A Systematic Method of Estimating Construction Costs

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Estimating the cost of construction can be a daunting task and is often completed in a hap-hazard manner.  Often, the contractor will bring in the field superintendent to take a fast pass thru the design documents and assemble a “bid” cost estimate based on his/ her experience and “what” they feel is the right number.  At bid day, one of two things happens ~ either the bid is too low for the project or it’s too high.  The bid that is too low opens the project team for potential change orders or the contractor fails to complete the project.  The bid that is too high precludes the Contractor, who may be the most competent, from completing the project.

A more effective way of analyzing the true cost of construction is to develop procedures and cost estimates in a detailed manner.  How is this done?  Following are steps that have been developed and have been very effective.

Before taking pencil or scale to the drawings, spend the time to review the project documents, especially the Division 1 sections that deal with the scope of the work, planning and scheduling requirements, geo-technical reports, what other work that may be going on concurrently on the site, etc.  Understanding these elements of the project will develop the foundation for the estimate.

Assemble the team with the right mix of experience and knowledge in the type of construction being evaluated and costed.  Sometimes this means brining in outside expertise.  Decide what elements of the work your team will estimate and what will be left to your subcontractors’.  However, you should have a member of your team develop a rough order of magnitude costs for subcontracted work.  This is a gut check to validate the quotes that come in on bid day.  One member of the team should be the assigned the responsibility of pulling together the estimate and working with senior management on setting markups and contingencies.

Once the scope of the work has been developed, the team will begin to prepare the cost estimate.  The work of developing units and unit costs is the first level of a complete and responsive bid.  The quantity survey consists of the following operations

Once an area or specification section is assigned to the estimator, the first step in the takeoff is to verify the scale of the drawings, all the related documents and specifications are included, and that the estimator notes interfaces with other trades, both internal and external.  What is meant by interface?  If one estimator is quantifying concrete construction, he should interface with the masonry subcontractor to verify required ledges, reinforcing, construction support, etc.  If the structure and /or exterior closure is being estimated “in-house”, he should review any requirements, gaps or overlaps with the tea

When taking off quantities, note waste allowance, special hoisting required, cycle times for repetitive tasks, number of reuses for consumables (forms, etc), duration and crew size for the specific task, and scheduling.  Scheduling refers to when the subcontractor needs to be onsite to complete a task inter-related to your work; for example, the plumber needs to install underslab piping prior to completing installation of reinforcing and setting screeds.  The electrician needs to install embedded conduit after the plumber and reinforcing is installed

The estimator should always be working with the project estimating lead and with subcontractors and suppliers throughout the estimating phase

After the quantity takeoffs are completed, the team assembles the costs.  Costs are typically by unit and should use, where possible, recent and relevant job history costs. Where these costs are not available, the collective experience of the team should be used.  Finally, if there is an area that doesn’t have recent job costs, or no experience by the estimating team, use published data from estimating manuals.  A caution though, before using the published data, read and understand how the costs are developed.  Look at city cost adjustments for labor and material.  Look at the unit manhours for a specific task and do a “gut” check.  Do they seem reasonable?   I would recommend that material costs be solicited from vendors and suppliers and published material costs only used as a last resort.  Labor costs are based on the average of several locales.   If the project is required to pay prevailing wages, request the latest wage listing from the local jurisdiction

After the direct construction costs are developed and using the schedule data provided by the estimating team and subcontractors, the process of developing the general conditions costs can begin.  For a responsive bid and to tighten the estimated costs develop a detailed site labor, material and consumables estimate based on the schedules developed by the team and subcontractors, and the project documents.  Will there be a requirement for an onsite QA/QC, field engineers, document control, etc.  This is highly recommended v. using a percentage of the direct costs..

After the direct costs are developed including “plug numbers” for major suppliers and subcontractors and the general conditions are added, you have an estimated project cost.  However, before developing a markup for the project, re-review the documents for any hidden or obscure elements that may impact your costs.  Classic examples are restricted work times, access control, security measures by the Owner, when specific construction activities may be impacted by weather, etc…

After the team has satisfied themselves of addressing all of the elements, the estimating lead and senior management will review the cost estimate and determine the level of risk and other conditions that will impact the final bid or proposal.  The well detailed and thought out cost estimate, addressing all know conditions and potential contingencies allows for a more aggressive markup, by minimizing the risks.

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