National Project Management System Directive on Cost Management for Real Property Projects

1. Effective date

May 1, 2019

2. Cancellation

This directive supersedes the National Project Management System (NPMS) Real Property Procedure on Cost Management (2012).

3. Authority

This directive is issued under the authority of the Director General (DG), Project Management Service Line, Real Property Services (RPS), Public Services and Procurement Canada (PSPC).

4. Context

This directive is pursuant to the Treasury Board (TB) Directive on the Management of Projects and Programmes (2019) and should be read in conjunction with the PSPC National Project Management System (NPMS) Policy and the NPMS Directive for Real Property Projects to ensure that a systematic project cost management methodology is applied to real property projects in order to establish and maintain the efficient, effective, and standardized management of projects.

5. Scope

This directive applies to all PSPC employees performing project management related activities for any projects that are funded by PSPC or other government departments (OGD), and that follow NPMS.

6. Purpose

The purpose of this directive is to provide the principles and directions for cost management in the development and delivery of real property projects.

7. Objectives and expected results

The objective is to ensure that the appropriate systems, processes and controls for managing projects are in place at a departmental, horizontal or government-wide level, and support the achievement of project and program outcomes while limiting the risk to stakeholders and taxpayers.

The expected results are that:

The outcome from the application of this directive is an effective management of costs that meets the requirements from TB and PSPC, as well as improved decision-making, better allocation of resources, consistent and defendable cost management practices, and effective management of OGD projects.

8. Details of the directive or Requirements

8.1 Cost management process

Cost management for projects involves: cost estimating, cost planning, and cost monitoring and control. Each of these aspects plays an important role in the management of costs in real property projects.

8.1.1 Cost estimating

Cost estimating is a process to identify, quantify and price the intended works or activities that culminate into an approximate cost objective for a project.

The TB Guideline on Cost Estimation for Capital Asset Acquisition defines three categories of cost estimates:

  • Rough order of magnitude (ROM): an estimate during the preliminary stage of an initiative based on an initial list of requirements and limited knowledge of underlying risks. The level of confidence in a ROM estimate is relatively low.
  • Indicative estimate: an estimate of sufficient quality and reliability to support a request for project approval.
  • Substantive estimate: an estimate of sufficiently high quality and reliability to warrant approval as a cost objective for the project phase(s) under consideration.

In addition to the above, PSPC adopts the industry standard classification system to define the quality of estimates for the cost of construction works within a project, which comprises of class D, C, B and A cost estimates. For alignment with TB's project estimating guideline, class D and C construction estimates are considered indicative estimates, while class B and A construction estimates are considered substantive estimates. These four classes of cost estimates are defined according to the level of detail and quality of the input available at the different stages in the development of projects.

Cost estimates for the construction work on projects are typically performed by qualified quantity surveyors (cost estimating professionals).

8.1.2 Cost planning

One of the most important aspects in cost management of a project is the development of a project cost plan, which identifies:

  • the various elements or components of the total project cost
  • the type(s) and source(s) of funding for each cost element or component and
  • the forecasted cash flow

Once established, the project cost plan will provide a frame of reference to manage project costs and assess impact on funding throughout the life of the project. The project cost plan and cost estimate are part of the primary documents that are required for the review and decision for project approval (PA) and expenditure authority (EA).

For the purpose of accuracy, integrity and consistency of information provided in the project cost plan, a template has been developed, which provides the mandatory structure of the costing elements, to aid project teams in the preparation of their project budgets. The project cost plan template structure is integrated into the Real Property Project Funding and Cost Planning Workbook (refer to Annex A) to ensure a consistent format is used in the development and presentation of project costs, resulting in:

  • improved efficiency (time and effort) for the project team and reviewers with the use of a single template
  • assurance in the quality (completeness and accuracy) of cost information and
  • better and more reliable benchmarking data for future projects

The prescribed elements and structure of the Cost Plan as presented in the referenced template forms the mandatory requirements in order to be compliant with this Directive. It is not mandatory that the referenced template be utilized in order to complete these requirements.

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 as the project progresses. It is recommended to engage the services of a qualified quantity surveyor for the development of the project cost plan and cost estimates, particularly on projects with a project complexity and risk assessment rating of 3 and higher.

8.1.3. Cost monitoring and control

Cost monitoring and control activities are to be undertaken throughout the NPMS project delivery stage. These activities include the validation of estimates, the analysis of changes to the project cost plan, and the application of corrective measures to meet the project cost objective.

Validation of estimates shall be performed at each estimating deliverable, such as an NPMS approval control point or a change order to an existing contract. This involves reviewing the estimate to ensure the scope of work is completely quantified and captured, and verifying that costs associated with the estimate's quantities are up to date and reflect existing market conditions.

Analysis of changes and a comparison to the cost plan shall be performed for each contemplated change to the budget. These changes may arise due to refinements to the details of the scope, additional labour, studies, constraints or requirements identified in the delivery of the project. The effects of these changes shall be reviewed in conjunction with the risk management plan (RMP), drawing upon the residual risk allowance (RRA) as necessary and recorded in the cost plan.

Corrective measures are to be undertaken in order to meet project objectives. These measures may include performing value engineering exercises with cost consultants and design consultants to identify unnecessary costs, drawing additional funds from the RRA, and/or modifying scope details (e.g. material changes) to reduce costs.

8.2 Cost management process by NPMS phases

The following subsections outline the processes that must be considered at each of the nine NPMS phases. It is important to refer to the NPMS Directive for Real Property Projects for the relevant NPMS phases that apply to the project stream that is being considered. For example, for the projects carried out for, and funded by OGDs, the applicable NPMS phases for the cost management process will normally begin at the planning phase (section 8.3.1 Planning phase).

8.2.1 Project inception stage

8.2.1.1 Definition phase

A preliminary cost estimate of the resources and technical studies required to undertake the activities and deliverables of the project identification stage must be produced in consultation with the key stakeholders, and the assessment of the problem/opportunity that has been presented. The preliminary cost estimate is used to seek the seed funding for the pre-planning work required to develop the project documentation up to the project approval at the analysis phase and is documented in the statement of requirements. It must therefore include, as applicable, the estimating and inclusion of the following:

  • the costs for internal project leadership to manage the activities and produce the deliverables throughout the identification stage
  • the costs for input from internal subject matter experts and administrative support
  • the costs of external expert consultants to undertake studies such as: investigations and reports on buildings/components, market analyses, and feasibility studies and
  • the costs of external project management support required to prepare the deliverables of the feasibility and analysis phases

All applicable PSPC costs and client funded costs are to be identified separately, and a forecast of expenditures by fiscal year must be provided. The expected designation of the project as capital (costs to be capitalized) or operation and maintenance/repair (costs to be expensed) is also required to be identified at this stage.

In addition, a rough order of magnitude cost estimate of the project is to be prepared in order to indicate the likely NPMS stream, based on the NPMS thresholds established for asset and space-based projects, for the delivery of the project (i.e. NPMS full, lite, or ultra-lite). For this estimate, it is recommended to leverage historical project information and to engage the services of a qualified quantity surveyor for projects.

8.2.2 Project identification stage

8.2.2.1 Initiation phase

The key deliverable of the initiation phase is the preliminary project plan (PPP). During the writing of the PPP, the following cost management sections of the PPP shall be developed.

Project cost plan and cash flow section

The breakdown of the estimate from the approved statement of requirements seeking EA including the proposed cash flow by fiscal year for each of the funding Votes (capital or expensed) identified within the project is to be included in this section. This will provide the anticipated timeline for each source of funds to be disbursed and permit proper budget planning and proposed requirements at the earliest possible opportunity within the project life-cycle.

Project cost estimates section

The ROM estimate identified during the definition phase must be included in this section. The ROM is to be reviewed in order to verify and update the costs, taking into consideration the project objective, and the approach to be taken to develop the proposed solution.

8.2.2.2 Feasibility phase

As defined in the NPMS feasibility report guidelines and templates, this phase primarily consists of the identification and non-financial evaluation of viable solutions to the defined problem.

The feasibility report expands on each of these potential solutions, providing sufficient detail and non-financial evaluations to permit the project leader to recommend to the approving authority all viable potential solutions that should be further analyzed in the next phase.

The project cost plan must be reviewed at this stage to ensure there are adequate resources planned to undertake the analysis of the approved options to be analyzed.

8.2.2.3 Analysis phase

An investment analysis report (IAR) will be prepared based on the approved feasibility report (AFR) in this phase. The financial analysis undertaken in this phase of the project must consider the full project costs to the Crown for each option being considered for further analysis.

A cost estimate must be prepared for each feasible option approved at the feasibility stage. These estimates are to be based on the defined scope identified in the technical studies (investigations and reports), ensuring that all relevant costs are included in the analysis (including client costs), and that all assumptions and input values are realistic and reflect the best available information. The key assumptions made with respect to the level of contingency and the overall assessment of the risks to the project must be identified and included to ensure that the assessment of each of the options is comprehensive. Approval of the IAR renders a PA with a total cost objective for the project, which is based on the cost estimate for the selected option.

Depending on the type of project (asset or space-based), the total project cost will comprise of one or more of the following types of estimates:

Construction costs

For options that include construction as a solution, as a minimum, a class D (indicative) construction cost estimate must be provided in the IAR. Refer to the Minimum Requirements for Construction Estimate Preparation—Checklist for further details on the preparation of construction estimates. Indicative construction cost estimates are developed for, but not limited to, construction activities and allowances such as:

  • environmental remediation
  • hazardous material abatement
  • demolition
  • primary construction works
  • building fit-up
  • client specific construction
  • development of sites or lands
  • contractor's general requirements and fees
  • design and pricing contingency
  • escalation
  • greenhouse gas emissions reduction
  • smart building initiative

Supplementary costs linked to the construction activities include, but are not limited to:

  • risk allowance
  • land acquisition costs
  • costs for procurement of furniture, fixtures and equipment
  • the provision of information technology (IT) equipment and installation services
  • security services during the construction period
  • taxes
Leasing costs

For options that include leasing space or acquiring real property as a solution, cost estimates are developed for, but not limited to:

  • net rental rates
  • landlord fees
  • operating & maintenance costs
  • property taxes
  • land acquisition costs
Resource costs

The total estimated costs for all internal and external resources that are required to further develop and deliver the project must be included as part of the cost consideration in the decision for PA. However, the approval of an EA requires that these cost estimates be substantive in nature. In other words, the cost estimates for the resources required to perform the implementation phase may be indicative. However the cost estimates for the planning and design phase must be substantive before EA can be granted. Similarly, the request for EA for the implementation phase during the delivery stage of project development must include updated and detailed substantive estimates for the resource requirement of the stage being approved.

The cost plan must be completed for the preferred option proposed as a minimum for approval. Completing the cost plan for the other options as a comparison is considered optional. This activity is to be completed in conjunction with the development of the RMP in order to complete the risk section within the cost plan.

The cost management sections of the PPP are to be updated as required and must include:

  • the latest cost plan and cash flows
  • the complete cost estimates for the preferred option as an annex in the PPP
8.2.2.4 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.

The cost plan and class D (indicative) construction estimate are to be updated in the IAR and the PPP in accordance with the PA decision obtained in the analysis phase, and the location of the identification close-out document (ICOD) prepared in this phase must be identified as per NPMS documentation standards.

8.3 Project delivery stage

8.3.1 Planning phase

Note for other government departments projects only

The planning phase is the usual starting point of the NPMS process for OGD projects, therefore, the initial PSPC cost plan for this type project is to be completed during this 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 ensure that the project scope (in terms of objectives and requirements) provides sufficient detail to allow for the preparation of a PMP that will provide complete project instructions to the project team.

The cost plan and cash flows must be reviewed and validated to ensure that the estimated costs adequately reflect the resources and appropriate levels of contingency and risk in order to meet the project scope, schedule, and cost objectives for the remaining phases in the project delivery stage.

The class D construction cost estimate is to be reviewed and updated to reflect current construction market conditions, particularly if there has been delays since the last approval.

Some of the key considerations in this phase when reviewing and updating the cost plan and construction estimate are:

  • additional or updated project information made available at this phase, and assessment of their impact on the project scope, time and costs (for example: the requirements for security, environmental and health and safety for the project)
  • inclusion of changes in the departmental, OGD and Government of Canada objectives and priorities, and the project parameters, if any
  • the review of the resourcing plan developed to advance the project right up to the implementation phase and
  • the availability of internal labour resources, the need for external expertise, and the impact this work arrangement could have on the project milestones, must be considered

The cost plan must be reviewed in conjunction with the RMP to ensure that they account for the appropriate contingencies and the residual risk allowances without any duplication. The cost plan must be updated as required.

Within the project management plan (PMP), the cost management section must be completed and accompanied by the latest cost plan and cost estimate documentation.

8.3.2 Design phase

The design phase includes the procurement of design services through to the development of the design such that a substantive cost estimate is prepared for an EA submission. During this phase, the cost management activities and deliverables are described in alignment with the requirements for managing the design services for a project.

8.3.2.1 Professional services procurement

During this phase, professional services are normally procured and provided through a design consultant for the main design.

The key cost management related tasks are described below:

  • During the preparation of contract documents, the cost estimating deliverables are to be established and incorporated into the project brief and/or terms of reference in the request for proposals (RFP) document. Typically, cost estimates are prepared after the completion of key milestones of the design work.
  • It is strongly recommended to request that cost estimates for construction projects be prepared by qualified quantity surveyors, using either of the two following industry standard cost estimating formats: UniformatTM or the Canadian Institute of Quantity Surveyors (CIQS) elemental format. These formats align directly with the real property cost estimating and planning tools. The approved class D (indicative) construction cost estimate value is to be provided in the RFP documentation.
  • Before a contract is awarded, the design consultant's fee proposal is to be reviewed to determine if it is fair and reasonable, and broken down according to the required services and additional services categories of the contract.
  • The project cost plan must be reviewed and updated to reflect any changes to professional fees.
8.3.2.2 Analysis of project requirements by the design consultant

In the analysis of the project requirements, the design consultant's scope of work must include the review of the existing class D (indicative) construction cost estimate (if available), and recommendation for necessary revisions, as follows:

  • the proposed changes are to be reviewed and incorporated into the class D (indicative) construction cost estimate, as applicable and
  • the validated class D (indicative) construction cost estimate shall be incorporated into the cost plan as the new estimated target cost for the construction portion of the project and be annexed in the PMP
8.3.2.3 Concept design proposals by the design consultant

Once the project moves from the planning phase to the design phase, class C (indicative) construction cost estimates are required. The design consultant is to provide a class C construction cost estimate for each proposed concept design option. The class C construction cost estimates are to be produced at the high level of detail that commensurate with the available information, using elemental and additional detailed costs.

For each option and sub-option proposed, the class C construction cost estimates must indicate reasonable allowances for construction unit costs, contingencies, contractor fees, and level of risk.

The construction cost estimate of each option is to be compared against the previously completed estimate to identify cost variances, and determine whether the variances are significant and need to be addressed by utilizing corrective measures in order to meet cost targets.

8.3.2.4 Design development

Upon completion of the design development, the design consultant must prepare a class B (substantive) construction cost estimate representing the increased level of design detail available.

The class B construction cost estimate must be reviewed in conjunction with the drawings, the outline specifications, and preliminary schedule to ensure that the estimate aligns with the increase in design detail, and reflects reasonable allowances for construction unit costs, design and escalation contingencies, and contractor fees. Upon final acceptance, the class B construction cost estimate shall become the new estimated cost objective for the construction portion of the project.

The cost plan and cost estimate for the project are to be updated and compared against the last completed version for cost variances. Significant variances need to be addressed by utilizing corrective measures in order to keep the total construction costs within the limits identified in the PA and/or EA. If the PA cost limit is no longer attainable, an amended PA must be sought before the project can proceed to the next phase. If an EA has yet to be granted for the remaining phases of the project, an updated IAR must be submitted for approval by the delegated authority, along with an updated PMP that includes the latest cost plan and cash flow, which take into account of the substantive cost estimates for the following:

  • all resources required for in the remaining phases to bring the project to completion
  • the latest accepted class B construction cost estimate

The project cost plan must be updated to reflect the accepted class B construction cost estimate as it forms part of the approval documents for the EA submission for the implementation phase.

8.3.3 Implementation phase

8.3.3.1 Contract documents

During the production of the contract documents, a process of continual cost monitoring and control is required for all projects. Compliance with the cost plan (based on the latest approved EA) must be demonstrated at each review phase of the contract documents and must include an up-to-date construction cost estimate. Non-compliance with the cost plan may require revisions to the contract documents in order for the approved project cost objective to be respected.

8.3.3.2 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 of the measured quantities and unit prices, and the full back-up details of the estimate are to be provided, showing all items of work. This summary shall be used to confirm the construction cost plan, and review the submitted bids and the successful contractor's estimate breakdown.

8.3.3.3 Tender call, bid evaluation and construction contract award

Proposed addenda to the tender documents must be reviewed to assess the construction cost impact, in relation to the construction cost plan.

Responsive tenders are to be reviewed and evaluated against the construction cost plan, investigating for any significant variances by re-examining the pre-tender class A estimate. Prior to contract award, it must be determined whether the lowest responsive tender is fair and reasonable. For significant variances between the pre-tender estimate and the lowest tendered bid, refer to the contracting authority for further direction.

The contractor's cost breakdown must be reviewed and compared against the class A estimate to ensure that it forms a reasonable basis of payment.

Upon successful contract award, the cost plan is then updated to reflect the current construction costs. Based on the latest updated cost plan, the total project cost is to be reviewed to determine if some of the forecasted funding requirements must be deferred to later fiscal years or is no longer required.

8.3.3.4 Construction contract administration

Proposed contemplated change notices to the construction contract are to be reviewed to assess the cost impact and ensure that:

  • the contractor's proposal is broken down in detail and substantiated
  • a statement from the consultant validates the price as fair and reasonable and
  • 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

Changes to the contract value are to be tracked and monitored with respect to the appropriated RRA identified in the RMP. Construction progress payments are to be tracked and monitored with respect to the schedule and forecasted cash flows.

8.3.3.5 Consultant contract administration

Changes to the contract value are to be tracked and monitored with respect to the RRA. Progress payments are to be tracked and monitored with respect to the schedule and forecasted cash flows.

8.3.4 Delivery close out phase

Once the project is complete, the final project costs must be documented in the final version of the PMP and assessed against the cost objectives for performance evaluation and lessons learned.

The project cost plan must be updated to reflect to the final actual costs incurred, including reconciliation to each source and type of funding that were approved as per the latest PA/EA.

9. Responsibilities

The Director General, Service Lead, Project Management Service Line, is responsible for:

Individuals performing a project leader role are responsible for:

Individuals performing a project manager role are responsible for:

All parties are strongly encouraged to consult with other project leaders/managers and senior project managers or refer to lessons learned documents when developing the cost management section of the PMP. It is also recommended to seek advice from either external resources (qualified quantity surveyors) or internal cost planners/estimators and risk advisors.

10. Definitions

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 estimating
Developing an approximation (estimate) of the cost of the resources needed to complete project activities.
Cost planning
The process of estimating and allocating project costs into elements, component or cost targets.
Expenditure authority (EA)
The approval given by an individual holding the delegated authority in order to exercise Section 32 of the Financial Administration Act and commit funds to a project.
Indicative cost estimate
An estimate of sufficient quality and reliability to support a request for project approval. An indicative estimate is expected to:
  • reflect a reasonable preliminary definition of scope, performance objective(s), and schedule
  • take into consideration preliminary consultations with stakeholders
  • identify assumptions that could have a significant impact on the financial requirements, and explain the potential impacts
  • be based on a stated data source that is reliable (such as industry standards or historical data) and
  • include a preliminary assessment of risk and potential risk-mitigation strategies
Project approval (PA)
The approval of a project by either:
  • an individual holding the delegated authority under the PSPC delegation of authorities when within PSPC authority levels or
  • Treasury Board when the authority level exceeds PSPC authority levels or when requested by Treasury Board Secretariat
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 throughout the phases of the project.
Rough order of magnitude (ROM)
An estimate during the preliminary stage of an initiative based on an initial list of requirements and limited knowledge of underlying risks. The level of confidence in a ROM estimate is relatively low. As the capital asset requirements become more defined, cost estimates can be refined, and their quality increases.
Substantive cost estimate
An estimate of sufficiently high quality and reliability to warrant approval as a cost objective for the project phase(s) under consideration. A substantive estimate is expected to:
  • reflect a fully defined scope, performance objective(s), and schedule
  • take into consideration consultations with all key stakeholders
  • identify assumptions that can have a significant impact on the financial requirements and explain the potential impacts
  • be based on a stated data source that is reliable (such as industry standards or historical data)
  • reflect a comprehensive assessment of the risks, and include risk-mitigation strategies and
  • be expressed in terms of a cost per deliverable to support the monitoring and management of costs

11. References

Treasury Board publications

Public Services and Procurement Canada publications

12. Annexes

13. Enquiries

Please direct all enquiries about this directive to the Project Management Service Line Center of Expertise at tpsgc.sngp-npms.pwgsc@tpsgc-pwgsc.gc.ca.

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