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San Diego County Water Authority Engineering Department

Construction Cost Estimating Guidelines

ESD 260 October 2009

San Diego County Water Authority Engineering Department

ESD 260Construction Cost Estimating

Guidelines

October 2009

Copyright © 2008 The San Diego County Water Authority

For additional copies, call the Water Authority’s Engineering Department at (858) 522-6855 or visit the Engineering Department office at 4677 Overland Avenue, San Diego, California, 92123.

Water Authority Construction Cost Estimating Guidelines Table of Contents

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Table of Contents

Chapter 1. Introduction ................................................................................................ 1-1 Chapter 2. Class Process and Selection ..................................................................... 2-1 Chapter 3. Class 5 Estimates – Conceptual Construction Cost Estimate or Order of

Magnitude .................................................................................................. 3-1 Chapter 4. Class 4 Estimates – Feasibility Study or Screening Construction Cost

Estimate ..................................................................................................... 4-1 Chapter 5. Class 3 Estimates – Preliminary Design Construction Cost Estimate ........ 5-1 Chapter 6. Class 2 Estimates – Design Development Construction Cost Estimate ..... 6-1 Chapter 7. Class 1 Estimates – Bid or Final Design Construction Cost Estimate ........ 7-1 Chapter 8. Material Take-off, Quantity Survey, and Overhead .................................... 8-1 Chapter 9. Evaluating Material Price Quotes ............................................................... 9-1 Chapter 10. Benchmarking ........................................................................................ 10-1 Chapter 11. Scope and Market Allowance................................................................. 11-1 Chapter 12. Escalations............................................................................................. 12-1 Chapter 13. Managing the Database ......................................................................... 13-1 Chapter 14. Basis of Construction Cost Estimate ...................................................... 14-1 Chapter 15. Risk Analysis .......................................................................................... 15-1 Chapter 16. Construction Estimate Reviews ............................................................. 16-1 Chapter 17. Evaluation of Contractor Bids ................................................................. 17-1 Appendix A. Work Breakdown Structure (WBS) ......................................................... A-1 Appendix B. Cost Capacity Curves ............................................................................. B-1 Appendix C. Material Take-off .................................................................................... C-1 Appendix D. MuniFinancial Economic Study Final Report .......................................... D-1 Appendix E. Basis of Construction Cost Estimate ...................................................... E-1 Appendix F. Risk Register ........................................................................................... F-1

Water Authority Construction Cost Estimating Guidelines Chapter 1. Introduction

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Chapter 1. Introduction

Guidelines intent

The intent of these guidelines is to improve communication and standardization for preparing construction cost estimates as a project move from feasibility through final design.

Purpose of construction cost estimates

Virtually every study or project funded by the Water Authority requires a construction cost estimate. Cost estimates are intended to:

• Provide consistent, accurate, and complete construction cost estimates for in-house designs

• Provide a basis for reviewing consultant construction cost estimates for consistency, accuracy, and completeness

• Help clearly define projects (provide feedback where design is lacking in detail or definition)

• Be accompanied by a description that defines the assumptions made and references suppliers, subcontractors, or tools in establishing the basis of the estimate

• Provide a consistent level of “scope and market allowance” (formerly referred to as “contingency”) for each class of estimate

• Establish a consistent procedure for applying escalations for future construction costs

• Provide a base for producing a construction schedule or critical path method (CPM) for establishing realistic contract construction duration for the project

• Provide a basis for negotiating a Schedule of Values for contractor payments

• Be used as an inspection tool to ensure that all work items are completed

• Provide a basis for exception management as a result of scope creep or changes in material cost or labor

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Function of construction cost estimate

The construction cost estimate will be used to: 1. Establish a construction cost estimate for the project. 2. Evaluate construction contract bids. 3. Produce a CPM for establishing a realistic construction period for

inclusion in the contract documents. 4. Negotiate a Schedule of Values for construction payments after the

project has bid and been awarded. (This will need to be in easily measurable quantities that eliminate debate between the contractor and the construction management team.)

5. Evaluate the contractor’s baseline CPM for tracking progress throughout the project.

6. Be part of a library of saved construction cost estimates, after being conformed to the bid results, to aid in the preparation of accurate estimates for future projects.

7. The construction cost estimate is one component to developing the overall project budget.

Water Authority Construction Cost Estimating Guidelines Chapter 2. Class Process and Selection

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Chapter 2. Class Process and Selection

Classes of construction cost estimates

Estimates are divided into five categories that have been adapted from the Association for the Advancement of Cost Engineering International (AACEI) Recommended Practices No.17R, Cost Estimate Classification System and No.18R, Cost Estimate Classification System - As Applied in Engineering, Procurement, and Construction for the Process Industry. A project cycle typically starts at Class 5. As more information is available and the level of definition increases, the project cycle moves through Classes 4, 3, and 2 until reaching Class 1. The Water Authority goal is to establish a Class 1 estimate for all projects. Table 2-1 describes the five classes of construction cost estimates:

Table 2-1. Class Estimate Characteristics.

Class of Estimate

Level of Project

Definition (Expressed as % of Design Completion)

Typical Purpose of Estimate

Methodology: Typical Estimating

Method

Expected Accuracy

Range: Typical +/- range

Relative to Best Index of 1 [a]

Sample Possible

Costs Based on $100 Cost Estimate

Suggested Scope and

Market Allowance

Class 5 0% to 2%

Budget Development

Conceptual or Order of Magnitude

Capacity-Based, Parametric Models, Judgment, or Analogy

L: -20% to -50%

H: +30% to +100%

$80 - $200 50%

Class 4 1% to 15%

or Planning Study

Feasibility Study or Screening

Equipment-Based or Parametric Models

L: -15% to -30%

H: +20% to +50%

$85 - $150 30%

Class 3 10% to 40%

or Preliminary Design

Preliminary Design

Semi-Detailed Unit Costs with Assembly Level Line Items

L: -10% to -20%

H: +10% to +30%

$90 - $130 20%

Class 2 30% to 70%

or Midpoint Design

Design Development, Definitive or Control

Detailed Unit Cost with Forced Detailed Take-off

L: -5% to -15%

H: +5% to +20% $95 - $120 15%

Class 1 50% to 100%

or Final Design

Bid/Tender, Detailed or Final

Detailed Unit Cost with Detailed Take-off, WBS, and CPS

L: -3% to -10%

H: +3% to +15% $97 - $115 5%

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Construction cost estimate input checklist

As a project progresses from Class 5 to Class 1, each successive Class will require an increasing amount of detail to provide a comprehensive scope of work. Tables 2-2 and 2-3 describe the expected level of definition of the design submittal received from the designer and available for development for the project’s construction cost estimate. If the design submittal does not fall within the levels of definition below, the amount of scope and market allowance that is applied to the construction cost estimate may be affected. Terms used in Tables 2-2 and 2-3 are more precisely described in the Water Authority’s Project Management Guidelines and Design Guidelines.

Table 2-2. Construction Cost Estimate Input Checklist Based Upon Project Deliverables.

General Project Data Class 5 Class 4 Class 3 Class 2 Class 1 Project Scope Description General Complete - - -

Facility/Infrastructure Capacity Assumed Defined Defined Defined Defined

Project Location General Feasible Alternatives

Preferred Alternative Defined Defined

Soils and Hydrology None Preliminary Draft Complete -

Project Delivery Plan None Defined - - -

Project Schedule None Preliminary Draft Updated Defined

Work Breakdown Structure None Preliminary Defined Defined Defined

Contract Strategy Assumed Preliminary Preliminary Defined Defined

Table 2-3. Construction Cost Estimate Input Checklist Based Upon Project Deliverables.

Engineering Deliverables from Design Consultant

Class 5 Class 4 Class 3 Class 2 Class 1

Program Planning

Document

Feasibility study: 15% - Design

30% - Preliminary

Design 60% - Mid point

of Design 90% -

100% Final Design

Basis of design report - Draft report Comments incorporated - -

Value engineering review - Organize and coordinate

Approved comments incorporated

- -

Construction schedule - Preliminary Updated

Updated with preliminary shutdown and tie-in plans

Complete

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Construction Cost Estimate input checklist, continued



Program Planning

Document

Feasibility study: 15% - Design

30% - Preliminary Design

60% - Mid point of Design

90% - 100% Final

Design

QA/QC reviews - Preliminary Preliminary Updated Complete

Planning/environmental - Preliminary Complete - -

Property acquisition, easement, and survey requirements

- Initiated Preliminary property acquisition requirements

Complete -

Permit applications - Preliminary Submitted Complete -

O&M manuals - Preliminary Draft Updated Complete

O&M impact report - Preliminary Draft Updated Complete

Life-cycle cost analysis - Preliminary Draft Updated Complete

Site development requirements & constraints

- Preliminary Updated Complete -

Geotechnical investigation - Desk-top Draft Complete -

Environmental requirements/constraints (EIR)

- Started Complete - -

Corrosion study - Draft Complete - -

Potholing - Draft Complete - -

Risk analysis report - Preliminary Complete - -

Hydraulic and transient (surge) analysis Draft Updated Complete - -

List of special conditions - - Draft Updated Complete

Exceptions report memorandum where deviating from Water Authority standards or BODR comments

- Preliminary Draft Updated Complete

Specifications - - Table of Contents

Complete CSI format, drafts of supplemental specifications

Complete

Process control strategy descriptions - Preliminary Complete - -

Structural, mechanical, and other calculations - Preliminary Prepared, checked,

but not certified Updated Complete

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Construction Cost Estimate input checklist, continued



Program Planning

Document

Feasibility study: 15% -

Design

30% - Preliminary Design

60% - Mid point of Design

90% - 100% Final

Design

Equipment list - Preliminary Preliminary

Updated with data sheets and delivery schedules

Complete

Drawings - general - Preliminary

Complete vicinity and location maps, drawing list, general, and project notes. Preliminary right of way and property acquisition requirements. Environmental and permit requirements

Complete right-of-way and property acquisition requirements. Environmental and permit requirements

-

Drawings – piping and instrumentation - Preliminary

Complete piping and instrumentation diagrams (P&IDs)

- -

Drawings - piping and Instrumentation - Preliminary Complete - process

flow diagrams - -

Drawings – civil - Preliminary

Complete general arrangement drawings. Preliminary details site plan, topographic and culture mapping, existing utilities, site improvements, facility layout, grading, and yard piping

Complete plans, profiles, elevations, schematics, sections, and some details

Complete

Drawings – structural - Preliminary Preliminary layouts Partially complete Complete

Drawings - mechanical - Preliminary

Complete general arrangement drawings. Preliminary major equipment, pipe sizes, work clearances, equipment spacing, and access

Complete plans, profiles, elevations, schematics, sections, and some details

Complete

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Construction cost estimate method: parametric or top-down

Parametric estimating produces construction cost estimates when little information, other than basic parameters, is known about the project. For example, a construction cost for a pipeline can be estimated given only its size, length, and general location. A parametric estimate requires the use of construction cost estimating relationships (CERs), also known as cost models, composites, or assemblies/subassemblies, which are developed from historical data and library estimates. CERs are correlated between cost drivers and system parameters, such as design or performance requirements (a quantity of something). A CER can be used individually or grouped into models that are more complex. A limitation of CERs is that to be most effective, one must completely understand how the CER was developed and where and how indirect costs, overhead costs, scope and market allowances, and escalation were applicable. Parametric construction cost estimating is most appropriate for Class 5 and 4 cost estimates. The parametric method is best used when the design basis has evolved very little detail, but the overall parameters have been established.

Construction cost estimate method: definitive, detailed, unit-cost, or activity-based

Detailed, unit cost, or activity-based construction cost estimates are the most definitive of the estimate methods and use information down to the lowest level of detail available. They are also the most commonly understood and utilized estimating methods. The accuracy of these methods depends on the accuracy of available information. A work statement and a set of drawings or specifications may be used to identify activities that make up the project, and detailed quantities are established (for example, cubic yards of excavation). Each activity must then be further broken down so labor costs, equipment costs, material costs, and subcontract costs (or other unit cost type items) are itemized and quantified. Subtotaled, these costs form direct costs. Indirect costs, overhead costs, scope and market allowance, and escalation are then added as necessary. The estimate may be revised as known details are refined. The detailed, unit cost, or activity-based estimating methods are most used for Class 2 and 1 cost estimates. Activity-based construction cost estimates, detailed construction cost estimates, bid construction cost estimates, construction cost estimates, and other terms imply that activities, tasks, and work packages (the lowest level of the work breakdown structure (WBS)) are well defined, quantifiable, and tracked so performance can be measured accurately. Quantities should be objective, discreet, and measurable.

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Organization of construction cost estimates

Definitive construction cost estimates are organized according to a WBS that follows the construction schedule and can be used to compare against the schedule of values prepared by the construction contractor. In order to achieve this objective:

• Divide the work into main elements that shall, in general, follow the construction schedule. Assign unique WBS numbers to the main elements of work. See Appendix A for an example.

• Within each main WBS (element of work), provide a detailed take-off of all items included within the main WBS. These items will constitute the sub WBS elements. See Appendix A for an example.

Construction cost estimate selection

Based on the level of information available, determine the class of the estimate and follow the instructions provided in the associated chapter:

• Chapter 3. Class 5 Construction Cost Estimates




• Chapter 7. Class 1 Construction Cost Estimates Figure 2-1 describes the construction cost estimating process flow.

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Construction Cost Estimate selection, continued

Figure 2-1. Construction Cost Estimating Process Flow.

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Additional processes

For instructions on how to complete specific processes within the various classes of construction cost estimates, refer to the associated chapter:

• Chapter 8. Material Take-off, Quantity Survey, and Overhead

• Chapter 9. Evaluating Material Price Quotes

• Chapter 10. Benchmarking

• Chapter 11. Scope and Market Allowance

• Chapter 12. Escalations

• Chapter 13. Managing the Database

• Chapter 14. Basis of Construction Cost Estimate

• Chapter 15. Risk Analysis

• Chapter 16. Construction Cost Estimate Reviews

• Chapter 17. Evaluation of Contractor Bids

Water Authority Construction Cost Estimating Guidelines Chapter 3. Class 5 Estimates

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Chapter 3. Class 5 Estimates – Conceptual Construction Cost Estimate or Order of Magnitude

Description

Class 5 construction cost estimates are generally prepared based on very limited information, and subsequently have wide accuracy ranges. As such, some companies and organizations have elected to determine that due to the inherent inaccuracies, such estimates cannot be classified in a conventional and systematic manner. Class 5 construction cost estimates, due to the requirements of end use, may be prepared within a very limited amount of time and with little effort expended – sometimes requiring less than an hour to prepare. Often, little more than proposed facility type, general location, and capacity are known at the time of estimate preparation.

Level of project definition required

0% to 2% of full project definition.

End usage Class 5 construction cost estimates are prepared for any number of

strategic business planning purposes, such as, but not limited to, market studies, assessment of initial viability, evaluation of alternate schemes, project screening, and project location studies.

Construction cost estimating methods used

Class 5 construction cost estimates usually use statistical estimating methods such as cost/capacity curves and factors (for example, assumed pipe size), and other parametric and modeling techniques. The Water Authority typically uses cost/capacity curves for conceptual estimating. See Appendix B for an example. Parametric construction cost estimating is a process of using various factors to develop an estimate. The factors are based on engineering parameters, developed from historical databases and library estimates, construction practices, and engineering/construction technology. Parameters include physical properties that describe project definition characteristics (for example, pipeline size, pump station capacity, and horsepower).

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Expected accuracy range

Typical accuracy ranges for Class 5 construction cost estimates are -20% to -50% on the low side, and +30% to +100% on the high side, depending on the technological complexity of the project and the inclusion of the appropriate scope and market allowance determination. Ranges could exceed those shown in unusual circumstances.

Construction cost estimate process

Complete the following steps to prepare the Class 5 construction cost estimate:

Step Action

1. Apply parametric cost curves (periodically maintain and update database).

2. Apply 50% scope and market allowance, performing risk analysis as a scope and market allowance alternative.

3. Apply escalation, utilizing the Muni Model. Note: Construction cost estimates prepared by the design contractor

shall take into account the current climate of the construction industry in the Water Authority’s service area to avoid cost estimating errors stemming from local influences.

Water Authority Construction Cost Estimating Guidelines Chapter 4. Class 4 Construction Cost Estimates

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Chapter 4. Class 4 Construction Cost Estimates – Feasibility Study or Screening Estimate

Description Class 4 construction cost estimates are generally prepared based on

limited information and subsequently have wide accuracy ranges. They are typically used along with other considerations outside this “Guideline” for project screening, determination of feasibility and concept evaluation. Typically, design definition and engineering are from 1% to 15% complete, and would include, at a minimum, the following types of information: linear footage of pipe, size of pipe, same consideration of pressure class, same consideration of construction conditions (rural vs. urban), etc.



End usage Class 4 construction cost estimates are prepared for a number of

purposes, such as, but not limited to, portion of project planning, portion of project screening at more developed stages, portion of alternative scheme analysis, portion of confirmation of economic and/or technical feasibility, or approval to proceed to the next stage.


Class 4 construction cost estimates usually use unit cost factors, but for elements where these are lacking, may use statistical estimating methods such as cost/capacity curves and factors, and other parametric and modeling techniques. See Appendix B for an example of cost/capacity curves. In addition, unit rate estimates can be used based upon similar projects, by using a schedule of values, and by escalating to present value (for example, costs per linear-foot, per diameter-inch of pipe).

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Typical accuracy ranges for Class 4 construction cost estimates are -15% to -30% on the low side, and +20% to +50% on the high side, depending on the technological complexity of the project, appropriate reference information, and the inclusion of an appropriate scope and market allowance determination. Ranges could exceed those shown in unusual circumstances.



Step Action 1. Perform material take-off.

2. Apply unit cost factors using the unit cost schedule of values database (periodically maintain and update database).





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Chapter 5. Class 3 Construction Cost Estimates – Preliminary Design Estimate

Description Class 3 construction cost estimates are generally prepared to confirm

project construction costs initially set at the Class 5 level. Typically, design definition and engineering are from 10% to 40% complete, and would include, at a minimum, the following: preliminary piping and instrument diagrams, plot plan, and developed layout drawings. See Table 2-3 for more details.



End usage Class 3 construction cost estimates are part of the total project budget

and are prepared as part of “Preliminary Design” efforts. They maybe used to adjust the construction portion of the project budget until replaced by more detailed construction cost estimates.


Class 3 construction cost estimates usually involve more deterministic estimating methods than statistical methods. They usually include a high degree of unit cost line items, although some elements may have sufficient definition to incorporate a first WBS-based Class 1-like approach. Factoring and other statistical methods may be used to estimate less-significant areas of the project. The Water Authority has moved towards developing library estimates within the HeavyBid software. (HeavyBid software is a standard detailed commercially-available cost estimating software package ordinarily used by contractors to prepare their bid estimates. Use of this package assures that the cost estimate is prepared in the way a contractor would, and not in the typical way a consulting engineer would.) These estimates can be recovered, quantities changed, and labor, equipment, material, and subcontract values updated quickly to give a very detailed, preliminary construction cost estimate.

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Step Action

1. To the extent that information is available, follow the same process as Class 1. Where information is missing, follow the same process as Class 4.





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Chapter 6. Class 2 Construction Cost Estimates – Design Development Estimate

Description Class 2 construction cost estimates are generally prepared to confirm

the construction cost as the job progresses to the mid-point of design in order to verify that design progress is still within scope and budget. Typically, engineering and design support services are from 30% to 70% complete. See Table 2-3 for details on what to include in a Class 2 estimate.



End usage Class 2 construction cost estimates are typically prepared as part of

the “mid-level” design effort.

Estimating methods used

Class 2 construction cost estimates virtually always involve a high degree of definitive estimating methods. Class 2 estimates are prepared in detail, and may involve thousands of cost line items. For those areas of the project still undefined, an assumed level of detail take-off (forced detail) may be developed to use as line items in the estimate instead of relying on factoring methods.



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Step Action

1. To the extent that information is available, follow the same process as Class 1. Where information is missing, follow the same process as Class 4.





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Chapter 7. Class 1 Construction Cost Estimates – Bid or Final Design Estimate

Description Class 1 construction cost estimates are generally prepared for as

much of the total project as possible. The parts of the project estimated at this level of detail will typically be used by the Water Authority to establish the “advertised construction cost estimate” for projects. The updated construction cost estimate is often referred to as the current control estimate and it becomes the baseline for the actual construction cost/schedule control of the project. Class 1 construction cost estimates may be used as a fair price estimate or check estimate to compare against a contractor’s bid estimate, or to evaluate/dispute claims. Typically, the design is 100% complete, and would include virtually all engineering and design documentation of the project, and complete project execution and commissioning plans.


100% of full project definition (complete, bid-ready plans and specifications).

End usage Class 1 construction cost estimates are typically prepared to form a

current control estimate to be used as the final control baseline against which bid costs will be evaluated, and form a part of the change order control program. They may be used to evaluate bid checking, to support contractor negotiations, or for claim evaluations and dispute resolution.


Class 1 construction cost estimates involve the highest degree of definitive estimating methods and require a great amount of effort. Class 1 construction cost estimates are prepared in great detail, and thus may only be performed on the most important or costly areas of the project if time and/or estimating resources are limited. All items in the construction cost estimate are usually unit cost line items based on actual design quantities.

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Step Action 1. Perform detailed quantity and material take-off. 2. Develop WBS (develop construction crews). 3. Estimate production rates.

4. Obtain material and permanent equipment quotes from suppliers.

5. Estimate direct costs using productivity, the costs database, and quotes.

6. Develop construction schedule.

7. Estimate indirect costs using the cost database and construction schedule.

8. Apply 5% scope and market allowance. 9. Apply escalation, utilizing the Muni Model.

Note: Construction cost estimates prepared by the design contractor


Water Authority Cost Estimating Guidelines Chapter 8. Construction Material Take-Off Chapter 8. Construction Material Take-off, Quantity Survey, and Overhead

Material quantities and labor activities

The construction material take-off, or quantity survey, is the process of quantifying the materials quantities and labor activities that are within the scope of project construction. Material take-off establishes the scope of project construction and allows for early request for quotes from suppliers as it may take two or three weeks to get a response for pricing. The material take-off must be as accurate as possible, and should be based on all available engineering and design data. The quantity survey can be divided into two categories. The first category includes quantities of material or work scope that are required to shape project construction (for example, earthworks, clearing and grubbing, stock piling top soil, excavation and back fill; or concrete requiring formwork, reinforcing steel concrete and embeds). The second category includes definite material to be purchased for installation into the project construction (for example, valves, pipe, pumps, doors, and concrete).

Quantity calculation and pricing

After the scope has been analyzed and broken down into the construction tasks, each task must be quantified prior to pricing. Equal emphasis should be placed on both accurate quantity calculation and accurate pricing. Quantities should be shown in standard units of measure and should be consistent with the design units (cubic yard/metric). Although others can provide quantities within the project team, the overall responsibility for accuracy of construction quantities remains with the cost-estimating group. Where meaningful supplier quotes are difficult to obtain, such as fabricated steel pipe specials, fabrication cost models may be appropriate. Databased material costs and subcontract values from previous recent project bids are good sources of current prices. Having detailed material take-offs and work breakdown structures makes it easy to obtain material and subcontract values.

Sub-contractor work activities

When evaluating the scope of work, it is important that work activities that will be performed by sub-contractors be identified. Examples of these activities are drill and blasting, welding, painting, landscaping, and electrical and instrumentation work.

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Level of design detail

The detail to which the construction quantities are prepared for each task is dependent on the level of design detail. Quantity calculations beyond design details are often necessary to determine a reasonable price to complete the overall scope of the construction cost estimate. Project construction notes should be added at the appropriate level to explain the basis for the quantity calculations, to show allowances, and to note quantities determined by cost engineering judgment that will be reconciled upon further development of the design. These notes should also be reflected in the Basis of Construction Cost Estimate conveying the estimator’s assumptions and thought processes.

WBS codes The Water Authority construction cost estimates shall be organized by

using WBS codes. Quantities grouped under the project WBS should be definable and easily measurable. Lump sum is not an easily measurable quantity, becomes subjective for payment purposes, and therefore is not acceptable for WBS-based estimates. Sub-codes or subcategories should define he next level of activity with greater detail or as a greater number of smaller activities. A WBS is like an organizational chart, or statement of work, for a project that is easily interfaced between the cost estimate, the construction schedule, and the schedule of values for payments. The structure should follow the order in which the project is constructed. See Appendix A for an example.

Materials pricing

Once the construction material take-off (with items that will be purchased) has been performed, it can be sent out for pricing. This will allow the estimate to continue with identification of construction crews, and the establishment of production rates and the cost of work items. Obtaining pricing on materials is not always easy for design estimating, as nothing is actually being purchased. There is reluctance by suppliers to give realistic pricing. If they give pricing, this is usually a budget number. If the bill of material is fairly complete, there is a greater chance to peak a supplier’s interest and receive material pricing. Other sources of information are from suppliers’ websites, historical pricing, talking with project construction management teams, and asking for copies of invoices if materials on hand are paid for as part of a monthly progress payment. If all else fails, build a model and estimate fabrication costs. It is important to maintain industry connections that can be used to obtain material pricing, while keeping a supplier interested by giving updates on the progress of the project through the design phase to the tender phase. See Appendix C for an example

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Overhead

Construction cost overhead can be divided into two categories: site overhead and head office overhead.

Site overhead Site overhead is the cost of the contractor’s onsite construction

management team. Under Mobilization in the Water Authority’s Standard Specifications, Section 01505, there are fifteen items that could be considered site overhead items. These are treated as direct costs as a bid item is provided with the bid schedule. These items are:

• Mobilization of contractor’s plant and equipment. Mobilization is always a Water Authority bid schedule item. The description of items covered under mobilization is defined in the Water Authority’s Standard Specifications, Section 01505. This is shown as a direct cost item as an allowance is made in the bid schedule as either a dollar value or a not-to-exceed percentage of the bid total value.

• Installation of temporary construction power, lighting, and other temporary facilities.

• Development of a construction water supply.

• Providing and maintaining a field office for the contractor.

• Providing and maintaining a field office for the engineer.

• Providing onsite sanitary facilities and potable water facilities.

• Arranging for, and erection of, contractor's work and storage yard.

• Obtaining and maintaining all required permits, insurances, and bonds.

• Posting all OSHA required notices and establishment of safety programs.

• Having the contractor's superintendent present at the job site full time, at all times when the construction is in progress.

• Submitting a CPM Construction Schedule.

• Submitting a Schedule of Values.

• Maintaining the site in a clean, safe, and orderly condition.

• Demobilization and cleanup.

• Photographic documentation of the site and access conditions prior to start of, and at the completion of, construction.

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Site overhead, continued

With all the items covered above, the only remaining indirect onsite overhead is the contractor’s project management team, supervision site vehicles, and any special requirement items. On smaller projects, the above list of mobilization requirements may be substantially reduced due to the project’s duration and size, and the project may essentially be run from the head office with a superintendent or foreman running the site from a storage container or pickup truck.

Head office overhead

Head office overhead is a fixed percentage that each job is assessed in order to operate the head office. An expected range of head office overhead charge against a project would be between 5% to 6%. Profit is the amount of expected investment return for the risk and investment in the execution of a project. If the profit level is too low, the contractor can get into a cash-flow crunch due to the retentions being held until project completion. If the profit margin is too high, then the contractor does not get the project. An expected level of success for a civil engineering contractor in a normal market could be around one in seven projects bid. Winning more than this means the contractor is too cheap or the market is flush. Winning less than this means the contractor needs to reassess his/her performance and expectations, or the market is tight. The measurement of risk for the contractor is the amount of exposure, which is usually in the form of labor cost exposure as a percentage of the project versus the cost of material or subcontracted work. In order to assess this, there are several ways to measure this. Table 8-1 shows the markup template from the Water Authority’s HeavyBid construction cost estimating software.

Table 8-1. HeavyBid Cost Estimating Template.

Item Cost Basis % Markup Markup

Labor $1,057,157 50% $526,579

Burden $760,987 50% $380,494

Permanent Material $6,403,192 7% $448,223

Construction Material $594,653 7% $38,476

Subcontract $2,386,498 3% $71,595

Equipment Operating Expense $366,947 5% $18,347

Company Equipment $175,500 5% $8,775

Rented Equipment $4,584 5% $229Miscellaneous - - -Totals $11,700,518 12.76% $1,492,718

Water Authority Construction Cost Estimating Guidelines Chapter 9. Evaluating Material Price Quotes

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Chapter 9. Evaluating Material Price Quotes

Overview Early in the development of a construction cost estimate, it is a good idea to request specific price quotes from the suppliers of particular material(s) that will be used on a project. This includes large diameter pipe, valves, and large mechanical equipment (for example, pumps, motors, and generators). This list should be developed early in the process, so suppliers can prepare and return their quotes before completion of the estimates (it may take suppliers a couple of weeks to return their quotes). Exactly how this is handled depends both on the class of the estimate and on the kind of material.

Price quotes per class of construction cost estimate

This type of itemization is not done for Class 5 construction cost estimates. For Class 4 construction cost estimates, a general description of the material/equipment will be all that is available. Building from Class 3 construction cost estimates on towards a Class 1 construction cost estimates, more and more of the items become increasingly well defined. For a full Class 1 construction cost estimate, each item should be fully defined by a detailed specification. Additionally, by the time a Class 1 level is reached, it will be possible to “bundle” items into packages to be supplied by a single supplier, to take advantage of prices that may not be available for single item purchasers.

Large diameter pipe price quotes

It is important to distinguish between large diameter pipe construction prices and other material/equipment construction prices. For other equipment, it is generally suitable to accept the supplier’s quote at face value. For pipe, the price quoted by a supplier tends to include market factor markups that are accounted for separately in the Water Authority’s process, and so those factors need to be discounted from the supplier’s quote. The preferred method to produce a true cost-based estimate is to calculate the cost of pipe based on the supplier’s costs, break it down back into basic raw steel cost, and add in the labor costs, equipment costs, etc. incurred by the manufacturer. This can then be compared with the supplier’s price quote to understand the current market markup conditions.

Price quote documentation

Complete documentation of all price quote information should be retained as part of the supporting documentation for the construction cost estimate.

Water Authority Construction Cost Estimating Guidelines Chapter 10. Benchmarking

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Chapter 10. Benchmarking

Overview Benchmarking is the process that allows individual aspects of cost to

be analyzed or compared to historical construction cost. Construction cost benchmarking is continually done through the design and construction phases. Benchmarking serves three purposes:

• To perform a quick “reality check” of your bottoms-up Class 3, 2, or 1 construction cost estimates by verifying that the breakdown of costs into labor, materials, etc., conforms more-or-less to actual past construction project costs

• To create Class 5 or 4 construction cost estimates by referring to records of past actual construction costs for similar projects

• To evaluate your construction cost estimating ability by comparing the actual bid results to your estimate

Benchmarking use

A detailed construction cost estimate with accurate quantities/units, along with labor, material, equipment, and subcontract values can easily be benchmarked against previous library estimates to compare relationships and look for anomalies. The level of accuracy needed for benchmarking is limited when a construction cost estimate includes allowances with lump sum values and little or no supporting documentation. As the level of estimate becomes definitive, benchmarking is a tool to help identify inconsistencies. Historical (benchmarked) cost applied to the construction cost estimate is identified. For example, small tools and equipment cost may have been added at each activity level based on a percentage of labor. In addition, a major subcontract trade may have a limited amount of defined scope and the cost may be based on historical contract values of similar projects. Finally, the overall project value can be benchmarked to a recent, completed construction project with similar characteristics such as flows, horsepower, and/or design loads. Comparing historical cost is not limited to the benchmarking of material, labor, and equipment dollars associated with each activity alone. The length of time of the duration of an activity or the total project can also be benchmarked. Project cost can be inflated by conservative production rates, which in turn, affects the indirect cost or the cost of managing the project from start to finish. Other methods of identifying a project benchmark are described in this chapter.

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Direct cost vs. indirect cost

Provide a method of benchmarking the project’s indirect cost in terms that are clear and meaningful. For example, true indirect cost items that are not directly associated with the execution and site management of a project should be identified. The indirect cost should not include percentages of direct cost items such as material tax, labor factors, material adjustments, and labor burden or workmen’s compensation and onsite management. Tables 10-1 and 10-2 show examples of direct and indirect cost summaries.

Actual costs Fundamentally, the actual construction costs of completed projects are the best guide to benchmarking. These actual costs are analyzed into the components that are useful for each class of estimate for future projects:

• For use in future Class 5 construction cost estimates, note the actual “cost curve” data such as total project cost per diameter-inch, per linear foot for a pipeline, or total project cost per horsepower for a pump station.

• For use in future Class 4 construction cost estimates, note the bid costs (“unit costs”) for the various work items.

• For use in future bottoms-up (Classes 3, 2, or 1) construction cost estimates, the actual bid results will need to be de-constructed by a detailed analysis. Based on the bid costs, and any other information listed in the bid (such as material supplier costs or subcontractor costs), break the bid down into the individual components used in a bottoms-up cost estimate (such as direct labor, material quotes, subcontractor quotes, indirect costs, and overhead and mark-up costs). Use these breakdowns to further determine basic input factors such as productivity rates for labor and equipment. These are useful as good basic input data (that is, production rates) for your next construction cost estimate, and as a quick reality check of your next construction cost estimate. For example, if you have “constructed” a pipeline job composed of 80% labor costs, but the benchmark of previous actual bids is only 30% labor costs, it is a sign that you need to do some quality control review of your construction cost estimate.

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Table 10-1. Construction Cost Estimate Recap – Bid Quantities (Site Expenses). Cost Item Direct Indirect Total % of Total

Labor $982,776.68 $518,170.87 $1,500,947.55 9.617%

Burden $726,596.80 $333,304.79 $1,059,901.59 6.791%

Labor + Burden $1,709,373.48 $851,475.66 $2,560,849.14 16.408%

Permanent Material $7,122,498.51 $0 $7,122,498.51 45.635%

Construction Material $515,673.75 $42,573.78 $558,247.53 3.577%

Equipment $853,190.93 $114,533.76 $967,724.69 6.200%

Subcontract $4,140,640.87 $0 $4,140,640.87 26.530%

Other $257,530.00 $0 $257,530.00 1.650%

Total Cost $14,598,907.54 $1,008,583.20 $15,607,490.74 100.00%

% of Total 93.538% 6.462% 100.00% -

Table 10-2. Construction Cost Estimate Markup – Indirect Costs (Off-site Expenses).

Markup on Resource Costs $2,008,709.36 12.8702%

Cost Add-ons $0 0%

Head Office Overhead – 5% of Total $780,374.54 5.0000%

All Risk Insurance – 0.9000% of Cost, Markup, and Previous Add-ons

$166,273.89 1.0653%

Bond from Summary Table $78,302.52 0.5017%

Markup, Add-on, and Bond Totals $3,033,660.31 19.4372%

(% of Cost)

Cost + Markup $18,641,151.05 -

From the example in Table 10-1, the benchmarked relationship to notice is the indirect cost for site expenses, which includes onsite supervision. In this example, the indirect site expenses are 6.462%. For Water Authority-type heavy civil works projects, these expenses should be in the range of 6 to 8%. From the example in Table 10-2, the benchmarked relationship to notice is the offsite indirect costs and markup compared to the onsite costs. For heavy civil projects, this markup is usually in the range of 18 to 22%. The example shown is 19.437%, which is within the expected benchmarked range. Variations occur depending on the amount of material cost and subcontract work in the estimate, versus the amount of self-performed work.

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Markup vs. risk

Too often, markup is applied as an arbitrary percentage for overhead and profit, without considering the risk exposure within the estimate. The exposure, or risk, can be measured as the amount of work that is self-performed versus subcontracted (where someone else is carrying the risk). Risk is usually seen as the amount of burdened labor costs in relationship to the other resources within the estimate. If the value of material and/or subcontract values are high, then the burden labor is lower and the risk and consequently the amount of markup will be lower. Table 10-3 shows an example markup calculated based upon risk exposure. This table is from the HCSS HeavyBid cost estimating software. To obtain a markup, the estimator applies percentages against resource totals as a measure of risk. From Table 10-3, benchmarked percentages are used as a way of measuring risk exposure and consequently a markup is calculated. As shown in Table 10-3, markup on resource costs is 12.87%.

Table 10-3. Bid Summary (Markup)*.

Item Cost % Markup Markup

Labor $1,500,948 50% $750,474

Burden $1,059,902 50% $529951

Permanent Material $7,122,499 7% $498,575

Construction Material $815,778 7% $57,104

Subcontract $4,140,641 3% $124,219

Equipment Operating Expense $688,631 5% $34,432

Company Owned Equipment (rent) $276,819 5% $13,841

Outside rental Equipment $2,275 5% $114

Total $15,607,493 12.87% $2,008,709*Markup percentages taken from detailed analysis and deconstruction of contractor bids received on recent Water Authority projects.

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Relationships of direct cost as a percentage

The Water Authority does many similar projects. When comparing construction cost estimates, a review of an older project or library construction cost estimate for a similar project can be used as a benchmark for comparison. This allows the reviewer a quick evaluation of a new construction cost estimate to see if the resource relationships are of a similar magnitude. If there is a considerable difference, then the reviewer needs to dig deeper to establish why. When performing Class 5, 4, and 3 construction cost estimates, some items may be removed from a previous estimate so that a benchmarked unit cost can be established. For instance, a Class 1 or recent bid can be used to benchmark unit costs and then be used to perform early planning construction cost estimates for pipeline relining. The cost of the relining cans, shoring costs, etc. can be broken out, then a unit rate installation cost established. In addition, other items can be benchmarked, such as: mobilizing; shoring costs per portal; securing the pipeline for relining; disinfecting the pipeline; and reactivating the pipeline. Now the cost of the cans can be established by estimating or obtaining from a fabricator, a higher level of accuracy.

Project soft costs

After establishing an estimated cost of construction, other project costs are estimated. This is done by looking at historical, similar, completed projects and benchmarking. These are: design cost; construction management cost; other consultants; Water Authority Labor; project management reserves; Water Authority expenses; and capitalized overhead. The project manager will need to use their experience and judgment in estimating project soft costs in establishing a total budget for the project. Soft costs are typically benchmarked against this mid-point construction cost for a future project budget.

Water Authority Construction Cost Estimating Guidelines Chapter 11. Scope and Market Allowance Chapter 11. Scope and Market Allowance

Lack of definition

For estimating purposes, scope and market allowance is used where there is a lack of definition in the scope of the project. For example, when an item of work is not completely definable, it may be appropriate to use an allowance until it becomes definable. Once the item has a good definition, the allowance is removed and an estimated value is included in its place. As the design develops, and the project scope has greater definition, the amount of scope and market allowance is reduced. The scope and market allowances that are applied are suggested benchmark numbers from the AACEI for the different classes of estimate. (AACEI generally refers to scope and market allowance as “contingency” in their publications.) The Water Authority may add certain allowances to the construction cost estimate. Allowances are for known construction cost items that cannot be quantified because of a lack of detail. Examples include allowances for security equipment, allowances for furniture items, etc. The design contractor shall not add any cost allowance other than those identified and approved by the Water Authority.

AACEI The AACEI, Skills & Knowledge of Cost Engineering handbook

defines scope and market allowance as an amount added to an estimate to allow for items, conditions, or events for which the state, occurrence, and/or effect is uncertain and that experience shows will likely result, in aggregate, in additional cost. Typically estimated using statistical analysis or judgment based on past asset or project experience, scope and market allowance usually excludes: (a) major defined scope changes such as changes in product specifications, capacities, building sizes, and location of the asset or project; (b) extraordinary events such as major strikes and natural disasters; (c) management reserves; and (d) escalation and currency effects. Some of the items, conditions, or events for which the state, occurrence, and/or effect is uncertain include, but are not limited to, planning and estimating errors and omissions, normal price fluctuations (other than general escalation), design developments and changes within the scope, and variations in market and environmental conditions. Scope and market allowance is included in all Water Authority cost estimates in accordance with the guidelines shown in Table 11-1.

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Table 11-1. Scope and Market Allowance per Class of Construction Cost Estimate.


50% 30% 20% 15% 5%

Scope and market allowance items

Scope and market allowance items typically account for the following types of variations that will occur in all projects:

• Errors and omissions in the construction cost estimating process

• Design that may not be complete enough to determine final quantities at the time of estimate preparation

• Some items that may defy precise quantification, but are required to be estimated

• Some items to be quantified that are generally computed by factored or other conceptual methods

• Labor productivity variability (the fact that there is no such thing as an “average” tradesman that installs every incremental quantity of an item at the “average” rate typically used in preparing the estimate)

• Weather, which may vary from that assumed, affecting labor productivity

• Labor availability, skills, and productivity that may vary from that originally assumed

• Wages that may vary from that assumed in the estimate due to inflationary reasons, changes in assumed crew mix and size, labor availability, and market conditions

• Material and equipment cost variability

• Certain materials of construction that may be substituted from that assumed in the estimate

• Changes in actual quantities that may change discount schedules from that assumed in the estimate

• Changes that occur in the bid phase due to addendums

Scope and market allowance exclusions

Scope and market allowance will not account for the following:

• Significant defined changes in scope

• Major unexpected work stoppages (that is, strikes)

• Excessive, unexpected inflation

• Excessive, unexpected currency fluctuations

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Design development comparison

A way to look at scope and market allowance is to follow a project through the process of design development. Consider a new proposed pipeline that is approximately 50,000 LF in length and is 108 inches in diameter:

• The conceptual estimate is taken from a cost capacity curve and a 50% scope and market allowance is applied. (Length accuracy +/- 1,000 LF; diameter of pipe +/- 12 inches.)

• The feasibility study is done looking at different alignments and the preferred alignment crosses a freeway, four streets, and has two stream crossings. To the cost capacity curve estimate, a unit cost is added for the tunnels under the freeway, the four street crossings, concrete encasements, stream diversions, and dewatering for the stream crossings that are proposed. The scope and market allowance is now reduced to 30%. (Length accuracy +/- 1,000 LF; diameter of pipe +/- 12 inches.)

• At the preliminary design phase, or 30% design definition, a 20% scope and market allowance is applied. The level of definition at this point would include the base mapping, topographical, and culture features including existing utilities plotted, list of utility conflicts and pipe appurtenances developed, and probably a preliminary geotechnical report, but no details. (Length confirmed +/-250 LF and the diameter to +/- 6 inches.)

• At the design development level, or 60% design definition, a 15% scope and market allowance is applied. The level of definition would include preliminary specifications. The plan and profiles are well developed showing valve structures, fiber optics, pipe plate thickness, pipeline depth, tunnels, and pipeline details. Preliminary project access and lay down areas are identified.

• At the final design level, or 90% to 100% design definition, a 5% scope and market allowance is applied. At this stage, the specifications are finalized. Plans are complete, fine-tuned, and should included all surface improvements, access, and appurtenances.

Alternate method

Scope and market allowance, as discussed here, uses predetermined benchmarks. Another method of determining scope and market allowance is by risk analysis as discussed in Chapter 16.

Water Authority Construction Cost Estimating Guidelines Chapter 12. Escalations

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Chapter 12. Escalations

Background With the Water Authority planning projects up to 20 years in the future,

choosing the correct cost index to predict construction cost escalations is very important. In the past, the Water Authority used Engineering New Record cost indices to predict construction cost escalation, historically running around 3%. During the early to mid 2000’s, these indices no longer worked, as the basket of goods within the indices did not match the basket of goods within the projects being constructed by the Water Authority. In late 2005, the Water Authority hired an economist to address this problem. The result is the Water Authority’s “Muni” Escalation Model, which shows the amount of escalation that has occurred from the last construction cost estimate to date, and depending on the type of project being constructed, will predict a future escalation rate for a project.

Muni model use

The importance of this model is to standardize a method of predicting future cost escalations based upon a predetermined description of goods and services being supplied. This is done by having a predetermined breakdown of labor, equipment, subcontract costs, and a specific description of the major material items contained with the construction cost estimate. Using the Producer Price Indices, the model then does a Monte Carlo simulation calculation based upon historical Producer Price Indices to predict an escalation value. See Appendix D for an example. By using the Muni Escalation Model, the Water Authority now takes multiple escalation speculation away from cost estimators and consultants and standardizes the method of measurement for this cost factor. This is important when looking at the means and methods in producing and updating the Water Authority’s Capital Improvement Program (CIP).

Water Authority Construction Cost Estimating Guidelines Chapter 13. Managing the Database

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Chapter 13. Managing the Database

Overview The heart of a good construction cost estimating system is the

database. It is important to establish the age of the data that is being used to estimate a project’s construction cost. If the data is old, then the results of the estimate will show its deficiencies as the project moves forward and particularly at bid time. A great deal of funds can be spent in the design phase, but there may be insufficient funds to construct the project if the estimates are too low because the data was out of date.

Material Material costs are a difficult item to maintain in a database. Prices

constantly change based on market conditions and the amount of material purchased. Old pricing may be used for equipment and material, but must be updated as the design develops. Material take-offs can be performed as a “Bill of Materials” and sent to suppliers for pricing. If pricing for fabricated items is difficult to obtain, a model may be required to estimate the cost of these items. However, core material and labor pricing must be updated. Construction cost estimating models should constantly be checked for accuracy against material prices received as part of the bidders’ tender documents.

Labor Labor rates; fringe benefits; worker’s compensation, general liability,

and all risk insurance; and payroll taxes change on an annual basis (sometimes more often). Union contracts, which are the basis of prevailing wage rates, usually change in early July. The most current labor rates, fringe benefits, and contract details are available on the Associated General Contractors’ website at www.agcsd.org. These usually appear several months before they are available on the California Department of Industrial Relations website at www.dir.ca.gov/DLSR/PWD/index.htm. Worker’s compensation rates can change twice a year, usually on January 1st and July 1st. The pure premium is available at the Workers’ Compensation Insurance Rating Bureau of California’s website at wcirbonline.org/home.aspx. Actual premiums are usually 60% to 65% higher than the pure premium rate. Contact the Water Authority’s Risk Manager to get an idea of current worker’s compensation, general liability, and all risk insurance rates. Note that certain Water Authority contracts (those named in the Emergency Storage Project agreements) are subject to a Project

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Labor, continued Labor Agreement (PLA) that may require additional apprentice staffing

or other project-specific labor cost adjustments.

Equipment rates

Equipment rental rates for a construction cost estimate can be based on outside rental rates from rental yards or contractor’s equipment purchase/replacement values (including operating costs). For large multi-year projects, specialized equipment may be purchased for the project, depreciated, and then sold at the end of the project. Core to all the above methods of valuing equipment, rental rates are operating costs that include the cost of fuel, filters, oil, grease, wear on tires or tracks, wear on bucket blades and teeth, etc.

Establish current equipment rates by either using CalTrans Equipment Rental Rates at www.dot.ca.gov/hq/construc/equipmnt.html, US Army Corp of Engineer’s Equipment Rental Rates for Area VII at www.nww.usace.army.mil/cost/index.asp, or use equipment rental calculations that are available in some estimating software or from the manufacturer’s or contractor’s association. Equipment rates, at a minimum, should be updated annually, or in cases of large projects, by project. When there is volatility with fuel prices, operating cost will need to be adjusted on a regular basis to reflect the market.

Other construction cost estimating software updates

When adding newer equipment models to the software, it may be necessary to update construction crews with the newer equipment, unless the same equipment code is used for the newer model. Production rates and crew sizes can be established by checking on project specific Daily Inspection Reports, and if available, the Contractor’s Daily Report. The Water Authority’s Daily Inspection Reports are broken down into individual activities, which makes it easy to track crew sizes and productivity. Productivity needs to be tracked over several months in order to obtain a realistic picture of production rates. Production rates still must be calculated, particularly for earthwork activities. For other activities where no documentation is available, use estimating books such as R.S. Means, Nation Construction Estimator.

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Other subcontract work

It can be difficult for an owner or consultant to get realistic pricing for subcontract work, and this work may be outside the estimator’s sphere of expertise. If this type of work is typical (for example, electrical and instrumentation is always similar on flow control facilities), then it is worthwhile to create an activity codebook with production rates for this subcontract work. Establish crews and production rates as above.

Escalation model

• Since the early 2000’s, cost escalations have been rampart. This affected many project budgets due to projects being escalated based upon Engineering News Record’s CCI index. This index generally escalated projects at 3% p.a. However, the basket of goods and services within the index did not match what was typical for Water Authority projects.

• In late 2005, MuniFinancial was hired to build an escalation model based upon the basket of goods and services contained within typical Water Authority projects. This model is driven off Producer Price Indices from the Bureau of Labor Statistics. The model calculates past inflation impacts and predicts escalation rates based upon the makeup of the Water Authority’s projects. This model should be updated at least every six months in order to keep up with market trends. The model allows historical data used in parametric estimating to be brought up to current cost levels. It will also project costs forward to the scheduled mid-point of construction for establishing budgets.

Subcontract work

With all large construction work, there is nearly always subcontract work. One thing constant with Water Authority projects is pipelines. These pipelines are usually made of steel and require welding. Most welding subcontract work is done by piecework. These costs can also be calculated from production rates, and costs for labor, equipment, and materials are applied along with an appropriate markup. Costs need to be updated as labor, equipment, and material costs change.

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Library construction cost estimates

Library estimates are estimates that have been saved (as they are close to the bid value and contain good detail and descriptions) so that they can be used for conceptual construction cost estimates. In order to save an estimate as a library estimate, the construction cost estimate should have been close to the bid value. The construction cost estimate should be normalized based upon the material and subcontractor values that come out of the contractors’ tender packages. Once this is done, the construction cost estimate can be saved as a library estimate. Typical library estimates are:

• Access roads

• Buildings

• Cathodic protection

• Concrete structures

• Dams Flow control facilities

• Flow regulatory structures

• Pipeline

• Process (treatment/filtering)

• Pump stations

• Re-lining of existing pipelines

• Tunneling

Water Authority Cost Estimating Guidelines Chapter 14. Basis of Construction Cost Estimate

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Chapter 14. Basis of Construction Cost Estimate

Purpose The Basis of Construction Cost Estimate (BOE) document should clearly state the purpose of the estimate (that is, cost study, funding, updated project budget, etc.), the project scope, pricing basis, allowances, assumptions, exclusions, cost risk and opportunities, and deviations. It is also a document that records pertinent conversations and/or decisions made during the design process as related to cost. A BOE should be completed for every class of construction cost estimate as it documents the estimator’s assumptions and thought processes. The BOE is filed with the estimate.

Deviations

For each construction cost estimate prepared, any deviation from the previous construction cost estimate is defined and the differences between the two estimates are explained. The variance in cost from the previous construction cost estimate is identified at the cost item level and later included in the summary level cost estimate. Detailed and summary reports reflect the variances, with notations for each item, and include any changes in design scope with the cost increase for each change identified. The design contractor participates in construction cost estimate review meetings with the Design Manager to reconcile construction cost estimates and discuss each party’s respective construction cost estimate.

BOE contents The BOE contains the following information:

• The design contractor shall document the basis of the construction cost estimate. This documentation shall include lists of drawings and specifications, quantities, equipment lists, qualifications, assumptions, inclusions, exclusions, a brief narrative of the cost estimate variances for the current design completion, and the approach used in developing the cost estimate. See Appendix E for an example.

The design contractor shall provide a quantity take-off with each applicable construction cost estimate and define the unit cost (pricing) data used to calculate/extend each line item. The quantity take-off shall be adjusted between construction cost estimates. For pricing, the design contractor may use industry construction cost databases or estimates of unit costs developed specifically for the project. The design contractor shall clearly define the cost sources on which the pricing is based, including indirect costs and direct costs for labor, material, equipment, subcontractors, and suppliers.

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BOE contents, continued

• The design contractor shall not use percentages of total cost for certain elements of work such as electrical, cathodic protection, etc. The design contractor shall provide detailed take-off sheets for all items of work.

• Sales taxes shall be included in the direct cost of materials and equipment.

• The design contractor shall identify all major material and equipment costs, backing up each construction cost estimate with supporting written price quotes. These quotes shall be in written form issued by manufacturers and/or suppliers. Minor equipment costs may be documented by written telephone quotes. All backup information shall be neatly bound and sorted based on category of work. An index shall be provided, identifying all support material.

• All Water Authority-furnished equipment or materials, and all labor costs associated with Water Authority system shutdowns and connections shall be excluded from the construction cost estimates submitted by the design contractor unless otherwise directed by the Design Manager. Installation costs for these items incurred by the construction contractor shall be included in the cost estimate.

• For some Water Authority projects, insurance for construction contractor’s, through an Owner Controlled Insurance Program (OCIP), will be provided. For these projects, the cost of insurance provided by the OCIP shall be deducted from the cost estimate. For all other Water Authority CIP projects, the cost of insurance shall be included in the cost estimate. The design contractor shall check with the Design Manager to determine whether or not the project has OCIP.

BOE template The BOE template, shown in Figures 15-1A and 15-1B, describes the

topics expected to be discussed by the estimator or team of estimators who prepare to the BOE, to assist in communicating the major aspects of the construction cost estimate:

Water Authority Cost Estimating Guidelines Chapter 14. Basis of Construction Cost Estimate

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Figure 15-1A. Basis of Construction Cost Estimate Template (First Page).

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BOE template, continued

Figure 15-1B. Basis of Construction Cost Estimate Template (Second Page).

Water Authority Construction Cost Estimating Guidelines Chapter 15. Risk Analysis

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Chapter 15. Risk Analysis

Overview Risk Analysis is a method commonly used to determine the amount or

level of scope and market allowance added to the project cost. A risk analysis is not strictly required if everyone accepts the level of scope and market allowance proposed for use in the standard process. The person performing the construction cost estimate can propose a risk analysis or the project manager can require one, but it is a project-specific decision. If a risk analysis is needed, the idea is to list all possible items that may go wrong, and try to attach a likelihood to each. If many of the items are very likely to occur, then it may be prudent to use a larger scope and market allowance. If many of the items are very unlikely to occur, a lower scope and market allowance may be appropriate. See Appendix F for an example of a risk register.

Types of risk analysis

There are several ways of analyzing risk. AACEI references two types of risk analysis that are commonly used:

• Strategic – “Strategic Risk Analysis Model” is a method that evaluates the level of a project definition and project technical complexity in order to determine the overall risk to a construction cost.

• Detailed – “Detailed Risk Analysis Model” is a method that evaluates the accuracy range for individual or groups estimate components in order to determine the overall risk to a project cost.

Since a risk analysis provides a basis for scope and market allowance, the percentage of added cost can be easily overstated (or understated) if the assessment is not carefully evaluated. It is highly recommended that cost professionals be involved in the process to aid in the benchmarking of cost as a starting point. Likewise, if the design team can better define the project definition, the assessment process should have the project design team member’s involvement.

Supporting documentation to a computer generated risk analysis

The goal of a risk analysis is to allow for project team members to identify the uncertainties and assess a percentile cost (P-Cost), which then aids in determining the amount of scope and market allowance. If this calculated method is used and is developed with the use of software, there should be detailed reports provided, defining the ranges of assessment of cost applied.

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Qualitative analysis of market vulnerability risk

A qualitative analysis allows the project team members to assess how vulnerable the WBS labor and materials are to market changes.

Define other project allowances or mark-ups

If the project team participates in a risk analysis, the team members should also be aware of any other project allowances or markups applied to the project totals. These can be called by different names, such as “Market Conditions” or “Design Allowance.” However, a well-defined risk analysis should be all inclusive of identifying the confidence level of cost. Should there be adjustments to such items as labor and/or material escalations, this must be identified concurrently with the risk analysis process.

Risk analysis and the construction schedule

A major assumption in a well-defined risk analysis is the construction start date and the completion date. Furnish a planning strategy if there are ways to improve the construction duration and reduce the risk or improve the risk analysis. Identify the major elements of the construction schedule in a work breakdown format. Where applicable, the resource and approximate quantities should be identified. If a major subcontract trade is performing work on the project, such as spin lining, or grouting, identify the activity, resource (criteria of the type of material if known or assumed), and quantity. With the preliminary design submittal, the design consultant conducts and submits a risk analysis report. The report is updated with the mid-point and final design submittals. The report identifies and highlights areas most sensitive to risk and recommends measures to mitigate the risks.

Minimizing the need for a risk analysis

As the design of a project approaches 100% completion and the current estimate is based upon a Class 1 or definitive level, the need to evaluate the accuracy range is minimized. In addition, the same can be said for the development of a definitive class of estimate as early as possible during the design process.

References

Dysert, Larry R., Skills and Knowledge of Cost Engineering, 5th Edition, Chapter 9, Estimating, AACE International, 2004.

Water Authority Construction Cost Estimating Guidelines Chapter 16. Construction Cost Estimate Reviews

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Chapter 16. Construction Cost Estimate Reviews

Purpose The Construction Cost Estimating Review and Benchmarking Report

is a written document that thoroughly describes the construction cost estimate for the members of the project team. This report will allow an individual to understand the status of the construction cost estimate without spending meticulous hours reviewing a detailed estimate. The report is used every time the Water Authority reviews a consultant’s or third party’s construction cost estimate.

Template use The Construction Cost Estimating Review and Benchmarking Report

is shown in Figure 16-1A and 16-1B. The report topics and their descriptions are provided below: Scope of Review A brief description of the purpose (that is, fair price, accuracy, content, etc.) and scope (design level of estimate) of this review and benchmarking analysis. Recommendations List specific actions that you recommend the project team take to improve the estimate. Actions should relate directly to problems highlighted in the discussions that follow. Basis of Review Identify whether the reviewer has met with the estimator. If there are several estimators involved in the project, determine their availability and each estimator’s role in the project estimate. Provide a brief summary of resources utilized to compile the project estimate, such as the software, material pricing services or the name and date of a database, labor rates, or equipment rates used. Document site conditions and the dates of site visitation. State whether the reviewer has seen the site. Identify key elements, resources, and/or challenges the construction cost estimate may have or may not have addressed. Reference any benchmark data available. Identify if the project is similar to those included in the Water Authority’s historical cost database. List the documents that you have been provided for the review (for example, a list of Technical Memorandum, a list of plan sheets, 90% design plans and specifications, and the date of the documents).

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Template use, continued

Review Comments The individual performing the review should objectively summarize the construction cost estimate following the format below. The review comments should be clear and concise and allow for open discussion from the project team. Estimate Classification – Define the state of the construction cost estimate. This should be based upon the appropriate classification level as noted and defined within these guidelines. Determine whether the level of estimate is appropriate for the classification. Identify exceptions and/or recommendations. Estimate Documentation – Define the state of deliverables of which the construction cost estimate is based upon. This should include the design documents percentage of completion and the level of detail the estimate provides. It should be noted that a construction cost estimate might have a high level of detail in the early stages of design. Likewise, the level of detail may be limited if the time allowed to produce the construction cost estimate is reduced. Basis of Construction Cost Estimate – Simply state whether an estimator or team of estimators have documented their method of developing cost by utilizing a “Basis of Construction Cost Estimate”. See Chapter 15 for more information. Scope and Market Allowance – Define any methods used to support the recommended amount of scope and market allowance. Identify any exceptions taken in the review of different forms of markups, which can be generalized as additional scope and market allowances. Provide any recommended improvements to the scope and market allowances within the estimate. Documentation vs. Cost – Identify whether the construction cost estimate content adequately represents the scope of work. Clearly identify any exceptions and/or improvements to the construction cost estimate as it relates to the scope of work. Benchmarking Determine whether the benchmarking used is appropriate for this estimate.

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Figure 16-1A. Construction Cost Estimating Review and Benchmarking Report Template (First Page).

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Figure 16-1B. Construction Cost Estimating Review and Benchmarking Report Template (Second Page).

Water Authority Construction Cost Estimating Guidelines Chapter 17. Evaluation of Contractor Bids

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Chapter 17. Evaluation of Contractor Bids

Bid evaluation Once the bids are in, the construction cost estimate is compared

against all the bids received. This allows for comparison of bid items material and subcontract prices. The evaluation helps to highlight the difference between the construction cost estimate and the bids and provides valuable insights to the project and market conditions. It allows insight into the level of success of the estimate, the subcontract estimates, and material prices. By being able to extract good material quantities from the estimate, changes in the material markets (such as steel pipe, reinforcing steel, and concrete) can be seen. Evaluation of subcontract values helps to fine-tune the estimating database and subcontract estimates. These values can then be use to create a “library construction cost estimate” for future similar projects.

Negotiating the Schedule of Values

With a good WBS from the estimate, adjusting the material and subcontract values from the bids will go a long way in assisting the Construction Management Team in negotiation of a schedule of values. By having a good WBS, historically the Water Authority has found that the Schedule of Values can be negotiated within two to four weeks versus the up to three months when a good WBS is not available. This also allows for creation of a good historical unit rate database for Class 4 and 3 construction cost estimates.

Evaluation of the contractor’s CPM

By evaluating the contractor’s CPM against the estimate CPM, differences in production rates and the method in which the contractor is proposing to execute the work should become apparent. These differences can be used in the creation of a library construction cost estimate.

Adjusting the Estimate for Library Estimate

By using the bid results to make adjustments for material and subcontract values and the contractor’s CPM to adjust production rates and methods, the construction cost estimate should now closely reflect the low bid. This construction cost estimate can now be saved as a library estimate for future detail conceptual construction cost estimates or modified and updated for similar future projects.

Water Authority Construction Cost Estimating Guidelines Appendix A. Work Breakdown Structures (WBS)

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Appendix A. Work Breakdown Structures (WBS)

Description Construction cost estimate items are set up using WBS. WBS should

be in order of how the work will be built, should have a structure that can be easily converted into a Schedule of Values for processing payments to the contractor, and quantities (as much as possible) should be definable and measurable. Once the estimate becomes a “library estimate,” the estimate may be used for producing detailed Class 5 and 4 preliminary conceptual construction cost estimates. Lump sum items are not definable and measurable and therefore are not appropriate for use in library construction cost estimates.

CPM (critical path method)

Once the construction cost estimate has been completed, a CPM schedule should be completed. This will convey how the project was estimated, the sequencing of work, show if the project can be completed within the allotted time frame, and will highlight any hidden risk based upon the schedule. The schedule will also help the Construction Management Team with the review of the contractor’s construction schedule.

Example An example of a WBS is shown in Figures A-1A and A-1B.

Appendix A. Work Breakdown Structures (WBS) Water Authority Construction Cost Estimating Guidelines

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Example, continued

Figure A-1A. Example WBS (First Page).

Water Authority Construction Cost Estimating Guidelines Appendix A. Work Breakdown Structures (WBS)

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Example, continued

Figure A-1B. Example WBS (Last Page).

Water Authority Construction Cost Estimating Guidelines Appendix B. Construction Cost Capacity Curves

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Appendix B. Construction Cost Capacity Curves

Example An example of a construction cost capacity curve is shown in Figure

B-1.

Figure B-1. Example Construction Cost Capacity Curve.

Water Authority Construction Cost Estimating Guidelines Appendix C. Material Take-off

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Appendix C. Material Take-off

Example An example of a material take-off is shown in Figures C-1A and C-1B.

Figure C-1A. Example Material Take-off (First Page).

Appendix C. Material Take-off Water Authority Construction Cost Estimating Guidelines

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Example, continued

Figure C-1B. Example Material Take-off (Last Page).

Water Authority Construction Cost Estimating Guidelines Appendix D. MuniFinancial Economic Study Final Report

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Appendix D. MuniFinancial Economic Study Final Report

Example An example of a MuniFinancial economic study final report is shown in

Figures D-1A through D-1U.

Figure D-1A. Example MuniFinancial Final Report (Cover).

Appendix D. MuniFinancial Economic Study Final Report Water Authority Construction Cost Estimating Guidelines

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Example, continued

Figure D-1B. Example MuniFinancial Final Report (Table of Contents).


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Figure D-1C. Example MuniFinancial Final Report (Page 2).


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Figure D-1D. Example MuniFinancial Final Report (Page 3).


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Figure D-1E. Example MuniFinancial Final Report (Page 4).


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Figure D-1F. Example MuniFinancial Final Report (Page 5).


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Figure D-1G. Example MuniFinancial Final Report (Page 6).


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Figure D-1H. Example MuniFinancial Final Report (Page 7).


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Figure D-1I. Example MuniFinancial Final Report (Page 8).


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Example, continued

Figure D-1J. Example MuniFinancial Final Report (Page 9).


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Example, continued

Figure D-1K. Example MuniFinancial Final Report (Page 10).


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Figure D-1L. Example MuniFinancial Final Report (Page 11).


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Figure D-1M. Example MuniFinancial Final Report (Page 12).


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Figure D-1N. Example MuniFinancial Final Report (Page 13).


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Figure D-1O. Example MuniFinancial Final Report (Page 14).


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Figure D-1P. Example MuniFinancial Final Report (Page 15).


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Example, continued

Figure D-1Q. Example MuniFinancial Final Report (Page 16).


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Example, continued

Figure D-1R. Example MuniFinancial Final Report (Page 17).


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Example, continued

Figure D-1S. Example MuniFinancial Final Report (Page 18).


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Example, continued

Figure D-1T. Example MuniFinancial Final Report (Page 19).


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Example, continued

Figure D-1U. Example MuniFinancial Final Report (Last Page).

Water Authority Construction Cost Estimating Guidelines Appendix F. Risk Register

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Appendix F. Risk Register

Example An example of a risk register is shown in Figures F-1A and F-1B.

Figure F-1A. Example Risk Register (First Page).

Appendix F. Risk Register Water Authority Construction Cost Estimating Guidelines

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Example, continued

Figure F-1B. Example Risk Register (Second Page).

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