules defined in Standard Method of Measurement (BESMM or CESMM). It saves considerable time and cost of several contractors measuring the same design in order to calculate their bids for competition; others are: It provides a consistent basis for obtaining competitive

tenders; It provides an extensive and clear statement of the work to

be executed; It provides a very strong basis for budgetary control and

accurate cost reporting of the contract including; interim 3

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payments; cash flow forecasts and basis for valuing variations.

It allows, when BOQ items are codified, reconciliation and any necessary transfers and adjustments to be made to the cost plan;

When priced, it provides data to support claims for grants; It provides one of the best sources of real-time cost data,

which can be used for estimating the cost of future Building and Infrastructure Works

Pricing of QuantitiesPricing of different items of work are done on the basis of the cost of materials, equipment, labour, and overheads and profit. Materials costs are calculated by examining the material quotations received from suppliers, applying appropriate wastage factors, and delivery charges while equipment cost is calculated usually as a percentage of the cost of materials. Depending on whether the equipment is owned or rented, this percentage will vary.4

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Labour, the Most Difficult Element to Price.Most of the times, it is not sufficient to rely on published standard rates. Allowances for absences due to sickness, loss of time due to inclement weather, overtime, etc. are required to be built in to arrive at a pragmatic all-inclusive labour rate. Rate of productivity is another factor that plays an important role in fixing labour prices

The breakdown of materials, equipment, and labour prices may be in some cases manipulated to get the maximum percentage profit from any changes instructed by the client.

Example 1.1:o Assume that N500 was the accepted labour rate and 10

percent was the accepted overhead and profit rate for an item of work. The materials cost was accepted to be N6500. The total item rate (assuming that there was no equipment cost involved), therefore, was N7, 700; (N500+N6500) *1.10} per unit. Now if a change in

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material specification is ordered by the client, and if cost of newly specified material is N8000, then the item rate would be N9,350 {(N500+N8000)*1.10} per unit.

Assume the total amount of labour envisaged to complete a certain item of work is N240,000. The Bills of Quantities indicate that labour cost (including the cost of all types of labour) per hour for the work is N240. In that case the total time required to complete the work will be 1,000 hours. If we allow 40 hours per week, then total duration of the work would be 25 weeks. By this analysis, the profit margin can also be increased by providing incentive to the labour forces. Rate of an item is usually based on the theoretical productivity of the trade workers. Assume that an increase of 10 per cent on labour rates increases the productivity of labour thereby reducing an item of work that requires 1,000 hours to be completed to about 835 hours. Assume that the original labour cost was envisaged to be N240, 000 @N240 per hour. With an increase of 10 per cent, the new labour cost

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would be (240*1.10) =N264 per hour, but the total labour cost would be reduced to (835*264) = N 220,440. Overheads and profit: Once the cost of materials, equipment, and labour has been added up, a percentage for overhead and profit is added to the item rate. This percentage may vary from project to project. It may range from 2.5 to over 25 percent.

Once the pricing of all individual items for all trades is completed, the amounts are carried to a summary page to indicate the total bid price.

Types of Bills of Quantities Firm (fully designed Building and Infrastructure Works) Approximate (subject to re measurement as built)Firm Bills of QuantitiesThe reliability of the tender price will increase in relation to the accuracy of the quantities provided (i.e. the more 7

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precisely the work is measured and described). Provided there were no design changes, then firm Bills of quantities would provide a price at tender stage, which would equal the final cost. However, if there will be changes, the Bills of Quantities provides a good basis for cost control, since the direct cost can be assessed with reference to the Bills of Quantities rates. In general the firmer the Bills of quantities the better it is as a means of financial control.Approximate Bills of QuantitiesQuantity Surveyors can produce approximate Bills of quantities which are mainly used when there are insufficient details to prepare firm Bills of Quantities or where the client has decided that the time and cost of a firm Bills of Quantities is not warranted.

Composition of Bills of QuantitiesThe Bills of Quantities include the following main sections:

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Form of Tender (including certificate of bona fide tender) Summary (or Main Summary) Preliminaries, comprising two main section as follows:

- Information and requirements; and - Pricing schedule Measured works Risks; Provisional sums; Dayworks (Provisional); and Annexes

The Bills of Quantities and Cost Modelling The traditional way of Costing and cost modelling that derive its route from Bills of Quantities are floor area, elemental estimate, and cubic method. Estimates can be viewed as a prediction of the final values of project cost (or duration, if 9

The World Most Expensive and Largest Civil Engineering Project, 273Km Long Nicaragua Canal; Estimated to Cost $40.0 Billion- to Link Caribbean Sea and Pacific Ocean, rivalling Panama Canal

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time is the parameter being estimated) once the project is fully implemented. Estimates should be credible, accurate and complete. Completeness means they should include all necessities. Estimating models depend on a) the estimator’s experience; b) the available project data in developing a prediction of a project’s final cost. A single person cannot have the required skills required in engineering infrastructural design, finances, IT systems, manufacturing, duties and taxes, purchasing, contracting and so forth. It thus implied that costing of engineering infrastructure needs to be a collaborative works amongst the professionals.

BEME, a divergent form of BOQ

Procurement of Engineering Infrastructure works today in Nigeria uses Bills of Engineering Measurement and Evaluation (BEME). While BEME is not used anywhere else in the world, it was mentioned in the Standard Bidding Document issued by the Bureau of Procurement (BPP).10

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Though one is not in doubt about the competence of an Engineer in measurement and costing of Infrastructure works once they acquired requisite training, the high cost of Infrastructure works in Nigeria call to question it continue usage

Why Comparative appraisal of BOQ and other Engineering Cost Models?Construction works are with serious risks from inception to completion. However, risks are high at inception but decline as the project draw to a close. Thus, inaccuracy of cost estimate and if the project is carried out under conditions of uncertainty due to inadequate knowledge of current existing costs that could leads to a set of difficulties hindering. the smooth progress of the project. It should be noted that the 11

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seldom non-usage of established standard rules of carrying out measurement and costing for procurement of Engineering Infrastructure as applicable worldwide are part of the causes of extraneous cost of Engineering Projects we are witnessing in Nigeria.

GENERAL METHOD OF COST MODEL APPLICABLE TO COSTING OF ENGINEERING PROJECTSThe general method of Cost Model for Infrastructural Project are analytical method, analogous, parametric and conceptual differentiated mainly by the level of precision that is desired in the results.However only analytical, analogous, parametric methods are discussed here:• Table 1.10.- The analytical method12

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The Analytical Method

It requires very detailed information on the product to encode and on its development process. In its most complex form, it decomposes each activity into elementary tasks where the time is known. This method makes it possible to calculate the actual cost of past achievements and to build up a data bank. The BOQ is a typical example.

Table 1.11- The AnalogyAnalogous The analogy method of cost estimating functions by

comparing the proposed project to previously similar completed projects where the cost and the functional definition are known. The principle of this method is to implement an extrapolation of similar cases (source case) and of present case (target case). Cost per units of measured items or extrapolation based on the normal X-Y graph gradients

Normalization techniques: Normalization is a key concept in cost estimating that refers to the use, separately or simultaneously, of three adjustment factors: time, location 13

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and capacity in cost model while applying analogous form.Time: Time-wise normalisation refers to the use of indexes. An index1 is a dimensionless number that indicates how a cost or a price has changed with time (escalated or reduced) with respect to a base year.

1. See Central Bank of Nigeria and National Bureau of Statistics Publications.

Adjusting for time is also commonly done using average values of inflation rate. Assuming the cost of an object in a year k is known, and there is an average inflation rate I between year k and a subsequent year n, the cost at year n can be estimated as follows: Cn = Ck (1 + I)Table 1.12- Inflation Index

YEARYr.

1996Yr.

1997Yr.

1998Yr.

1999 Yr. 2000 Yr. 2001

Yr. 2002

Yr. 2003

Yr. 2004 Yr. 2005

CBN Inflation Index in % 29.30 8.50 10.00 6.60 6.90 18.90 12.90 14.00 15.00 17.90

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Analogous Cost Model Using Inflation

Index =N= Million 10.00

12.93

14.03

15.43

16.45

17.59

20.91

23.61

26.91 30.95

YEARYr.

2005Yr.

2006Yr.

2007Yr.

2008 Yr. 2009 Yr. 2010

Yr. 2011

Yr. 2012

Yr. 2013 Yr. 2014

CBN Inflation Index in % 17.90 15.02 5.40 11.60 11.50 13.90 10.80 12.20 8.70 7.5

Analogous Cost Model Using Inflation

Index =N= Million 30.95

36.49

41.97

46.17

53.09

59.25

67.25

71.69

77.07 82.85

Example 1.2Adjusting for location: Where Costs are established or computed for international average, cost of a particular Engineering Project is simply multiplied by the location factor to determine the cost in a particular location, as illustrated in Equation 4.3

Cost location = Base cost x Location factor

Assuming an average cost of for a Refinery in the U.S with 15

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capacity to refine 800,000 litres of gasoline per day (Maximum Output) is $900 million, and a location factor of 1.3 for Nigeria. Then construction of Refinery of similar nature in Nigeria would cost in the order of $900 million (1.3) = $1.17Billion.

Table 1.13- The Parametric

Parametric

This is purely a statistical method where the development of cost estimation formula is complex and requires an expert experienced in statistical calculation. The Means or average; Variance, Range, Population etc in a sample data.

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INDUSTRY TREND AND PROJECTED COST ESCALATIONThe cost of Materials including wastes; Plants; labour; Profits and overhead are expected to be current with industry trends and projected escalation. Model design need to take into account the effect of changes that may occur in the project life span amongst those key elements. This implies whichever route we followed in cost modeling for Infrastructural projects, the fundamental elements of cost remain as mentioned.

WEIGHTED AVERAGE IN COST MODELLING

The essence of weighting average is to create a balance in Cost Model preliminary estimate, details estimate; feasibility & viability study, cost benefit analysis and project cost reporting. We have a circumstance where a project was said to have attained 90% completion, where as it is not a true reflection of project completion level.17

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Example 1.3- A Quantity Surveyor constructed a Cost Model for Engineering Infrastructure for a Housing Estate in Okene, Kogi State that cost N21 Billion and he arrived at the following result where the final cost is determined based on the following categories: Road Works/Parking- 40%, Electrical Supply -25%, Drainages/Sewages System/Water Supply- 25%, and Fencing/Landscape- 10%. The Project was completed as follows: Road Works/Parking-83%, Electricity Supply- 75%, Drainages/Sewages System/Water Supply -90%, and Fencing/Landscape -100%. We need to calculate the % completion of the project in other send a report to the executing agency. Each category value must first be multiplied by its percentage. Then all of these new values must be added together. We must multiply the average by the % that the costs are worth toward the final cost. Thus, the overall calculation would be (83 * .40) + (75 * .25) + (90 * .25) + (100 * .10) = 33.2 + 18.75 + 22.5 + 10 = 84.45 or 85% if rounded up. 18

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FOREIGN AND LOCAL COSTS IMPLICATION ON COST MODELLINGThe cost of infrastructure works contained local cost of a project and the foreign component that required specialise approach. This aspect affect cost of most Engineering project in Nigeria such as in construction of Refineries, Power Stations, Rail line, high rise buildings etc. Funds in local currency are required for the purchase of locally produced items while funds in foreign exchange will be required for

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partial payments to contractors and for the import of goods and services.

Factors and parameter needed for project delivery in Nigeria that has foreign component as shown in table 1.14 could be used to safeguard project failure and should be integrated at planning as they represent known risks.Table 1.14

S/No

Key Questions Remarks

1 How Much Will it Cost and what is the exchange rate now to other international There is hardly any Engineering

Infrastructure Project in Nigeria whose 20

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currencies. What would be the exchange rate in 2-5 years time/project duration?

foreign component does not result in additional cost. See CBN exchange rate for over two decades to date

2 How Will it Be Funded over the next couple of years of the project duration?

Funding is a Serious Challenge

COST MODELLING OF FOREIGN COMPONENT IN ENGINEERING CONTRACT (where applicable) Table 1.15 ASSUMED CONTRACT SUM N 25,565,098,800.00 BIILION

Assumed Date of

Valuation Payment by

Client

Payment Value 70% of foreign Component Exchange

Rate Tied to the Contract

Payment Date CBN Exchange Rate

Dollar Equivalent of Payment Due @151/ USD

Payment Value @

Current USD Difference

Naira Equivalent to be added in the

Valuation

A B C D E F G H J

4/12/2012 6,800,000,000 4,760,000,000 N 151.00 N 155.26 $ 31,523,179 $30,658,251 $ 864,928 130,604,147.88

                 17/06/2013 3,268,152,300 N 151.00 N 155.26 $ 21,643,393 $21,049,545 $ 593,848 89,671,060.14

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4,668,789,000                  

11/12/2013 2,758,900,890 1,931,230,623 N 151.00 N 155.23 $ 12,789,607 $12,441,091 $ 348,515 52,625,816.76

7/7/2014 4,560,590,981 3,192,413,686 N 151.00 N 155.23 $ 21,141,812 $20,565,700 $ 576,112 86,992,913.05

14/10/2014 3,678,654,785 2,575,058,350 N 151.00 N 155.26 $ 17,053,367 $16,585,459 $ 467,908 70,654,054.93

15/05/2015 4,678,906,545 3,275,234,582 N 151.00 N 196.50 $ 21,690,295 $16,667,860 $ 5,022,435 758,387,651.19

X1 27,145,842,201           X1 1,188,935,643.96

It is reasonably assumed that variation/additional works takes place, during the construction works, thus total payment of work done stood at N27,145,842,201.00 and an addition of N1,188,935,643.96 for cost different for foreign component. Total Cost of the Project now stood at the sum of N28,334,777,845 .00 after all additions.

The essence of this demo is to assist in cost projection for project with long construction duration and better planning. Based on Central Bank of Nigeria official exchange rate of the 22

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past and ‘Standard and Poor’ Naira devaluation predictions and extrapolation can be made for foreign component in project as we engaged in Cost Model.

BUILDING INFORMATION MODELLING – THE JOURNEY FROM 2D TO 3D, 4D AND 5DThe 3D Models or Images allows everyone involve in the project better understanding of Engineering Infrastructure as it visualisation or coming live before their eyes would be more than just a pretty picture. While 4D BIM integrates time or schedule related information into the 3D BIM model, 5D BIM adds the cost dimension

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5D in Building Information Modeling (BIM) is a concept that refers to the linking of 3D BIM (Geometry) with time and cost related information. While 4D BIM integrates time or schedule related information into the 3D BIM model, 5D BIM adds the cost dimension.

How 5D BIM Benefits Construction Companies5D BIM incorporates the cost estimation ability to the BIM model in such a way that any change in the design gets reflected in the budget immediately. In other words, the 5D model enables architects, contractors, and engineers to work on a live model, which ensures that cost calculations are changed automatically whenever any change is brought to the structure and design of the project.

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Owners and decision makers of a construction company can use 5D BIM to their advantage by:

Building a database of cost and pricing, crew composition, and labour productivity rates.

Getting cost-loaded schedules, detailed analysis of project risks, and accurate cash flow forecasts.

Seeing how a change in the project’s design would influence the budget and scheduling of the project.

Taking more informed decisions by comparing multiple cost estimates with the project’s target cost.

Seeing which areas of the building are adding to the total costs and how.

With easy access to detailed information about costs and schedules, 5D BIM takes the efficiency of a construction team to the next level. With the effective use of 5D in BIM, owners, contractors, engineers, and all other members associated with the project can work collaboratively to achieve timely delivery, cost efficiency, and quality. While the application of 25

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5D BIM is still in its infancy, experts believe that 5D in BIM is all set to bring a paradigm shift in the construction process by improving functionality and providing tools to estimate costs more accurately throughout the lifecycle of a project.A model can be more than just a pretty picture. The 3D visualization allows project stakeholders to better understand the building as it comes alive before their eyes. 

The Red Flag

It is known fact that Crude oil resources account for over 75% of our national income (Largely Mono-Economy). In recent time oil prices have plummeted. This has put serious strain on our economic resources. Another shock wave that may occur soon is the nuclear deal with Iran and Six World powers in mid July 2015 that would enable Iran to pump more crude oil into the International Market26

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Our population is loaming large as well. ‘The population of Nigeria has been projected to hit 440 million by mid-2050 and 240 million by mid-2025’.- Punch Newspaper NOVEMBER 17, 2013. Inadvertently, provisions of infrastructure remain primal. “Infrastructure offers significant opportunities for long-term investors, even in a time of global crisis. It is important both for economic and long-term development”. – World Bank Effect of Fall in Oil Price and Naira Devaluation 1 on Provision of Infrastructures in Nigeria Fig. 1.16

Engineering Projects such as roads/bridges including their maintenance, Electricity Generation and Supply, Rail line including their maintenance in Nigeria took a huge chunk of 27

Significant Increase in Cost/Budget cut for Infrastructural and Projects

Increase in Tarrif (VAT & Taxes) Increase in Gov’t Borrowing .

Decline in Gov’t Revenue, Budgetary Constrain & Decrease in spending

Declining oil Prices & Continue Population growth at rate of as projected

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our capital expenditure because of their sizes and complexities.

1. Standard & Poor’s (S&P), a global ratings agency, yesterday stated that the Central Bank of Nigeria (CBN) would have to devalue the naira at some stage, possibly by more than 15 per cent. Thisday Newspaper, July 16th 2015

While Abuja 2nd runway project was cancelled after a public outcry because of its huge cost in comparison with other known airport runways, another project that required the attention of professional in the built environment is the famous East West road project that is expected to ease traffic movement in the East West Corridor.Table 1.17

Engineering Infrastructure: East West Road Dualisation Project in Billion Naira

Sections of The Dual Carriage Highway )

Original Award Sum

Post Award Review Additional Percentage Increase

87Km- Warri-Kaiama 64.00 112.00 48.00 75%

65Km -Port Harcourt-Ahoada, 29.9 48 18.10 61%36Km - Ahoada - Kaiama 44 84 40.00 91%Total 137.90 244.00 106.10 75%

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An average of 75% increase on Cost of the Project is quite alarming. And this is typical example of cost of Engineering Infrastructure in Nigeria.

Though government came up with various justifications for the review, we felt that a more thorough job should have been done from the unset, because the parameter for the road design and costing should have been known as the dualisation works largely followed the existing single lane.

ConclusionComparative Appraisal of BOQ and other Engineering Cost Model in the Costing of Engineering Project in Nigeria has summarily been presented. Though there existed a divergent form of Bills of Quantities adopted by others for procurement of Infrastructure projects which are not in line with what is obtainable globally.

The IMF is coordinating a global standardization of measurements and costing by recently setting up the 29

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International Construction Measurement Standards (ICMS). The NIQS has already subscribed to it and we are represented in the Board of Trustees and in the Standard Setting Committee.

Our hope is that the divergence would fissile out in no distant time.

Thanks for Listening

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References:

Agele, J., A. (2012) Adoption of Building Information Modelling and Nigeria’s Quest for Project Cost Management FIG Working Week 2012

B P P ( 2 0 1 1 ) S t a n d a r d B i d d i n g D o c u m e n t for the Procurement o f Wo rksCommon Wealth of Massachusetts (2006) Consultants Estimating Manual

Charles, M. (2010 ) Cost Engineering Practice in 21st Century Nigeria-2010 Annual Conference of NSE

Ivor, H.,S & Roger W. (2005) Building Quantities Explained- Fifth Edition

Journal of Construction Engineering; (2003) Assessment of the Accuracy of Quantity Surveyor’ Preliminary Estimates in Nigeria -Henry A., O., Ade, Y., Available from: http://www.irep.ntu.ac.uk {Accessed: 18th July 2015 }

Gurcharan, S. & Jagdish, S. (2008) Estimating Construction Cost- Fifth Edition

Lewis, D. and H. Pickerin (1999); A Capability Improvement Model for Cost Engineering

NIQS (2013) Innovative and Sustainable Management of Building and Infrastructure Project: 1st Annual Research Conference- AnReCon 31

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Vazrani, V. & Channdola (2009) Concise Hand Book of Civil Engineering

Mark, H., Ian , R., & Gary S (2007) Tendering, Procurement & Contract Administration-Third Edition

NewPro Quants Consultants (2008) New Comprehensive Construction Cost Book- 3rd Edition

Elhag, T., M., S.& Boussabaine A., H., Factors Affecting Cost and Duration of Construction Projects

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