National Project Management System Real Property Procedure on Cost Management

1. Effective Date

December 2012

2. Cancellations

n/a

3. Authority

This procedure is issued under the authority of the Director General (DG), Professional and Technical Service Management Sector (PTSM), Real Property Branch (RPB), Public Services and Procurement Canada (PSPC).

4. Context

This procedure is to be implemented in conjunction with the PSPC National Project Management System (NPMS) Policy and the NPMS Directive for Real Property Projects

5. Scope

This procedure applies to all PSPC employees involved in the management of real property projects that follow the NPMS.

6. Purpose

To describe the components and requirements of the NPMS as applied to the management of Real Property project costs.

7. Details of the procedure

Project cost management is described below in relation to the 9 phases of the NPMS.

One of the most important aspects in cost management of a project is the development of a Project Cost Plan, which entails critical breakdown of project total cost limit into elements, components or cost targets. Once established, the cost plan will provide a frame of reference from which to manage the project budget and essentially to maintain control on the project cost. Project Cost Plan can be further utilize to develop cash flow for the project.

A template for Project Cost Plan has been developed to aid in the preparation thereof.

It is important that the Project Cost Plan be viewed as an evolving document that will change over the life of the project - increasing with precision over each successive phase.

It is recommended to engage the services of a Construction Cost Planner/Estimator for the development of Project Cost Plan and cost estimates particularly on complex projects.

7.1 Project Inception Stage

Definition Phase

  • Based on the preliminary scope statement and historical cost information, develop a broad cost projection to determine the costs of the resources and technical studies required to prepare a Preliminary Project Approval (PPA) or Lease Project Approval (LPA) submission

7.2 Project Identification Stage

Initiation Phase

  • Based on the Statement of Requirements and historical cost information, further develop the broad cost projection to determine the costs of the resources and technical studies required to prepare a PPA or LPA submission
  • Provide schedule of expected timeline for disbursements of each cost items/activity
  • Develop the Cost Management section of the Preliminary Project Plan (PPP)

Feasibility Phase

As defined in the National Project Management System guideline for Feasibility Report, this phase consists of primarily the identification and non-financial evaluations of potential solutions to the defined problem. Approval and recommendation will be seek from the Project Leader on the solutions or options to be analyzed further in the subsequent phase, whereby indicative cost estimates will then be prepared for each solutions/options.

Analysis Phase

  • Based on the Approved Feasibility Report (AFR), an Investment Analysis Report (IAR) will be prepared. The financial analysis should consider the full costs to the federal government for each option
  • Depending upon the nature of the project and feasible options, Indicative cost estimates could be developed for, but are not limited to:
    • Primary Construction Works
    • Building Fit-up
    • Professional Fees and Disbursements
    • Internal Fees and Disbursements
    • Client Specific Costs
    • Development Costs
    • Contingencies
    • Risk Allowances
    • Other Ancillary Costs
    • Net rental rates
    • Operating &Maintenance cost
    • Taxes
    • Land cost
    • Escalation cost
  • Based on the defined scope of each feasible option identified in the technical studies (Investigations and Reports), develop and provide Class "D" (indicative) construction cost estimates
  • Identify the key assumptions made with respect to the level of contingency and residual risk allowance associated with each of the estimates provided
  • Identify and estimate the resources required to implement each feasible option
  • Ensure that all relevant costs are included in the analysis and that all assumptions and input values are realistic and reflect the best available information
  • Update the Project Cost Plan and the Cost Management section of the PPP as required and provide the complete cost estimate of the preferred option as an annex

Identification Close Out Phase

The purpose of the Identification Close Out Phase is to ensure an appropriate level of assessment, reporting, evaluation, hand-over exchange, and administrative closure has taken place that will provide enough directional detail for the Project Manager to seamlessly proceed to the Delivery Stage.

  • In light of the PPA/LPA decision obtained in the Analysis Phase, ensure that the Project Cost Plan and detailed Class "D" (indicative) construction estimate (as required) have been updated, and that the Identification Close Out Document (ICOD) prepared in this phase identifies the location of the updated documents

7.3 Project Delivery Stage

Planning Phase

The purpose of the Planning Phase is to confirm the quality and completeness of the existing project information in an effort to develop and organize the project delivery strategy, and to prepare a complete project instruction to the project team.

  • Review and validate the Project Cost Plan and cash flow to ensure that the Project Cost Plan adequately reflects the resources and appropriate levels of contingency and risk in order to meet the project scope, schedule, and cost objectives
  • Ensure that the Class "D" construction estimate is updated to reflect current construction market conditions
  • Update the Project Cost Plan, which will be annexed in the Project Management Plan (PMP)

Design Phase

Professional Services Procurement
  • Provide the approved, detailed, Class "D" (indicative) estimate in the Request for Proposal documentation
  • Determine that the design consultant’s fee proposal is fair and reasonable, and broken down according to the required and additional services categories
  • Review and update the Project Cost Plan to reflect any changes for Professional Fees
Analysis of Project Requirements by the Design Consultant
  • In the analysis of the project requirements, ensure the design consultant’s scope of work includes the review of the existing Class "D" (indicative) construction cost estimate (as applicable), and that they propose required revisions deemed necessary
  • Review and incorporate recommendations as applicable
  • The validated Class "D" (indicative) construction cost estimate shall become the Construction Cost Plan, and be incorporated into the overall Project Cost Plan which will be annexed in the Project Management Plan (PMP)
Concept Design Proposals by the Design Consultant
  • Once the project moves from the Planning Phase to the Design Phase, Class "C" construction cost estimates are required, therefore ensure the design consultant provides a Class "C" construction cost estimate for each proposed concept design option. The Class "C" cost estimates are to be at the highest level of detail, commensurate with the available information using elemental and additional detailed costs. For each option / sub-option proposed, the Class "C" cost estimates shall indicate reasonable allowances for construction unit costs, contingencies, contractor fees, and level of risk
  • Compare the estimates of each option against the Construction Cost Plan for cost variances and determine whether the variances are significant and need to be addressed in order to meet cost targets
Design Development
  • Upon completion of design development, the consultant shall prepare a Class "B" (substantive) estimate representing the increased level of design detail available
  • The Class "B" cost estimate is to be reviewed, in conjunction with the drawings, outline specification, and preliminary schedule, to ensure that the estimate reflects the increase in design detail, and indicates reasonable allowances for construction unit costs, contingencies, contractor fees and risk
  • Compare the estimate against the Construction Cost Plan for cost variances and whether the variances are significant and need to be addressed in order to meet cost targets
  • Upon final acceptance, the Class "B" (substantive) cost estimate shall become the Construction Cost Plan, and be incorporated into the overall Project Cost Plan and cash flow which will be updated in the PMP
  • The above-mentioned Class "B" (substantive) cost estimate / Construction Cost Plan would form part of the Approved Documents for EPA submission

Implementation Phase

Contract Documents
  • During the production of the contract documents, a process of continuing cost control, progressively more detailed, is required. At each review of contract documents, an up-to-date estimate shall demonstrate compliance with the Construction Cost Plan (from EPA). Non-compliance with the Construction Cost Plan may require revisions to the contract documents in order to meet the approved cost targets
Pre-Tender estimate
  • Upon completion of the contract documents, a pre-tender Class "A" cost estimate shall be prepared using 100% measured quantities. The Class “A” cost estimate shall have a summary, plus full back-up showing items of work, quantities, unit prices and amounts, and a trade breakdown of the pre-tender estimate. These shall be used to confirm the Construction Cost Plan and in reviewing the submitted bids and the successful Contractor's estimate breakdown
Tender Call, Bid Evaluation & Construction Contract Award
  • Review proposed addenda to the tender documents and assess the construction cost impact, in relation to the Construction Cost Plan
  • Review and evaluate the responsive tenders against the Construction Cost Plan and investigate significant variances, if any, by re-examining the pre-tender Class "A" estimate
  • Prior to contract award, determine if the lowest responsive tender is fair and reasonable
  • Review and compare the Contractor’s Cost Breakdown against the Class "A" estimate/trade breakdown to ensure the Contractor’s Cost Breakdown forms a reasonable basis of payment
  • For significant variances, refer to the contracting authority for further options
  • Upon successful contract award, update the Construction Cost Plan
  • Determine if funding may be returned based on contract award value
Construction Contract Administration
  • Review and evaluate proposed Contemplated Change Notices to the tender documents, and assess the construction cost impact. Ensure that:
    • The contractor’s proposal is broken down in detail and substantiated
    • A statement from the consultant agrees that the price is fair and reasonable
    • A statement has been received from the project manager that the change order has been reviewed, and the level of effort and resulting proposal is fair and reasonable
  • Track and monitor changes to the contract value with respect to the Pre-Approved Amounts for Anticipated Amendments (PAAA)
  • Track and monitor construction progress payments with respect to the schedule and forecasted cashflow
Consultant Contract Administration
  • Track and monitor changes to the contract value with respect to the Pre-Approved Amounts for Anticipated Amendments (PAAA)
  • Track and monitor progress payments with respect to the schedule and forecasted cashflow

Delivery Close Out Phase

All Projects

Document the final project costs in the final version of the PMP, and assess against revised cost targets for performance evaluation and lessons learned. Identify the location of the updated Project Cost Plan in the Close Out Document (COD) prepared in this phase.

8. Responsibilities

Project Leader Role

  • Initiating a continuing process to formally and consistently assess project costs
  • Developing and maintaining the Project Cost Plan in consultation with the Project Manager during Inception and Identification Stage
  • Ensuring that cost estimates reflect the assessment of risk throughout the various phases of the project life cycle
  • Ensuring that the preferred investment option of a particular project takes into consideration the project risk profile and risk tolerance
  • Preparing an outline of the plan to deal with actual project contingencies and specifying these measures in the risk management sections of the project approval documentation
  • Preparing and revising project approval documentation when the project cost plan changes significantly

Project Manager Role

  • Providing input to the Cost Management section of the Preliminary Project Plan
  • Developing and maintaining the Project Cost Plan in consultation with the Project Leader during Delivery Stage
  • Developing the Cost Management section of the Project Management Plan
  • Effectively using the resources allocated to implement the mitigation strategies by assigning and detailing responsibilities regarding the Risk Management process
  • Reviewing the project risks, applying effective surveillance to identify any new or changing risks
  • Communicating risk activities to the project team and providing regular reports to ensure that risks that cannot be addressed by the project team are directed to the appropriate authority

All parties are strongly encouraged to consult with other Project Leaders/Managers and Senior Project Managers when developing the Cost Management section of the Project Management Plan. It is also recommended to seek advice from either external resources (qualified Construction Cost Professional/Consultants) or internal Cost Planners/Estimators and Risk Advisors (for example Integrated Support Center–Cost Management Unit and Claims Management Unit).

9. Definitions

Cost Estimating:
Developing an approximation (estimate) of the cost of the resources needed to complete project activities.
Cost Control:
The process of monitoring changes to a project and ensuring that the cost implications are evaluated and the impacts on the project cost limit are acknowledged and reviewed by the project team.
Cost Planning:
The process of estimating and allocating project cost into elements, component or cost targets.
Project Cost Plan:
An evolving document (spreadsheet) that illustrates how the total project costs is broken down and allocated to specific elements, components or cost targets, which can then be monitored and controlled through out the phases of the project. Refer to template created (Project Cost Plan).
Construction Cost Plan:
Similar as the Project Cost Plan but specifically on allocation of costs directly related to construction activities within the Project Cost Plan.

10. References

Treasury Board Publication

Public Services and Procurement Canada Publications

11. Enquiries

Please direct enquiries about this procedure to sngp.npms@tpsgc-pwgsc.gc.ca.