Construction Cost Estimating
One Engineer’s Perspective
It is said that all good jokes have a bit of truth in the punch line. This is the case (I think) in a joke I heard about those of us engineer’s that do budgetary construction cost estimating. The joke is set up with a question: What is the definition of an “engineer’s estimate”? Answer: The cost of construction in heaven. Ouch! Not so funny but it does have a bit of truth in it. The reality is, engineers (and architects alike) do not have a great record with accurate budget cost estimates through the design phases. Construction estimating (particularly with remodel projects) has a lot to do with the “heaven” of well-defined plans and specifications but also much accounting for the “hell” of the physical construction in the field. Everything fits well in the plan; the devil is in the physically getting the project built. Budgeting or bidding construction is all about capturing the realities of the heaven and hell in the project in the estimating process. This article is about the process of cost estimating construction and getting it right!
The process of construction cost estimating always begins with a thorough understanding of the project’s scope of work. Architects and engineers (AE’s) define scope well in plans and specifications but for construction estimating this scope is incomplete. Successful contractors will tell you that construction scoping for estimating purposes (as with scheduling) goes well beyond the AE scope and includes field specific realities such as weather, on-going operations, soils conditions, access/ egress to the site, security, safety, time of the year, site lay out, environmental considerations and other site specific scope. Beyond the context scope the estimator needs to account for the means and methods used in the execution of the work. All scope has a cost. The best estimators will think like a contractor and mentally build the project many times before the project is actually built. The savvy estimator knows construction well and is able to identify and capture the AE, context and execution scope in the process of estimating the projected cost of a project.
Quantifying the scope of work is the next step in the construction estimating process. All scope must be quantified so that the work can be priced. The quantity take-off requires a solid understanding of math, drawing scales, swell and waste factors, plan reading, an understanding of common construction practices, and conversion factors. The project quantities should be well organized and should follow the thought process of building the project. As a rule all projected quantities should always be double checked for errors.
A third step in the construction estimating process is the application of unit costs to the quantified construction scope of work. Competitive bidding contractors will get their unit costs from subcontractors, vendors, suppliers, and their own cost records. These are excellent resources for pricing but typically are not readily available to budgetary estimators such as architects and engineers. Budgetary estimators get their unit costing from some of the above resources but also from published cost data resources. In the pricing of a project the grand total is more than the summation of the direct material, labor and equipment to install all the scope of work. The total also includes related indirect costs that include labor burden requirements such as social security contributions, unemployment taxes and insurance; subcontractor costs with their own overhead and profit; site overhead expenses, sales taxes, bond costs and finally the general contractor’s home office overhead and profit. The pricing of construction gets even more complicated with the application of unit costs collected from different sources. The estimator should always question what scope is included in a resource price and what indirect costs are also included.
Successful construction cost estimating includes a final step of double checking the results. It is a good practice to set the cost estimate up against historical project costs, another estimator’s review or comparable unit assemblies’ costs or aggregate unit costs such as an equivalent cost per unit floor area. More than one contractor has won a competitively bid construction project and then at some point wish they had not won the project. Mistakes in estimating and bidding projects reveal themselves as a project unfolds. Negative mistakes come right out of a contractor’s profit. It is very easy to go through a project scoping, quantifying and pricing and still miss a costly component. In a rush to meet a deadline on a budget estimate, I missed some of the costly landscaping components. The budgetary estimate was low and the client unhappy! Even this engineer periodically gets lost in the details and misses a piece of scope (keep it between the two of us).
Our goal is accuracy in construction cost estimating. Being successful requires accuracy. Whether you are the contractor or an engineer doing budget estimating, the accuracy comes from putting the time and effort into the process of scoping, quantifying, pricing and checking. There are no ways around doing the due diligence required in cost estimating. It is this engineers perspective that all engineer humor should be eliminated from discussions on cost estimating which I argue can only be achieved if we all properly capture the heaven and hell of construction cost estimating.