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Construction Estimating

PART 1

"ACCURACY" - First and foremost, your ability to achieve success at a targeted, predetermined goal will be a direct function of the degree of consistent intensity which drives the

momentum of your efforts. Pete Johnson


Construction EstimatingIndex

1. Overview

2. Types of Contracts

3. Types of Estimates

4. Document Control

5. Estimating Data Sources

6. Order of Magnitude Estimates

7. Definitive Estimates

8. WBS (Work Breakdown Structure)

9. Estimating Work Items

10. Bid Wrap Up


1. Overview

• The extremely competitive environment of the construction industry

forces ever smaller markups.

Because of this, it is very important to have accurate estimates.

• Construction firms constitute only about 8% of all businesses in the

United States, yet they make up more than 17% of all business failures.

While some of the failures may be attributed to causes such as over-

extension, poor management, or lack of proper financial controls, most

failures result from unrealistic bids based on poor estimates.



Three principal types of contracts:

1. Reimbursable

• Cost reimbursable (time and material)

• Cost reimbursable with percentage fee

• Cost reimbursable with fixed fee

• Cost reimbursable plus cost/schedule bonus/penalties

2. Measured (unit price)

• Measured unit price

3. Lump sum

• Guaranteed maximum price *Note- is this measured or lump

sum???

• Lump sum/ fixed price



Some main (+) advantages/ (-) disadvantages

1. Reimbursable – cost contract

• (+) Flexibility in dealing with changes (important if job is not well defined)

• (+) An early start can be made

• (-) Final cost is unknown

• (-) Difficulties in evaluating proposals

Reimbursable – “target” contract (cost and schedule)

• (+) Flexibility in controlling the work

• (+) Almost immediate start on the work

• (-) Final cost initially unknown

• (-) No opportunity for competitive bidding for the “targets”

• (-) Difficulty in agreeing on an effective target



Some main (+) advantages/ (-) disadvantages

2. Measured (unit price) contracts

• (+) Good design definition is not essential

• (+) Very suitable for competitive bidding

• (-) Final cost is not known

• (-) Additional site staff are needed to measure, control and report

3. Lump sum/ fixed price contracts

• (+) Low financial risk to owner/ maximum risk to contractor

• (+) Cost is known before commitment is made

• (-) Variations are difficult and costly

• (-) An early start is not possible



Three basic methods of estimating:

1. Order of magnitude

• Sometimes referred as “conceptual” or “ball park”

• Accuracy within +50%, -30%

2. Budget

• Sometimes referred as “design development” or “semi

detailed”


3. Definitive

• Also referred to as “check”, “lump sum”, “tender




Estimates must segregate direct and indirect costs:

1. Direct costs

• Labor

• Material

• Equipment

• Subcontract

2. Indirect costs

• Taxes

• General conditions

• Risk (profit and contingency)

• Escalation


4. Document Control

1. QA form2. Bid documents3. PRC notes4. IRC notes5. Staffing matrix6. Personnel data sheet7. Schedule

• An estimate should always include written documentation on how it was

developed and what was included or excluded.

• The estimates should be fully documented through proper organization of

binders. These should be indexed in the following format:

8. Estimate basis9. Estimate10. Risk analysis11. G&A form12. Checklist13. RFP14. Amendments15. General documents


5. Estimating Data Sources

Some examples:

1. R.S. Means, Building Construction Cost Data Book

2. McGraw-Hill, Dodge Digest of Building Cost and Specifications

3. Craftsman Book Co, National Construction Estimator

Commercial cost reference publications, most of which are revised at least

annually, are available to facilitate both approximate and detailed estimating

The above publications have proven invaluable to contractors, however the

most accurate data for a contractor is that compiled through their own

experience


Construction Estimating

PART 2

“Now that we have all this useful information, it would be nice to do something with it.

(Actually, it can be emotionally fulfilling just to get the information. This is usually only true, however, if you have the social life of a kumquat.)”

Unix Programmer's Manual



Some types of Order of Magnitude estimate:

1. End-product unit method

2. Scale of operations method

3. Ratio or factors method

1. Multiple equipment cost

2. Lang factors

3. Hand factors

4. Physical dimension method

5. Parametric estimates

Order of magnitude estimates are based on limited information and are thus

subject to considerable variation



Data Collection Phase

1. Describing the project in general terms

2. Listing the standard parameters that can me measured

3. Establishing specific design characteristics

4. Determining selected design ratios

Data Collection and Cost Indices



Data Application Phase

1. Listing trade sections or cost elements

2. Listing of total cost of each cost element from the reference project

3. Relating of each cost element to a parameter

4. Determining cost element unit prices

5. Determining the percentage of each cost element in terms of the entire

project cost

Data Collection & Application and Cost & Location Indices



Cost & Location Indices

1. General purpose cost indices

• Engineering News-Record, Department of Defense

2. Contractor price indices

• Austin Company, Fruin-Colnon, Turner Construction Company

3. Valuation indices

• American Appraisal Company, Boeckh Company

4. Special purpose indices

• Environmental Protection Agency, Bereau of Labor Statistics

5. Location indices

• R.S. Means Construction Cost Data, Engineering News-Record



Cost & Location Indices

Note: Estimators must carefully document the use of an index

so that others may have the same understanding of its

use in that particular application.


7. Definitive Estimates

Organizing the Estimate

1. Conducting a thorough review of all contract documents, including addenda to get

a clear understanding of the project.

2. Generating an estimate preparation schedule to ensure that the estimate will be

completed on time.

3. Preparing the Project Summary of Estimate.

4. Preparing a bid file.

5. Preparing for the take-off.

Note: Accurate estimates are crucial to any contractor’s survival. The

estimate has to be low enough to get the job but high enough to

generate a profit.


8. Work Breakdown Structure

1. The WBS is a basic project management tool which defines the project

along activity levels that can be clearly identified, managed and

controlled.

2. The WBS is essential because this is what subcontractors bid to.

(Ideally in a well written and thought out tender).

3. Future additional value can be obtained by creating historical

databases, with normalized data for productivity and costs.


9. Estimating Work Items

1. Quantity take-off: After the estimate is organized, documents reviewed and site

visited, then the measurement of the work can begin.

2. Following Take-off the cost estimating for labor and material should be

performed.

3. Other cost elements include:

1. Equipment. These costs are usually obtained from rental firms or from

reference books

2. Subcontractor-supplied items. Related costs such as freight charges should

be included

3. Job Indirects. These include General Conditions and Overheads

4. Alternates and allowances. These can be options to the base bid

5. Mark up. This is determined by management.

6. Contingency. Generated by estimating staff using Crystal Ball software.

7. Profit. This usually can vary from 0%to 15%.


10. Bid Wrap-Up

1. Private projects are based on negotiated proposal from a select few, pre-

qualified bidders.

2. Most State and Federal projects are competitively bid, open to all, and

have a set time and place for “bid openings”. Unfortunately estimates

are regularly jeopardized on “bid day” by last minute changes.

Hence to minimize confusion, scramble and panic a procedure should be

followed. Further before the bid is submitted it should receive a final

check.


10. Bid Wrap-Up

It has been said that the “successful low bidder” is the one

who make the most and biggest mistakes.

Therefore, the estimator should make sure simple items such

as formulas in spreadsheets are correct and error free, and

that nothing is left to chance.

www.projectcontrolsinternational.compage 1 construction estimating part 1 "accuracy" -...

Documents

types of estimates estimates

material cost reimbursable

work final cost

contractor cost

lump sum fixed price

principal types of contracts

poor estimates

definitive estimates