Introduction to Construction Cost

It is the integration of both schedule and cost that allows the
project manager the accurate control needed to manage the
work.
Of equal importance to how long the project will take is how
much it will cost.
All construction projects have costs associated with them,
and for the contractor, as well as the owner, it is essential
that costs be known in advance.
ESTIMATE
Anticipated, accurate, approximate cost of all the materials,
labor, subcontractors, equipment, and overhead associated
with a particular construction project.

Costs are anticipated because the estimate is prepared in

advance of the work being performed.
Estimating is the process of looking into the future and
trying to predict project costs and resource requirements.
COST
The price paid to acquire, produce, accomplish, or maintain
something.
It is relative to the frame of reference it is viewed from:
For the owner who will pay the general contractor(GC)—
cost includes the contractor’s profit
For the general contractor who will perform the work —
cost is everything but the profit
The general contractor’s cost, relative to a subcontractor’s
contract, includes the subcontractor’s profit.
BID (or PROPOSAL)
Is the contractor’s offer to perform the work priced in the
estimate in return for the compensation and terms defined in
the bid.
When the price and terms of the estimate are offered to the
client, the estimates, serves as basis for the bid, or proposal.
BID DOCUMENTS
An estimate is prepared using bid documents.
Bid documents generally consists of plans, specifications, and
addenda or changes to the bid documents or process.

Plans—are the graphic representation of the work

—they show size, use of the space, and dimensions, and provide
the information necessary to determine the quantities of the work
—plans quantify the project for the estimator.
BID DOCUMENTS
Specifications –or more aptly the technical specifications,
define how the work will proceed.
–define how the work will proceed
–define acceptable practices, tolerances, handling, and related
work
–define the products that will be included in the work
–are qualitative in nature and set the acceptable standards
that the quality of the project will be measured against.
BID DOCUMENTS
Addedum (singular) –is a bulletin that is issued that makes a
change to the plans or specifications.
–Addenda (plural) are often used to answer questions or
clarify something in the documents.
–Occasionally, they may be issued to change something in
the bidding process such as bid date, time, or location
TYPES OF ESTIMATES
Unit Price Estimating Method—the methodology by which
bid documents are broken down into their incremental
components for pricing.
—starts with quantity survey
•Quantity Survey –or more commonly, the takeoff, is the
calculation of the quantity of all materials, labor, and
equipment for each item of work, coincidentally called a task.
TYPES OF ESTIMATES
Unit Price Estimating Method
—quantities are then multiplied by the unit price, or the
incremental cost of the work, and the result is called the
extension.
–once the entire set of bid documents is taken off, priced and
extended, the totals for each category of work are
summarized. This compilation of estimated costs, called
Estimate Summary, is marked up for overhead and profit to
arrived at the completed estimate.
TYPES OF ESTIMATES
Estimating methods vary in accordance with the level of design
detail that is available to the estimator.

In building construction, these four levels of estimates are the

ones most commonly encountered:
1. Conceptual estimate
2. Preliminary estimate
3. Engineer’s estimate
4. Bid estimate
Conceptual Estimate
-is useful in the schematic or budgetary phase, when design
details are not available.
-the figures developed are of limited use for project control,
and their use should be discontinued as soon as design data
are available.
Preliminary Estimate
The production of the plans and specifications usually proceeds
in two steps. The first step is called preliminary design and offers
the owner a pause in which to review construction before detail
design commences.
A common time for this review to take place is at 40%
completion of the total design. The preliminary design extends
the concept documentation.
At this point in the design process, a preliminary estimate is
prepared by the architect or architect/engineer to reflect expected
costs based on more definitive data.
Engineer’s Estimate
Once the preliminary design has been approved by the owner,
final or detail design is accomplished. The detail design phase
culminates in the plans and specifications that are given to the
constructor for bidding purposes.
In addition to these detailed design documents, the architect/
engineer produces a final engineer’s estimate indicating the total
job cost minus markup.
This estimate should achieve approximately ±3% accuracy since
total design documentation is now available.
Engineer’s Estimate
The owner’s estimate is used
(a) to ensure that the design produced is within the owner’s
financial resources to construct (i.e., that the
architect/engineer has not designed a gold-plated project)
and
(b) to establish a reference point in evaluating the bids
submitted by the competing contractors.
Bid Estimate
On the basis of the final drawings and specifications the
contractor prepares his or her estimate of the job’s cost to
include a markup for profit. This is the bid estimate.
Both the engineer’s and bid estimates require a greater level
of effort and a considerable number of estimator hours to
prepare.
ORGANIZATION OF ESTIMATES
Unit price estimating follows an industry recognized
organizational structure called CSI MasterFormat.
CSI—acronym for Construction Specification Institute, the
group responsible for CSI MasterFormat
It is the most widely accepted system for arranging
construction specifications and estimates
The system is also used for classifying date and organizing
manufacturer’s literature for construction products and
services.
The Budget
If the contractor is the successful bidder and is awarded a
contract for the project, the estimate and the Estimate
Summary will become the baseline for cost control.
It is the task and the corresponding cost for the task that
will represent a line in the budget.