Valuation with limited information: why first principles work

Quantity surveyors are used to valuing what they can see. Work is performed, measured, checked, and priced. But when you are asked to value works that have not yet been carried out, what do you do?

This was the challenge in a recent expert report: assessing remedial works to a hospital building, where competing technical solutions were still at the concept stage, and the bespoke nature of the work meant cost data would be unreliable.

In this article, we will explore how to take a proactive approach in these situations and build a robust valuation when information is limited, why first principles provide the most reliable route, and how everyday QSs can apply these lessons on live projects.

The challenge: no work, no prices, no benchmark

When you value construction work, you will normally anchor into one of these three information sources:

• Completed works measured and priced using contract rates or available cost data
• Contractor quotations from the supply chain.
• Benchmark costs either from your cost system, previous projects or cost databases.

But in the expert report we prepared, these usual sources were severely limited because:

• The remedial works were prospective, so there was no cost data, as the work had not been performed.
• The remedial work was bespoke, so existing rates would not be relevant.
• The client’s PQS had produced a cost plan of round numbers, with no explanation of basis or assumptions.
• Going to the supply chain would mean non-competitive pricing loaded with risk premiums, so this was not an objective basis for valuation.

In short: there was very little hard data, but we were instructed to make a valuation, so a solution needed to be found.

The first principle approach

The only reliable route was to return to first principles.

This means taking the valuation back to basics and building up rates with labour, plant, materials and time. For example:

• Labour: identify the type of operative, the crew size, and the production rate.
• Plant: determine access requirements and the equipment needed for the prescribed methodology.
• Materials: obtain manufacturer or supplier rates for specified products.
• Time: estimate resources required and the rate of production to generate activity periods that can be used to determine the overall period.

Where design detail was incomplete (e.g. criteria such as steel tonnage), reasonable assumptions were made but always stated explicitly. That way, if new facts emerged later, the valuation could be easily updated without undermining its credibility.

Production rates: the missing ingredient

When it comes to first principles pricing, one of the most difficult pieces of information to obtain is the rate of production that will be needed to perform a particular activity. For example, when valuing Hilti anchor installations:

• How long would it take to drill six anchors per location at each floor level?
• What gang size was needed?
• What was the cycle time and total activity duration?

This was outside my expertise as a QS and the solution was to work collaboratively with the contractor’s planning team, who provided the missing programme data.

So whenever rates of production are not clear, talk to those who are doing or overseeing the work and get their perspective.

Adjusting for time and place

Even once base rates are established, context matters:

• Timing: costs valid today may not be valid in 6–9 months’ time, so inflationary adjustments are needed.
• Location: rates suitable in Yorkshire may not reflect the cost of work in central London. Regional adjustments are essential.

In this case, BCIS indices were used to apply both inflation and location factors. That ensured the valuation was not just detailed, but also realistic for when and where the works would actually be performed.

Why first principles build robustness

It can seem onerous having to prepare a valuation using this level of detail, but think about the benefits:

• You know the basis of the valuation, and that cannot be understated when it comes to negotiating valuations.
• Your work is transparent, which builds reliability and credibility.
• As the situation develops, you are in control of updating your valuation.

Your valuation will withstand challenge whether in negotiation, adjudication, or before a tribunal.

Final reflections

Valuing works with limited information is never easy, but as this valuation shows, it can be an excellent solution in certain circumstances.

We would summarise the lessons as follows:

• Don’t rely on high-level cost plans if they lack substance.
• Make assumptions explicit so they can be updated without undermining the valuation.
• Treat production rates as the critical ingredient and work with those who can provide them.
• Always adjust for timing and location to ensure relevance.

In an industry where valuations are often contested, transparency and robustness are your best defence.

Next week: we’ll look at the role of assumptions and production rates in more detail and why they are often the weakest link in valuations and how QSs can manage them effectively to avoid disputes.

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