1993 AACE TRANSACIlONS

Km3 Government and Contractors .Estimates: Needs and Intents

James E. Rich, PE CCE
lNIRODUCITON This paper discusses differences between estimate preparation by wntractors and government. Discussions will be limited to capital improvement projects on which an independent design is produced and on which competitive bids will be received. Differences discussed may apply to other types of procurement and by work as required by any owner. Views brought forth are from the authois 36 years of experience as a cost engineer for the federal government and six years in private practice. Processesused in government estimate preparation is similar to that of a cost consultant or anyone preparing estimates for owners. Topics to be discussed in this paper are reasons for estimates, types of estimates, available information, personnel preparing estimates, format of estimates, and uses of estimates. REASONS FOR ESTIMATES Construction cost estimates for capital improvement projects are prepared for one initial purpose: to determine the future construction cost of a project. Contractors prepare estimates immediately prior to bidding to determine their cost and to obtain the project by being the lowest bidder. After bidding, their estimate may be used to monitor costs during construction and prepare the schedule of prices for payment purposes and other miscellaneous items. Contractors estimates must be low enough to obtain work while still being at a price within which the project can be constructed. Estimates that are too high mean no work is obtained, estimates that are too low mean the risk of losses on a project. In either case, the company runs the risk of failure. Government estimates are not prepared to obtain profit and should not necessarily be the low bid. In the budgeting stage, an estimate that is too low will make the project more attractive to those establishing programs. The problem of insuIIicient fimds arises later. High estimates are likely to cause the project to be dropped from the program or reduced in scope. A reasonable, but not necessarily low, price is needed. In each of the design stages,reasonable estimates are still needed, but it is not necessary to be at the pricing level of the lowest bidder. Government estimates are prepared at several stages in the design process. Early on, estimates serve to determine budgeting requirements. Later, estimates additionally serve to provide design cost guidance, as a basis for value engineering studies or other guidance to designers as needed to provide a cost efficient design. Final estimates, adjusted for bidding, serve to provide historical cost guidance for future budgeting requirements. Contractors prepare estimates to obtain and profitably construct a project Government/owners prepare estimates to make available funds to pay contractors and to provide cost guidance. Where there is a profit motive from the completed project, estimates will be prepared to determine the projects feasibility from a cost standpoint. TYPES OF ESTIMATES Contractors estimates will be detailed and prepared immediately prior to bid opening. Government estimates are prepared at several phases of the budget/design process. An initial estimate will be prepared based upon zero design for K.3.1

inclusion in a list of projects for future programs. As this project list becomes more firm, updated estimates will be prepared as design proceeds. There may be a concept estimate at the 5% stage, a preliminary estimate at the 35% design (some agencies may require a 60% estimate), a 90% (prefinal), and 100% (fmal estimate). The 90% (pref~l) can h the 100% estimate subject to comments.

Contractors prepare estimates from a complete set of plans and specifications just prior to bid opening. Firm quotations will be obtained from suppliers on materials used for prime contract work. Subcontractors will hrrnish firm quotes on specific portions of the work. The prime contractor will assemble all work, inchrding overhead, into a complete bid package. Contractors can decide what types of projects to bid, when to bid, and where to bid. Government personnel must estimate all types of work as assigned Government personnel prepare estimates from much less information. Initial estimates for funding purposes may be prepared with a bare scope, i.e., type of building and gross area. In this case, historical costs adjusted for time, size, and location will be used for building wnstruction and a percentage added for supporting facilities. This can be a critical point in the hmding of a project. Many times, due to funding deadlines, the projects cost can get locked in based upon this estimate. Lack of supporting facility information is apparent. Building costs often vary due to lack of project scope furnished. As an example, the project request could state the requirement for a IUO,OOO square foot (sq. A.) warehouse. It would appear the historical cost for this facility would be available. Reasonable building costs can be obtained by making time, size, and location factor adjustments. What can happen is that actual project requirements include 10,000 sq. ft. of cold storage warehouse and 5,000 sq. ft. of administrative space. If these additional requirements had been known, cost allowances could have easily been included. For concept estimates, limited site investigations may be made, foundation conditions determined from adjacent projects, and a limited attempt to determine special building features that vary from those inch&d in the square foot cost in historical data. A better concept estimate is one in which investigations are made of existing utilities to determine point of connection of adequate service, basic layout of paving, earthwork requirements, demolition relocation requirements, and discussions with users to determine special building features that may increase or decreasehistorical costs. At the 35% stage, more detailed information becomes available. Level of detail is not uniform throughout the design disciplines; for example, architectural and civil information may be more detailed than that for structural, mechanical, and electrical. Q&line specifications may be available. Information may be received at various times so that an overall project view is diIIicult until the estimate is due, and it is then when adjustments are difficult. Receiving preliminary drawings horn which to start and then later receiving update drawings without time to evaluate can produce problems. This usually is brought about by the designers using up all scheduled time, leaving little or no time for estimate preparation. Nnety and 100% estimates are more detailed and are prepared from more complete drawings. Many of the same conditions occur a this stage as at the 35% stage. Due to scheduling restrictions, estimates are made horn incomplete drawings and without complete specifications. Many designers do not fully appreciate the mechanics of estimate preparation. Some f&e1 that a broad view of the project is all that is needed; details and specification requirements are not important. A typical comment is, I have about a weeks work on details, but these will not affect the estimate. Contractors are able to obtain firm quotes on materials and, if successful, will purchase these materials. Government personnel do not purchase materials and obtain at best, ~estimating prices on materials. A wmplete specification may not be available, and if it is, many suppliers feel that only a budget price is ever needed. Not actually buying makes a difference in the type of pricing information received. Bidding climate can have a large impact. Since government estimators are distanced from the marketplace, evahurting this impact becomes somewhat of a problem. Once a trend has become established, allowances can be made, but determining when changes in trends occur becomes more difficult. Contractors are in direct contact with the construction market, but government estimators have only indirect contact.

Contractors personnel are usually specialists and are involved in detailed estimates at bidding. General contractors estimate their own work and rely on subcontractors to prepare estimates on other items. Many estimators may be involved in a single project; however, this is not true in government work. Government personnel are usually generalists. In some agencies, K.3.2

1993 AACE TRANSACTIONS one person prepares the entire estimate. Separation into general construction, civil, mechanical, and electrical is usually the greatest task separation. Conceptual estimators require a different talent. Many estimators who are excellent on final detailed estimates never are able to adjust to conceptual estimating. Budgeting needs make the conceptual estimator extremely valuable in the government or, for that matter, to any owner. Preparing detailed estimates form time to time serves to keep the conceptual estimator up to date on current detailing and design trends. FORMAT OF ESTIMATES Varying uses for estimates can necessitate different formats. For contractors, the Construction Specification Institute (CSI) specification section format is widely used. This allows pricing by subcontractor in their normal line of work and makes scope of work easily identifiable. Government/owners have other needs requiring other estimating formats. In the budget and early design stage, identifying quantities of items by CSI section becomes somewhat difficult. In making design decisions, the CSI format is cumbersome to use in value engineering studies and preparing budget estimates. Another format is to break the project into systems, known as work breakdown structure. A recommended classification has been published by the Department of Commerce titled Unifotmat II A nxommended classi/ication for building elements and Elated site wo&. This allows grouping, sometimes across CSI lines, as the work is assembled in the field, i.e., foundations, exterior walls, roofing, and heating, ventilating, and air conditioning (HVAC). In some areas, the estimate may be CSI oriented. Using this systems format allows conceptual estimators and designers to look at a project from a slightly different viewpoint and more easily perform their required tasks. Later in the design stage, CSI formatting may look more attractive. However, the final estimate provides excellent information for future budgeting if formatted in the systems format. The ideal method is to make the quantity take-off in a systems format while still pricing and applying mark-up in the CSI format. Manually done, this dual sorting would be too time consuming. With present-day computers sorting the estimate both by systems and CSI section, this is easily obtainable. USES OF ESTIMATES Contractors estimate a project to obtain work and make a profit. Once work is obtained, the estimate is used to prepare payment schedules and other administrative tasks. Government estimates cover the entire life of a project. Budget estimates establish funds available for construction. Preliminary estimates provide design guidance and verify that design is proceeding within available funds. They also seIve as a comparison with contractors payment schedule, as a comparison to bids received. If structured in a systems format, final estimates, adjusted for bidding, provide valuable estimating guidance for Mure budgeting tasks.

SUMMARY On the surface, work may appear identical. However, there are many differences that make approaches different. Intent of the estimate is a major difference. Contractors need to be low to obtain work; government estimates are a funding and design tool, as well as a comparison with bid results. With all these differences, there is still a similarity of work that can benelit from a knowledge of each others needs and a mutual exchange of information.

James E. Rich, PE CCE 1825 Cedar Road Chesapeake, VA 23323

K.3.3