Construction Estimating Fundamentals

THE BID PACKAGE, CONTRACT & FOLLOW UP

Spring 2009

Bid Logic
75% of the bid proposal preparation quantity survey

25% - applying labor, material, equipment costs to the overhead and profit, taxes, and any other additional costs As a GC (general contractor), you have discretion to bid one or two trades, all, or none of them. The rest of the trades will be your sub and will submit their bids to you as the GC
It is important to comply with the code of bidding ethics.

Proposal Ethics

Ethics is the code of conduct or behavior governing an individual or group; principles; morals; standards. Unethical behavior ALWAYS catches up with you (examples: pres. Clinton, the Godfather, Enron, etc.)

Making friends with suppliers is not a problem. Maintaining a level of standards is A good idea is to keep contact with several suppliers to maintain impartiality. Several Organizations of Estimators make sure you will not stray: the American Society of Professional Estimators (ASPE), the American Society of Cost Engineers (ASCE), the Construction Specifications Institute (CSI).

Bid Summary Sheet

Bid Pricing
Lump

Sum Unit Price Breakdown (materials, labor, equipment)

 Lump Sum includes the hard costs (labor, material, equipment), overhead, profit, bonds, permits, fees, and taxes Unit Pricing self-explanatory

T&M w/GMP (Time & Materials w/ Gross Maximum Price)

Added Costs
Permits Fees Taxes

The cheapest property for sale in Rootstown, OH:

Other costs
Environmental precautions Asbestos Abatement Mold Abatement Indiana Bat protection/relocation very common for OH Dust

Etc.

Overhead and Profit

Project Overhead: administration, permits, project office trailer/utilities, fencing, etc. Corporate Overhead: office personnel wages, office material/equipment, insurance, vehicle fees, etc.

Example:

The overhead percentage:

360,345 / 2,269,240 = 0.158 or 15.8%

$ $

Profit
By profit here we mean the profit margin or the desired profit the company wishes to attain. Profit is the amount of money necessary to maintain operating expenses and a positive cash flow between projects. The Actual Profit is that money remaining after all wages, taxes, fees, materials, and equipment are deducted from the gross estimate or the contract price.

Profit Levels

Profit levels depend on many factors: Volume of work (the larger the volume the lower the profit level (percentage) Availability of work

Another approach (DANGER!) Some contractors lump overhead and profit into one percentage figure: For example: overhead = 16% profit = 12% Total = 28% Hard cost = $3,291, 720 x 0.28 = $ 921,681 Total = $4,213,401

Risk Factor
Risk Factor is the possible risk for the contractor of cost overrun due to unforeseen problems and subcontractor inadequacy. Some defer such risk by incorporating a contingency allowance into the project corporate costs.

THE CONTRACT
The contract is the result of a successful bid Two types of bids (and thus of contracts): competitive (open bid) and negotiated (closed bid)

Retainage (Retention)

Retainage is very common. It is a form of guarantee, i.e. a payment and performance bond. Usual retention in the US is 10% of the total sum of contract.

Cost Analysis
Once the project is awarded, the primary concern of the job-cost analyst (the estimator) is the hard costs. These are the questions to answer DURING construction:
- is the supplier delivering the EXACT product specd or its substitution? - is the delivery on-time? - if the product is substituted, is it the same quality/value? - what is the cost? - are field personnel slacking? Too many coffee/beer breaks? - is the equipment in good repair? - is there cooperation between trades so there are no delays?

Control
Every bit and piece of info and referencing means there is control of the work!

Control (cont.)
Control is MANDATORY for good quality work! Typical sources of claims of liability, litigation, or worse: misunderstandings, cost discrepancies, scheming, politics, etc. Proper record keeping is CRITICAL.

Historical Reference
The tale of the all-familiar by now Medical Clinic:

cont.

Potential Problems from Subs:

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Questions? Midterm is coming up! Final Course Team Project on Wednesday Have a good weekend