In construction projects, an accurate pre tender estimate is a vital component for bid evaluation. It helps avoid costly overruns and disputes. In addition, it is a key tool for obtaining financing from lending institutions.
De Silva, Kosmopoulou and Lamarche (2009) examined the policies of clients regarding the release of their engineer’s cost estimates (ECE). Their study showed that releasing ECEs prior to bid letting can have significant behavioural effects on contractors.
Costs
The cost of preparing a pre tender estimate depends on the level of complexity and the resources used. In general, the more detailed and accurate the estimates are, the more costly they will be. However, the costs associated with a pre tender estimate can be reduced by using a standard estimating methodology. This includes breaking the work into a series of packages, which are then priced by contractors. This method enables easy appraisal of tenders and identification of any potential savings.
The drafting of a pre-tender estimate is a critical part of the cost management process, as it sets a baseline for subsequent project budgets and cost control activities. Large discrepancies between a pre-tender estimate and the final bid price can lead to construction delays and project abandonment. Proper cost planning and control activities are therefore essential in the development of building projects.
In addition to the drafting of a pre-tender cost estimate, it is important to understand the major constituents of the final tender price. Contractors must also be familiar with the requirements of the design and the buildability of a given project, as well as any associated risks. This is because large deviations between the initial pre-tender estimates and actual bid prices are a common phenomenon in the construction industry, jeopardizing the viability of a project.
Time
When a client decides to build a building or structure, one of the first things they want to know is how much it will cost. This is why a pre tender estimate is so important. It gives the client a realistic idea of how much the project will cost and can help them manage construction costs. Preparing a pre tender estimate requires a lot of time and effort. It starts with a thorough examination of the drawings and specifications, a site investigation and market survey to determine the rates for labour, plant and materials. Then, the estimation team develops quantities. This includes a list of materials, an outline of the construction methods to be used, and a proposal for office overheads, a profit margin and a risk allowance.
While a number of factors affect the accuracy of pre-tender estimates, some are more influential than others. For example, a skilled professional estimator will be able to access reliable productivity references for labour and material, which are considered high visibility factors. However, other less-visible factors can also affect the accuracy of an estimate. These include the location of the project, the type of structures and the size of the estimating team. These factors should be considered to improve the quality of the final pre-tender estimate. This will prevent unpleasant project consequences, such as cost overruns and disputes.
Risks
One of the main tasks in construction project budgeting is estimating a project’s likely costs during design development. This is a critical step because the accuracy of cost estimates at this stage determines a number of subsequent budgeting activities, such as risk analysis and cost control. However, despite the efforts of quantity surveyors to produce accurate design-stage elemental cost plans (ECPs), outturn tender sums (FTS) are often significantly different from ECPs. These deviations are usually attributed to risks in the project. Proper risk management could reduce these deviations and improve the accuracy of pre-tender estimates.
Many factors influence the preparation of a pre-tender estimate, including the scope of work and the estimating team’s experience. For example, a large project will require more resources and will require a more detailed estimate. In addition, a larger project may have more interdependent systems. These factors will have an impact on the accuracy of the estimate, which can lead to increased costs.
In order to achieve high levels of pre-tender estimate accuracy, professional estimators need access to reliable cost and productivity references for estimating labour, materials and equipment. These major cost items have a high visibility factor and receive adequate attention during the preparing of a pre-tender estimate. Nevertheless, low-visibility factors also affect the accuracy of an estimate, such as procurement forms and contract arrangements.
Contracts
The cost of preparing an estimate for a project can be considerable. It is important to ensure that the estimate accurately reflects the value of the proposed work and the contracting agency’s willingness to pay for its performance. Otherwise, underestimating may result in delays while additional funding is arranged to meet the contract costs. Overestimating may lead to waste of resources and inefficient use of funds.
During construction procurement, jobs are allocated to contractors via descending price sealed-bid auctions, and clients often engage consultant quantity surveyors or cost engineers to perform pre-tender cost estimates of projects prior to the bidding process. The pre-tender cost estimates serve as the benchmark against which bids received from contractors can be judged. In addition, the pre-tender cost estimate is used by client organizations to determine which bids are acceptable and which should be rejected (De Silva at al. 2008).
The authors of this study examined the information release policies of public and private construction clients on releasing pre-tender cost estimates. They found that the release of information on a client’s valuation of an item before bidding affects bidders’ aggressive bidding behaviour in support of H1 and H2. However, they also found that providing the CQSCE does not influence average level of winning bids significantly in support of H3. The results of this study suggest that clients should carefully consider their information policy regarding the release of their pre-tender cost estimates.