Order Of Cost Estimate

Section 1

Purpose

The Order of Cost Estimate (OCE) is the QS’s first formal cost output on a project. Prepared at RIBA Stage 1 (Preparation and Brief), it translates the client’s brief into a costed range before significant design expenditure is committed. Its purpose is to establish whether the project is financially viable at the outset and to set a realistic budget envelope that can be carried forward into the Cost Plan series.

The governing standard is RICS NRM 1: Order of Cost Estimating and Cost Planning for Capital Building Works (2nd edition, reissued as practice information October 2022). NRM 1 defines three permissible methods of estimation at this stage — the floor area method, the functional unit method, and the elemental method — and prescribes what must be included, excluded, and disclosed. Compliance with NRM 1 is mandatory for RICS-regulated firms.

The RICS Cost Prediction Professional Statement (Global, 1st edition, reissued June 2024) imposes additional obligations on how the OCE is communicated. The QS must disclose the basis of the estimate, the method used, the key assumptions and exclusions, and the expected accuracy range. An OCE that omits these disclosures is non-compliant and exposes the firm to professional liability if the budget is later found inadequate.

Section 2

Key Principles

NRM 1 defines three estimating methods. The floor area method uses a cost per m² of Gross Internal Floor Area (GIFA) sourced from BCIS. The functional unit method uses a cost per functional unit (e.g. per bed space, per school place, per car parking space). The elemental method uses a structured NRM 1 elemental breakdown — used where more design detail is available but rare at Stage 1. In practice the floor area method is most commonly used at feasibility stage.
GIFA — Gross Internal Floor Area — is measured to the internal face of the perimeter walls at each floor level in accordance with RICS IPMS: International Property Measurement Standards — All Buildings (2nd edition). It includes internal walls, columns, stairs, lift shafts, and service ducts, but excludes the thickness of external walls, open-sided covered areas, and unenclosed car parks. Always confirm the measurement basis and state it in the report. If only NIA is available, convert to GIFA using a documented efficiency ratio appropriate to the building type: offices 75–85%, hotels 55–65%, hospitals 55–70%, residential 80–88%.
Functional unit types must be defined and verified before use. NRM 1 provides a schedule of common functional units by building type — e.g. per bed space (hospitals, care homes), per pupil place (schools), per key (hotels), per seat (theatres). The GIFA per functional unit should always be cross-checked against industry norms as a sense-check: a care home showing 35 m² per bed space (vs a typical 50–60 m²) signals an error in the brief or functional unit count.
BCIS benchmark rates must always be adjusted before use. The four mandatory adjustments are: (1) location — apply the BCIS Location Factor for the project region; (2) time — update to the anticipated tender date using the BCIS Tender Price Index (TPI); (3) specification — adjust for the client’s quality level relative to the benchmark; (4) size — allow for economy of scale effects where the project GIFA is significantly outside the benchmark sample. Each adjustment must be individually documented.
Abnormal costs must be separately identified and priced. Items such as piled foundations, contamination remediation, complex access, specialist fit-out, or listed building works are not captured in benchmark rates and must be added explicitly. Hiding abnormals within the £/m² rate distorts the estimate and corrupts future benchmarking.
The OCE must include all cost components prescribed by NRM 1: Measured Works + Preliminaries (typically 12–18%) + Contractor’s Overheads and Profit (4–8%) + Project/Design Team Fees + Risk Allowances (Design Contingency + Construction Risk) + Inflation Allowance + Other Development Costs (planning, statutory connections, decant, etc.).
The RICS Cost Prediction Professional Statement is mandatory. It requires disclosure of: (a) the basis of the estimate; (b) the method used; (c) key assumptions and exclusions; (d) the expected accuracy range. At OCE stage the typical accuracy range is −15% to +20%. Always present the OCE as a range with upper and lower bounds — not a single-point figure.
Assumptions and exclusions must be clearly stated in every OCE report. NRM 1 clause 2.19.4 requires that items included in and excluded from the estimated cost are clearly communicated to the employer. Clause 2.19.5 specifically mandates: (f) the basis of cost estimates (i.e. assumptions) and (j) a clear and unambiguous statement of inclusions and exclusions. Undisclosed exclusions assumed by the client to be included are a significant source of dispute and professional liability. The lists below serve as a prompt for inexperienced QSs — review each item and state explicitly in the report whether it applies, is included, or is excluded.

Section 3

Practical Application

Follow these steps to prepare a compliant Order of Cost Estimate:

Step 1

Confirm the measurement basis. Obtain or calculate GIFA from the client’s brief, sketch drawings, or planning application. Measure to RICS IPMS — All Buildings. Document how GIFA was derived. If only NIA is available, convert using a documented efficiency ratio (offices 75–85%, hotels 55–65%, hospitals 55–70%, residential 80–88%) and state the factor applied. For the functional unit method, confirm the unit type from the brief and cross-check the implied GIFA per unit against known industry norms as a sense-check.

Step 2

Source benchmark data from BCIS. Access BCIS Online and filter by building type, construction type, and quality level. Extract cost per m² GIFA (floor area method) or cost per functional unit statistics — mean, lower quartile, upper quartile. A minimum sample of 10–15 comparable projects is recommended. Record the sample size, building type filter, date range, and statistical parameters used.

Step 3

Apply the four BCIS adjustments in sequence. (1) Location: apply the BCIS Location Factor. (2) Time: apply the TPI ratio (TPI at anticipated tender date ÷ TPI at BCIS base date). (3) Specification: apply a percentage uplift or reduction based on the client’s brief relative to the BCIS sample. (4) Size: apply an economy of scale factor if the project GIFA falls significantly outside the sample range. Document each adjustment and its rationale.

Step 4

Build up the full NRM 1 cost summary. Apply the adjusted rate to GIFA or functional unit quantity to produce Measured Works. Add: Preliminaries (12–18%); Contractor’s OHP (4–8%); separately priced abnormal costs; Design Contingency (10–15% at Stage 1); Inflation (base date to mid-point of construction); Project/Design Team Fees; Other Development Costs. Sense-check the all-in £/m² GIFA result against BCIS interquartile data.

Step 5

Derive the accuracy range. Apply −15% to +20% (typical at Stage 1) to the central estimate to produce lower and upper bounds. State the basis of the range (NRM 1 stage, design completeness, data quality). Present all three figures (£) in the report.

Step 6

Prepare the OCE report for issue. Include: the cost summary as a range; GIFA source and measurement basis; BCIS source, date, and sample; adjustments schedule; abnormal costs schedule; assumptions and exclusions; accuracy range statement; programme assumptions; risk/contingency summary.

Step 7

Issue formally and obtain written acknowledgement. Send under formal cover to the client and PM. Request written acknowledgement. Retain issued report and acknowledgement on the project file. Version-control all revisions.

Section 4

Common Mistakes to Avoid

Measuring on the wrong area basis. Using NIA, GEA, or site area instead of GIFA without a documented conversion introduces systematic error. The measurement basis must match the BCIS data source and must be stated in the report.
Using unadjusted BCIS rates. Applying a benchmark rate without adjusting for location, time, and specification is one of the most common sources of budget inadequacy. Every adjustment must be documented with its rationale.
Omitting or understating abnormal costs. Abnormals are the most frequent cause of budgets being found inadequate at later stages. They must be separately identified, priced, and labelled — not absorbed into elemental rates.
Presenting a single-point cost figure without a range and stated assumptions. This is a direct breach of the RICS Cost Prediction Professional Standard and creates a misleading impression of certainty.
Failing to record the project brief and assumptions in writing before issuing the estimate. If the brief changes and the OCE is revised, a documented baseline is essential to explain the reasons for the change.
Not disclosing exclusions. VAT, FF&E, IT infrastructure, tenant fit-out, and third-party costs must be explicitly excluded in writing. An undisclosed exclusion assumed by the client to be included is a significant source of dispute.

Section 5

APC Competency & Quick Reference

This guidance note is relevant to the following RICS APC competencies: Cost Management (Levels 1–3); Quantification and Costing (Levels 1–2); Data Management (Level 1); Client Care (B2, Level 1).

What are the three methods of Order of Cost Estimating prescribed by RICS NRM 1, and when would you use each?

The floor area method uses a cost per m² GIFA — appropriate where the building type is well-defined and BCIS comparables are available. The functional unit method uses a cost per functional unit (e.g. per bed space, per school place) — useful where the brief is defined by capacity or where GIFA is unavailable. The elemental method uses a structured NRM 1 breakdown — used where more design information exists but rare at Stage 1. Both the floor area and functional unit methods should include a GIFA-per-unit sense-check. The floor area method is most common at feasibility stage.

What does the RICS Cost Prediction Professional Standard require the QS to disclose when issuing an Order of Cost Estimate?

The Cost Prediction PS (reissued June 2024) requires disclosure of: (1) the basis of the estimate — what design information it is based on; (2) the method used; (3) key assumptions; (4) material exclusions; and (5) the expected accuracy range. Omitting any of these is a breach of a mandatory RICS Professional Statement.

How do you convert NIA to GIFA, and what efficiency ratios would you apply for a commercial office and a hotel?

GIFA is always larger than NIA because it includes internal walls, columns, stairs, lift shafts, plant rooms, and circulation that NIA excludes. To convert: GIFA = NIA ÷ NIA:GIFA efficiency ratio. For a commercial office, a typical ratio is 75–85% (i.e. GIFA = NIA ÷ 0.80). For a hotel, the ratio is lower at 55–65% (i.e. GIFA = NIA ÷ 0.60) due to the higher proportion of back-of-house, circulation, and service areas. The ratio used must be documented and its source stated.

Section 6

Feasibility Stage Checklist

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GIFA confirmed and measured to RICS IPMS — source and measurement basis documented

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NIA:GIFA efficiency ratio applied and documented where NIA is the only available area

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Functional unit type confirmed and GIFA-per-unit cross-checked against industry norms (if using functional unit method)

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BCIS benchmark data sourced — sample size, building type, quality parameters, and date recorded

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All four BCIS adjustments applied and documented: location, time, specification, size

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Abnormal costs separately identified, priced, and labelled in the cost summary

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Full NRM 1 cost build-up completed: Measured Works + Prelims + OHP + Contingency + Inflation + Fees + Other Dev. Costs

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Accuracy range stated per RICS Cost Prediction PS (−15% to +20% typical at Stage 1) — presented as absolute £ figures

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OCE formally issued to client and PM with written acknowledgement obtained and filed

Section 7

CPD Learning Outcomes

Apply the three NRM 1 estimating methods to prepare an Order of Cost Estimate appropriate to the design information available at RIBA Stage 1, confirming the measurement basis against RICS IPMS and cross-checking functional unit quantities against industry norms.
Adjust BCIS benchmark rates correctly for location, time, specification, and project size, document each adjustment with a stated rationale, and convert NIA to GIFA using a building-type-appropriate efficiency ratio.
Produce a compliant OCE report that meets the disclosure requirements of the RICS Cost Prediction Professional Statement, including a stated accuracy range and a schedule of assumptions and exclusions.

Section 8