Project Cost Estimating A Synthesis of Highway Practices Presented by: Christine M. Fiori, Ph.D., P.E. Arizona State University

Arizona State University Research Team Clifford J. Schexnayder, Ph.D., P.E.  Eminent Scholar Sandra L. Weber, Ph.D., P.E.  Associate Professor Christine M. Fiori, Ph.D., P.E.  Assistant Professor Jonathon E. Burns  Graduate Student

Overview Introduction Methodology Data Analysis Results Recommendations Conclusions

Why Estimate? Estimates influence:  allocation decisions  influence long-term spending plans  serve as a framework for accounting and control Serves as a baseline to measure project management performance Estimate also works the project into the DOTs five (5) year project plan

Research Focus Review of DOT estimating practices Primarily concerned with pre-bid estimates Conceptual estimating procedures were also examined Current challenges of large transportation reconstruction projects in urban environments.

Methodology All fifty DOTs were contacted and interviewed Points of contact were generated using an AASHTO committee member list and by researching state DOT web sites. Each DOT was electronically forwarded an advance copy of the survey and an interview was scheduled.

Interview Goals Document estimating practices of state DOTs Ascertain methods for the resolution of discrepancies between DOT estimates and bid prices Identify problems that remain largely unresolved across the country Determine practices that produce estimates within a + 5% variability between the DOT estimate and contractor bid.

Data Analysis Project ranges were established, allowing differentiation between DOTs Determined program size Efforts were made to maintain a sufficient number of DOTs in each category to support the validity of conclusions

Project Data Four Ranges of Project Cost  $10 to $25 Million  $25 to $100 Million  $100 to $200 Million  Greater than $200 Million

DOT Program Classification Projects Greater than $10 Million  Small DOTs < 20 projects  Medium DOTs projects  Large DOTs projects

How are DOTs Estimating? Conceptual Estimates Contingencies Life Cycle Cost Pre-Bid Estimates Computer Use Personnel Training

Conceptual Estimates 31 DOTs use estimating cost data that are based solely upon historic cost averages for similar projects 18 other states determine quantities based on the conceptual design and follow the same procedures that are used for pre-bid estimates  3 of these states prepare detailed estimates based on preliminary design information. One state reported allowing engineers to use whatever method they thought best to generate conceptual estimates.

Contingencies? Conceptual Contingency DOT’s Practicing Set Percentage20 Graduated Scale15 Engineering Judgment15

Life Cycle Cost Analysis 27 DOTs complete on pavement materials only 14 DOTs perform during the conceptual phase 9 DOTs were unaware of any analysis performed during project development

Pre-Bid Estimates Three methods  Historical Data  Detailed Estimate  Combining historical data with actual cost development

Historical Bid Price Estimating Number of bids used Number of DOTs Reported Projects Number reported more than 5% over Estimate % Low only Low and Second Three Lowest All All Except High and Low Reasonable Price

Detailed Estimating Requires a great deal of knowledge  Construction methods  Supply systems  Labor markets  Method productivity Requires more time to prepare a detailed estimate 19 states perform detailed estimates for major work items, using historic databases to track costs  Dedicated estimating sections whose personnel have the necessary construction experience.  Use computer software that supports estimate development.

Computer Use Most widely used estimating software is the TRNS*PORT Estimator module 23 were using the software 7 using Bid Tabs 1 uses HCSS Heavy Bid 1 uses AutoCAD – quantity takeoff 18 use their own in house program

Personnel Experience 40 years  Some DOTs facing a shortage of qualified estimators due to retiring of experienced personnel 26 DOTs have separate dedicated estimating sections 24 DOTs personnel prepare estimates as an ancillary duty

Training 10 DOTs have formal estimator training programs in place or under development Mentoring and on the job training (OJT) are used extensively by all DOTs 16 DOTs have manuals that cover estimate preparation 2 DOTs are in the process of developing estimating manuals 32 DOTs do not have formal written guidance for estimate preparation that can be referenced by the estimator

Estimate Items Overhead Contractor Mobilization Demolition Work Traffic Control DOT supplied materials Unique and Specialty Items

Incentive Funds 26 DOTs have incentive funds programmed in the construction estimate 9 DOTs have incentive funds that come from other projects that are below budget 10 DOTs have incentive funds that are paid out of project contingency funds 5 DOTs currently have no incentives program in place

Other Estimating Considerations 23 DOTs operate with contingency budgets, 27 DOTs without 33 DOTs adjust their estimate based on schedule, 17 do not 38 DOTs adjust their estimates based on special conditions, 12 DOTs do not 38 DOTs adjust their estimates based upon the location within the state, 12 DOTs do not

Project Award 26 states require no action for award on bids below DOT estimate 12 DOTs require justification if it is more than 10-30% below DOT estimate Bids 5-25% above DOT estimate must be reviewed depending on the state laws 8 DOTs require all projects be reviewed prior to award

Collusion Detection 7 DOTs do not actively attempt to detect 11 DOTs require contractors to sign a form that is submitted with the bid 34 DOTs run a bid history for each project and contractor to see if there is a pattern in project awards

Releasing Information 20 DOTs release during project planning an anticipated project cost range 22 DOTs release after award all bidder information and total project amount 10 DOTs release the information at the bid letting 19 DOTs release a copy of the DOTs estimate including quantities and unit costs

Bid Comparison Data for all DOTs

DOTs using Detailed Estimating

DOTs using Historic Bid Price Estimating

Projects valued between $10-$25M

Projects valued between $25-$100M

Challenges of Major Projects Stretch available resources to the limit ─ labor, material, management skill, and information systems Have a high profile with political subdivisions and the public Are very noticeable by regulators Are unusually long duration projects and there is less likelihood of maintaining continuity of management

Reasons for Cost Overruns Protection of the natural environment from the effects of the project Protection of the public health and safety from the effects of the project Controls on the use of labor or procurement Other government standards or regulations Whether or not the project embodied any first-of- a-kind technology.

Recommendations Estimating Guidance Conceptual Estimates Design Phase Cost Control Pre-Bid Estimates Award Release of Estimate Design Build Projects Projects Valued Over $100 Million

DOT’s must consider: How are estimates usually done? What do we need to do to get a valid estimate? How do we develop a reliable cost estimating and validation process? The estimating process must evaluate variability and risk using logical, reasonable statistical (probability) methods

To ensure future success DOT’s must... Avoid false precision Relate contingency to the layman’s everyday experiences with uncertainty Invest in continuous and transparent QA/QC of your estimating processes