Cost Estimating 201 Bid Based Estimating 1 What

Cost Estimating 201 Bid Based Estimating 1

What is Bid-Based Estimating? • The most common estimating method is: – historical bid-based approach which uses recently let contract data to determine unit prices for a future project. • Historical bid price data: – stored in a database for 3 to 5 years. 2

What is Bid-Based Estimating The estimator matches elements and items to: • scope reflected in project documents • appropriate historical bid data 3

Why Bid-Based Estimates? • Bid-Based Estimates: – efficient in terms of staff resources. – provide reasonable estimates on typical projects. – quicker to assemble. 4

Project Characteristics Preparing a bid-based estimate: – – – project location construction season traffic control work-hour restrictions coordination with: • • multiple utility companies railroads agencies granting environmental permits local agencies and jurisdictions. 5

Project Characteristics (cont’d) • Impact on estimating if using: – first-of-a-kind technology – new materials – new methods of construction – Buy America requirements 6

Project Characteristics (cont’d) Impact on productivity: – complicated construction staging – haul routes – accessibility to the site – requirements for night work 7

Bid-Based Estimating Key Inputs • Prepare Base Estimate – Historical data needs. – Understanding of external project environment 8

Macro-Environmental and Market Conditions – Work season(s) – Expected competition – Contractor availability – Specialty work – Contract incentives – Permit conditions 9

Macro-Environmental and Market Conditions Work Season – Time of the advertisement – Expected fluctuations due to seasonal factors – Lower production during temperature extremes – Additional protections for weather-sensitive materials 10

Macro-Environmental and Market Conditions Competition/Contractor Availability • Higher bid prices if advertised: – late in the season – after contractors have scheduled their work for the year. • High bid prices due to: – lack of competition – limited contractor capacity 11

Macro-Environmental and Market Conditions Multiple Projects Pros: Multiple projects approach increase competition. A contractor already in the vicinity have: – lower mobilization costs – lower material sources Economies of Scale 12

Macro-Environmental and Market Conditions Multiple Projects Cons: Multiple contracts may create conflicts between the projects such as: – construction staging and traffic control – labor issues – coordination between contractors 13

Macro-Environmental and Market Conditions Specialty Work Examples of specialty work: • landscaping • Stream Restoration • Rockfall & Slope Stabilization • building work 14

Macro-Environmental and Market Conditions Specialty Work • Need to be characterized correctly when estimating. • Number of qualified contractors capable of performing the specialty work. 15

Prepare Base Estimates 1. Quantify estimate components. 2. Develop estimate data. 3. Compile cost estimate. 4. Document assumptions and other estimate information. 16

Prepare Base Estimate Quantify Estimate Components • Different approaches required based on level of information – Design disciplines develop pay item list and quantities for preparing estimates. – Unit costs developed by estimator 17

Prepare Base Estimate Quantify Estimate Components • During scoping phase estimator is often responsible for: – identifying work items – deriving the quantities – selecting the best historical bid price to employ. 18

Prepare Base Estimate Develop Estimate Data • Developing estimate data for a project requires two steps: (1) accessing historic unit prices; (2) adjusting historic unit prices to fit the project being estimated. 19

Prepare Base Estimate Develop Estimate Data • Use most up-to-date data • Limit the past period historic data timeframe 20

Prepare Base Estimate Develop Estimate Data • Using similar active or recent projects is an alternative to database search • Project must be truly similar in terms of: – items – content – quantities • Using similar projects can reduce the time and effort 21

Prepare Base Estimate Develop Estimate Data Application of historic data considers: – Accessing Unit Costs – Bid Price Adjustments – Lump-Sum Items 22

Prepare Base Estimate Accessing Unit Costs • While databases are very useful for storing and retrieving data, a spreadsheet works much better to: – perform computations – analyze data 23

Prepare Base Estimate Unit Price Calculation • Use of lowest unit bid prices. – Selecting the lowest unit bid prices could result in too low of an estimate if the unit prices used were from an unbalanced bid. • Use of average unit bid prices. – Selecting the average bid price could result in too high of a price dependent on project specifics. 24

Prepare Base Estimate Unit Price Calculation The most accurate method to consider is: 1. dropping outlying data from the set 2. using statistical techniques such as • weighted averages • regression • standard deviations 25

Prepare Base Estimate Pareto Principle or 80 -20 Rule • Constraints of time and staff: – Impact all aspects of estimate preparation. • Optimize resource utilization by focusing on the items that account for the majority of the total cost (80 -20 Rule) 26

Prepare Base Estimate Historical Bid Analysis Using Regression 27

Prepare Base Estimate Unit Price Calculation • Some items of work have little or no historical data. – Minor significance: • spending extra time is of little benefit. – Major significance: • research should be conducted to establish a cost. 28

Prepare Base Estimate Bid Price Adjustments Important considerations in adjusting historic bid prices: – Geographic Considerations – Quantity Considerations – Item Availability – Scheduling/Lead Time – Difficult Construction/Site Constraints 29

Bid Price Adjustments Geographic Considerations Each STA needs consider: – – Regional factors Local factors Political factors Material issues 30

Bid Price Adjustments Geographic Considerations A project’s location in relation to material supply sources should be considered. • • urban suburban rural remote or less accessible 31

Bid Price Adjustments Geographic Considerations • Large quantities of borrow fill materials and aggregates – the distance to material sources has a large impact on costs. • Mountainous terrain and steep grades. 32

Bid Price Adjustments Geographic Considerations location-related considerations: – local policies – locally rules and regulations governing: • • noise and pollution disposal of materials working hours construction season - tribal lands 33

Bid Price Adjustments Quantity Considerations • Quantity of a given work item: – affects the unit cost of constructing and/or supplying the item. • Suppliers offer discounts for larger quantity orders. 34

Bid Price Adjustments Quantity Considerations • Generally, small quantity items are less cost effective to construct. • Projects with extremely large quantities of certain materials may actually cause an increase to the unit bid price. 35

Bid Price Adjustments Item Availability • Commonly used materials can reduce costs and risks. – Readily available – Contractors familiar with materials 36

Bid Price Adjustments Difficult Construction/Site Constraints • Difficult construction and site constraints increase the cost of construction. – Placing piles under water – working near active railroads or adjacent to historic buildings – constructing on or near environmentally hazardous sites – having limited room to construct an item. 37

Compile Cost Estimate • Ensure all items are defined and quantified and unit prices are applied to quantities. • Use a spreadsheet or other software. 38

Document Assumptions Support documentation includes: – – – project work narratives and schedule, assumptions, unit price adjustments backup calculations, sketches and drawings. Key – documentation must be understood, checked, verified, and easily corrected. 39

Estimate Basis Estimate basis covers: – – – references to sketches or early drawings preliminary plans final plans specifications and contract requirements project location unique project conditions 40

Estimate Backup Data The following estimate-related information should be documented: – Quantity computations and assumptions – Estimated bid price and adjustments – Source of pricing. 41

Risk Analysis and Contingency • The contingency amount should be developed separately based on a risk analysis process. • When the design is completed, item bid pricing should reflect known risks. • Adjustment of item bid prices for risks should be documented in the Project Estimate File. 42

Contingency • Bid-based estimates should incorporate uncertainty under the contingency cost category. • Variability in either the quantity or the bid price should be covered under the risk analysis and then incorporated into the contingency estimate. 43

Lump-Sum Items Alternative Technique • Lump-sum bid items are used when: – A general item of work can be easily defined but its components are not easily determined. • Consider other factors that are not easily estimated. • Avoid or minimize use when possible. 44

Lump-Sum Items (cont’d) • Breaking out a lump-sum item can difficult and time consuming, therefore: – apply percentages or ranges based upon historical data from similar project with similar items. 45

Lump-Sum Items (cont’d) Lump-Sum Items: • • • Mobilization Traffic Control Clear and Grub Structural Steel Demolition Temporary Erosion Control 46

Lump-Sum Items Mobilization • Mobilization: – preconstruction expenses – the costs of preparatory work and operations. – Risk is often bid into mobilization. • Mobilization costs are dependent on: – amount and size of equipment and contractor staff. 47

Lump-Sum Items Mobilization • Contract specifications impact cost. • Payment impacts cost. 48

Lump-Sum Items Mobilization • Consideration should be given to: – the location of a project – the complexity of a project – work requiring specialized equipment – the type of work – and the work season(s). 49

Lump-Sum Items Mobilization • Organizations use historical bid-based estimating: – historic percentage to estimate mobilization costs. – percentage of the overall construction item total - 6 to 18%. 50

Lump-Sum Items Clear and Grub • Removal and disposal of: – vegetation – trash – natural and manmade objects • Lump sum payment basis. 51

Lump-Sum Items Clear and Grub • Breaking the site area into quantifiable segments. 52

Lump-Sum Items Structural Steel Some states pay for structural steel for bridges by the lump-sum payment method: – nuts – bolts – washers – stud connectors – scuppers – plates and anchorages – all costs of fabrication, delivery, and erection. 53

Lump-Sum Items Structural Steel • Calculate weight of material. • Apply cost per pound. • Adjust for project-specific conditions. 54

Lump-Sum Items Demolition • Demolition work involves excavators, trucks, and other specialty equipment. • Consider: – number of days the operation will take. – disposal and distance to disposal facility related costs. 55

Traffic Control and Maintenance of Traffic • Item where innovation by contractors can improve the traffic control plan. • Lump-sum for traffic control can reduce: – preliminary engineering effort – construction inspection effort 56

Traffic Control and Maintenance of Traffic • Special provisions/specifications examples: – lane restrictions can be imposed – duration that a detour can be in place – maximum length of work zone. 57

Summary • The goal of estimating is to determine a reasonable cost to deliver a project. • Estimated bid prices should be based on recent historical bid prices adjusted for: – – – current market conditions, geographical location, seasons, quantity differences, difficult site conditions and/or constraints. 58

Summary (cont’d) • Estimate reviews take time and resources. • Estimate reviews are vital to achieving consistent and accurate estimates. 59

Resources • Anderson, S. , Damnjanovic, I. , Nejat, A. , and Ramesh, S. (2009). Synthesis on Construction Unit Cost Development, Texas Department of Transportation, Report Number FHWA/TX-09/0 -6023 -1, Texas Transportation Institute, College Station, Texas. • Cost Estimating Guidance (2007). U. S. Department of Transportation, Federal Highway Administration. 60

Resources • Ramesh, Sushanth (2009). A Framework to support a Systematic Approach to Unit Cost Development, Master of Science Thesis, Texas A&M University, College Station, TX, Dec. • Schexnayder, Cliff J. , Weber, Sandra L. , and Fiori, Christine (2003), NCHRP Project 20 -07/Task 152 report, Project Cost Estimating a Synthesis of Highway Practice, Transportation Research, Board, National Research Council, June. 61

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