Construction estimation basically means developing the budget for building projects such as the construction of a single house, residential housing developments or commercial buildings and sites. 

what cost estimating involves:

  • Identifying All The Costs Involved: This includes direct costs like materials and labor, as well as indirect costs like overhead and insurance.
  • Quantifying The Costs: This means figuring out how much each cost element will be. You might use historical data, quotes from vendors, or industry benchmarks to do this.
  • Summing Up The Costs: Once you have a handle on all the individual costs, you can add them up to get a total estimated project cost.

Basics Of Construction Cost Estimating:

In the construction field, one of the main challenges is managing building projects that have unique features and requirements.

All projects, however, share three essential components:

  • Budget
  • Timetable
  • Scope Of Work

Because prices play a major role in many project decisions, engineering companies and contractors need to be proficient in construction cost estimation.

Steps In Construction Estimating:

1.     Reviewing bid package

Documents Necessary For Bidding Are: Owner-contractor agreements, bond forms, general conditions, supplementary general conditions, and construction specifications

Since contractors who submit a bid are obligated to finish the work specified in the bid package, a qualified estimator invests a lot of time in making sure they are knowledgeable about every facet of the project.

When reviewing the bid package, construction estimators generally follow a standard process:

  • Ensure That All Drawings And Specifications Are Present: Estimators must make sure they have all the information needed for an accurate estimate.
  • Get An Overview Of The Project: Estimators must understand the project’s scope, material requirements, and final quality by quickly overviewing the specs.
  • Evaluate Structural Requirements: Estimators gain an understanding of the building’s material and equipment requirements by looking over structural designs.
  • Review Mechanical, Electrical, And Plumbing (MEP) Requirements: Estimators consider how a building’s MEP requirements would affect the building’s construction process, including any prospective subterranean work.
  • Identify Any Nonstandard Items: Estimators must pay close attention to any distinctive floor layouts, features, or finishes that could have an impact on the project’s cost because contractors frequently specialize in particular sorts of work.

The general contractor may request bids from specialty contractors for any or all of the necessary construction work after an estimator has broken up the work into packages.

2.     Conduct a Site Visit:

In certain instances, a site visit is necessary before submitting a bid. However, estimators will find that a site visit is a better way to learn about the characteristics of the planned construction site than merely relying on elevation drawings or photos.

An estimator visits the site primarily to have a better understanding of the site’s circumstances and how those could affect project expenses. For example,

  • A swampy site with poor drainage will require a complex drainage system to prevent delays and potential structural damage. The cost of pumps, trenches, and gravel can quickly add up, eating into your project budget.
  • Working around existing buildings requires extra precautions and planning to avoid damage. Protective measures, noise mitigation strategies, and potential coordination with neighbouring businesses can all add unforeseen costs.

3.     Perform A Material Takeoff:

A quantity takeoff is carried out by estimators by going through the construction paperwork and tallying each item that is needed for the project. Usually, requirements for material are arranged according to the CSI divisions.

To make the bid levelling process easier, the owner or engineer of a large construction project may draft a bill of quantities (BOQ). The scope of work is broken down in this paper into a detailed list of tasks and resources. Most contractors still conduct a takeoff to confirm the numbers and spot inconsistencies even in cases when a BOQ is given.

Usually, general contractors will perform a takeoff to generate precise work packages, which they can then either finish themselves or delegate to speciality contractors. Before contacting vendors and suppliers, a specialist contractor usually conducts their material takeoff by reviewing the specifications to make sure they have an accurate count.

Nowadays, most estimators rely on digital takeoffs using construction estimating software, which greatly speeds up the process. Nonetheless, many estimators still double-check the accuracy of the digital takeoff to ensure that their estimate is accurate.

With this information, contractors can work with material and equipment suppliers to get pricing information they can use while creating a bid.

4.     Solicit Pricing From Suppliers And Vendors:

After obtaining a solid inventory of supplies and machinery, speciality contractors start corresponding with vendors and suppliers to obtain quotes.

 Contractors Have To Be Mindful Of A Few Things When Pricing Materials:

  • Ordering Extra Materials Is Necessary Due To Material Waste: While waste from unneeded materials should be avoided, some waste is unavoidable (due to material size, for example). A contractor should ideally be able to estimate the anticipated waste by reviewing previous projects.
  • Order Sizes May Be Dependent On Bulk Pricing: For example, a contractor might find that, because of supplier price structures, buying 40,000 cubic yards is more economical than using 37,000 cubic yards for the project.

Quotes have limited lifespans. When a specialist contractor obtains a quote for materials, they must make sure the price is valid for a sufficient amount of time to have their bid accepted and place the project’s material order.

5.     Evaluate Labor Requirements

Estimators can determine the labour required for a project using data from the takeoff. To put it briefly, the estimator must indicate:

  • Which roles are required for the construction project and which are not?
  • How many hours of labour will be used to complete the project labour per hour to determine the cost.
  • How productive the crew will be, using data from past projects and information about the current project.

Estimators need to make sure that, instead of just calculating the total hours by the hourly wage, they compute the loaded labor rate for wages in both scenarios. Included in the loaded labor rate are:

  • Wages
  • Taxes
  • Insurance (includes worker’s compensation and unemployment insurance as well as health, dental, vision, or life insurance)
  • Retirement Contributions
  • Union Dues
  • Vacation or Sick Leave

6.     Determine Insurance And Bonding Costs:

Both owners and contractors can reduce risk by using insurance and bonds, but this advantage has a price that needs to be factored into project estimates.

Almost all construction companies need general liability insurance. In addition, based on the size, nature, and function of the business, they might also have other policies, such as:

  • Errors and omissions
  • Commercial auto insurance
  • Builder’s risk insurance

7.     Calculate Overhead And Indirect Costs

Estimators have to consider not only the direct project costs but also the overhead costs necessary to operate a construction company and the indirect field costs related to construction.

Direct Field Costs Could Include:

  • Permits
  • Site cleaning
  • Professional services
  • Trailers
  • Equipment costs (depreciation, , maintenance, taxes, and fuel)

A few common overhead expenses include:

  • Rent for office space
  • Taxes
  • Insurance
  • Software subscriptions
  • Administrative salaries
  • Utilities

8.     Account For Profit And Contingency:

Following the completion of a construction project’s cost calculation, the estimator will modify the final figure to consider contingency and profit margin. The contractor’s profit is the amount they receive for the contract; they can reinvest this money to expand the firm further. Contrarily, a contingency is a percentage of the contract allocated for waste and overruns, which are typically foreseen in building projects.

Every construction company sets its own minimum desirable profit margin based on a variety of factors, including market conditions and growth objectives.

Comparably, industry-wide contingency numbers differ greatly based on construction type, business size, and project risk. To allow for contingencies, many construction companies often add between 5 and 10% of the contract price.

The estimator has finally arrived at a sales price that generates a good profit while paying for all project expenses, including labour, materials, equipment, indirect field costs, overhead, and contingencies. With this amount in hand, contractors are ready to start negotiating with a project owner or general contractor, or they can submit a competitive bid.

Turning An Estimate Into A Bid Proposal:

After the sales price is established, a bid manager will usually draft a construction proposal that provides a clear and detailed explanation of every item included in the bid price. Use the same language used in the construction specifications and drawings since bid reviewers will be trying to make sure everything in the scope of work is included in the bid price.

Comparing each component of the bid price to a section of the specifications is made simple when the CSI format is used during the estimating process. Using a common format facilitates the creation of a schedule of values and enhances the integration between accounting systems and estimating software, even in cases where the bid is for a lump sum contract.

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