Part 3: Quantity Survey and Cost Estimates

Read and review the following lectures notes.

Generally, an owner will prepare estimates at different stages of project development to establish
the baseline of the project’s cost. These estimates are referred to as “design estimates.” They are
frequently used to determine the financial feasibility of the project and to obtain financing for it.
Design estimates run parallel with planning and design as follows:

 Order-o f-magnitude estimates

 Preliminary or conceptual estimates
 Detailed estimates
 Architect or engineer’s estimate based on plans and specifications

Your contractor’s estimate, or “bid estimate,” represents the most detailed and accurate estimate
of construction costs. The owner assumes you are aware of the market as it exists at the time of
submission and as it will be during the period of construction. The bid you submit to the owner
either for competitive bidding or for negotiation must include your indirect and overhead costs
plus the direct costs of construction, including supervision plus markup and profits. The direct
cost of construction for bid estimating is usually derived from the following:

 Quantity takeoffs
 Subcontractor quotations
 Company experience

Once you are selected as the successful contractor, your bid becomes your budget and “control
estimate.” Your firm will use your estimate for control, planning, and obtaining construction
financing. The budgeted costs should also be regularly updated to reflect your estimated cost to
completion and monitor cash flows, and you will want to compare your estimate against actual
costs in preparation of your next estimate. The process of estimating the cost of a construction
project is logically divided into five phases:

1. Initial assessment
2. Work analysis
3. Programming
4. Costing
5. Cost distribution and summarization

Before starting an estimate you need to get acquainted with the project and its environment and
establish a background of basic information from which your estimate will be developed. Your
initial assessment should consist of the following fact-finding assessments, as applicable, and
any others that you may find necessary or advisable. You may be tempted to jump ahead and get
started with the estimate right away. Don’t do it. A careful initial assessment will save you
considerable grief. Furthermore, much of this initial information will undoubtedly be needed
when you submit your application for a building permit; in the long run, avoiding an initial
assessment won’t save any time. When making your initial assessment, consider the following:

 Study all plans and specifications. Make sure they are complete. As the estimator you will
essentially deconstruct the building. You should do this with an eye that peers beyond
simply developing a bid. You are also a plan checker. As you study the plans and
 specifications, consider constructability, building codes, and the workers who must read
the plans.

 Always inspect the work site and its vicinity. Consider especially safety, security, and
access for equipment and materials and their storage. Determine the difficulty of
providing and maintaining access to the project and other ways that the project’s location
may affect cost. Discuss any encroachments on traffic with local police and fire
departments. Learn what special permits and fees are required.

 Obtain Department of Building and Safety records (e.g., previously issued permits,
certificates of occupancy, and outstanding violations). Learn about local permit,
inspection, fence, sign, and security requirements and relevant code and zoning
regulations. If the project warrants, contact other local agencies: Public Works,
Transportation, Planning, Zoning, Housing, and so on. The cost of building permits
varies with the locality in which the work is being done. Some localities base the cost of
the permit on the total cost of the project or the cu. ft. of the building, while others charge
for water consumed, street frontage occupied, and the number of plumbing fixtures.

 Obtain soil and geological reports and any other professionally developed reports on the
building and property.

 Take photographs that may be of value as you develop your estimate in your office.

 Discuss the project with the owner or owner’s representative. Make sure there is full
understanding between you and the owner. This may require considerable time and
patience. Keep in mind that you may be speaking with a person who can’t read plans, is
not knowledgeable about construction, and is emotionally involved in the project.

 Collect wage and benefit rates for all the skills that will be used on your project.
Anticipate wage hikes. If you anticipate hiring and are a union shop, meet with local
union representatives to establish a working relationship. If you are a nonunion firm, seek
out local trade associations; companies that provide temporary labor (some are
specifically geared toward construction); and federal, state, county, and city agencies
created to help people find work. If this is a new area, make a special effort to learn about
the local labor market, including wages and benefits, working rules, and customs and
worker attitudes.

 Check on working rules. For example, in some areas you may be required to provide 1
foreman for every 10 workers and in another 1 foreman for every 4 workers. If you must
import workers, the imported workers may be entitled to a travel allowance. Some
contracts require that all workers get the same pay. In some areas this may mean city
workers who come onto the jobsite; these people may earn more money than your
employees.

 Most construction projects involve some overtime work in addition to that which is
already allowed in the trade labor items. For example, you might have to finish a concrete
pour after normal work hours resulting in unanticipated premium pay. Payroll insurance
rates are not paid on premium time, so either carry the item on the material side of your
estimate or delete it from the gross labor costs before computing insurance costs.

 Know what bonds will be required:

 • Performance bonds guarantee the faithful performance of all work required to complete
the contract. Payment bonds guarantee the payment of all bills for labor and materials
used in the work, including materials purchased for the project but not included in it.
• Bid bonds guarantee that the contractor, upon being declared the successful bidder, will
enter into a contract with the owner for the amount of the submitted bid and will provide
contract bonds as required.
• A maintenance bond guarantees the performance of the contract. It covers the time after
the building is completed. This bond stipulates the building stability and maintenance
responsibility of the construction company after the building is finished.
• Permit bonds are required by some local authorities to indemnify the authority against
any costs arising from the contractor using public streets, crossing curbs, connecting to
public utility lines, and so forth.
• Supply bonds guarantee the quality and quantity supplied to the owner. These are rarely
used on construction projects.

 Contact potential vendors and subcontractors. Ask for information about their firms and
alert potential vendors and subcontractors to any requirements you may have before you
enter into a contract. Also, contact communication and utility companies to learn about
their requirements during construction. Obtain fees and rates.

 Have a clear understanding about all owner-supplied materials and equipment, their
scheduled delivery dates, and on-site storage.

 Talk with knowledgeable local residents and building occupants to discern unique aspects
of the site.

 Consider the weather over the life of the project.

 Learn all the owner’s requirements to qualify as a bidder and all the owner’s requirements
that must be observed in bidding. Ensure the owner’s financial and legal competence as
they pertain to the contract. Ascertain the owner and owner’s representative’s technical
competence. Make certain of the time allowed to complete the project and any penalties
for late completion.

 Determine how you will distribute mobilization and demobilization costs. You will
distribute these costs during the cost distribution and summarization phase of your
estimate. Nevertheless, before starting your estimate it is wise to decide on how you will
distribute mobilization and demobilization costs especially if the project requires a
substantial amount of equipment. There are three common approaches:

• Treat mobilization as an indirect expense, and absorb it on the basis of total direct costs
or total direct labor costs.
• Charge mobilization through a suspense procedure that assigns costs to direct expense.
• Separately aggregate from both direct and indirect costs, in which case mobilization
must be added to the various category totals essentially as a bid item. Some owners object
to paying separately for mobilization because they cannot visualize mobilization as work
that adds value to their project. Nevertheless, mobilization is a very real cost to the
contractor. Therefore, you must then distribute mobilization costs to other work items,
usually to the bid items that benefit from the mobilization.
Collecting this information may be time-consuming and expensive, especially if you are moving
into unfamiliar territory, area-or project-wise. But by not collecting this necessary information
and attempting to take a shortcut, you open yourself up to making critical errors in your estimate
and thus your bid, which could literally destroy your company. Therefore, it behooves you to
carefully plan and execute this initial phase of estimating and do it right.

Over time you will create your own initial assessment outline and standardize it as shown in the
figure below. This will make the collection of information easier and the information comparable
with other projects.

See The Estimating Process and Fundamentals of Estimating by E.T. Coronel (pdf file)