When it’s time to get an accurate project estimate, it can pose many challenges for those working within the construction industry. Whether you’re a contractor or a property owner, obtaining a transparent forecast of your building project’s cost and how long it will take before you begin is not only important but crucial to your success in the business.
As anyone working within the industry knows, there are numerous variables entailed in every construction project, ranging from building design and site specs to the availability of required skilled labor. If you estimate too high, the bid may go to someone else, while coming in too low can lead to an entirely different set of problems. Because underestimating and overestimating can both lead to negative consequences, it’s essential to understand the ins and outs of construction estimating in order to address the unique challenges each new project brings. In this article, we’ve compiled a list of guidelines in order to better understand the processes entailed in construction estimating.
In order to understand the process of cost estimation, you’ll need to have some general knowledge of the construction process. Below, we’ve outlined the nine basic phases of a building project:
1. Commissioning A Project: Simply put, commissioning a project is basically a verification process that ensures a builder designs, constructs and delivers a project according to the owner’s specifications. This phase begins early on in the construction process and may last up to a year of building use or occupancy. A commissioning provider (usually a firm with experience in commissioning structures that serve a particular function) will carry out the commissioning process.
2. Determining Building Requirements: The ‘pre-design’ or planning phase is the first real step in constructing a project. This phase entails the specification of a project’s requirements, including what its function(s) will be, projected cost, location, and any legal requirements that it needs to comply with.
3. Choosing A Design Team: The next phase entails forming a design team: the project owner contracts with an architect, who will then choose other specialized consultants. Complex and demanding projects which need to meet certain design criteria (such as housing hazardous materials or room acoustics) will require additional consultants in order to guarantee the design of the structure meets the necessary requirements. Although the architect assigned to the project is typically responsible for overseeing and coordinating the design process, an engineer may also be one of the individuals overseeing design projects (such as industrial construction).
4. Designing The Structure: During this step, the architect is responsible for creating a series of building designs. This phase entails the following:
5. Bidding Based On The Scope Of Work: After the construction documents have been finalized, they are released to contractors who wish to bid on the project. In addition to the bidding documents, instruction on how to submit bids, a sample of the contract agreement, and financial/technical requirements for contractors are also included. Effectively defining the scope of work, these documents are the basis on which contractors prepare their estimates. It should also be noted that in order to ensure fair bidding, all contractors receive identical information, and the project owner typically chooses the lowest-qualified bidder.
6. Signing The Contract: Once a contractor has been selected, they will execute a set of contract documents along with the owner. These contract documents encompass the bidding documents, which now serve as a legal contract between the owner and the contractor. Depending on how complete the construction design is (and how the owner and contractor bear risks), there are numerous types of contract models to satisfy different payment scenarios.
7. Construction Phase: During construction, a contractor will oversee the building in accordance with the construction documentation. A general contractor (GC) will hire specialized contractors for different types of construction tasks, such as foundation work or plumbing. Throughout the construction phase, the contractor must oversee cost control carefully, comparing actual expenditures with forecasted expenditures at multiple checkpoints. Cost control ensures that the contractor is actually able to reap a profit.
8. Close-Out Phase: Once the builder is almost finished with a structure, the contractor will request the architect to perform an in-depth completion inspection in which the architect verifies the near-complete status of the project. At this stage, the contractor provides the architect with a document known as the punch list, which lists any incomplete work or necessary corrections. After the architect has inspected the structure, s/he will add any additional incomplete items to the punch list.
9. Completion: After the contractor has finished all of the incomplete work as detailed on the punch list, the architect will perform a final inspection. If the contractor has completed the structure according to construction drawings and specifications, the architect will issue a certificate of final completion, and the contractor is entitled to receive the full payment.
Historically, the practice of construction cost estimating dates back to the 18th century with its roots traced back to British quantity surveyors. Fortunately, estimation techniques have evolved in complexity and sophistication in more recent times. Below, a list of tips designed to help you obtain accurate construction estimates:
During the take-off phase, precision is everything – after all, you can’t bid what you don’t know. Be sure to do your due diligence, conducting detailed research and compiling data as efficiently and accurately as possible to avoid misinformation or oversights that could hinder your construction estimate.
When it comes to estimations based on unit cost/order of magnitude per square choice, unit cost estimating guides are not a fool-proof way to obtain accurate estimating. Because of the numerous variables specific to your project, use such guides only as a ballpark measuring tool.
It may seem like an obvious suggestion, but using a master checklist is one of the most effective methods of tracking the estimating process while preventing you from forgetting important steps and items, such as landscaping, permits and so on. There are numerous advantages to using professional construction bid software, including the ability to track costs, reduce the instance of errors and keep all of your information in one convenient location.
While it’s natural to be detailed on the parts of the project where you have the most expertise, it’s just as easy to overlook the ‘grey’ areas, which can potentially lead to cost overruns and other similar financial pitfalls. To avoid such scenarios, be sure to apply the same level of detail in task isolation, labor and material requirements in such areas where your firm may lack expertise. As the old adage goes, better safe than sorry – call in specific consultants or subcontractors to assist in areas that require a second set of eyes.
While it may be something that is not initially considered, specialty labor or craftsmen are not only required to include their normal wages and benefits but must also factor in state and federal payroll costs. Therefore, you’ll want to keep this in mind when establishing their hourly rate. The next steps include building out the additional members of your specialty crew and determining a feasible crew rate.
In order to define the project risks and factor in subsequent costs, begin by looking at previous projects to identify what ‘unknowns’ at estimation time became profit margin predators during your project. Referring to past data is a very useful resource when creating estimates for future projects, particularly for General Contractors. General cost estimating software is, therefore, an invaluable guide worth investing in.
Because the prices of products and materials are in a constant state of influx, paying close attention to factors that impact pricing when estimating costs is imperative. Ask questions such as:
In order to determine estimated costs affiliated with your project, you’ll need to ascertain what portions of your project are contributing the highest percentage of the overall project expenditures. Therefore, it’s essential to focus on cost centers in order to define the scope, labor, tasks, and materials required.
Whether you’re a general contractor or an owner, there are exponential costs related to your project that may fall outside the scope of material costs and direct labor.
Typical costs might include:
Keeping this information in mind, be certain to account for these costs in your construction estimation.
In order to accurately determine that your equipment needs are being met, be sure to have the equipment capacity matched to your specific construction project. Be certain that equipment is the proper size in order to interface properly with other equipment (as well as avoid redundancies). When drawing up your project estimate, take careful considerations to determine whether it is more cost-effective to rent or purchase equipment and small tools; this is a particularly valid item worth considering if the project requires tools you don’t already own.
Another important step in construction estimating includes checking your potential subcontractors’ quotes the same way as you would evaluate your own (as outlined in this article). Be sure to compare more than one subcontractor for each specific scope of work on both a material and labor basis. In addition, when considering which contractors to hire for the job, never accept a cost-plus bid. Finding a subcontractor who will provide you a solid estimate based on project scope is the most financially sound decision you can make for your business.
If you want to ensure that you bid on jobs with the highest success rate, it’s vital to maintain careful records of your bids and their outcomes. Keeping track of each bid will allow you to assess your progress and compare your profit margins to your competition. If you notice a specific competitor is constantly underbidding you or bidding against your projects, you may consider withdrawing your offer. If you can’t be profitable at their bid level, it may be a waste of time bidding.
Obtaining the proper materials for the job is key to both you and your supplier’s success. Therefore, it’s recommended to check with your material supplier for their professional insight when purchasing materials for a project. Once you’ve found a trustworthy supplier and established a good rapport, they’ll not only recommend the best materials for your project but advise which ones will work together and help you keep within budget.
Accurate project estimates are only one aspect of the construction estimation process – executing each project thoroughly and pragmatically requires numerous resources. In order to stay ahead of the curve, utilizing certain tools to track your progress – including worksheets, estimating products and other related industry services – will help you to create profitable and competitive bids, and ultimately ensure your overall success.