Cost planning: RICS NRM and best practice

Golden rules

27 October 2015

David Benge and Stuart Earl show how the RICS NRM documents have contributed to best practice

The reforms set out in the UK Government Construction Strategy, the Chief Construction Adviser’s efficiency agenda, the increasing focus on building information modelling (BIM) and the economic challenges currently facing the industry, all demand a step change in working culture, including that of the cost manager.

The relevance of NRM1 in a BIM-enabled construction industry is particularly pertinent. BIM is intended to address issues of process management and data retention, bringing the collection of coordinated data to the forefront. NRM1 is linked to this, enabling the consistent collection of construction cost data that is synchronised with the design data, as is NRM3 in respect of building maintenance.

As part of its commitment to continually raising the professional standards to which its members work, RICS developed its New rules of measurement: order of cost estimating and cost planning for capital building works (NRM1), which is now part of a suite designed to support the cost management of construction projects from cradle to grave (see Figure 1).

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Figure 1: Relationship and purpose of the RICS NRM suite of measurement rules 

The rules were arguably the most significant launch to the construction sector by RICS in the past 35 years.

Before NRM1, quantity surveyors had used the Standard Method of Measurement (SMM), now replaced by the RICS New rules of measurement: Detailed measurement of building works (NRM2). These rules were specifically drafted to advise quantity surveyors on the detailed measurement of building works for inclusion in bills of quantities that, in turn, were used to obtain tender prices from contractors. They also aided the measurement and valuation of variations issued during the construction phase.

A key requirement of the SMM was the need for a full and detailed specification and drawings from the designers, which are now seldom provided. This resulted in the overuse of provisional sums and abuse of bills of quantities. The lack of detailed design is primarily caused by the cost of finance, and the need for clients to complete and put the building to use as quickly as possible. Equally, the impetus lies with ensuring that contractors are involved early in the design process to provide input on buildability and value for money.

As a consequence, over the past 20 years, the use of design and build contracts have come to the forefront; commonly awarded on a concept design or developed design (RIBA Work Stages 2 or 3) basis – well before the completion of technical design (RIBA Work Stage 4), when the bills of quantities could be considered. For these reasons, cost planning has become an essential cost management tool.

Step forward

NRM1 is an overdue statement of how cost planning is applied in practice, and is a significant step forward in improving standards. First, it re-establishes measurement as the core of our professional standing and second, it makes it easier to benchmark against widely accepted best practice. It also provides learning establishments with a clearer statement of the competencies required by students. Its framework facilitates a systematic approach to compiling and managing cost estimates and cost plans.

Understanding and using NRM1 will be an essential selling point when working in other countries

As the cornerstone of good cost management of construction projects, the rules provide a standard of measuring for developing the order of cost estimates and costs plans, as well as enabling effective, accurate and transparent cost advice to be given. They also facilitate better pre- and post-contract cost control. Consequently, NRM1 sets out the standards required of all parties involved in the cost management of construction projects.

It is important to understand that NRM1 is a toolkit, not just a set of rules for the quantification of capital building works. The rules provide guidance on:

  • How the method of measurement changes as the building design develops: from high-level measurement of areas and/or functional units to the measurement of more detailed elements,sub-elements and cost significant components.
  • Total project fees: considering consultancy services from cost managers, architects, engineers and legal advisers, as well as those from site surveys – both desktop and intrusive investigations; in addition to main contractor’s pre-construction fees, plus the main contractor’s and subcontractors’ design fees.
  • Total building project costs: how all cost centres, including non-construction items, can be pulled together into a single cost plan for the entire building project (see Figure 2).
  • Risk: based on the properly considered assessment – dispensing with the widely mismanaged concept of contingences.
  • Information requirements: from the employer and other project team members at each design stage to enable more certainty in cost advice.
  • Key decisions: made by client at each project stage of the RIBA Plan of Work, or Office of Government Commerce gateway.
  • Codification: providing a framework for elements, sub-elements and components so that the structure of cost plans can be converted to work package or vice versa, through both the bid and construction phases.
  • Reporting: communicating cost advice to clients.
  • Data collection: providing a common basis for analysing and collecting real-time cost data that can be used for benchmarking and to estimate the cost of future building projects (see Figure 3).

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Figure 2: Build-up of total building project estimate

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Figure 3: The cost management cycle (The Benge Cycle)

Applying the rules

To be effective, a cost manager must be able to understand and use the rules of measurement, as well as being able to apply common sense. An effective project manager, on the other hand, must have an understanding of how cost managers construct their estimates and plans to discuss them from a position of knowledge. For practitioners, NRM1 should be seen as an indispensable aid to embrace best practices in cost estimating and cost planning. Furthermore, understanding and using NRM1 will be an essential selling point when working in other countries, to avoid misunderstandings that arise due to different cultures.

Use of the rules demonstrates a professional and responsible approach to the cost management of building projects. But they are equally essential for project managers, clients and others involved in financial management who wish for a better understanding.

Be aware that cost managers will find it increasingly difficult to defend a position where they have ignored NRM1 when preparing cost plans. Having first been published in 2009, NRM1 can no longer be considered new. In the event of a legal dispute, a court or tribunal is likely to ask why the cost manager decided not to adopt recommended RICS best practice. Indeed, the question may even be asked whether they can be considered to be competent.

David P Benge FRICS is a Director at Gleeds and lead author of NRM1

Stuart Earl FRICS is a Director at Gleeds and Chair of the Measurement Initiative Steering Group

Further information

  • Related competencies include Commercial management of construction
  • All figures sourced from Benge, David P, NRM1 Cost Management Handbook (2014)
  • This feature is taken from the RICS Construction journal (September/October 2015)