Using a Should Cost Model
Designing by reference to a 'Should Cost Model' is an essential cost discipline when developing designs and other proposals for a framework project or programme of work. In order to create and maintain effective cost controls throughout the procurement and delivery of framework projects, the framework provider, clients, manager and suppliers should build into their framework project processes a system for regular reconciliation of designs and other proposals with the whole life Should Cost Model for each project or programme of work.
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| Highways England report that their framework 'Delivery Integration Partners' contract for 'single point design' responsibility against a targeted Outturn Budget that includes all scheme capital costs with 100% pain/gain opportunities and risks. Gain release focuses on customer information and value generation. Pain uses customer-focused information to mitigate severity by continuing achievement even when financially the scheme is overspending. 50% of gain share is released against a value generation model based on margin gains from design and methodology decisions based on a pre-determined investment baseline. This includes value for money improvements in economic growth generation, social value and community benefit emanating from the scheme.' |
Framework project award systems can describe how each framework client creates a Should Cost Model, and can require prospective suppliers to state:
■ Their fees, profit and overheads by reference to the Should Cost Model
■ Evidence of their ability to deliver the project or programme of work within the Should Cost Model
■ Their proposals for achieving improved value within the Should Cost Model
■ Their proposals for using ESI to seek efficiency savings against the Should Cost Model.
A Gold Standard framework contract states how a Should Cost Model is developed in accordance with the ESI processes of each framework project in order to create a more detailed cost plan leading to agreed project costs and prices. It should state the gateways for ESI and for the redesigns or other activities that may be necessary to ensure that supplier and supply chain costs remain within the Should Cost Model.
Concerns may arise that a selected framework supplier could allow the outcomes from ESI to give rise to costs that exceed the client's Should Cost Model. Gold Standard framework contract systems should therefore include:
■ Close monitoring by the framework manager or project manager of the tier 1 supplier's ESI subcontract tendering and appointment procedures, so as to ensure that these procedures do not impose excessive demands or otherwise inflate supply chain prices
■ An ESI process that allows time for review of the tier 1 supplier's supply chain prices, so as to ensure that these remain within the Should Cost Model as a precondition to authority for the construction phase of the framework project to proceed
■ Transparency at each stage whereby the framework manager or project manager receives all ESI documentation prepared and issued by the tier 1 supplier, receives all tender returns and proposals submitted by prospective supply chain members and is invited to attend all meetings with prospective supply chain members.
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| Recommendation 16: Assess and control the costs of framework deliverables through the use of evidence-based benchmarks and whole life Should Cost Models To assess framework deliverables in respect of cost, schedule, GHG emissions and other expected outcomes, and in order to maintain cost controls that support call-off, ESI, performance measurement, value improvement and other framework processes, this review recommends that framework providers, clients and managers use benchmarks based on information from past projects and programmes and that they create 'Should Cost Models' forecasting what each framework project or programme should cost over its whole life. |
Specific actions include:
Framework strategy
■ Analyse information from past projects and programmes so as to make more informed and intelligent framework investment decisions and so as to better understand whole life costs and value.
■ Undertake benchmarking of key framework deliverables including cost, schedule, GHG emissions and agreed outcomes at each stage of framework business case development.
Framework procurement
■ Use benchmarking and Should Cost Models to forecast the likely scale of the framework programme and the resources required for framework activities.
Framework contract
■ State:
■ the processes that create a Should Cost Model, forecasting what each framework project or programme should cost over its whole life including the build phase and the expected design life
■ how each Should Cost Model will be used to maintain controls over supplier and supply chain costs throughout call- off, ESI and other project processes
■ the system for benchmarking key deliverables in respect of framework projects including cost, schedule, GHG emissions and agreed outcomes
■ how the benchmarking system will affect the costing of subsequent call-offs.