Improving cost estimating and cost monitoring by the contractor during the design stage in Design & Build contracts

Abstract

Many construction projects experience cost overruns (Flyvbjerg & Holm, 2002), which is the difference between the estimated cost and the final costs of a project. In Design & Build procured projects, the contractor is responsible for both designing and constructing the project (De Ridder, 2009). During the tender phase, the contractor creates a schematic design and a corresponding cost estimate (De Ridder, 2009), based on client’s functional requirements. After contract award, the contractor elaborates the schematic design into a detail design. Even though this detail design yet has to be created, the budget for the project is already fixed. It is often difficult for the contractor to keep track of the current cost position relative to the cost baseline (budget) during the design stage because of inadequate interaction between designers and actors with practical on-site expertise, often leading to exceedances of the budget, detected at a later point in the design stage (Kim & Park, 2016)

The goal of this research was to improve cost estimation and cost monitoring of the contractor during the design stage in Design & Build procured projects to enable the contractor to keep track of the current cost position of the design, relative to the cost baseline (budget).

This research’s literature study provided the following insight into the into the structure of both the design and cost management processes (cost management covers cost estimation and cost monitoring) of the contractor and their dependencies in Design & Build procured projects. In the tender, both the design and the cost estimation processes dynamically converge into a tender design with a corresponding price estimate. After contract award, the design is further elaborated upon through a dynamic and iterative process while the budget to build the design ‘outside’ is fixed. Potential differences between the fixed budget and the cost estimate of the developing design occur at different timepoints in the design stage. Only after the detail design is created the working budget is revised, based on a far more accurate estimate of the cost of the detail design.

In this research’s case study, four main team members of three ongoing construction projects of Dura Vermeer infra landelijke projecten were interviewed, resulting in the following general findings in practice:
1) The difference between the costs of the design and the budget, is often inaccurate and incomplete as the responsible actors are not perfectly capable to make accurate estimates of the ever-changing costs for the design, neither to they make them for all design changes. 2) The responsibility for communicating the difference between the costs of the design and the budget is unclear within the project team in terms of initiative and frequency. 3) Designers lack background information of the material quantity’s that support the tender design even though monitoring material quantities is key for designers to keep their design within budget.

This research delivered a framework that aims at improving alignment between the design, and cost estimation and cost monitoring processes by structuring actor responsibility and information sharing.