questions

Chapter 6 Estimating Project Costs

There are always two questions asked by a client considering an investment in construction: “How much?” and “How long?” Estimating responds to the first question. Very few projects can go forward before the cost of the construction has been determined.

Estimating is a distinct function in the construction management field, and unlike some other jobs in construction, the estimator’s role is pretty specific. The estimator’s primary focus is costs. They have the awesome responsibility of accurately determining the price of the project while maintaining a competitive edge in the marketplace. Projects are won or lost by the efforts of the estimator. However, no matter what your job or position is in the construction company, you need to understand the esti- mating process as well.

After reading this chapter, either you will decide that this is one posi- tion that you will avoid at all cost (no pun intended) or you will be drawn to it like a magnet. That is the response in the industry as well. Either way, you will understand the process and discover just how important estimating is to construction management.

Estimating project costs requires a methodical approach yet at the same time demands a certain finesse. This chapter introduces you to both aspects and walks you through the steps necessary to build a construc- tion estimate from the ground up.

In This Chapter

◆◆ How estimates are used in construction

◆◆ What factors influence costs ◆◆ What components make up an

estimate ◆◆ How costs are estimated ◆◆ Estimating techniques ◆◆ What constitutes a quality estimate

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What Is an Estimate?

An estimate is an educated guess. We are all familiar with estimates. We have obtained estimates for work on our car, for getting our house painted, or for clos- ing costs on a mortgage. And most of us have actually engaged in doing an esti- mate. We’ve guessed or estimated how many jelly beans were in a jar at the local county fair or calculated how many gallons of paint we needed to paint the living room. The main differences between these simple estimating activities and the estimates used to price construction are the complexity and what’s at stake. When you estimate how many gallons of paint are needed to paint your living room and you are off by a gallon or two, the stakes are pretty small. But when you estimate the cost to build a nuclear plant or a superhighway or a hospital or even a house, the stakes are much, much higher.

The estimate is a summary, based on the best information available, of prob- able quantities and costs of materials, labor, equipment, and subcontracts to complete a project, including taxes, overhead, and profit. It is the number used to develop the project bid price. The bid price is what goes in the contract, and the contract obligates you to perform all work needed to complete the project in accordance with the plans and specifications.

The consequences of any errors or omissions in the estimate are borne by the contractor, and the contractor will not actually know what the true cost of the construction is until the project is complete. If the estimated cost is equal to or greater than the actual cost, the project makes money for the contractor. If the estimated cost is less than the actual cost, the contractor loses money on the project.

As you can see, estimators have an awesome responsibility. First, they must come up with an accurate but competitive estimate that will win the job. Second, their planning and calculations set the stage for the overall management targets for the entire project. Once the estimator turns the project over to the project manager and the on-site team, the estimator shifts to a support role and really has no direct management duties associated with the day-to-day operations.

Every time contractors estimate a job and submit a bid, they are taking a risk. It is a high-stakes gamble, and many factors may influence the outcome. The construction management team is on the front lines of managing this risk to a successful outcome.

When a job goes bust for the contractor with significant cost overruns, there is often an internal argument regarding who is to blame. The project manager may point to a bad estimate as the source of the failure. But the estimator may turn around and accuse the on-site team of poor management resulting in the over- runs. This finger-pointing is usually a futile effort; the time would be better spent looking at specific areas of overrun and analyzing them, line item by line item, to see what mistakes should be avoided on the next project or estimate.

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A Simple Estimate: How Many Gallons of Paint?

You have decided to repaint your living room. You want to go buy the paint, but you must first figure out how much you need. What types of information will be required to make this determination? Based on that information, how many gallons will you need, and how much will it cost?

Basic Information

A gallon of paint covers 350 square feet. Each gallon of paint costs $27. The room is 16′14′with an 8′ceiling, one door (3′7′), and three windows (each 3′4′).

Specification

Paint all walls and ceiling with two coats of paint, one color only. Do not paint door, windows, or trim.

Process

Ceiling area = 16′14′= 224 square feet Wall area = [16′+ 14′+ 16¢ + 14¢]8¢ = 480 square feet Deduct openings: Door = 3′x 7′= 21 square feet and [3]3′4′= 36 square feet Total square feet: 224 + 480 – [21 + 36] = 647 square feet Total gallons of paint:

647 square feet 2 coats of paint = 1,294 square feet 1,294 square feet ÷ 350 square feet per gallon = 3.70 gallons You must purchase 4 gallons $27 = $108 plus tax.

Note: Labor, preparation materials, and equipment are not included (ladders, brushes, rollers, masking tape, drop cloths, cleanup).

Every person in construction management must be familiar with the estimat- ing process, but not everyone in construction is suited to be an estimator. It takes special skills and aptitude to be successful at this very important role in construc- tion management. Let’s consider exactly what it takes to be good at this job.

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The Characteristics of a Good Estimator

I started my career as an estimator, and I think that it is one of the best ways to really learn the business. As an estimator, you have to learn to “build” the project mentally before you can price it. You must decide upon the construction approach and make decisions all along the way as to how the facility will be built. As an estimator, you develop a tremendous understanding and knowledge of construc- tion products, productivity, and process. In my opinion, no one knows the proj- ect as well as the estimator. I used to walk onto the site and be able to tell in an instant if something was off in the layout or missing altogether. After all, I had already built the project in my mind and was aware of every detail associated with the construction.

People in the business either love estimating or hate it. I love estimating. Once you are an estimator, it sort of gets in your blood, and you end up having the capacity to estimate anything. You begin to think in terms of chunks of time and cost. You walk into a room and can immediately estimate the size of it without any measuring device because of what you know about products and dimensions. The acoustic tiles, the floor tiles, the wall panels, the doors, the windows—all of these items provide hints for you to use to ascertain dimensions without having a measuring tape.

The estimator is probably one of the most important people in construction management. Without the estimator, the rest of the team wouldn’t have much to do because they wouldn’t have any jobs. The following specific skills and charac- teristics are common among estimators:

◆◆ Reads contract documents well ◆◆ Is knowledgeable about construction techniques ◆◆ Is familiar with typical job conditions ◆◆ Is familiar with construction products ◆◆ Has good visualization skills ◆◆ Follows instructions explicitly ◆◆ Is creative, yet practical ◆◆ Is detail-oriented and thorough ◆◆ Can meet deadlines and work under pressure ◆◆ Is familiar with purchasing ◆◆ Is familiar with computer applications ◆◆ Works well with numbers and statistics ◆◆ Is a perfectionist at the task level ◆◆ Has very good organization skills

Keep in mind that there is as much art as science to estimating, and therefore the need for seemingly dichotomous traits is essential. Throughout the estimating pro- cess, estimators must make judgment calls regarding techniques, pricing, and people, and they often put their reputations on the line. They are risk takers—calculated risk takers but risk takers nonetheless. For this reason, senior or chief estimators are among the most respected and highest paid individuals in the industry.

Factors Impacting Project Cost

All projects are not the same. Even if you are in the business of building the same facility (such as a Walmart store) over and over, the price of each project will dif- fer. Many specific factors will always influence the pricing of the project, and the estimator must be able to discern the level of impact for each. Many of these factors call for the art of estimating, and the more experienced the estimator, the more accurate the “gut feel” for some of these impacts will be. Let’s consider several of these factors and see just how they might influence the pricing of the project.

Project Size

Obviously, the larger the project, the more it is going to cost, simply because of the square footage involved. But the concept of “economy of scale” often comes into play with construction projects. The larger the project, the more opportu- nity there is to increase efficiencies around any particular activity. For example, if the cost to mobilize a project (bring in equipment, set it up, and prepare the area) for a particular trade such as masonry is $5,000, then it would be more economical to set up to construct a 20,000-square-foot building than it would be for a 4,000-square-foot building because the mobilization will cost the same either way. Economy of scale also applies to labor. If there is 900 square feet of floor tiles to lay, the first 100 square feet of the installation is going to cost more per unit than the last 100 square feet of the same operation or activity simply because repetition breeds efficiency and speed. So, size often impacts the esti- mated cost of a project.

There is always more to any operation or installation than the work activity itself. There are always preparation, mobilization, and setup and always knockdown, cleanup, and demobilization. That’s why a painter will quote you a higher price to paint the interior of your house if you want different colors in every room rather than one color for all walls. It may be exactly the same square footage, but every time you have to open up, close up, and clean up a new color, it takes time. You have to clean out the paint tray or paint sprayer and clean or replace brushes and rollers every time you start with a new color.

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Complexity of the Project

The complexity of the project and project details impacts productivity. So even if you are pricing a relatively simple material application such as a brick veneer or stucco finish, once the shape becomes anything but a box or the height goes beyond 8 feet, for example, it will be more difficult to build. It will take greater skill and/or more time. Let me share with you some of the fundamental elements that estimators consider when pricing a project:

Shape of the facility The rule of thumb that I used to share with my clients was that every time you turn a corner, it is going to cost you more money. The facility can be exactly the same square footage, but if the shape moves from a square or rectangle and the number of corners increases, the price is going to go up. Shape impacts the price of all elements of the building: the ceiling, the roof, the doors, the windows, the staircases, and so on. A flat ceiling is easier to construct than a vaulted ceiling. A gable roof is easier to build than a hip roof. A rectangular window costs less than a circlehead window. A rectangular door costs less than an archtop door. And a straight stair costs a lot less than a winding stair. Shape clearly impacts cost.

Same size – Different shape

2000 SF — 4 corners. This 2000 SF — 8 corners. This facility will cost less to build. facility will cost more to build.

Height of the facility Anything a worker cannot reach by standing on the ground will increase the cost of construction. Whenever you have to employ ladders, scaffolding, manlifts, and cranes, the price goes up. It takes additional time to set up, take down, and move this equipment around, and it also takes time to move manpower and materials up and down the equip- ment. The expected productivity by a craftsperson standing on the ground versus the expected productivity of the same craftsperson working on scaf- folding is always less. For example, two carpenters experienced in drywall installation should place about 1,700 square feet of wallboard in an eight- hour day. For walls and ceilings higher than 12 feet, the same crew would be able to place only 1,445 to 1,530 square feet of wallboard in a day. That’s a decrease of 10 to 15 percent. Height makes a difference regardless of the building element.

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Red Flagging Long Lead Time Items

There was a project where the architect had specified a special Italian marble tile for the lobby of a high-rise office building. Unfortunately, the estimator on the job was somewhat inexperienced and did not red flag the material for early purchase and instead waited to order the tile with all of the com- mon or stock tiles being utilized. It turned out that that the lead time on the special marble tile was six months. There were only 90 days left in the contract for completion. The contractor made an attempt to talk the owner into a marble tile that was readily obtainable. The owner would not budge. To avoid a delayed opening of the project and having to pay liquidated damages, the contractor ended up install- ing a stock marble tile in the lobby temporarily so the facility could open on time. When the specified Italian tile finally arrived (approximately three months later), the contractor had to remove the stock tile and install the correct tile, all done during evening hours, resulting in overtime pay for the tile set- ters. The entire cost of installing the first tile and removing it was chalked up as a loss. (You will learn much more about liquidated damages in Chapter 7, “Contract Administration.”)

This scenario illustrates the importance of the handoff of the project from the estimator to the project manager. Although the estimator picked up the added cost for the Italian tile in the estimate, he did not red flag the material when he passed the project on to the project manager. The team did not pick it up, and the mistake was very costly—not just in dollars but also in the loss of goodwill because of the irritation and disappointment experienced by the owner.

Unique materials or applications Most of us have tastes beyond our bud- gets. This is a common phenomenon in design and construction as well. The use of unique materials or unique applications of materials always adds to the construction costs. Knowing this will give the estimator a heads-up when first reviewing the plans and specs. The estimator can also count on the fact that a unique material is almost always going to require a longer lead time for delivery. If that delayed delivery is not anticipated by the man- agement team in scheduling the work, the misstep can cause a delayed com- pletion of the project overall and be very costly. Even a unique application of a common material will require special skill and take longer to install and therefore cost more money. Common ceramic tiles applied in a special geometric or artistic pattern, for instance, will always cost more to install than the same tiles installed in a standard pattern.

liquidated damages

A daily amount of money paid by the contractor to the owner for each day that the project fails to meet the com- pletion date specified in the contract. Not all contracts contain a liquidated damages clause.

lead time

The amount of time it takes for a prod- uct or equipment to be delivered to the job site. Products that have a long delivery time are called long lead-time items and require special planning considerations.

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The Site Location

The location of the project impacts the ease of procurement and delivery of materials, labor, and equipment, and therefore it affects the overall pricing of the project. Certain locations are simply more accessible than others for different reasons. For example, it is very difficult and very costly to get materials and equipment into a remote location such as the Alaskan pipeline. But at the same time, the logistics associated with getting materials delivered to a busy downtown metropolitan area such as San Francisco or New York can be just as difficult. Either way, the site location becomes a primary factor in preparing the estimate.

Location also impacts the availability and cost of labor. For example, when trying to construct a new facility in a small community, the contractor may run up against a shortage of skilled labor to perform the work. In a case like this, the contractor would have to import the needed labor from outside locations. When this occurs, the contractor usually has to provide housing and meals for the work- ers, adding to the costs of the overall project. If the estimator does not anticipate this added expense up front, there will be labor cost overruns. On the other hand, another location may have an abundance of skilled labor, and the estimator can anticipate fairly competitive pricing in the area and estimate the job accordingly.

Pricing can also vary from city to city, even in the same state. For example, here in California where I live, the cost of installing 400 square feet of standard acoustic ceiling in San Bernardino is less than the price of the same work in San Francisco. According to R.S. Means, which is probably the largest publisher of construction cost information in the United States, the cost in San Bernardino would be approxi- mately $990. But in San Francisco, the same ceiling would cost at least $1,200, more than 20 percent more. At the same time, according to Means, it would cost only $350 to install 400 square feet of standard acoustic ceiling in Farmville, Virginia. So, you can see how important it is for the estimator to know about local costs in the area where the company will be building.

In addition to providing location cost factors, R.S. Means publishes numerous annual construction cost guides and construction reference books. They are a great resource to novice and experienced estimators alike. You can access R.S. Means online at w w w.r s m e a n s.c o m .

Time of Construction

Time is one of the factors that every estimator must be very aware of when put- ting together the numbers for the project. There is always a time period between when a project bids and when the construction actually starts. There is also the time between when a project starts and when it is anticipated to end—sometimes several years. The estimator must be careful to anticipate fluctuations in prices and availability of labor during these stretches of time.

Time of year is another time factor that often comes into play when estimating project costs. Construction is often thought of as seasonal. However, the truth is that construction can take place any time of year, but certain considerations must be factored into the pricing. For example, if a contractor anticipates receiving the notice to proceed in mid-December, the estimator would factor certain cold weather preparations for the concrete work into the price. In addition to forming, placing, and finishing costs, the estimator would also have to consider the cost of heaters, special concrete blankets, and insulating materials to keep the concrete from freezing after it is placed. If the concrete pour were happening in July, none of these items would be included in the price.

Other time factors may not seem so obvious but must also be taken into con- sideration by the savvy estimator. For example, I was in the construction busi- ness in a part of the country where deer hunting was a very popular sport and most of the subcontractors in the area were avid hunters. I know it may seem very strange, but I would have to take “deer season” into account whenever esti- mating a project. It would take longer to complete the work during this time of year simply because many of the trades would not be as readily available, and this would definitely impact my price.

Not only that, think of the challenge I faced trying to explain deer season delays to clients itching to move into their new home.

Quality of the Work

The quality of the project is defined by the standards set forth in the specifications. Quality clearly impacts project cost. The specifications stipulate what materials to use and equipment to install. There are grades of performance, durability, and aes- thetics associated with every construction product. A project that specifies mini- mum standards for the products and equipment to be installed will cost less than a project that includes several high-end materials and installations. Obviously, marble or granite tiles are going to cost more than ceramic tiles. Stainless-steel toi- let partitions are going to cost more than painted metal partitions. Although both of them serve the same purpose, the degree of performance, durability, or appear- ance varies—the higher the quality standard, the higher the cost. An experienced estimator gets a good idea of just how much impact quality will have on the overall cost of the project after just a quick review of the plans and specs.

Market Conditions

Market conditions always have an impact on the estimate. The basic laws of supply and demand go to work here. In very tight markets where construction contracts are scarce, the cost of construction becomes very competitive, and the estimates will reflect this condition. In an effort to keep good employees working, some con- tractors are even willing to take a job at cost with little or no profit on the project.

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However, when there is a lot of construction work going on, the market becomes very selective. General contractors and subcontractors alike become much pickier about which jobs they are willing to go after, and their pricing will reflect a more conservative approach to risk. The estimating team takes all of this into consider- ation when pricing the project.

Management Factors

Management factors are those considerations that once again have more to do with the art of estimating than the science of estimating. Management factors include such things as knowing that a particular owner or architect is more diffi- cult to deal with than another, sensing that you are going to have to watch things more carefully with an inexperienced subcontractor, or knowing that the owner is very slow at making decisions.

Some management factors are much more predictable, such as dealing with a public project versus a private project. With a military project, for example, the paperwork and reporting required for standard contract administration tasks such as a submittal or an application for payment are at least twofold. All of that extra work takes extra time, and extra time means extra cost. Once again, an experi- enced estimator takes all of these factors into account before submitting a bid.

Types of Estimates

The amount of information available regarding the project will dictate the type of estimate that can be prepared. However, you must keep in mind that all estimates are not equal—the less information available, the less accurate the estimate. But sometimes owners don’t need a high level of accuracy. They simply need a rough idea about their building cost. At other times—for example, when preparing a competitive bid or approaching a financial institution for a mortgage—accuracy is of vital importance. Let’s take a quick look at the various types of estimates.

Conceptual Estimates

Conceptual estimates are often called ballpark estimates. Typically there are no drawings available at all. You can use conceptual estimates when you are in the idea or concept stage of a project. Often an owner doesn’t really know whether their idea is economically feasible, and they don’t want to start spending money on design until they know that the project is at least possible. An experienced estimator can help out in a situation like this by offering a rough order of mag- nitude (ROM) estimate. These estimates are based upon a cost per primary unit for the facility. For example, for hospitals, the primary unit of measure would be beds, and you would multiply the proposed number of beds by the appropriate unit cost. For a school, the calculation would be cost per pupil; for a highway,

the estimate would be based on a cost per mile. Once the owner suggests how many primary units they would like to build, an estimator can whip out a rough order of magnitude estimate within minutes; however, the accuracy is limited.

Preliminary Estimates

If you have a preliminary set of drawings with overall dimensions, you can move to the next level of estimating. Preliminary estimates provide a somewhat higher level of accuracy and may be used to establish initial budgets and preliminary financing scenarios. However, these estimates should never be used to commit to a contract price because too many factors can influence the reliability of the numbers.

Although there are numerous preliminary estimate methodologies, the most common is probably the square foot method. In its simplest form, the estimator calculates the area of the floor plan and multiplies that number by a unit price. There are various levels of skill and detail that can be applied to the square foot estimating method, and the degree of accuracy increases with each step up, as will the time it takes to calculate the price.

Detailed Estimates

Whenever you have a complete set of plans and specs, you should do a detailed estimate. This is where you count every brick and stick, so to speak. Quantities and costs are calculated for every aspect of the project, and this is by far the most reliable estimate if the contractor is being asked to give a firm bid on a project. Detailed estimates are the most accurate. But keep in mind that as the accuracy increases, so does the time, effort, and skill required to complete the estimate. Although computerized estimating has reduced the time needed to compile project costs, it can still take two to three weeks and a team of estimators to put together a detailed estimate for a large, multistory commercial building such as an office or retail complex. The estimators still have to put the bid packages together and spend time soliciting subcontractor and vendor pricing. Throughout the rest of this chapter, I will be talking about detailed estimates.

Less

More 0%

ROM Estimate

Preliminary Estimate

Estimating Project Costs 149

Detailed Estimate

Completion of Drawings 100%

Accuracy of Estimate

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Understanding Project Costs

Before I can really get into the estimating process, it’s important to distinguish the types of costs that are included in the construction estimate. It takes a lot more than just materials and labor to build a project. A whole host of costs are asso- ciated with construction that have nothing to do with the actual structure of the facility. For example, building permits, supervision, job trailers, portable toilets, scaffolding, freight charges, bonds, insurance, sales tax, and many other costs could be easily overlooked by an inexperienced estimator. If the estimator fails to recognize and include all costs in the project estimate, then the bid number will be off significantly. In making such a mistake, the estimator may indeed win the job by being the lowest bidder but unfortunately will end up losing money on the project. These are hard lessons to learn, but, as costly as they are, you rarely ever make the same mistake twice.

Direct Costs

Direct costs are those items that actually go into building the facility. An item is considered a direct cost if it can be linked to a specific item of work on a project. Direct costs make up the bulk of any construction estimate. These are the obvi- ous direct costs associated with any project:

◆◆ Materials ◆◆ Labor ◆◆ Equipment ◆◆ Subcontracts

Indirect Costs

Indirect costs are the expenses incurred in order to manage and deliver the mate- rials, labor, equipment, and subcontracts employed on any given job. They are often referred to as job-specific overhead or general conditions. The list of indi- rect costs for any given project will vary, but some of the common items include the following:

◆◆ Supervision ◆◆ Job trailer expense ◆◆ Temporary utilities ◆◆ Testing and inspections ◆◆ Job photographs ◆◆ Safety supplies ◆◆ Chemical toilets

◆◆ Security fencing and barricades ◆◆ Trash and debris removal ◆◆ Cleanup ◆◆ Bonds and insurance

Contractors are starting to direct their trash and debris to recycling centers rather than to the landfills. This operation takes a little more effort on the contractor’s part and can actually be more expensive, but as the industry is slowly becoming more sensitive to environmental issues, recycling operations are showing up more and more in construction estimates.

The Estimating Process

Accuracy and completeness are the fundamental objectives of the construction estimate. The ultimate goal is to have the estimated cost be greater than or equal to the actual cost of the project. When you do a construction estimate, you are concerned with three things:

◆◆ How many (quantities) ◆◆ How much (pricing) ◆◆ How long (productivity)

These three components make up the construction estimate and establish the management targets for the project team. You will discover that the estimate sets the parameters for the project budget and schedule and will be used throughout the construction process to monitor success. Now let’s look at what it actually takes to put an estimate together.

Getting Started

Although an estimator can work alone in developing an estimate, the quality of an estimate improves when there is input from other members of the team. Fellow estimators, project managers, superintendents, subcontractors, material suppliers, and others can all add to the resource base when trying to make deci- sions during the estimating phase. The team works together to develop a unique strategy that might provide an edge in the bidding process. In preparation for the estimating task, the team becomes completely familiar with the requirements of the project by doing the following:

◆◆ Thoroughly reviewing the plans and specs ◆◆ Developing a list of questions and needed clarifications ◆◆ Attending the prebid meeting ◆◆ Visiting the project site

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query list

A list of questions and needed clarifi- cations compiled by an estimator as they review the plans and specs during the estimating process.

Reviewing the Plans and Specs

It is important to get a “big picture” perspective of the project before you get into the details of the work. Having an overall understanding of the difficulty of the construction will assist the estimator when making judgment calls that inevi- tably affect the accuracy of the estimate.

Ideally, the plans and specs are reviewed in detail before any estimating takes place. Among the first things to look for when making the initial review are any special conditions, clauses, or criteria that could adversely affect the project schedule or cause unusual risks to be taken. Such items should be highlighted dur- ing this process and red flagged for the project team when the job is passed from the estimator to the project manager. (Remember the earlier example regarding the imported Italian marble tile.) Many of these red flag clauses are found at the front end of the project manual in the instructions to bidders and supplemental conditions.

One of the most costly red flag clauses commonly found in the project manual is a liquidated damages clause. Liquidated damages are a financial penalty applied to the contract resulting from a failure to meet a specific completion date for the project. For example, the supplemental conditions could stipulate that a penalty of $1,000 to $10,000 a day be paid by the contractor to the owner for failing to meet a completion deadline. Liquidated damages pose a significant risk to the contractor and must be taken into account during the estimating process.

In addition to discovering red flag issues, the plan and spec review provides an opportunity for the estimator to uncover details that require clarification or questions about the project that are not addressed in the contract documents. As the estimator thumbs through the drawings, they will prepare a query list in anticipation of the prebid meeting, site visit, or phone conference with the designer. The designer typically responds to each of the questions in writing. Those responses that result in a change to the original plans and specifications become official addendum to the contract.

Checklists are a common tool used to make sure that nothing gets left out or overlooked.

The Prebid Meeting

Prior to bidding, it is common for the owner and/or designer to conduct a prebid meeting. This meeting often occurs at the project site and provides an opportunity for the bidding contractors to get many of their questions answered. It is very impor- tant that each of the bidding contractors sends a representative to this meeting. The estimator is often the representative sent, simply because that is the person who is the one most familiar with the project at this stage and who has developed a query list after a thorough review of the plans and specs. Some projects require attendance at this meeting, and contractors who fail to attend are not allowed to bid.

The Site Visit

No one should ever estimate a job without first visiting the job site. There are site conditions that just cannot be understood by merely looking at the plans and specs. Only by walking around will you get a good sense of the lay of the land, which will help you make the necessary judgment calls that ultimately affect your pricing. Even if the site visit is not part of the prebid meeting, it is your obli- gation to make every effort to mitigate risks associated with the bid. Visiting the site is one way in which you can mitigate those risks.

Develop bid strategy.

Estimating Project Costs 153

Review plans and specs.

Develop query list.

Pre-bid meeting

Material

Self-perform

Subcontract

Equipment

Quantity takeoff

Quantity takeoff

Requests for quotations

Quantity takeoff

Pricing

Pricing

Select low bidder.

Pricing

Estimate summary

Add-ons

Site visit

Senior level review

BID

Estimators should consider the following when visiting the site: ◆◆ Distance from office ◆◆ Site conditions ◆◆ Site access

◆◆ Soil data ◆◆ Groundwater ◆◆ Security needs ◆◆ Traffic considerations ◆◆ Adjacent structures ◆◆ Possible contamination ◆◆ Water, electricity, and telephone service

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◆◆ Obstructions ◆◆ Parking and storage ◆◆ Debris disposal ◆◆ Local weather patterns ◆◆ Local labor and subtrades ◆◆ Local regulations

How You Build the Estimate

You build an estimate in very much the same order that you build the actual facil- ity. Generally, you start from the ground up and work through the 48 divisions of the 2004 CSI MasterFormat outline. (Refer to Chapter 4, “The Construction Contract,” for information about these divisions.) Each CSI division is broken down into detailed items of work. This format is one of the most common ways to organize the estimate. However you decide to organize the estimate, it is very important to stick with a consistent format, even if some divisions are not appli- cable to every project. In this way, the estimate outline acts as a master checklist that should be consulted for every project to make sure that nothing gets left out of the estimate.

Item of Work CSI Division 3 – Concrete Quantity Takeoff Item

Footings – Forms and Accessories

Walls – Forms and Accessories

Building Foundation

Concrete Forms and Accessories

Slabs – Forms and Accessories

Footings – Reinforcement

Concrete Reinforcement

Walls – Reinforcement

Slabs – Reinforcement

Footings – Cast-in-Place Concrete

Cast-in-Place Concrete

Walls – Cast-in-Place Concrete

Organizing the Work of the Estimate

Estimating the cost of a multistory office building, high-tech manufacturing facility, or state-of-the-art concert hall is no easy task. It is a big job and takes a

Slabs – Cast-in-Place Concrete

great deal of planning and organization. So, how do you conquer this challenge? Well, the same way you eat an elephant—one bite at a time! Although the CSI MasterFormat 2004 gives us an overall outline to follow, thousands of activities and materials must be considered before you can begin to price the project. As large as the task may seem, there actually is a logical method for organizing all of the work activities, materials, and labor associated with a project. Let’s take a look at just how you eat this elephant!

The Work Breakdown Structure

The primary organizational tool utilized by the construction estimator is the work breakdown structure (WBS). The work breakdown structure establishes the basic building blocks of both the estimate and the schedule. (I will explain how it is applied to the schedule in Chapter 9, “Project Planning and Scheduling.”)

The purpose of the work breakdown structure as it applies to the estimate is to organize and identify the work of the project by breaking each division of work into a separate work package or bid package. The work package identifies each step in the process of that work item. Work packages are usually assembled around the work activities typically performed by a single subcontractor or work group. Obviously, being familiar with construction materials and methods is pretty impor- tant here. One of the primary goals in creating a work package is to not overlook any of the steps needed to complete the work.

A sample work package looks something like this:

Work Package—Concrete Floor Slab

◆◆ Excavate the footings. ◆◆ Install the edge forms. ◆◆ Install under slab fill. ◆◆ Install vapor barrier. ◆◆ Install the reinforcing. ◆◆ Place anchor bolts.

◆◆ Place the concrete. ◆◆ Finish the concrete. ◆◆ Strip the form work.

Once each step associated with a particular item of work is identified, it can be quantified and priced. But let me stop here and back up a minute to make sure that you remember how the work of the project is actually accomplished. The contrac- tor has two options: to self-perform the work with their own forces or to subcon- tract the work to various trade contractors. The contractor will have to do all of the quantifying and pricing of each step of the work if the contractor decides to

work breakdown structure (WBS)

A tool used by estimators to organize the work of a contract in a hierarchical fashion.

work package

Detailed items of work bundled together under a particular trade. This is also called a bid package.

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takeoff

A term commonly used in the construc- tion industry to describe the process of measuring the plans to quantify materials, labor, and equipment.

quantity surveyors

Individuals who are responsible for counting up and calculating all of the quantities of materials, labor, and equipment necessary to build a con- struction project.

self-perform a particular section of work. If the contractor decides to subcontract out some of the work, then the subcontractor will quantify and price the work and submit a bid to the general contractor. The greatest challenge either way is to make sure that nothing gets overlooked or left out of the estimate.

Sometimes the general contractor calculates their own quantities and estimates for subcontracted work even though the subcontractor will be submitting a bid. This is called a fair value estimate; it’s done as a check to guard against inaccu- rate quantity surveying by the subcontractor and unreasonable pricing.

Calculating Quantities

Now that you have assembled all of your work packages and identified all of the steps necessary to do the work, you can start doing your quantity takeoff. You must quantify all of your materials, labor, and general conditions before you can price any of the work. You need to calculate “how many” before you can calcu- late “how much.” Once you determine the quantities, you can apply a unit price factor to the equation. Junior estimators often start off as quantity surveyors. The primary attributes of a good quantity surveyor are the ability to read and interpret plans, knowledge of common units of measure for construction materi- als and labor, and basic estimating mathematics.

You will use algebra to measure ratio and proportion, plane geometry for lin- eal and area measurements, solid geometry for cubic measurements, and plane trigonometry for lineal, area, and cubic measurements. The following table shows some of the mathematical functions and their applications:

Mathematical Function

Basic math Algebra Plane geometry Plane geometry Solid geometry

Measurement

Counting Perimeter Area Area Volume

Sample Estimating Application

To calculate the quantity of interior doors

To calculate the quantity of rebar in the footing

To calculate the quantity of stucco siding

To calculate the quantity of carpet

To calculate the quantity of concrete in the footing

Unit of Measure

Each Lineal feet Square feet Square yard Cubic yard

There are also a number of common estimating formulas that can be found in any estimating manual or textbook. Here are a couple of samples:

Work Item

Standard brick

Mortar for 3 ⁄8′′joints

Common Formula

6.67 bricks per square foot of wall area with 5% waste

7.2 cubic feet per 100 square feet of wall area with 40% waste

Sample Calculation

1,260 square feet 6.67 = 8,404 bricks

8,404 bricks + 5% waste = 8,824 bricks

1,260 square feet ÷ 100 = 12.6 square feet

12.6 7.2 cubic feet = 90.72 cubic feet

90.72 + 40% waste = 127 cubic feet mortar

There is an increasing trend to use a digitizer when performing quantity takeoffs. You’ll learn about these time-saving devices in more detail later in this chapter.

Quantifying Materials

Quantifying materials is the least risky of all the estimating activities. You are simply counting and calculating all of the parts and pieces that will go into the project. Quantity surveying represents more of the science of estimating. That’s because you are working with known sizes and dimensions depicted in the draw- ings. If the plans are drawn correctly and include all of the information needed to do the takeoff, the estimator should be able to come up with very accurate quantities, assuming the estimator doesn’t overlook anything and doesn’t make mathematical errors. The estimator reviews the plans, the elevations, the sec- tions, and the details; pulls the dimensions needed to make the appropriate calculations; and comes up with the lengths, areas, and volumes of work and material required for the project.

Probably the most difficult part of the quantity survey is making sure that the quantity is taken off in the proper unit of measure. The unit of measure for take- off must be the same as the unit of measure for pricing. For example, concrete is priced by the cubic yard. The quantity surveyor must take off all concrete by the cubic foot (length × width × depth) and then convert to cubic yards to match the pricing unit. It takes a little time to learn all of the pricing units for the vari- ous materials and labor, but this knowledge is an absolute necessity if you are an estimator.

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In this typical quantity surveying exercise, you will estimate the cubic yards of concrete needed for this foundation. All inches are converted to decimals of a foot. Here are the steps:

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· ◆◆  Section area of foundation: Footing = 2.0 feet .66 feet = 1.32 square feet Wall = .66 feet 2.0 feet = 1.32 square feet Total section area = 1.32 square feet + 1.32 square feet = 2.64 square feet

· ◆◆  Perimeter of building: 24.0 feet + 24.0 feet + 24.0 feet + 24.0 feet = 96 feet

· ◆◆  Section area perimeter = cubic feet 2.64 square feet 96 feet = 253.44 cubic feet

· ◆◆  Convert to cubic yards (unit of measure for concrete): 253.44 cubic feet ÷ 27 cubic feet = 9.39 cubic yards The answer is 9.39 cubic yards of concrete in foundation.

Quantifying Labor and Equipment

Quantifying labor and equipment is a little riskier. That’s because you must deal with crew sizes and productivity rates. In other words, working with the human factors of construction is not quite the same as working with hard and fast dimen- sions on a set of drawings. Productivity is the amount of work that can be placed or installed in a specified unit of time. Productivity varies because of site condi- tions, weather, crew makeup, crew skill level, complexity of the project, and sev- eral other factors discussed earlier in the chapter.

This is where estimating moves way over on the art side of the equation. It’s all about judgment. The individual estimator will determine the productivity for any given crew regarding any given item of work. Fortunately, productivity is something that is studied quite extensively in the construction industry, and there are data- bases and references available that can help the estimator make sensible judgments

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regarding labor and equipment quantity takeoffs. In the following, I show some average crew sizes and productivity rates for concrete work:

Item of Work

Forming slab

Reinforcing slab

Placing concrete

Finishing slab

Crew and Equipment

3 carpenters 1 laborer 3 power tools

2 rodmen

1 foreman 5 laborers 2 gas engine vibrators 1 concrete pump

1 concrete finisher 1 gas finishing machine

Estimating Unit

Lineal foot

Square feet Cubic yard

Square feet

Productivity Output

600 lineal feet per day 75 lineal feet per hour

2,700 square feet per day 338 square feet per hour

120 cubic yards per day 15 cubic yards per hour

625 square feet per day 78 square feet per hour

I’ve already referenced R.S. Means as a very valuable resource for construction estimating data. Another excellent source of information, especially regarding productivity, is Walker’s Building Estimator’s Reference Book. This handbook was originally published in 1915 and is updated every two years. If you are serious about construction estimating, Walker’s is a must-have reference.

Quantifying General Conditions

Also called job overhead, general conditions make up the indirect costs associ- ated with any given project. Time, not productivity, is the normal unit of mea- sure for general conditions. Therefore, the primary task of the estimator is to come up with a time estimate for the overall job duration. The estimator must make an educated guess as to how many days, weeks, months, or years the con- struction will take to complete. Here’s a sampling of general condition items and their respective units of measure:

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General Condition Item

Supervision (salary) Job trailer (rent) Material storage trailers (rent) Temporary utilities (usage) Portable toilets (rent) Dumpsters (rent)

Common Unit of Measure

Week Month Month Month Month Month

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T a b l e

6 . 1

Once all of your quantities are calculated, you are halfway there. Now all you have to do is plug in the unit cost for each item of material, labor, equipment, and general conditions in your estimate. You can see the price extensions dis- played in Table 6.1. As an estimator, your primary concern is where the costs will come from and their reliability.

Calculating the Estimate

General Condition Item

Job photographs On-site webcam Job office supplies

Pricing the Work

Common Unit of Measure

Lump sum Lump sum Lump sum

Description of Work	Quantity	Mat. Unit Price	Total Mat.	Labor Unit Price	Total Labor	Equip. Unit Price	Total Equip.	Total Cost
Form slab	390 LF	$0.31	$121	$1.25	$488	$0.05	$20	$625
Reinforce slab	9500 SF	$0.18	$1710	$0.16	$1525	—	—	$3235
Place concrete	120 CY	$63	$7560	$11.15	$1338	$5.35	$642	$9540
Finish slab	9500 SF	—	—	$0.31	$2945	$0.06	$570	$3515
TOTAL SLAB CONCRETE			$9391		$6292		$1232	$16,915

Sometimes it is not possible to accurately determine the costs of items at the time of the estimate because there are decisions regarding quantities and quality that simply can’t be made until the project is under construction. When this happens, it is a common practice for estimators to plug in an “allowance” number, fully disclosed to the client, based upon a best guess at the time. Once the information needed is available, the allowance is adjusted up or down to reflect the actual cost of the item. If the actual cost is less than the allowance, the estimator returns the surplus funds to the client. If the cost is greater than the allowance, the client pays the difference. Allowances are often used for finish items that require owner involvement regarding style, color, or quality such as carpet, tile, or light fixtures. They may also be used when there are simply too many unknown variables to be able to accurately quantify the cost of the work, such as rock excavation or drilling.

Sources of Information

Pricing information comes from a variety of sources. When it comes to materials, you can obviously get prices directly from your vendors and retail building sup- pliers. Or you can check the various construction cost guides such as R.S. Means. They list unit costs for every section of work for labor, material, and equipment. Many construction companies create their own cost databases based on histori- cal performance. They track actual job costs from various projects over a number of years and come up with average unit prices for their self-performed work. If a company has an excellent cost reporting system in place, then this may be the best way to go. However, not all companies have such a system in place, and many rely on published cost data for their pricing.

There is one more alternative when it comes to pricing labor. Some estimators choose to use the productivity data from the various guides but then calculate their own unit prices by using local wage rates in the formula. See the sidebar “Calculating Crew Unit Cost” for an example.

Estimating Project Costs 161

Calculating Crew Unit Cost

According to Walker’s Building Estimator’s Reference Book, one tile setter with one helper can install approximately 90 square feet of mortar set, glazed wall tile in an eight-hour day. If I pay my tile setter $22 per hour and the helper $10 per hour, then my unit price for glazed wall tile labor will be $2.84 per square foot based on Walker’s productivity rate and my wage scale. The unit price would vary as my wage rate varies.

$22 (tile setter) + $10 (laborer) = $32 per crew hour Crew rate of $32 8 hour day = $256 per day Crew can set 90 square feet of tile per day $256 ÷ 90 = $2.84 per square foot for this particular crew

Obtaining Subcontractor and Vendor Bids

The final components of your estimate are subcontractor and vendor bids. Today, subcontractor and vendor bids make up the bulk of the construction estimate. While the estimating team is putting together their own pricing for self-performed work, they must also be gathering prices from subcontractors for the work they

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are not going to self-perform. The team must also be soliciting vendor pricing for all of the materials and equipment associated with the work. The management of this process is very important. If one of the trades needed to complete the project is not covered, there will be a big hole in the estimate, which will lead to a big problem on bid day. There are four steps to ensure that the solicitation of the sub- contracted work and vendor pricing are complete and thorough:

1. Solicit the bids. 2. Receive the bids. 3. Analyze the bids. 4. Choose the bids.

Soliciting the Bids

After a complete review of the plans and specs, the estimator will create a list or chart representing all the work of the contract, showing which areas of work or trades will be self-performed, which will require subcontractor or vendor quotes, and which will require both. Table 6.2 shows a sample subcontractor/vendor list.

T a b l e 6 . 2 Subcontractor/Vendor List

Div	Item Of Work	Self Perform	Sub	Vendor
03	Concrete forming	X
	Concrete reinforcing	X
	Concrete placing	X	X
	Concrete finishing	X	X
04	Masonry – CMU block		X	X
	Masonry – stone work		X	X
05	Metal railings	X		X
06	Rough carpentry	X		X
	Finish carpentry	X	X	X
07	Roofing		X
	Waterproofing	X
08	Doors and windows	X		X
	Skylights	X		X

T a b l e 6 . 2 Subcontractor/Vendor List (continued)

Estimating Project Costs 163

Div	Item Of Work	Self Perform	Sub	Vendor
09	Drywall		X
	Painting		X
	Tile		X
	Carpet		X
10	Specialties		X
14	Elevator		X
23	Mechanical		X
26	Electrical		X
31	Earthwork		X

After it is determined which areas of work will require a price quote from a vendor or a subcontractor, a formal solicitation process gets underway. Although subcontractors and vendors watch the trade journals and construction news ser- vices for bid notices as closely as the general contractors do, most estimators choose to send out their own requests for quotation to a selected list of subcontractors and vendors with whom they have a past history. They usually send out requests to sev- eral companies representing the same trade.

It is important that these requests go out very early in the estimating process to give the subcontractors enough time to put together a price or notify you of their decision not to bid on the project. It is crucial that the estimator be aware of whom they can expect to receive quotes from on bid day. Trust me, you do not want to be left hanging on bid day waiting for an expected subcontractor quote that doesn’t arrive. At the last minute, you will be left to guess what the estimated cost of the work in question might be. Estimators do everything they can to avoid this situa- tion. And even though it takes a lot of time to solicit all of the bids, it is far better to play it safe than to be left standing without a trade covered by a reliable price.

One of the most precious possessions of the estimator is their personal directory of subcontractor and vendor names, addresses, and phone numbers. It can take years to develop reliable relationships with a substantial list of steadfast trade contractors and material suppliers. When trying to win a job, this database can become one of the estimator’s most powerful resources.

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Receiving the Bids

The request for quotation includes all of the pertinent information relative to the project including project name and location, who the architect is, where the plans may be obtained, when the bid is due, and how the bid may be received by the contractor (by mail, phone, fax). Although some subcontractors and vendors send their initial quotes ahead of time, most bids are called in by phone on bid day—many at the last minute. I have already described to you the chaotic envi- ronment that ensues on a typical bid day in Chapter 3, “How We Get the Work.”

Whether the bid is received ahead of time or at the last minute, it is very impor- tant that each one be recorded accurately and analyzed thoroughly to determine whether it covers all of the work detailed in the plans and specs for that particular section of work. Estimators typically use a standard telephone bid form as a check- list for vital information when they are receiving prices by phone.

Telephone Bid Project: A.J. Coffee House Date: July 18, 2010 Company: Wayne’s House of Tile Address: 432 Rocky Blvd., Rimrock, AZ 97660 Phone: 734-555-1212 Fax: 734-555-1212

Division of Work: FINISHES Work Included: TILE Scope: Work includes all surface preparation, layout, mastic, tile, grout, and clean-up for kitchen area, storage area, customer area, and restrooms. Exclusions: Outside tile work Quoted per plans and specs: Acknowledged Addendum: Includes Sales Tax: Bond: YES No. 1 and No. 2 YES YES

Analyzing the Bids

Although this is one of the more stressful tasks associated with the estimating process, especially when bids are arriving at the last minute, it is a crucial one. This is where we attempt to find any holes or overlap in our estimate. The esti- mator looks to make sure that every little detail associated with an item of work is covered in the bid. For example, with a painting bid, sometimes caulking is overlooked. The caulking must be covered somewhere. And if it is not part of the

painting bid package, then where is it? Is it covered in the siding subcontractor’s bid? Will it be done by the contractor’s own forces? The estimating team must make sure that it is priced somewhere in the estimate.

One of the tools that the estimator uses to assist this analysis is a scope sheet. These sheets go out with the requests for quotation and list all the items associ- ated with that bid package, including any miscellaneous bits and pieces such as hardware, flashing, caulk, inserts, moldings, or trim. The following are some other common cost items checked during the bid analysis:

◆◆ Sales tax ◆◆ Performance bond ◆◆ Shipping costs ◆◆ Delivery charges

Choosing the Bids

Once all of the bids have been received and analyzed, the estimator chooses which price to use. Under the traditional design-bid-build project delivery method, the low bid usually gets plugged into the estimate. However, it is always important that all bids be looked at as a group before choosing, because a situation may arise where one of the bids is actually too low. Yes, there is such a thing, and when you receive one, you should be very wary. A bid that appears to be significantly lower than the rest of the quotes should activate an immediate red flag to the estimator. When this occurs, a thorough review must take place. The estimator must determine whether the low quote is a result of an error or miscalculation on the subcontractor’s part or whether the subcontractor actually has come up with a legitimate price based upon a creative approach or strategic buying advantage. Making this determina- tion is tricky business, and if the estimator makes the wrong call, it could be quite costly. If the contractor uses the exceptionally low price in the bid and then gets the job, the contractor will expect the subcontractor to perform the work at the quoted price. However, if the subcontractor later discovers that they cannot actually do the work for the quoted price (because of an error or for some other reason), then the contractor is left with this huge gap between the low bidder’s price and the next lowest bidder. The contractor will have to make up the difference.

Subcontractors have no contractual obligations to the contractor regarding their prices at the time of bidding. Subcontractor agreements are not executed until after the contractor has signed the contract for construction with the owner.

Once all of the self-performed work has been quantified and priced and all of the appropriate subcontractor and vendor bids have been chosen, it is time to pull all the numbers together to prepare the final estimate.

scope sheet

Similar to a work package, a scope sheet describes the items of work to be performed under a particular trade heading. It often accompanies a subcontractor’s bid or a request for quotation.

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add-ons

A term commonly used in construc- tion estimating to describe the taxes, overhead, and profit added to the estimate after all other costs have been calculated.

Putting It All Together

It’s time to compile all of your self-performed work and subcontracted work into one estimate summary. All of the subtotals calculated on the material takeoff sheets are transferred to the estimate summary sheet as well. The estimator must be very careful to accurately transfer all of the numbers. As you can see in Table 6.3, the estimate summary follows the CSI MasterFormat discussed earlier in the chapter. However, a few very important numbers have been added down at the bottom. Once you calculate the cost of the project, you must also apply taxes, general overhead, and profit to come up with your final bid. These last few items are often referred to as project add-ons.

T a b l e 6 . 3 Estimate Summary for Office Building

	Division of Work	Total Material	Total Labor	Total Equipment	Subcontracts	TOTAL
1	General requirements	$112,400	$64,100	$1,040	0	$177,540
2	Site conditions	0	0	0	$7,800	$7,800
3	Concrete	$83,900	$54,340	$4,110	0	$142,350
4	Masonry	0	0	0	$46,300	$46,300
5	Metals	$5,100	$1,800	0	0	$6,900
6	Wood, plastics, and composites	$243,500	$191,250	0	0	$434,750
7	Thermal and mois- ture protection	0	0	0	$86,000	$86,000
8	Openings	$43,970	$15,120	0	$1,775	$60,865
9	Finishes	0	0	0	$102,200	$102,200
10	Specialties	$7,950	$2,790	0	0	$10,740
11	Equipment	$5,400	$1,300	0	$3,600	$10,300
12	Furnishings	0	0	0	0	0
13	Special construction	$1,345	$890	$950	0	$3,185
14	Conveying systems	0	0	0	$60,000	$60,000
21	Fire suppression	0	0	0	$50,000	$50,000
22	Plumbing	0	0	0	$114,000	$114,000
23	HVAC	0	0	0	$97,600	$97,600

T a b l e 6 . 3 Estimate Summary for Office Building (continued)

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	Division of Work	Total Material	Total Labor	Total Equipment	Subcontracts	TOTAL
25	Integrated automation	0	0	0	$19,400	$19,400
26	Electrical	0	0	0	$160,000	$160,000
27	Communications	$9,400	$2,790	$10,000	$30,000	$52,190
28	Electronic safety and security	0	0	0	$14,900	$14,900
31	Earthwork	$4,600	$3,500	$2,300	$116,800	$127,200
32	Exterior improvements	$9,780	$4,900	$3,500	$29,400	$47,580
33	Utilities	0	0	0	$37,750	$37,750
	TOTALS	$527,345	$342,780	$21,900	$977,525	$1,869,550
	Sales tax (7.5%)	$39,551	0	0	0	$39,551
	Payroll tax (31%)	0	$106,262	0	0	$106,262
	SUBTOTAL	$566,896	$449,042	$21,900	$977,525	$2,015,363
	Overhead (6.5%)	—	—	—	—	$130,998
	SUBTOTAL	—	—	—	—	$2,146,361
	Profit (3.5%)	—	—	—	—	$75,123
	TOTAL ESTIMATE	—	—	—	—	$2,221,485

Taxes

You include two types of taxes in your construction estimate: sales tax and pay- roll taxes. That’s why it is important to divide your summary into four columns: material, labor, equipment, and subcontracts. The subcontracted work and equip- ment bids will already have taxes included, but sales tax must be added to the material column, and payroll taxes must be added to the labor column. We all know what sales taxes are, but you may not be as familiar with payroll taxes (also referred to as labor burden). Some of the payroll add-ons are not taxes at all, but you merely refer to them as taxes to keep it simple.

When I was running my own construction company, employing approximately 14 to 20 people, it really surprised me to learn just how much “burden” labor really did put on the payroll. Sometimes this factor alone will cause a general

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contractor to subcontract work that otherwise they might self-perform. The per- centage is significant. Those costs that I am classifying as payroll taxes include the following:

· ◆◆  Employer’s portion of Social Security tax

· ◆◆  Workers’ compensation

· ◆◆  Unemployment tax

· ◆◆  Employee benefits (health insurance, life insurance, vacation, paid holi- days, and so on)

General Overhead

I’ve already mentioned job-specific overhead. These costs include such things as the job site office trailer, portable toilets, and job photographs. They are estimated item by item relative to a specific job. General overhead is a different story. Basically, general overhead represents the cost of doing business. These are expenses that would be incurred by the company whether they had a job to build or not, such as office expenses, executive salaries, and automobile insurance. General overhead is applied to the estimate as a percentage of total cost. This percentage will vary from company to company.

Profit

The goal for every project is to make a profit. Profit is what’s left after all costs and expenses associated with the job have been paid. The estimate represents the contractor’s best guess as to what those costs and expenses are going to be.

Profit is expressed as a percentage of the total estimated cost. Profit is rarely a fixed percentage in construction. The estimating team will make a determination as to how much that percentage should be for any given job. As previously stated, when times are tight in construction and there is very little work to bid, profit margins may be quite small. On the other hand, when there is a lot of construc- tion going on in a particular market and demand is high, profit margins will be adjusted upward. Either way, profit is an estimated number just like every other number in the bid.

It is highly unusual for the actual cost of the project to exactly match the esti- mated cost of the project. If we consider each division of our estimate summary, and each of our add-ons, the most likely scenario will be that some divisions (and add-ons) will be over the individual division estimates, and some will be under the individual estimates. However, it’s the final number that you are most concerned with. The goal is to have the actual overall cost of the project at the estimate or under.

Completing the Estimate

Once the estimate is complete, the contractor prepares and submits their bid and delivers it to the owner. (Remember Chapter 3?) The particular bid procedure will specify when and how the contractors will be notified as to whether they have been awarded the contract. Winning or losing depends upon the quality of the estimate—and of course, a little luck. High-quality estimates display the same characteristics:

◆◆ Organization ◆◆ Correct quantities ◆◆ Accurate labor hours ◆◆ Correct pricing ◆◆ Accurate calculations ◆◆ Completeness ◆◆ Proper overhead ◆◆ Proper profit

If the estimator was successful, they will gather together all of the documents and label or tag them as “original bid documents.” It is very important that there is a clear paper trail detailing exactly how the final bid was compiled. Eventually a clean set of drawings and specs will be issued to the builder to formally execute the contract. The estimator will want to check these documents against the original bid documents to make sure nothing has changed. All of the calculations, price quotes, subcontractor bids, and any other pertinent documentation that could track the estimate logic will be organized and bundled into a package that will be passed on to the project manager charged with running the job. And although the estimator’s primary job is complete once the bid is finished, they will provide support to the project team as the job moves forward, often clarifying information and pricing change orders.

If the estimator was unsuccessful, they will gather all of the bidding docu- ments (plans and specs) and return them for deposit refunds. All of the paper- work associated with the estimate will be filed for possible future reference.

Applying Technology

Today, whether you are a small remodeling contractor or a large national con- struction firm, technology and software associated with the estimating function in construction management will be in play at some level. Because estimating is fundamentally a mathematical application, it is quite easy to utilize software to put together your estimate even if it is only a simple spreadsheet application. Although estimating software cannot guarantee that you will win every contract

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that you bid on, it will help you manage the day-to-day estimating tasks, increase the accuracy of your calculations, and significantly reduce the time it takes to put together an estimate.

All estimating programs, regardless of their level of sophistication, are usually comprised of some type of an electronic spreadsheet to organize the estimate format and automate calculations. Most programs will accept the insertion of customized formulas and calculations as well. Estimating programs also contain a unit cost database for pricing. Some estimating programs are designed for a specific industry sector and therefore their cost data includes the common construction categories and materials associated with that sector only. Other programs include a compre- hensive, multisector cost database with extensive pricing information across all divisions of work, including everything from general conditions to concrete and car- pentry and even plumbing, mechanical, and electrical work. Regardless of the depth and details of the cost information, most programs allow the option of customizing the database by adding, deleting, or changing unit costs, line item entries, and the database itself. This feature is what really makes any of the estimating programs viable because no matter how comprehensive the generic data is, there are always some adjustments that most users will make to fit their company’s unique pricing resources and productivity factors.

Most estimating programs provide various types of estimate reports and can import national cost indexes to adjust bids for location, quality, and other fac- tors. Many also have the ability to organize and compare subcontractor and vendor quotes and other types of bidding process support. Some will go several steps further by performing other common construction management tasks such as creating contracts and change order documentation, tracking purchase orders, subcontracts, and job cost accounting, as well as handling customer billing, accounts payable, and even payroll.

Many estimating programs are available on the market today within a wide range of prices. I have listed just a few here. Of course, the key in the selection of any software is to first know what your needs are and then to find a program that matches them.

◆◆ Sage Timberline (commercial construction) ◆◆ WinEst (commercial construction) ◆◆ Bid 4 Build (heavy/highway contracting) ◆◆ ProEst Estimating (commercial construction) ◆◆ Accubid (electrical contracting)

◆◆ Buildsoft (residential construction) ◆◆ Planswift (residential construction) ◆◆ GiddyUp (remodeler and specialty contractor) ◆◆ QuoteExpress (sheet metal, piping, HVAC, and mechanical contracting) ◆◆ Plumbing Bid Manager (plumbing contracting)

Other construction management tools are integrated into many of these soft- ware programs, and it is not unusual to see overlaps between estimating software and cost control software. In some cases, even the scheduling task and estimat- ing tasks are integrated into a single software application. And today with the growth of building information modeling (BIM) as noted in Chapter 1, both the estimating and scheduling functions are being integrated into the 3D model as the design develops.

Automating the Quantity Takeoff Task

Although most firms today, big or small, employ estimating programs, not all have incorporated the technology to make the quantity takeoff procedure much easier. That’s where a construction digitizer comes in. Digitizers are devices that automate the takeoff process of construction estimating.

Digitizers are used to measure areas and lengths and to count items. They are generally comprised of an electronic roll-up matt or hardboard tablet, software, and some type of pointing device such as a pen-shaped stylus or a mouse/cursor device for outlining parts of the drawings. Instead of manually pulling off dimen- sions from a set of plans and specs and then entering them into a spreadsheet, a digitizer allows the estimator to take the pen or cursor, put it on a point, hold the button down, and trace around an area until you come back to the beginning. The software calculates the square footage for you in a matter of seconds, sav- ing a great deal of time and providing more accuracy. Digitizer software can be applied to do quantity takeoffs from either paper plans or digital drawings.

Even though technology has made the estimating process less time-consuming, it is still very important for construction managers to learn how to estimate manu- ally. Just remember, knowing how to use estimating software does not make you an estimator. Understanding the building process and all of the materials, labor, and equipment needed is crucial in order to become a top-notch estimator. The software tools just help facilitate you getting the estimating task done more quickly and with less error in the calculations. You still must know how to read a set of plans and specs and understand how the building goes together in order to enter the right kinds of information into the estimate to come up with an accurate and competitive bid that wins you the job.

Remember, It’s All a Game

Bidding is a competition, and just as in any other competitive sport, there’s emo- tion involved. Sometimes you win, and sometimes you lose. When you win, you feel really good. Winning a contract is a big deal! Getting jobs for your firm is what keeps the business going, and it is no small achievement. Some companies actually instigate a formal celebratory event each time a project is won, such

as ringing a bell or sounding a horn. Other companies, such as my own, would

digitizer

An electronic pen-shaped stylus or mouse curser used in conjunction with software to assist in the quantity takeoff task in estimating.

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simply execute high fives around the room and go out to dinner. But either way, it is definitely a time for celebration.

On the other hand, when you lose a job after all that work, you feel really bad. You go over and over in your head what you could have done differently. You check your calculations, you review the subcontractor bids, and you consider your add- ons. However, it is usually to no avail. As hard as you try, you will probably never figure out why someone else won and you lost. Every company is different, with dif- ferent personnel, project approach, overhead, and logic, and no two estimates will ever be the same. And the truth is that no one will know the final outcome until the job is complete and the last numbers are added up. Only then can one declare the estimate a winner or a loser.

Terms to Know

add-ons digitizer lead time liquidated damages quantity surveyors

Review Questions

1. What is a construction estimate?

2. Name the four primary categories of costs in the construction estimate.

3. How are construction estimates typically organized?

4. What type of estimate would we probably do if we were meeting with a client for the first time and they wanted to get a rough idea about their project cost?

5. Identify the four preparation steps taken to start the estimating process.

6. What are general conditions?

7. What unit of measure is typically employed for pricing general conditions?

8. What is a scope sheet?

9. Identify at least four characteristics exhibited in a quality estimate.

10. When will you know the true accuracy of your estimate?