Guide to Using the RIBA Plan of Work 2013 - Other - Page 62
Guide to Using the RIBA Plan of Work 2013
Capital cost (CAPex)
The CAPex or capital cost of a building is the cost of its construction, which is
typically the cost agreed with the contractor and specified in the Building Contract
for the construction of the project.
In recent years, it has become more commonplace for Schedules of Services to
include obligations to consider whole life costs. The procurement of projects under
the Private Finance Initiative (PFI) was a key driver in this trend as the contracts that
were tendered included allowance for the running costs of the building for a period
of time, typically 25 or 30 years. There was, therefore, a business imperative for the
consortium (typically a funder, a facilities management provider and a contractor)
to reduce such costs, also known as operating costs (or OPex). The sustainability
agenda has provided further impetus on this subject: a building that is run more
cost effectively is inevitably more beneficial in environmental terms. Many design
aspects of a project can deliver reduced operating costs without increasing capital
costs. However, in many instances the additional capital costs can only be justified if
the payback period warrants the additional expenditure.
Operating costs (OPex)
he OPex or operating costs are the costs associated with the maintenance and
T
operation of a building and its associated activities. The OPex and CAPex are
closely related as the specification of certain aspects of the constructed building
has a direct link to its running costs.
Payback period
If an item with a capital cost of £1,000 (a control panel for a boiler, for example)
delivers a reduced annual running cost of £100, then its payback period is 10 years.
In considering whether this capital expenditure is justified, the client needs to take
this period into account. For example, if the client intends to move house in 5 years’
time, they may decide that the expense is not justified. However, they may also
decide that as the item will improve the house in terms of its environmental impact
the costs can be justified and that they will be recouped when the house is sold on.
The whole life agenda has been driven and moved forward by owner-occupiers,
who, like PFI operators, can take a view on the capital costs, particularly where
an increase to the Project Budget may be required to reduce the operating costs.
Conversely, the Achilles’ heel in the shift towards considering operating costs is that,
in many instances, the party responsible for the capital costs will not be bearing the
operating costs and there is therefore no incentive for them to reduce these costs.
www.ribaplanofwork.com
55
