COST MANAGEMENT: The Bills of Quantities

In order to perform vital cost management functions; the quantity surveyor prioritizes the creation of the bills of quantities (also known as the “BOQ”), and these BOQ’s lay the foundational basis of proper cost and contract management.

At the conceptual level, the BOQ is an instrument which fundamentally translates design and engineering information into costing information; all for the purpose of estimating the work upfront, valuing project progress, and finally as a means of settlement once the work is complete. The BOQ is a living document that requires updating and monitoring as the work progresses. This essential task is managed by the quantity surveyor.

To fully understand the mechanism by which a BOQ performs its function, it is important to understand the key elements.

The seven key elements are:

1. Method of Measurement

The method of measurement is the document that prescribes the standards and rules by which the quantity surveyor prepares the BOQ’s. Each industry has a set of standards to which BOQ’s are prepared and these methods of measurement are guidelines that specify what is measured, what is not measured, how it is measure, how each work item is to be described, and lastly how the contractor should price each BOQ work item. The adherence to a method of measurement allows for a robust and unified approach to quantifying and evaluating project costs.

It is important to note that methods of measurement vary across industry sectors; for example building works are commonly measured to the RICS’s New Rules of Measurement 2 “NRM2”, while civil and structural engineering works are commonly measured to the Civil Engineering Standard Method of Measurement 4 “CESMM4”. Selecting the correct method of measurement is thus an important consideration and must be well-thought-out in the project planning phase. Quantity surveyors and their governing professional bodies are continuously reviewing, improving, and refining these procedures and measurement principles to ensure a high standard of quality within the profession of quantity surveying.

2. Categorization

It is essential for the quantity surveyor and project team to jointly develop the grouping structure based on the project scope of work. This is typically achieved through the development of a clear and concise work breakdown structure “WBS”, which clearly delineates battery limits and arranges the scope of work into logical work areas. This work breakdown structure will guide the development of BOQ’s and ultimately enable accurate costing information about specific work areas.

In addition to work areas, the quantity surveyor must consider the ultimate procurement strategy and prepare the BOQ’s in such a way as to allow procurement processes to allocate scope into work packages, trades or disciplines. Since numerous contractors and various trades may collectively be involved in the execution of a project, it is wise to think about categorize of costing information upfront and align BOQ’s with the project execution strategy.

Project work breakdown structures can range in their complexity based on the project scope and size. Typically, a work breakdown structure has between 2-4 levels of categorization (i.e. WBS tags 1 through to 4) but on more complex projects, such as a mineral processing plant, this can often extend to ranges of 5-7 levels of categorization.

It is important to ensure that the WBS structure categorization is appropriate for the project - over categorization can lead to an excessive level of costing detail that can not be managed, while the converse is also problematic in that, too little categorization results in an insufficient level of costing detail.

3. Descriptive work items

The quantity surveyor has the task of reviewing detailed drawings, specifications and methods of measurement in order to create a written description of each individual work item. These work items are described in adequate detail to allow the contractor to price each work item or task. The detailed descriptions are line items found in the BOQ and each line item has an associated unit of measure, measured quantity, unit rate and total price.

4. Defined Units of Measure

Units of measure (“UoM”) are the metrics by which items are measured and quantified. The units of measure vary depending on the nature of the work item and whether or not the work item is best described in terms of length (meters "m"), area (square meters "m2"), volume (cubic meters "m3"), weight (tons "t") and the like.

5. Measurable Quantities

Measured quantities are obtained through a process termed as the quantity take-off process. In simple terms, this is the action of extracting dimensions and taking physical measurements from the design drawings. These dimensions are then used to calculate the applicable quantities per individual work item.

In many cases these quantities are measured several times over during the project lifecycle. Firstly, a prelim measure is completed during the estimating and project planning phase based on preliminary information and for the purpose of obtaining competitive and comparable bids. And then finally during project execution these quantities are remeasured for the purpose of valuing project progress and preparing a final account of work completed according to final issued for construction drawings.

Quantity surveyors have evolved in the last decade to such an extent that much of the quantity take off process is either automated or performed entirely electronically without using hard copy printouts.

6. Unit rates

In order to translate the quantified data into valuable and useful costing information, the bills of quantities are priced by applying the unit rates. The unit rate is described as the cost of labour, materials and equipment required to perform one unit of each work item. This unit rate is then multiplied by the total quantity to obtain a price per individual work item. In most cases contractors will be required to provide competitive unit rates during the bidding process. Thereafter the successful contractor will generally be required to carry the risk on validity of unit rates for the project duration, while the owner will carry the risk of design and resulting quantity variations during project execution. This mechanism provides for a fair and balanced approach to valuing changes in scope of work during project execution.

7. Coding Parameters

Since each line item is individually identified this provides the opportunity for detailed costing analysis. If the BOQ line items are properly coded with the applicable WBS coding parameters then, this provides the project team with the ability to group, filter and sort costing data effectively, and allowing the project team to review, analyze and control costs at various levels of detail. Costs can be analyzed by area, by phase, by work package or by commodity type. This ability provides an extraordinary insight into project finances and helps to identify and correct problematic areas during the project.

In summary, having a properly defined work breakdown structure combined with structured bills of quantities will ensure that engineering data is accurately converted into real-time and visible costing data, thereby reducing financial risk throughout the project lifecycle.

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