1. www.projectcontrolsinternational.comPage 1 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

2. www.projectcontrolsinternational.comPage 2 Construction Estimating Index 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

3. www.projectcontrolsinternational.comPage 3 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.

4. www.projectcontrolsinternational.comPage 4 2. Types of Contracts 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

5. www.projectcontrolsinternational.comPage 5 2. Types of Contracts 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

6. www.projectcontrolsinternational.comPage 6 2. Types of Contracts 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

7. www.projectcontrolsinternational.comPage 7 3. Types of Estimates 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” Accuracy within +30%, -30% 3.Definitive Also referred to as “check”, “lump sum”, “tender Accuracy within +15%, -5%

8. www.projectcontrolsinternational.comPage 8 3. Types of Estimates 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

9. www.projectcontrolsinternational.comPage 9 4. Document Control 1.QA form 2.Bid documents 3.PRC notes 4.IRC notes 5.Staffing matrix 6.Personnel data sheet 7.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 basis 9.Estimate 10.Risk analysis 11.G&A form 12.Checklist 13.RFP 14.Amendments 15.General documents

10. www.projectcontrolsinternational.comPage 10 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

11. www.projectcontrolsinternational.comPage 11 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

12. www.projectcontrolsinternational.comPage 12 6. Order of Magnitude Estimates 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

13. www.projectcontrolsinternational.comPage 13 6. Order of Magnitude Estimates 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

14. www.projectcontrolsinternational.comPage 14 6. Order of Magnitude Estimates 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

15. www.projectcontrolsinternational.comPage 15 6. Order of Magnitude Estimates 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

16. www.projectcontrolsinternational.comPage 16 6. Order of Magnitude Estimates 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.

17. www.projectcontrolsinternational.comPage 17 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.

18. www.projectcontrolsinternational.comPage 18 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.

19. www.projectcontrolsinternational.comPage 19 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%.

20. www.projectcontrolsinternational.comPage 20 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.

21. www.projectcontrolsinternational.comPage 21 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.