Construction

Project Estimation
Brent Young
CEE 320 Fall 2012
 outline
o COST CLASSIFICATION
how do we define different types of costs?

o LIFE CYCLE COSTING

construction + maintenance + operation"

o ESTIMATION LEVELS
investment / accuracy tradeoff

o SUMMARY
whats the point?

Young 2011
 TOTAL COST

Indirect Cost + Direct Cost + Markup

General Overhead + Profit
Contingency + Project Overhead

Subcontractor Price + Material + Equipment + Labor

Direct + Indirect
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 labor costs
Direct Labor Cost

1( all elements of labor

expense/hour )( total hours ) = labor cost
2( Labor expense/
production unit )(production units) = labor cost
total

Determined from basic wage and

production rates for a given work type

Estimator keeps a comprehensive record

of wage and production rates from past
projects
Difficult to evaluate. . . Most uncertainty in the entire estimate.
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 labor costs
Indirect Labor Cost

INCLUDES: 1. Payroll Taxes: State and Federal income

taxes
2. Insurance: workers comp, public liability,
property damage, social security, and state
and disability unemployment insurance
3. Employee fringe benefits: Health insurance,
vacation time, pensions, apprenticeship
training

Substantial additional cost. . . 25-50% add to direct labor costs.

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 material costs
All material either produced or purchased by the contractor

INCLUDES:
EXAMPLES: 1. Cost of the actual material
2. Freight or Transportation
3. Storage & Security

ALL material that is going to be utilized in the finished structure.

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 equipment costs
1( total expense/
production unit )(total production units) = labor cost
2( total expense/
hour )(equipment hours ) = labor cost
total

INCLUDES:
1. Ownership
2. Lease or rental expenses
3. Operation costs
4. Mobilization (move-in, erection)
5. De-mobilization (dismantling, move-out)

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 labor + material + equipment costs
EXAMPLES:

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 Admin
o HW2 due tonight

o SP2 Grades will be posted by Friday

o Turner 101 replaced with pre-fair networking event

Meeting Time Pedro Charles
o SP Meeting with TAs 10:00 AM
Wednesday Group 1 Group 9
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one representative Group
from 2 group
your Group 10
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yourAMprojectGroup 3
choice Group 11
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o Schedule is posted on netfiles
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o HW3 posted today due
Wednesday 11:30October
AM 4, 2011
Group 7 Group 15
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o Exam 1 is on Tuesday, September

Thursday 2:00 PM 27,172011
Group
Thursday 2:15 PM Group 18
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 subcontrator price
1. Include price quotes from all subcontractors
involved in the project
2. All price quotes will typically be time-stamped
3. Price quotes will require extensive review by the
General Contractors estimator to determine scope
survey, excavation, underground utilities, asphalt,
striping, fencing, playground equipment,
landscaping, signage, security, concrete, masonry,
glazing, kitchen equipment, gym flooring, other
flooring, acoustical ceiling tile, dryall, paint,
classroom furniture, cabinetry, fire suppression,
electrical, heating, ventilation, plumbing, sealants,
gym equipment, audio/visual, roofing, sheet
metal, carpentry. . .

Nearly 30 different subcontracts.

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 indirect cost
Project Overhead

EXAMPLES:
1. Costs that do not pertain to any specific construction
activity
2. Generally between 5-15% of the total project cost
3. Costs are computed by listing and
Job Mobilization, evaluating
Project eachGeneral
Manager,
item of overhead individuallyNonworking Foremen, Heat,
Superintendent,
Utilities, Storage Buildings, Field Office Supplies,
Job Telephone, Computer Equipment & Software,
Computer Networking & Internet Connectivity,
Small Tools, Permits & Fees, Special Insurance,
Builders Risk Insurance, Security Clearances,
Material & Load Tests, Storage Area Rental,
Protection of Adjoining Property, Field Offices,
Parking Areas, Legal Expenses, Surveys,
Engineering Services.

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 indirect cost
Project Overhead

EXAMPLE:

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$8,000,000 total budget - $477,000 in indirect costs 6% of project total
 indirect cost
Contingency
1. Set percentage of the construction budget for unforeseen costs
or design shortfalls identified after construction begins
2. Less design completed = larger contingency
3. Percentage is negotiated as part of the construction contract
4. Often have contingencies included for multiple parties: owner,
designer, contractor
5. What do we do with contingency left over?

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 markup
General Overhead costs not associated with a specific project

INCLUDES:
office rent, office insurance, heat, electricity, office supplies,
furniture, telephone & internet, legal expenses, donations,
advertising, travel, association dues, and the salaries of
executives & office employees

Total general overhead typically between 3 10% of annual volume

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 markup
Profit How do we decide what profit should be?

DBB: based on probability of being lowest bidder

DB: based on owner tolerance of contractor profit
Project size and complexity
Provisions of contract documents
Difficulties inherent in the work
Identities of owner and designers
+ Overall market climate and outlook

Total amount of profit projected in the bid cost(fee)

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 TOTAL COST

Indirect Cost + Direct Cost + Markup

General Overhead + Profit
Contingency + Project Overhead

Subcontractor Price + Material + Equipment + Labor

Direct + Indirect
Young 2011
 outline
o COST CLASSIFICATION
how do we define different types of costs?

o LIFE CYCLE COSTING

construction + maintenance + operation"

o ESTIMATION LEVELS
investment / accuracy tradeoff

o SUMMARY
whats the point?

Young 2011
 life cycle costing

% of total
LCC

time

Effect of decisions on life cycle cost

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 life cycle costing

% error in
cost
estimates

time

Cost estimate errors over time

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 life cycle costing

PRIOR PLANNING PREVENTS POOR PERFORMANCE

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 life cycle costing

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 life cycle costing

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 life cycle costing

Strategic or long-term budgeting

Strategic or long-term technical
decisions
Data analysis and processing
Logistic support analysis

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 life cycle costing

Life Cycle Cost Analysis

80

70

60

50
O&M Cost
Millions

40
Initial Cost

30 Life Cycle Cost

20

10

0
Alt 1 Alt 2 Alt 3 Alt 4

Young 2011
 outline
o COST CLASSIFICATION
how do we define different types of costs?

o LIFE CYCLE COSTING

construction + maintenance + operation"

o ESTIMATION LEVELS
investment / accuracy tradeoff

o SUMMARY
whats the point?

Young 2011
 estimation levels
1. Order of Magnitude
Less Effort/Expense
2. Conceptual
3. Preliminary Less Accurate

4. Definitive
5. Engineers/Owners
6. Bid Level

More Effort/Expense

More Accurate

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 1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
PROJECT PHASE: business planning

DESIGN COMPLETE: less than 1%

TYPICAL CONTINGENCY: 100 200%

INFORMATION REQUIRED: project purpose/product

ESTIMATING STRATEGY: index methods

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 1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
index methods
1. Show changes of costs over time by upgrading the
cost of similar facilities from the past to the present
2. Published periodically by Engineering News Record
(ENR) and other publications
3. ENRs Building Cost Index (BCI) is based on material
and labor costs over a 20 city average

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 1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels

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 1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
1990 2702
1991 2751
1992 2834
1993 2996
1994 3111
1995 3112
1996 3203
1997 3364
1998 3391
1999 3456
2000 3539
2001 3574
2002 3623
2003 3693
2004 3984
2005 4205
2006 4369
2007 4485
2008 4691
2009 4769

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tude 2conceptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
PROJECT PHASE: feasibility

DESIGN COMPLETE: 2-5%

TYPICAL CONTINGENCY: 30-50%

INFORMATION REQUIRED: facility capacity,

project, owners management team,
consultant/cm/turnkey contractor

ESTIMATING STRATEGY: index methods, cost capacity

ratios, comparable projects, industry published data

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ptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
PROJECT PHASE: conceptual design

DESIGN COMPLETE: 15-30%

TYPICAL CONTINGENCY: 15-40%

INFORMATION REQUIRED: geo-technichal info,

project flow diagram, preliminary equipment list,
preliminary project schedule

ESTIMATING STRATEGY: component ratios, vendor

quotes by phone, past projects

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ptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
component ratios
1. Focus on major equipment (compressors, pumps, furnaces,
refrigeration units, belt conveyors, turbine generators, etc)
2. Plant-Cost-Ratio estimates the cost of an entire facility
based on size and type of major items of installed
equipment
3. Procedure: multiply the purchase cost by empirically
documented installation cost factor
4. Total cost will include shipping, erection labor, ancillary
fitting, and supplies

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ptual 3preliminary 4definitive 5fair cost 6bid level
estimation levels
component ratios

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minary 4definitive 5fair cost 6bid level
estimation levels
PROJECT PHASE: design development

DESIGN COMPLETE: 50-75%

TYPICAL CONTINGENCY: 10-20%

INFORMATION REQUIRED: design development

drawings, specifications, contracting plan, long-
lead equipment, cpm schedule

ESTIMATING STRATEGY: vendor quotes, long-lead

orders, key quantities defined, labor unit rates

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minary 4definitive 5fair cost 6bid level
estimation levels
key quantities defined

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initive 5fair cost 6bid level
estimation levels
PROJECT PHASE: pre-bid

DESIGN COMPLETE: 90-95%

TYPICAL CONTINGENCY: 5-10%

INFORMATION REQUIRED: complete design and

bidding data (bid package)

ESTIMATING STRATEGY: detailed quantity takeoff,

set unit prices

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initive 5fair cost 6bid level
estimation levels
detailed quantity takeoff

We want to estimate the total cost of the

windows on the north side of the addition.

North Elevation
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r cost 6bid level
estimation levels
PROJECT PHASE: construction

DESIGN COMPLETE: 100%

TYPICAL CONTINGENCY: 5%

INFORMATION REQUIRED: contractors,

subcontractors, vendors, bid addenda, accurate
schedule

ESTIMATING STRATEGY: delivery terms, detailed

evaluation of labor craft & productivity,
subcontractor submitted bids, defined indirect costs
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r cost 6bid level
estimation levels
defined indirect costs & markup
1. Negotiated contingency or contingencies
2. Staffing decisions including on-site management, office
management and executive oversight
3. Negotiated fee (profit)
4. Assigned general overhead

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 estimation levels
1. Order of Magnitude
Less Effort/Expense
2. Conceptual
3. Preliminary Less Accurate

4. Definitive
5. Engineers/Owners
6. Bid Level

More Effort/Expense

More Accurate

Young 2011
 outline
o COST CLASSIFICATION
how do we define different types of costs?

o LIFE CYCLE COSTING

construction + maintenance + operation"

o ESTIMATION LEVELS
investment / accuracy tradeoff

o SUMMARY
whats the point?

Young 2011
 summary
Errors and deviations in estimates:
1. Proper Evaluation of
Labor Productivity
2. Effects of Local Practices
3. Market Competitiveness
4. Weather Conditions
5. Completeness of Plans
and Specifications

Bids received for a typical project will sometime show more than
50% difference between low and high bidders.
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 summary
Functions of Estimating
Assess cost of construction for conceptual decision-making:
1
Alternative architecture
Feasibility for construction and operation
Alignment of company strategic goals

2Provide basis for bidding and contracting

3Provide ONE criterion for organizing the project

4Provide a baseline for cost control and post project evaluation

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