An order of cost estimate is the first proper cost document a scheme produces. It arrives before there is a design worth measuring, usually while somebody is still deciding whether to buy the site, and it carries more weight than its accuracy deserves. Every figure that follows will be compared back to it.
That is the reason its contents matter more than its total. A figure produced from a rate can be within a few per cent of the eventual outturn and still be useless, because nobody can see what it assumed. A figure produced with its assumptions on the face of the document can be some way out and still be the more useful of the two, because the reader knows which parts to test.
The document has one job
The purpose of an order of cost estimate is not to predict the final account. Nothing produced at this stage can do that honestly. Its job is to tell a decision maker whether the scheme is worth developing further, and to identify what has to be resolved before the next decision.
That reframing changes what belongs in it. A single total answers a question nobody is actually asking. A total accompanied by the three or four items most likely to move it, with a value against each, answers the question the reader has.
What belongs inside the building line
The superstructure is the part an early estimate handles best, because it follows from the area schedule and a structural principle. Frame, envelope, internal division, finishes and services can each carry a rate at this stage without embarrassment, provided the rate is tied to a stated specification level rather than to a general standard.
Where an area schedule distinguishes between tenures, unit types or uses, the estimate should distinguish between them too. Averaging a private and an affordable specification into one rate produces a number that is wrong for both, and the error is not visible in the total.
Gross to net efficiency belongs here as well. An estimate built on net saleable area without stating the assumed gross area is describing a building that has no circulation, no risers and no plant.
What belongs outside it
This is where early estimates fail, and the failure is consistent. Substructure and abnormals, external works, infrastructure and utility connections, section agreements and community infrastructure payments each sit outside the building and each behaves differently from the superstructure.
They cannot be estimated from a rate per square metre of floor area because they do not scale with floor area. Equally, they scale with the site: its slope, its ground conditions, its boundaries, its access and the obligations attached to its consent.
At order of cost stage most of these will be unknown. That is acceptable. What is not acceptable is folding them into a rate and leaving the reader unable to see they are there. Each gets its own line, with a value and a note stating what the value assumes and what survey would resolve it. Our approach to that is set out under cost planning and estimating.
Risk, and the difference between two kinds of it
An order of cost estimate should carry two separate allowances, not one. Design development risk covers the growth that occurs as a scheme moves from a diagram to a set of construction drawings, and it reduces as the design matures. Construction risk covers what happens on site once the design is fixed, and it does not reduce until the work is done.
Combining them into a single contingency percentage removes the ability to release either one. It also hides the fact that a scheme at the very start carries far more design risk than construction risk, and that the balance inverts as the project proceeds.
A percentage taken from convention tells the reader nothing about their scheme. A risk allowance built from named items, each with a value, can be interrogated, argued with and reduced as each item resolves. That is the whole point of putting it in a document.
Inflation to a date, not to a feeling
Construction inflation belongs in an order of cost estimate, and it belongs stated to a date. The convention is to inflate to the midpoint of the construction period, because that is roughly where the average pound is spent.
Doing that requires an assumed start on site and an assumed duration. Both will be wrong to some degree, which is exactly why they should be written down. When the programme moves by nine months, a reader who can see the assumption knows immediately that the inflation allowance needs revisiting. A reader looking at a total does not.
The same applies to the base date of the underlying rates. An estimate built on rates from eighteen months ago and inflated forward is a different document from one built on current rates, and the reader is entitled to know which they are holding.
What sits outside the building contract entirely
A surprising proportion of development cost never appears in any building contract. Professional fees, planning and statutory costs, surveys, insurances, finance costs, marketing, legal fees and the client's own staff time all sit outside it.
An order of cost estimate that covers only construction is not wrong, but it must say so plainly, because the reader is usually building an appraisal and will assume the number is the development cost unless told otherwise. Stating the boundary is a single sentence and it prevents a whole category of misunderstanding.
How to read one you have been given
Four questions establish most of what you need to know. What area basis is it built on, gross or net, and is that basis stated. Which items sit outside the number. What does the risk allowance consist of, and can it be listed. Equally, what date has the inflation been taken to.
An estimate that answers all four is usable even where its total later proves optimistic, because every movement can be traced to an assumption that changed. An estimate that answers none of them is a single figure with no handles on it, and the first time it moves, nobody will be able to explain why.
Where an estimate has been produced by a party with an interest in the answer, the case for an independent look is stronger still. That is a common reason for the instructions described in hidden cost exposure.
What this means for you
Ask for the assumptions before you ask for the total. An order of cost estimate is a document about uncertainty, and the useful information is in how that uncertainty has been described rather than in the figure it produces.
If you are buying a site on the strength of one, the items outside the building line are where your exposure sits. Those are the lines to test, and they are the lines a rate per square metre cannot reach. On residential schemes in particular they are the usual source of the gap, which is set out further under residential development.
Need an order of cost estimate you can take to a board?
Send the area schedule and what you know about the site. We will tell you what can be measured at this stage and what has to be stated as an assumption.