Cost estimates associated with due diligence are generally concerned with capital expenditure (CAPEX) forecasts, normally reflecting a 5 or 10 year planning period. Hence, these estimates are typically indicative only and are provided as an “order of magnitude cost allowance” for specifically identified works. Items of work are often not fully described or detailed reflecting the high level nature of the assessment, the amount of information available and the purpose for which they are prepared.
Consideration should be given to any pre-existing CAPEX records or budgets, where available. On occasions CAPEX forecasts may be
estimated on the basis of being undertaken as part of a major upgrade or refurbishment. Under such circumstances more details
should be prepared or sought regarding the scope of works, design, specifications and programme. Further, any assumptions or exclusions material to the CAPEX forecasts should be stated. These could include but are not limited to details of
(a) preliminaries, builders margins, overheads or contingencies;
(b) negotiated, staged or other special forms of contract;
(c) approval, consents or compliance orders;
(d) costs associated with the further investigations;
(e) professional/consultant fees for further investigation and testing, the design, documentation and the management of rectification works, or any resulting change in the scope of rectification works;
(f) costs associated with the relocation, temporary accommodation, disruption to business or loss of profit of the building owner or tenants;
(g) work outside site boundaries;
(h) goods and services tax (GST); and
(i) future escalation.
The Client may also have specific requirements for proposed expenditure which may include:
(a) refurbishment of the property to reposition it in the market;
(b) sustainability improvements such as replacement of building services equipment with more energy efficient equipment; and
(c) remodelling or extensions/additions to a building. Estimating the costs involved in the scope of proposed capital works of this nature can be involved, and the Client’s brief and reporting expectations should therefore be accurately defined. The presentation of capital expenditure forecasts varies subject to specific reporting requirements. A common format is a tabular report. Typically this would include a series of line items detailing the element under consideration, the proposed scope of works and the associated costs. A suggested rectification timeframe and risk rating are also commonly specified for each item which aids in framing the context of the suggested expenditure.