Estimating accurately allows construction businesses to submit bids that cover the cost of completing the project while returning a profitable margin. To do so, companies need an understanding of the estimating process and what to look out for.
Estimators begin with a review of design drawings and technical specifications to decompose them into work packages to be assigned to specialty contractors. Unit costs for each work package are then calculated using commercial unit price guides.
Scope of Work
The project scope is a document that defines what is included and excluded from the construction project. It sets the stage for the contractor and the client to work together effectively and avoid costly misunderstandings that may lead to defect claims or payment disputes. A scope of work can be used at various stages in the life of a building project. For example, an owner may receive a preliminary estimate during the design phase to determine whether the proposed facility can be built within its budget or if any design changes are necessary.
The scope of work also identifies the responsibilities and tasks that all contractors, subcontractors, suppliers, vendors, etc. are obligated to perform, as well as any other obligations that they have to meet. The scope of work should include a timeline, a list of deliverables, and critical objectives that must be met to close out the project on time and on budget.
Once the scope of work is established, an estimator can begin compiling a list of materials (called quantity takeoffs) that will be needed to construct the facility. These estimates can be prepared from the information provided in the project plans and technical specifications, or they may be based on cost data that is available for specific types of construction projects. In either case, the estimation process should include a thorough site visit to obtain actual measurements of the proposed building area.
Quantity Takeoff
Quantity takeoffs are the foundation of a detailed estimate. They allow estimators to break down the design shown on the plans and described in the specifications into predefined activities or work items that correspond to operations the contractor will perform. This method helps eliminate guestimates and assumptions, and it also provides the accuracy that allows cost estimates to be made. It’s also time-consuming when done manually, but the use of specialized construction estimating software or working with experienced estimators can streamline the process.
Unlike traditional cost estimating, which uses a labor-based approach to calculate project costs, quantity takesoffs take a more comprehensive approach by measuring the amount of materials needed. This is accomplished by analyzing project drawings, determining the number of components, and counting the dimensions of each item in the plans. The results are then used to create a bill of quantities, or material schedule.
Detailed and accurate quantity takeoffs provide valuable data for project planning. They help ensure that the right materials are ordered in the correct amounts, reducing waste and costly mistakes. They also facilitate the bidding process and contract negotiations by allowing bidders to present more competitive and accurate proposals.
Cost Estimates
Cost estimates cover the direct costs associated with building construction, including materials, labor, insurance and overhead. To prepare these estimates, the estimator takes into account the unit rates from a variety of sources, based on historical pricing data and on specific project conditions. Indirect costs, known as soft costs, also need to be accounted for. These include such items as permits, entitlements, design, engineering, construction management, consulting fees and certain forms of insurance.
These soft costs must be added to the total cost of construction to get an accurate estimate of the project’s actual cost. To complete the estimate, the estimator adds in their profit margin and a contingency allowance, a cushion that allows for unforeseen expenses, such as changes to the scope of work or materials waste.
Some estimating software packages allow users to store information about common assemblies, such as residential interior walls, to speed up the process of preparing these types of estimates. This information can also be used to create assembly-level breakdowns of the components of these walls, so that the exact quantity of each item is automatically accounted for every time a particular assembly is referenced.
A key step in estimating is determining the rate for each of these components and calculating how long it will take to construct the structure. Typically, this information is sourced from a number of trade contractors and suppliers, with the most widely used resource being the RSMeans Square Foot Costs Book.
Change Orders
A change order is a written agreement that modifies the original scope of work. It also establishes an agreed-upon price for the new work. Change orders are a crucial part of the construction process, and addressing them promptly prevents cost overruns, schedule delays, and conflict between client and contractor. A change order is only needed when something significant needs to be added or changed in the scope of work. It’s important to be familiar with any time boundaries, format, content, or approval processes established in the original contract for change orders, so that you can be prepared to respond quickly when a client requests one.
When preparing a change order, it’s important to consider all of the direct and indirect costs involved. Indirect costs include overhead, profit, and markup rates, which are generally not directly related to a particular project but still must be accounted for in the pricing of a change order.
It’s helpful to prepare a standard change order template that includes a detailed description of the extra work, comparisons with the original scope of work, and a tally of the total additional cost. The template should also list the change order amount, any additional terms and conditions that apply to the specific change, and the signatures of the client, contractor, and architect. The AIA Document G701(tm)-2017 is an excellent resource for creating a standard change order form.