Capital costs refer to the costs of constructing the asset. The majority of these costs include raw materials, labour and equipment (hard costs), project management fees, consulting fees, and costs associated with securing environmental and regulatory approvals (soft costs).
Capital costs assumed for the PSC are determined based on the existing procurement practices of the owner involved in the project delivery. PSC estimates, therefore, typically rely on the assumption that the project will be procured as a DBB. In some cases, however, where an owner has previously used a DB, or incorporated DB elements as part of their procurement of larger projects, a PSC estimate would be based on considering a similar approach. A key element in developing a realistic PSC model is to ensure that the traditional procurement methods for a particular owner are clearly understood.
Preliminary estimates of these capital costs are provided either by the owner or, preferably, by external consultants to the owner based on a project indicative design and output specifications that provide a graphical representation of a possible solution to the performance requirements for a project. The resulting project costs must be based, at a minimum, on the following:
• An estimate prepared by a professional quantity surveyor (QS) based on an indicative design,
• Preliminary project schedule and spend profile, and
• Outline performance specifications.
The resulting estimate should be documented in current dollars and then escalated to match the project schedule. The accuracy of the estimate, expressed as a percentage (+/-), should be highlighted. These capital costs and assumptions should be continually re-validated and updated in order to reflect any time delays, changes in the construction environment, or any changes in project scope.
As capital cost estimates at this early stage are based on an indicative rather than detailed design, a contingency is added to the capital cost estimate to account for the design's preliminary nature. Typically, design and construction contingencies are included for all projects, and a contingency on soft costs may also be included.