Estimate Preparation: “Cost Based Estimates and Their Value”………………Part 1.
By George Bradfield, GA DOT Chief Estimator
Welcome to the world of cost based estimating for your DOT projects. I will be speaking of preparing detailed cost estimates used by DOT to evaluate the award or rejecting of projects that you are trying to let. We all know that the rejection of projects is not what we are all about. We are trying to let the projects to contract because they are needed for safer, more efficient transportation, and etc. Evaluating (award/reject) projects is not the only or even the number one reason we prepare a cost estimate: however, if you are evaluating bids received and deciding whether to award or reject, you better have a cost based estimate on at least 80 % of the cost of the contract. Comparing bid prices off of historical data, massaging this data with regression analyzing, or any other means of using historical data will eventually lead to problems if not already existing. Particularly, the tracking of low bids should be strictly prohibited. The engineers detailed cost estimate should be a fair and reasonable value to do the work based on the materials along with the labor and equipment cost to do the work. The use of historical data is good support data for your estimate or okay for program/budget estimating, but should never be used as a frontline estimate for bid comparison. There have been a couple of states that have had to respond to legislative inquiries regarding the rejecting of some of their projects. Even to the point of Peer Review Teams to scrutinize and help improve their estimating department. More cost based estimating in each case was required for improving the estimate...............
COST BASED ESTIMATING (CBE) is the best method for several reasons. CBE is more accurate in that you are considering only factors and influences within your specific project you are estimating. Average the job conditions, i.e. production rates within your project as the bases for your estimate. Do not average the prices of other projects as a bases for your estimate. In today’s reconstruction climate with complexities of staging, restrictive work hours, retro-fitting, and various other conditions as opposed to new location and straight forward projects, price comparisons are even more difficult to make. CBE is the most cost effective way to estimate project cost even if you have never attempted to prepare a CBE. Explaining the content of CBE is a whole lot more productive and establishes greater creditability within upper management than any historical based estimate. You have to know what you are talking about to disagree with a good CBE. It just doesn’t carry much credit when we say “that was what the other job/jobs went for” and quite easy to discredit historical estimates if your project is not identical to the ones you are comparing prices from. Yes, there is a learning curve, but once the corner is turned you are on your way to a higher quality estimate, less “problem” bids, greater credibility among upper management, and untold cost savings on your projects to name a few benefits. And all this can be accomplished with existing resources. Many times we spend more time with the tools we have to estimate with (computers/software) when we should be putting this time in studying and analyzing the project. We often compromise our available time to prepare an estimate by shortening the studying and analyzing phase so we can “get it in the system”. Please, I am not opposed to computers, but they are merely tools to use to estimate by. Not that it will never be available, but I have not yet seen the computer software that studies the project for us and determines the specific job conditions, requirements, production rates, and contract documents of the particular project. These considerations are the foundation for the cost based estimate……………………….
I have heard many say we just can’t do cost based estimating, we do not have the experience, the # of people, or the time. Believe me, CBE takes less time, they can be done with existing # of people, and your DOT resources ( your people) are the best experience you can have. You do not have to have 25 years construction experience to prepare a cost based estimate, but within your DOT resources you can find what it takes to learn and understand any thing you desire to without having actual first hand experience. Like all new products or new ways of doing things a learning curve is to be expected. This learning curve does not take a great deal of time or some higher level of mathmatics to achieve. Cost based estimating is straight forward with simple math. The heart of a cost based estimate is in understanding the project, the plans and contract documents, acquiring current material prices, establishing labor and equipment ( and respective rates for the L&E), finding (through your resources) production rates for the respective pay items, and presenting this data in a logical and easy to understand format……………………………………………………………………………………….
To conclude part one, I offer a suggestion to every estimator. Each estimator take one pay item (starting with an item of high usage and significant $) and create a detailed cost based estimate for that item. Research the item (find out the production rates for the item from several different types of projects), get current material prices, labor and equipment used to construct the item, current industry labor rates ( average these rates is ok), find out what equipment it takes to construct the item (rental rate Blue Book is a good source for equipment prices. This will begin your estimate file and can be used/ modified for the next time this item needs to be estimated. Do one item each month or at least one item /quarter. Before long you have built a good estimate history file. The most important benefit form cost based estimating is that you acquire a knowledge that few people have, no one can take away from you, and is very beneficial to your job resume if you should decide to work within the private sector. Thank you and Happy Estimating !