12/26/2017 Civil Engineering eBooks: ESTIMATING PROCESS

ESTIMATING PROCESS

ESTIMATING PROCESS

Learning outcome: On completion the learner will know the process related to producing an estimate.
Contents:
1.1 The Estimating Process
1.2 Cost Calculations
1.3 Production of the Estimate
1.4 Turning the Cost Estimate into a Tender

1.1 The Estimating Process

Estimating is the process by which the cost of carrying out a quantified work activity can be established using historical data, synthesis of the activity and computer
generated software information.

The contract estimate produced by the Estimator in conjunction with the pre-contract Tendering team is their assessment of the cost of a contract; this has been derived
from the information provided by the Client to the Architect and Quantity Surveyor and research, investigations and planning carried out by the team. This will include
processes and document production which will assist the estimator to establish a cost to complete the project. They include amongst others:
Ø Risk assessments
Ø Site investigation
Ø Resource availability
Ø Contract programme
Ø Sub-contract availability
Ø The drawings and specification
Ø Preliminaries and individual site conditions and location
Ø Form of Contract and requirements
Ø Prime Costs and Provisional Sums
When the Designer/Architect has produced the drawings for a building these are passed to the Quantity Surveyor who will prepare the Bill of Quantities. This is a document
which lists the items and describes the work that is to be done in order to construct the building. It specifies the details of each operation and itemizes the materials, parts
and labour for each operation, it will also include preliminaries, material specification details about the form of contract, P.C. and P.S. inclusion and other factors which will
affect how the work will be carried out and the quality and allowances to be incorporated.

Once the document has been prepared it is sent to the companies who are invited to tender for the contract. Each company who wishes to tender will then cost each of the
items in order to obtain an overall estimate.

Before a company decides to submit a tender for a contract they need to decide if they wish to price the contract, taking into account all relevant factors, and finally
determine what profit they expect, before turning the estimate into a tender.

Estimators need to keep up to date with the factors which will influence costs such as plant, materials and labour availability.

The estimating process incorporates decisions about:

Ø Equipment needs
Ø sequence of operations
Ø number of workers required
Ø physical constraints at the site
Ø conditions of contract

Allowances must be made for wastage of materials, inclement weather, or any other factors that may increase costs. These will need to be incorporated into the estimate.
Once these factors have been considered the estimator will produce a cost summary for the contract and include profit and overheads; and move the process on to the
tender production stage.

Take off
The initial ‘take off’ content within any contract is vital and whilst various systems of approximate estimating exist, none can be as accurate as using the Standard Method
of Measurement (SMM) approved and accepted by professional Quantity Surveyors and the Royal Institute of Chartered Surveyors, (RICS).

SMM ensures that each item of measured work is divided into trade or element headings in accordance with the rules for the use of SMM; it provides a standard method of
providing and presenting measured building works and thus allows accurate Bills of Quantity to be produced. This means that each contractor tendering for the work is
doing so with exactly the same information.

The fact that all measured work is quantified according to the rules of SMM allows the Estimator to accurately assess the work to be completed within the measured work
section. However it should be understood that many forms of contract and tendering procedures exist within the construction industry and the comments within most text
books and publications refer to The JCT Form of Contract. Domestic Sub Contractors and Nominated Sub Contractors have their own form of contract based upon the
relevant JCT format used for the main contract.

Contractors may use alternative systems to ‘take off’ work content where Package Deals, Turnkey or similar contracts are being Tendered for or negotiated but inevitably
some form of Bills of Quantity will be required for price determination and valuation purposes.

Being realistic in the form and amount of work output whether referring to machine or person is vital if the contract is to be won and return to a profit.

The Estimator will complete the Bills of Quantity by reference to the information produce by the ‘Tender Team’, in essence by placing a price against every work item within
the Bills of Quantity and multiplying this by the quantity of the item priced. The page is then added and taken to ‘the Summary’ where additional Bills of Quantity items such
as Preliminaries, Prime Cost, Provisional Sums, Contingency Items, etc as applicable to the individual contract are included.

1.2 Cost Calculations

The Estimator should possess the knowledge and understanding of the work items (as detailed within SMM) in order to be able to place accurate figures against each of
the Bills of Quantity measured work items and/or to be able to complete the costing of the preliminaries and other such items. The Estimator will also carefully consider the

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information provided by the Tendering team and incorporate this into the unit rates.

Whist computer estimating programs are available and the use of price books (such as Spons or Wessex), historical data retained by the Estimator and company are aids
and checks on accuracy; much of the Estimators role will depend upon his experience and ability to calculate accurately ‘Unit Rates’.

Units Rates
Units Rates are rates per unit of measured work within the Bills of Quantity, they are described in terms of Lm, M2, M3, Tonnes, Item, etc; all complying with the rules of
SMM; for each unit of measured work the Estimator includes a price at which he/she considers that the work can be completed.

The unit rate will include whatever the Estimator considers necessary and appropriate, it is important that the unit rate ‘build up’ is transparent to all who may wish to use
the unit rate at a later date; this could be to extract and analyse various parts of the ‘cost build up’ to establish items such as, labour content, labour output constant,
material costs, waste factors etc.

The basic inclusions in the ‘unit rate’ will be:

Ø Materials
Ø Waste on Materials
Ø Labour in the form of an output constant multiplied by the craft persons ‘all in’ rate
Ø Plant (Specialist plant identified for a specific work item may be included within the unit rate but may be itemised at the end of the Bills of Quantity section in which the
description of the work was present; general plant may be described within the preliminaries)
Ø Overheads
Ø Profit

Price books and computer software used for estimating purpose provide an excellent source of information, in particular to confirm or query the Estimators labour constants
but all such information should be taken as a guide only and not used without interpretation of the constraints and opportunities identified by the Tender team as applicable
to the individual tender and contract under consideration.

Labour Constants

The establishment of accurate ‘labour constants’ is vital to the accuracy of the calculation of the unit rate; indeed the accuracy of the Estimators calculation of labour output
could be considered to be central to the accuracy of the estimate and tender figure itself. In addition to determining the cost of the contract to the contractor the labour
constant will determine amongst other factors the programme durations for the contract and hence cash flow.

The Estimator must use all the information and expertise available to ensure the accuracy of the labour constant as far as it reasonably practical to achieve this objective.

Cost Estimate not Tender Figure

After all the work which has gone into the production of the Estimate for a contract it should be remembered that the Estimators price to complete the contract is not the
Tender Figure/ Price which will be submitted to the Client, it is purely the cost of carrying out the work in the view of the Estimator and the Tendering team. The actual
Tender Figure/Price; the amount to be quoted to the Client which will secure the contract for the company will be subject to a process usually referred to as: Completing the
Estimate and Final Tender Review, Adjudication or Settlement, a process by which the company take into account factors which will enhance their chances of success or
diminish these; it will also consider the amount of work they currently have and the importance of gaining the contract, only then will a Tender Figure/Price be established.

Computer Aided Estimating

Computer aided estimating has been growing in popularity since the 1980’s, its use has increased as more sophisticated systems have been developed and amended,
most incorporate systems which enable the Estimator to adapt software and performance criteria to the specific needs of the company and to take into account the
requirements of individual contracts.

The computer aided software currently available complements and is largely derived from traditional estimating price books; publications such as Spons, Laxtons, Luckins
and Wessex and similar reference material have been used by Estimators for many years. These contain methods of measurement with descriptions for most trades and
services together with the calculated unit rates.

Most computer aided estimating systems operate in a similar manner allowing the Estimator to accept the published rates or amend them to reflect the true cost of
resources as obtained from quotations received for plant, labour and materials and combine these with their calculations and requirements for overheads and profit. The
units rates may further be amended by the Estimator to take into account individual factors and constraints affecting the unit rate and hence the Estimators’ cost price.

Price books and estimating packages must always be considered as guides only; seldom would a contract be gained by merely substituting price book or computer
software unit rates into a Bill of Quantity; and the profitability and /or desirability of such a contract would always be most questionable. Many factors affect the Estimators’
price and indeed the price calculated by the Estimator is seldom the tender price which is submitted to the client.

Computer aided estimating is undoubtedly beneficial in the calculation and extension of the Bills of Quantity and recalculation, adding or subtracting from the rates following
adjudication meetings or in correction of errors and similar events.

Many contracts have now dispensed with the traditional format of paper based Bills of Quantity and drawings; all information being received by the contractor in an
electronic form which is compatible with computer aided estimating techniques.

E-Tendering is becoming increasingly popular as it allows contractors to extend the use of electronic communication and data exchange to sub-contractors and suppliers
who have the facility to deal with information exchanged in this manner. Most large organisations now possess and use this technology but smaller sub-contractors
operating in a limited discipline could be excluded by this process and hence the competition for a contract be reduced. The rapid exchange of information enables a
speedier tendering process and allows rates quoted by suppliers and sub-contractors to be incorporated into the unit rates and estimate accurately.

A word of additional caution; computers used in design calculations and other areas including estimating are capable of giving the impression that all factors have been
considered, build confidence and give assurance; in reality this is an illusion; the skill and experience and judgement of the estimator cannot be replaced. Computer aided
estimating is an aid to the estimator not a replacement for their expertise.

1.3 Production of the Estimate

The first thing that needs to be done in the production of the estimate is to estimate the costs involved with the project. Although this section deals specifically to the development of a

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project the principles will apply to all construction work.

Estimating Construction Costs

The construction costs for a project will depend on the size, type of building, standard of finish required, location (costs will vary according to the region in which the development occurs),
the economic climate of the construction industry i.e. if there is a shortage of construction work available firms will reduce the amount of their tender in order to try and attract work. If the
opposite is the case and there is a lot of work available, firms will increase their tenders, as they will not be too keen to obtain the contract which will stretch their resources, unless it is
worth their while financially. In a recession, construction firms can literally buy work in order to keep their workforce and to ensure some cash flow. Whether the rate of inflation needs to be
considered will depend on the duration of the contract and the rate of inflation.

Building Costs can vary between builders/developers. This can be due to the size or purchasing abilities of a company or the discount that it receives from suppliers.

Professional fees must be added to the cost of construction and these will vary according to the project. In the past, fees were based on a set scale which was a percentage of the building
cost, though in the last few years an element of competitiveness has emerged which can result in the professions negotiating their fees. This has resulted in a reduction in the amount paid in
professional fees though if a scale is used these can be as little as 8% of the cost of a basic industrial unit to 20% or more for more sophisticated developments with complex mechanical,
electrical and communication services installations.

The Use of Price Books

Estimators may use ‘Price books’ as a means of determining unit rates; particularly where the Estimator does not have a full understanding of the work to be executed. They are used to
complement and enhance the Estimators historical data records and experience of pricing contracts much of which may be stored mentally and thus not available for others to access without
consultation.

Estimating price books; publications such as Spons, Laxtons, Luckins, Griffith and Wessex and similar reference material have been used by Estimators for many years, these contain
methods of measurement with descriptions for most trades and services together with the calculated unit rates. The essential fact to remember is that Price books are the estimate of the unit
rate by an individual or group of individuals based upon a set of assumptions against a defined and measured item; not an exact price which must be incorporated into an estimate; nothing
could be further from the truth; even price books from differing authors may well have differing unit rates for an identical operation.

The skill of the Estimator rests with their ability to amend the published unit rates to reflect the true cost of resources as obtained from quotations received for plant, labour and materials
and combine these with their calculations and requirements for overheads and profit. The units rates may further be amended by the Estimator to take into account individual contract and
contractual factors and constraints affecting the unit rate and hence the Estimators’ cost price. These factors affect the Estimators’ price and it should be remembered that the price calculated
by the Estimator is seldom the tender price which is submitted to the client.

Bills of Quantity

The Bill of Quantities list in standard format items of work to be completed, together with the specification, details of the form of contract and conditions under which the work will be
carried out, plus additional contingencies and items/sums for inclusion in the tender. The Bills of Quantity description and format may be considered as a form of shorthand standardization
of work to be completed during the contract which is understood by other members of the construction industry.

The Bill of Quantities is in essence a method by which contractors, usually from a selected and previously approved list are requested to forward a tender price to carry out the contract
based entirely upon the contents of the Bill of Quantities and related enclosures, the principal documents of which will be the form of a contract, tender drawings, preambles and
specification.

Traditionally a Bill of Quantity would be produced using the current Standard Method of Measurements by the Quantity Surveyor working for and on behalf of the Architect and priced by
the Estimator working for the contractor. Today this format is still found but increasingly contractors and clients are using various methods to compile a Bill of Quantity; this is particularly
true where Package Deals; Design and Build and similar contractor based tendering formats are adopted for new contracts.

Traditional methods of Bill and Quantity production were very labour intensive and including taking off, abstracting, cut and shuffle and direct billing processes, today much of this work
has been superseded by computerized taking off; billing and estimating software of which a very wide variety of choice exists. It should not be however be assumed that the computer is
capable of analytical thought and able to analyse and price the individual challenges presented by a contract.

The role of the Quantity Surveyor and Estimator in the production of the Bill of Quantity and costing of the contract at all stages; pre and post contract and during the design process in
invaluable.

Once the Contract has been awarded the Bill of Quantity may be used as the basis of cash flow forecasts, variations, valuations and final accounts and other contractual matters, however it
is important to remember that all work completed is subject to re-measure on site.

The Bill of Quantity is a pricing mechanism and whilst every effort is made to ensure that it is accurate it should never be assumed that all of the measured items are accurate or indeed still
present in the final contract.

The Bill of Quantity in whatever format adopted is essential to the effective and efficient management and financial control of a contract.

Additional information on Bill of Quantities can be found by visiting the website listed below.

Producing the Estimate

The estimate is a net estimated cost of carrying out the work. It considers all items of expenditure which are likely to be required in order for the work to be completed. On completion the
estimate is submitted to management to enable them to determine if a tender is to be submitted and the price of the tender.

A detailed guide for the production of an estimate can be found in the CIOB Code of Estimating Practice.

.4 Turning the Cost Estimate into a Tender

The Estimator in co-ordination with the tender team will by this stage have completed the task of investigating the true nature and extent of the contract under consideration
and produced documents and reference material to aid their final pricing of the contract. They will have produced a pre-tender programme early in the tendering cycle to
ensure that the tender is completed and received by the Client by the date noted on the tender documentation. They will be working as a team to produce that which they
consider will be the right price for the contract and the strategy by which this price will be competitive and secure the contract.

Even at this stage the manner in which the contract and its individual elements and operations will be completed will have been established and method statements, risk
assessment, the overall contract programme etc, produced and discussed.

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The estimating team must be optimistic about their chances of winning the contract, and the type of contract should be compatible with the ‘Bidding Strategy’ of the
company if the team are to be fully motivated.

It is a reflection on some contractors that only 10% or less of contracts tendered for are won, yet other contractors achieve success rates of 50% or more merely by
targeting certain types of contract and recruiting and retaining expertise within that field of work.

Assuming that the tendering team have worked diligently completed the required documentation, produced the required statements and programmes, and studied the
drawings and details fully the challenge still remains. - How can the Estimators price be converted into a tender price which can be submitted to the Client and secure the
contract for the company.

Taking the contract forward using the knowledge of the tender team and utilizing their understanding of the project and experience from previous contracts is a process
known to some as ‘Adjudication’ and to others as ‘Settlement’; some use the description of ‘Completing the Estimate and Final Tender Review’ and separate out settlement
as a separate stage.

All are terms which interact and in essence describe a process of checking what has been produced by the tender team and taking this forward to produce a Tender Figure
/Price which will secure the contract; turning the estimators cost price to the contractor of actually carrying out the work into a figure which will actually win the contract.

The tender team is charged with the objective of winning the contract at the highest possible price that it is actually possible to do so; not the lowest price anyone can
achieve that feat but their company will not remain in business for any length of time. (It should be appreciated that in the real world other factors may make the above
statement seem simplistic but the essential point is made).

The estimate should be carefully checked for errors in the bills of quantity unit rates and extension of the rates until the Estimator is content with the price calculated.
Settlement / Adjudication Meeting

The process of settlement or adjudication involves considering amongst other factors:

Ø The Estimators report

Ø Contract conditions and form of contract
Ø Site factors
Ø Past experience of the Client
Ø Analysing own work content
Ø Sub-Contract allocation.
Ø Prime cost and Provisional sum content
Ø Discounts available
Ø Non Standard insurance requirements
Ø Liquidated damages applicable
Ø Complexity of the contract
Ø Programme constraints
Ø Likely variations
Ø Valuation dates
Ø Labour availability
Ø Profit margins required
Ø Preliminaries
Ø Effects on overheads
Ø Dayworks
Ø Contingency sums included
Ø Preliminaries including contractual requirements
Ø Competitors
Ø The existing company workload
Ø The need for the new contract.
Ø Financial implications and cash flow analysis
Ø Risk analysis
Ø Health and Safety Plan.
Ø Cash flow with the new contract
Ø Cash flow without the new contract
Ø Company retention on selective tendering lists.
The list is in reality extensive and many of these factors will already have been considered by the tendering team and related to the estimator but the final ‘settlement’ is in
many respects left to the senior management of the tendering company; on their shoulders rests the continuance of the company and responsibility for its profitability.

That which turns the estimate by into the formal tender is complex and many would consider it an art rather than a science, everyone attending the settlement meeting(s)
should contribute and much discussion will take place until a sum of money is agreed and the Form of Tender completed and submitted.

It is not unusual for a Managing Director aware of the competition to reduce or increase the Estimators cost prediction before submitting the tender.

Outline Tender Procedure for a Contract to be Awarded under JCT form of Contract
Ø Invitation to tender – Document delivery
Ø Check contract documentation
Ø Ensure complete
Ø Bills of Quantity
Ø Drawings as contract documentation
Ø Conditions/Form of Tender
Ø Note return date
Ø Determine tender policy for this invitation
Ø Yes/No (with carefully worded letter)
Ø Read all documentation carefully
Ø Decision to tender – Positive
Ø Produce Pre-tender Programme
Ø Method Statements
Ø Contract outline programme

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Ø Working methods
Ø Health, safety, welfare and environmental protection requirements
Ø Meeting schedule etc.
Ø Assign duties to personnel
Ø Carry out pre-tender site investigation – assess work and site conditions
Ø Determine own work content of the Bills of Quantity
Ø Request quotations for plant and materials – full documentation must be provided, including specification and form of contract
Ø Determine extent of the sub-contract works and request quotations – full documentation must be provided, including specification and form of contract
Ø Price sections of the Bills of Quantity to be completed by the main contractor
Ø Compile/price the whole of the Bills of Quantity using information gathered from internal and external sources
Ø Analyse Bills of Quantity to determine contractors own work content
Ø Preliminaries
Ø Domestic sub-contractors
Ø Nominated sub-contractors
Ø Nominated suppliers
Ø Provisional sums
Ø Daywork sums
Ø Contingencies
Ø Discounts
Ø Possible additions/omissions etc.
Ø Adjust rates and price in line with the findings- analysis report for adjudication meeting
Ø Determine financial viability of the contract
Ø Determine work impact of success or failure of the tender – report for adjudication meeting
Ø Adjudication meeting – to determine tender price
Ø Complete form of tender and deliver to the appointed place in good time – obtain a receipt
Ø Analyse competition tender price/duration if possible and evaluate own performance

Ø Commence pre-contract procedure or use information gained as feedback for future contracts.

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