How is an Estimate Put Together?
Although we all tend to take it for granted, the estimate process is an interesting phenomenon within the construction industry. I am not sure if there is any other business where the accuracy, timing and procedural processes come together in such a directly competitive arena. The construction process of bidding a project and providing an estimate is approached in different fashions throughout the industry.
If you are working for a subcontractor that is bidding an individual division of work, the insight into your expertise can be well established. For example the estimating of the drywall portion of a project will entail the following:
- Complete knowledge of the costs of all the materials that you will require. Sheetrock, screws, insulation you name it, if you do not have the best numbers for material going in, your competition will blow you away.
- Knowledge of your own manpower. What type of production do you normally get from your men? I have estimated for subcontractors in the past and the knowledge of production limits, meaning the least and the most are very important.
- Knowledge of all soft costs. These line items are such things as insurance, workmen’s comp, health, union dues etc.
- Knowledge of the marketplace and how your need to make money on a bid, dovetails into the marketplace. Items such as number of bidders, type of work and location all fit into the analysis of the marketplace that each bidder must identify.
- Ability to take a hit. If you are too low and don’t make the money you anticipated, can your business survive for the next battle. This is an analysis that will allow you to take the job from a competitor and merely break even or maybe lose money, however you must be around to survive it.
The bidding as done by a subcontractor is somewhat easier than the all inclusive bids of the general contractor. Albeit divisions such as 15000 Mechanical and 16000 Electrical are somewhat more tedious and involved than the painters bid or the floor covering bid.
However, the general contractor is where the men are separated from the boys. The general contractor is expected to understand the entire project, to take off all the trades and to organize and accumulate all the costs of all the bidders, for all the divisions. OK< sound intimidating, it is, and the process is different in all companies. In some companies the process is merely a takeoff of all the line items, unit price evaluation and off we go with the number. On the other end of the spectrum is the contractor that takes nothing off themselves and merely accumulates the bids per each division, levels them, maybe, and adds up all the lowest leveled numbers.
Leveling, what the hell does that mean??
Leveling is the process by which the various quotations from each Division are analyzed to balance the scope of the work. For example regarding the concrete quotations, do the concrete subs carry such items as the rebar, the vapor barrier, the winter protection, the surface sealer? Each of the proposals from the various bidders needs to be analyzed to level all the bids. This appears to be a somewhat tedious task, however, as you gain a level of experience and knowledge that will come with years of estimating, the leveling becomes almost common sense and you develop a feeling for the number. This feeling for the number is easily developed due to the ranges of the bids. If three of the bids are between $200,000 and $220,000 you know that the scope of the work is fairly balanced, the one you need to worry about is the $175,000, is this just because they are more competitive and hungry, or did they miss the rebar, the winter protection, etc.
In my opinion the best method for estimating is summarized as follows.
- Identify the project by reviewing the documents and based upon that review develop a subcontractor bid list. There are many programs to aid in this endeavor that will allow you to add subcontractors, subtract subcontractors, etc. In addition many of the programs allow the reuse of a subcontractor data base for similar projects. If an interior fit up is bid in Connecticut and another one comes up, the same bidders list with substitutions, adds or deletions can be used.
- Once the project is identified and the subcontractor data base is developed, an Invitation to Bid is submitted to all the subs. The Invitation to Bid identifies the project, who you are, when the project proposals are due to you, the General Contractor, and the information to allow the subcontractor to view the contract documents, which includes the drawings, the specification, and addendums. The distribution of documents can be accomplished via an internal company website or FTP site that allows the subs to view the documents on a general server, or the documents can be issued to a professional copying center that allows viewing as well as the ability to copy the drawings to provide hard sets, or another form of computer program to allow the viewing of the documents. What is important is that whatever method of document distribution is used, there must be a way to submit addendums, RFI’s etc through the system. Without this there is no ability for the subs to review the project.
- Once the database is completed, the ITB is issued and the project organized and reviewed, the estimator must develop a spreadsheet with all the work requirements organized in an excel or other spreadsheet. This spreadsheet becomes the working estimate and is all important in the development of the bottom line. In many instances the calculation sheets summarize to a proposal sheet for ease in final preparation of the estimate. There are countless computer programs that have been developed to assist in this process. I for one, enjoy simply building the estimate via an excel spreadsheet. I am bias when it comes to this and feel that this is the only way to understand the development of the estimate. If you allow someone else to develop the spreadsheet, ??? who knows what is in it. I have many individuals that strongly disagree with this.
- Now the project is out on the street, the spreadsheet is identified and it is now, in my opinion, time to take off the items required to build the project. I personally like to take off all the material and the labor and create an estimate on my own to identify the actual cost of the project. I do not believe in the so called unit price databases that are provided by the professional computer programmers, I do not believe in merely taking the subs quotes and using their numbers. Build the estimate yourself and see where you feel the number should be.
- Identify the markups on the project. This will be the general conditions, the insurance, the building permit costs, the taxes, etc. etc. etc. You must be aware of the location of the estimate as well as the requirements of the area and the owner. Is the project union, is the project prevailing wage, is the project have minority requirements. ??
- Once the project has been taken off, the estimate is developed; I like to create the buyout column for the project. This column includes all the subcontractors that are submitting their proposals as well as the value of each. Alongside each item can be the leveling sheet or I feel better yet, an individual sheet within the entire workbook which can be developed. I find that this is the better way and that the leveling sheets can be included within the entire workbook.
- Now it is merely the process of actually accumulating all the data, proposals, etc. comparing them to your own takeoff and summarizing the values for the project. In addition on the excel spreadsheet you will have the multiples for the markups, the general conditions, etc.
There are various alternate methods that different estimators like to use. Many have their own processes that they have developed over the years. I will always remember one of the old fashion estimators that I grew up with. If you asked Bill Conroy what the cost of an item was he would never simply tell you that 8” block is $12 / block. What Bill would tell you is to find out how many block an average mason can install in a given day. Find out how much an 8” block is to purchase from the supplier, anticipate via a formulae, the quantity of mortar and grout that an 8” block requires and estimate the installation of a block yourself. Granted this is a long process, however once you do it a few times on several different construction assemblies you will develop a sense of how and why something costs a certain amount. To simply memorize unit values will not allow you the flexibility to customize the costs for a project. You must understand where the numbers come from and why they add up to the values that are stated. A unit cost is a wonderful bit of information, how you got there is the real key to the value of the unit price.
Now, I am constantly challenged on my beliefs regarding estimating. However I feel that to perform and estimate the way I have just described allows you the insight and the understanding of the entire process of building. This information can be used constantly as you increase your experience and knowledge within the building industry. In addition the actual takeoff of quantities, the actual pricing of individual line items can and will be used by the project managers when they buyout as well as the purchasing department when they purchase the material and develop the contracts, etc. The information that you have taken the time to develop will in the end be used many times over as the project is managed and constructed. The ability to develop your own change order values and verify the costs as presented by the subs for additional work is all developed through the estimating process. All individuals within the industry must know how to estimate and do it properly and thoroughly.
Prior to completing this chapter let me emphasis the need to know how to estimate a cost of performing the work. It is used throughout the industry and is a means of providing the insight to correspond with engineers, with architects, with all the other entities within the industry. The ability to estimate properly and efficiently is a must skill in this industry. Do not short circuit the necessary work that is required to learn the estimating trade and the skill to anticipate and predict costs.