GEO Committee on Project Estimates (COPE)
Guidance Note –
Preparation of Project Estimate and
Pre-tender Estimate for Works Contracts
1.
INTRODUCTION
1.1
This Guidance Note provides guidance on the preparation of Project
Estimate and Pre-tender Estimate for works contracts, including
GI/Laboratory Testing contracts, for submission to GEO Committee on
Project Estimates (COPE) in accordance with GEO Circular No. 18 “GEO Committee on Project Estimates”. As stipulated in the GEO
Circular, COPE has been delegated the responsibility for vetting all
estimates for which tenders will be submitted to the Central Tender Board
or, as appropriate, CED Tender Committee. Notwithstanding the current
provision of the simplified tendering arrangement for Works Contracts
under $50 million as promulgated in CED Technical Circular No. 2/2002
- “Simplified Tendering Arrangement for Works Contracts under $50
million”, all Pre-tender Estimates for works contract exceeding $30
million shall be submitted to COPE for vetting.
1.2
The Project Estimate is the estimated project cost used for LPM Block
Vote Paper submissions. It will become the Approved Project Estimate
(APE) when the project is implemented. The Pre-tender Estimate refers
to the estimated cost of the works for which the tender has been prepared
and is prepared shortly before tendering. The accuracy of Pre-tender
Estimate is measured by how much it differs from the awarded contract
sum. For a schedule-of-rates contract, the “Total Value for Tender
Assessment” in the Schedule of Contract Percentages contained in the
Appendix to Form of Tender is used to examine the accuracy of the
Pre-tender Estimate.
1.3
Guidelines for preparing Project Estimates are given in WBTC No.
22/93 - “Estimating Using Risk Analysis” and Chapter 4 of Section 5 of
the Project Administration Handbook.
2.
SUBMISSION OF PROJECT ESTIMATES AND PRE-TENDER
ESTIMATES
2.1
To ensure efficient and effective vetting by COPE, the information
contained in the submission of Project Estimate and Pre-tender Estimate
should be sufficient to substantiate each and every element of the
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Estimates. A COPE submission should include the following sections
and information :
a)
General Information on the Contract
This section should contain relevant information including:
b)

Contract number and title

Anticipated contract commencement date and construction
period

Type of contract (i.e. remeasurement or schedule-of-rates)
Scope of Contract
This section should contain the following information:
c)

Description of the scope of the works

General layout plan of A3 size to indicate the locations of
features

List of features with feature reference and location

For Pre-tender Estimate submission, any change in the scope of
works and other significant changes if there has been a
submission on Project Estimate to COPE previously

Any special considerations/qualifications which could affect
the rates, for example, works in outlying islands, stringent
requirements on environmental aspects due to proximity of
site to sensitive receivers, restricted road closures, etc.
Relevant Information Used for Preparing the Base Estimate
This section should give all the information used to produce the
Base Estimate (see Section 4 below) such as:

Relevant details of the referenced past contracts including their
contract number, title, works category, tender sum, final
contract sum (if available), commencement date, duration and
scope of works, etc. The referenced contracts should be
recent and similar in nature and type to the proposed contract.
Past contracts tendered more than three years ago are not
acceptable.
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
d)
Any deviations from the General Conditions of Contract,
General Specification for Civil Engineering Works and
Standard Method of Measurement which affects significantly
the rates, or from those in the referenced past contracts
Cash Flow Analysis
This section should provide the following information on cash flow
for the remeasurement contract where a definite works programme
can be prepared:
e)

An analysis of the anticipated cash flow at both constant price
level and MOD prices (the inflation factors used to derive the
inflation adjustment must be identical to the latest figures
announced by the Financial Services and the Treasury Bureau)

works programme upon which the cash flow analysis has been
based
Estimating using Risk Analysis calculation

This section should show how the allowed contingency sum for
the contract is worked out by adopting WBTC No. 22/93 “Estimating Using Risk Analysis”. The ERA calculation
should follow the example in Annex C of WBTC No. 22/93
with different categories and levels of risk allowance for
different items (see Section 5 below). In preparing the Project
Estimate, risk assessment should be conducted for both
remeasurement contracts and schedule-of-rates contracts to
derive the contingency for the contract and the project.
3.
POINTS TO NOTE IN PREPARATION OF PROJECT ESTIMATE
3.1
The format and information to be included should be similar for both
Project Estimate submissions and Pre-tender Estimate submissions.
However, the requirements pertaining to a Project Estimate submission
for a remeasurement contract can be relaxed as follows:
a)
A priced Bill of Quantities is not always required. If the design of
slope works is not yet finalized and hence the final quantities are
not available, the use of a “unit cost per slope surface area”
approach is acceptable. The costs of works are derived by
multiplying the surface area of the slopes to be upgraded with the
unit cost for slope upgrading works derived from previous
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remeasurement contracts with similar scope.
However, the
adopted unit rates for estimation should be prudent and justifiable.
Similar approach can be taken for the GI/Laboratory Testing
contracts for LPM.
b)
Alternatively, if a Bill of Quantities is available, a combined
submission of the Project Estimate and Pre-tender Estimate is
acceptable. (A combined submission is generally suitable for a
schedule-of-rates contract.)
3.2
A copy of the draft LPM Block Vote Paper should be attached to the
COPE submission for information.
4.
POINTS TO NOTE IN PREPARING PRE-TENDER ESTIMATE
4.1
Remeasurement Contracts
4.1.1
A summary by Sections of the priced Bill of Quantities (excluding the
Sections for Site Safety, Daywork, Provisional Sum for Contract Price
Fluctuation and Contingency Sum), which is the build up of the Base
Estimate, should be presented. The Pre-tender Estimate is the Base
Estimate plus Site Safety, Daywork, Provisional Sum for Contract Price
Fluctuation, allowance for special site constraints where appropriate, and
Average Risk Allowance which is the Contingency Sum for the contract,
if applicable (see Section 5 below). The Project Estimate is the sum of
the Pre-tender Estimate and any other costs which should be included in
the APE. A breakdown of the RSS costs should be provided in the
COPE submission.
4.1.2
A certain percentage (2% to 5%) of the Pre-tender Estimate for Project
Risk to cater for pricing accuracy should also be included in the Project
Estimate where appropriate.
4.1.3
The sum of the allowed Project Risk should be spread over the items of
preliminaries, site establishment, clearance, earthworks and drainage,
geotechnical and landscaping works in the draft Block Vote Paper for
funding purposes.
4.1.4
The preparation of the Pre-tender Estimate should concentrate on cost
significant items that contribute to most of the contract value. The term
“cost significant items” has the meaning as “major items”, which is
defined in WB’s User Manual for Contract Rate Database System as
those items for which the value is greater than or equal to the mean value
of all the measured items of the contract. The mean value shall be
calculated by dividing the total measured bill value (excluding prime cost
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sums, provisional sums, contingency sums and adjustment items which
for this purpose are not considered as measured items) by the total
number of measured items.
4.1.5
To present the cost significant items, a tabulation of the build up of the
aggregate estimated quantities of the individual bill items for all the
features, the adopted rates together with the amounts should be prepared.
The cost significant items should then be identified and highlighted in the
table. By means of a separate table, the rate adopted for each of the cost
significant items should be substantiated with justifications or by build up
if similar items cannot be found from recent and similar contracts (see
Section 4.1.6 below).
4.1.6
Reference should be made to the basic rates (also known as “basic unit
rates”) given in the latest booklet of “Basic Rates for Cost Estimates for
LPM Remeasurement Contracts” prepared by the Contract
Administration Section in Works Division for preparation of cost
estimates for LPM contracts. A comparison should also be made with
the latest awarded remeasurement contracts with similar nature of works
to examine the market trend before adopting the rates. If appropriate
basic rates are not available in the Basic Rates booklet, the basic rates
should be derived from similar rates based on similar and recently
awarded remeasurement contracts. The basic rates so derived should be
adjusted to the price level at the anticipated tendering date.
4.1.7
For projects handled by consultants, if the contract rates or related
information are released to consultants, project engineers should refer to
the guidelines given in WBTC No. 3/2002 - “Releasing Contract Rates or
Related Information to Consultants for the Purpose of Cost Estimation or
Cost Analysis”.
4.1.8
The effect of the quantity of works on the rates of works should be
considered.
4.1.9
Based on experience from previous remeasurement contracts for LPM
works, the average % of cost estimates for Preliminaries and Site Safety
is approximately 10% and 2% of the Base Estimate respectively.
Preliminaries here refer to the overall preliminaries which include the
preliminary costs for the individual features.
4.2
Schedule-of-Rates (Term) Contracts
4.2.1
Obtain the basic rates from the latest booklet of “Schedule of Rates for
Landslip Preventive Measures Term Contracts” prepared by the Contract
Administration Section in Works Division for preparation of cost
estimates. If appropriate basic rates are not available from the Schedule
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of Rates booklet, the basic rates should be derived from similar rates
based on similar and recently awarded schedule-of-rates contracts but
adjusted to the price level of the Schedule of Rates booklet for LPM
contracts.
4.2.2
In building up the Base Estimate, consideration should be given to
adjusting the basic rates to cater for the effect of slope locations,
accessibility, vertical distance of works, works in outlying islands, etc.
4.2.3
A summary of the Base Estimate build up for the contract through
breakdown
of
the
estimated
costs
for
Preliminaries/Site
Establishment/Clearance, and Geotechnical/Landscape Works for each
feature based on the estimated quantities should be provided for LPM
works contracts.
4.2.4
The Base Estimate should then be globally adjusted by a certain % to
reflect the current market trend as appropriate. This adjustment should
be substantiated by the tender % of recently awarded schedule-of-rates
contracts to be detailed in the submission. COPE would review the need
to adjust the Pre-tender Estimate based on the latest tender returns and
any adjustment (%) subsequently decided will be recorded as the
pre-tender estimate of the Total Value for Tender Assessment.
4.2.5
The Pre-tender Estimate is the Base Estimate plus Site Safety, Daywork,
but excluding Provisional Sum for Contract Price Fluctuation and
Average Risk Allowance which is the Contingency Sum for the contract.
The Project Estimate is the sum of the Pre-tender Estimate, the
Provisional Sum for Contract Price Fluctuation, Average Risk Allowance
and any other costs (e.g. RSS costs including consultant’s on-cost,
associated works to be entrusted to other departments, etc.) which should
be included in the APE. A breakdown of the RSS costs should be
provided in the COPE submission.
4.2.6
A Summary of the Weighting Factors to be adopted in the “Schedule of
Contract Percentages” for the tender should be provided together with
justifications.
4.2.7
Sections 4.1.2 and 4.1.3 above are also relevant.
5.
POINTS TO NOTE IN PREPARING “ESTIMATING USING RISK
ANALYSIS”
5.1
Refer to WBTC No. 22/93 for the details of using risk analysis approach
to identify project or contract related risk for the purpose of preparing the
project estimate. The Base Estimate refers to the risk free estimate
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which includes all items required for the completion of the works. As
the works contract is developed towards the tender stage, the object is to
resolve as much of the uncertainty as possible. Major risks including,
for example, change in government departments’ requirements, changes
in landscape requirements, permission to use land transport on outlying
islands, etc. should be cleared as far as possible before tender.
5.2
Project engineers should note the definitions of the common terms used
in ERA analysis given in para. 3.0 of Appendix A to WBTC No. 22/93.
Non-risk related preliminaries items should be excluded from the
analysis.
5.3
Based on past experience, “Average Risk Allowance” not exceeding 10%
of Base Estimate is generally reasonable.
5.4
Risk allowance for extension to contract period/prolongation should take
the following approach in consideration:
a)
estimate the likely extension of time due to the effect of inclement
weather, variations, etc.
b)
apply all time-dependent items in accordance with the estimated
extension of time and calculate the additional expenses, and
c)
for projects which require the employment of RSS, additional
expenses due to the estimated extension of time should be assessed.
6.
APPROVAL OF PROJECT ESTIMATE AND PRE-TENDER
ESTIMATE
6.1
Normally, submission for a Schedule-of-Rates contract or a
GI/Laboratory Testing contract will be circulated by the COPE Secretary
to the members for comment and subsequently referred back to the
project team for any required follow-up action. In the case of a
submission made in respect of a Remeasurement contract, the Secretary
will arrange a meeting for the members to discuss the details with the
project team and the consultant as appropriate.
6.2
Approval given by COPE will be recorded as the estimated sums (in
MOD) accepted as being the Project Estimate and/or Pre-tender Estimate,
and additionally as the accepted pre-tender estimate of the Total Value for
Tender Assessment (%) accepted in the case of a Schedule-of-Rates
contract.
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7.
STATISTICS OF KEY INFORMATION
7.1
The COPE Secretary will compile on a regular basis the statistics of
Pre-tender Estimates and tender prices (sum or %) of awarded contracts.
The tendered sum for Third Party Insurance and for the Preliminaries
(expressed as a percentage of the tendered sum of works) of the lowest
three tenders should be provided by the Project Engineer to the COPE
Secretary within 1 week of the award of the tender.
(P L Yip)
Secretary, GEO COPE
September 2002