Home > Design Guidance > Design Disciplines > Cost Estimating

Cost Estimating

by Bill Manfredonia, CPE, Cost Calculations, Inc. / Joseph P. Majewski, FCPE, P.E., JPM Construction Consultants, Inc. / Joseph J. Perryman, Donnell Consultants, Inc.

Last updated: 04-24-2008

Introduction

Accurately forecasting the cost of future projects is vital to the survival of any business or organization contemplating future construction. Cost estimators develop the cost information that business owners or managers, professional design team members, and construction contractors need to make budgetary and feasibility determinations. From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. The construction contractor's cost estimate will determine the construction bid or whether the company will bid on the construction contract.

There were about 198,000 cost estimators in 1994 according to the U.S. Department of Labor, Bureau of Labor Statistics, 2006-2007 Occupational Outlook Handbook, Cost Estimators, of which 58% work in the construction industry, 17% are employed in manufacturing industries, and the remaining 25% elsewhere. Most construction estimators have considerable experience gained through working in the building construction industry. This guide will be confined to cost estimating in the building construction industry.

Construction cost estimators can be contractually hired in many different ways. They may be employed by the owner's representative/project manager, employed by the construction manager, employed as a member of a professional design team, or separately hired by the owner. They estimate building costs through all the stages of design and the construction of the project. On large projects it is common for estimators to specialize in disciplines that parallel design discipline specialization.

It is very important to have the cost estimator involved right from the start of the project to ensure that the project budget reflects the decisions made by the rest of the project team throughout the integrated design process.

Description

A. Professional Behavior Expected of the Cost Estimator

B. Common Cost Estimator Practice Traits

C. Levels of Estimate

As a project is proposed and then developed, the estimate preparation and information will change based on the needs of the Owner/Client/Designer. These changes will require estimates to be prepared at different levels during the design process with increasing degrees of information provided. It should also be noted that within each level of estimate preparation, not all portions of the design would be at the same level of completeness. For example, the architectural design may be at 80% complete while the mechanical design is only 50% complete. This is common through the design process, but should always be noted in the estimate narrative.

In addition to construction costs, estimates for process or manufacturing areas require information related to the involved processes such as product line capacity, process layout, handling requirements, utility requirements, materials and storage required, service requirements, flow diagrams, and raw materials access.

The following descriptions constitute the different levels of an estimate. Estimates within each of these levels may be prepared multiple times during the design process as more information becomes available or changes are made to the scope. As the level of the estimate increases it will become more detailed as more information is provided; "unknowns" are eliminated; fewer assumptions are made; and the pricing of the quantities become more detailed. Contingencies for the aforementioned will be reduced as more design documentation is produced.

The levels of the construction cost estimate correspond to the typical phases of the building design and development process and are considered standards within the industry. These levels are as follows:

Level 1 - Order of Magnitude

The purpose of the Level 1 estimate is to facilitate budgetary and feasibility determinations. It is prepared to develop a project budget and is based on historical information with adjustments made for specific project conditions. Estimates are based on costs per square foot, number of cars/rooms/seats, etc.

Project information required for estimates at this level usually might include a general functional description, schematic layout, geographic location, size expressed as building area, numbers of people, seats, cars, etc., and intended use.

Level 2 - Conceptual/Schematic Design

The purpose of the Level 2 estimate level is to provide a more comprehensive cost estimate to compare to the budgetary and feasibility determinations made at Level 1 and will be typically based on a better definition of the scope of work. An estimate at this level may be used to price various design schemes in order to see which scheme best fits the budget, or it may be used to price various design alternatives, or construction materials and methods for comparison. The goal at the end of schematic design is to have a design scheme, program, and estimate that can be contained within budget. This estimate is often prepared in the UniFormat™ estimating system rather than the MasterFormat™ system, which allows the design team to easily and quickly evaluate alternative building systems and assemblies in order to make informed alternatives analysis decisions to advance the design progress. The Level 2 estimate is based on the previous level of information available at Level 1, in addition to more developed schematic design criteria such as a detailed building program, schematic drawings, sketches, renderings, diagrams, conceptual plans, elevations, sections and preliminary specifications. Information is typically supplemented with descriptions of soil and geotechnical conditions, utility requirements, foundation requirements, construction type/size determinations, and any other information that may have an impact on the estimated construction cost.

Level 3 - Design Development

Estimates prepared at Level 3 are used to verify budget conformance as the scope and design are finalized and final materials are selected. Information required for this level typically includes not less than 25% complete drawings showing floor plans, elevations, sections, typical details, preliminary schedules (finishes, partitions, doors, and hardware etc.), engineering design criteria, system single line diagrams, equipment layouts, and outline specifications.

The Level 3 estimate provides a greater amount of accuracy, made possible by better defined and detailed design documentation. Estimates at this phase may be used for value engineering applications before the completion of specifications and design drawings.

Level 4 - Construction Documents

Level 4 estimates are used to confirm funding allocations, to again verify the construction cost as design is being completed, for assessment of potential value engineering opportunities before publication of the final project design documentation for bids, and to identify any possible "design creep" items, and their costs, caused by modifications during the completion of the construction documents. This final construction document cost estimate will be used to evaluate the subcontract pricing during the bid phase. Level 4 estimates are typically based on construction documents not less than 90% complete.

Level 5 - Bid Phase

The purpose of this level estimate is to develop probable costs in the preparation and submittal of bids for contract with an Owner. In the traditional "design-bid-build" delivery system, this would be with 100% completed and coordinated documents. The Level 5 estimate will be used to evaluate sub-contractor bids and change orders during the construction process.

In other delivery systems, becoming more widely used, such as design-build or guaranteed maximum price, the bid could actually be prepared at an earlier level, often Level 3 or Level 4. In such an instance estimates are prepared as previously described along with progressive estimates as the design is completed. It should be stressed that when preparing a bid at a prior estimate level, it is very important to include a complete and thorough "Scope of Estimate" statement that would state clearly such items assumptions, allowances, documents used for the estimate, and contingency amounts included.

For a discussion of project delivery systems.

To explore the impact of various delivery systems on a specific project.

Various types of construction contracts include:

The transfer of the estimate information to the field cost control system provides management the opportunity to closely monitor and control construction costs as they occur. Computer estimating and cost control programs, whether industry-specific or general spreadsheet type, are especially valuable for rapid and efficient generation of both the estimate and actual construction cost information.

It should be noted that it is always good cost control practice to review and evaluate the final cost estimate vs. the actual bid. This exercise is not another level of estimate, but is a cost control mechanism and important data for estimating future projects.

D. Elements of a Cost Estimate

Quantity Takeoff: The foundation for a successful estimate relies upon reliable identification (takeoff) of the quantities of the various materials involved in the project.

Labor Hours: Labor hour amounts can be developed by crew analysis or applied on a unit man-hour basis. The use of a labor dollar per unit of work (ex: $15 per cubic yard for grade beams or $20 per cubic yard for walls) is only applicable when the cost history supports the data being used. The estimator must make allowance for the varying production capability that will occur based upon the complexity of a project.

Labor Rates: The labor rate is the cost per hour for the craftsmen on the project. To determine any craft rate, whether union or open shop, the estimator starts with the basic wages and fringe benefits.

Material Prices: Material prices, especially in today's current market, fluctuate up and down. The estimator must both understand and anticipate the frequency and extent of the price variations and the timing of the buying cycle. Material prices may be affected by:

Equipment Costs: Equipment rates depend on the project conditions to determine the correct size or capacity of equipment required to perform the work. When interfacing with other equipment, cycle times and equipment capacity control the costs on the project. Costs will also differ if the equipment is owned by the contractor as opposed to rented.

Subcontractor Quotes: A subcontractor quote, like the general estimate, contains labor, material, equipment, indirect costs, and profit. It is dependent upon having the quantities, labor hours, hourly rate, etc., prepared in a reliable manner just like any other part of an estimate. The amount of the subcontractor quote is also dependent upon the payment terms of the contract, and previous payment history between the subcontractor and general contractor. Bonding costs should also be considered.

Indirect Costs: Indirect costs consist of labor, material, and equipment items required to support the overall project.

Profit Amount: Apply appropriate or contracted profit rate uniformly to all contractors and to original bid and change orders.

Emerging Issues

Computers and Building Information Models (BIM)

Computers have played an increasingly larger role in cost estimation for complex calculations as the design and construction industry has become more computerized. For example, to undertake a parametric analysis (a process used to estimate project costs on a per unit basis, subject to the specific requirements of a project), cost estimators will often use a computer database containing information on costs and conditions of many other similar projects and geographic locations.

BIM is a simple concept—a master, intelligent data model, resulting in an as-built database that can be readily handed over to the building operator upon completion of commissioning. The BIM standard could someday integrate CAD data with product specifications, submittals, shop drawings, project records, as-built documentation and operations information, making printed O&M and Systems manuals virtually obsolete. The technology has moved forward, but the industry's ability to absorb these IT advances has yet to change. Clearly, if BIM offers a genuine solution to reduce errors and rework, while improving building operations, it will eventually change the way all project team members develop and share information over facility life-cycle phases.

Sustainable Design and LEED® Certification

The GSA LEED® Cost Study for the U.S. General Services Administration defines costs associated with the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED®) ratings. Two building types (new construction courthouses and Federal Building modernization) are modeled against two scenarios for each LEED® rating (Certification, Silver, Gold), identifying differential costs of construction, design, and documentation/submission requirements.

The newly issued GSA LEED® Applications Guide, a companion document to the GSA LEED® Cost Study, outlines an evaluation process in which the predicted first cost impacts of the individual LEED® prerequisites and credits (developed from the Cost Study) are used as a basis for structuring an overall LEED® project approach. The process also illustrates how LEED® criteria relate to existing GSA mandates, performance goals, and programmatic requirements.

Descriptions of LEED® cost impacts on private and non-federal public sector work may be found in various periodicals describing current projects. Coverage of sustainable and LEED® issues is becoming more frequent and is often the main focus of many periodical articles.

An article that discusses LEED® cost impacts and the participation of the cost estimator in the LEED® point evaluation process is The Cost of LEED Certification by Joseph Perryman (Design Cost Data (DCD), November 15, 2005). Mr. Perryman is Chairman of the ASPE Sustainability Special Interest Group, and a member of the Association for Project Management, the USGBC, the Royal Institution of Chartered Surveyors, SAVE International, and the Association for the Advancement of Cost Engineering.

Relevant Codes and Standards

The American Society of Professional Estimators (ASPE) recognizes the Certified Professional Estimator (CPE) as an individual trained in the estimating practices within the construction industry. Private and/or public sector owners can ensure a certain level of professionalism and ethics by stipulating that the cost estimator be a member of the ASPE. There are no legislative codes or mandated standards applicable to the cost engineering or cost estimating profession.

Major Resources

Publications

Professional Associations

WBDG

Design Objectives

Cost-Effective Branch

Cost Estimating Software

Related Resource Pages
View Resource Page Index
WBDG Services Construction Criteria Base