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Estimating and Bidding
Estimating Basics II
Undergraduate 1

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What is detailed (definitive) estimating?
  1. Each component of Project (scope definition) is quantitively surveyed and realistic unit prices.
  2. Requires high degree of efforts from estimating team (based on the known quantities of each of the projects components)
  3. High definition of Project Definition (engineering 70% or more completed)- need drawings and specifications for material take-offs.
  4. To support final budget authoriztion, Contractor bids, Change Orders etc. (Class 3 to Class 1)
What class of estimates do owners/contractors typically create?
Owners usually prepare a Class 3 estimate combining both definitive and factoring estimating. Contractors specialize in definitive estimating. Usually prepare a Class 2 or 1 estimate as their business depends on it. Detailed estimate development costs are high. Schedule also can become an issue as it takes time to produce this level of estimates.
What are the uses of detailed estimates?
  1. As control budget
  2. Support Project Manager activities
  3. Support Cost Control Activities
  4. Support Project Schedule
  5. Support and Assist in constructability - construction methodology
  6. Costing Project Changes
  7. Comparison Base
  8. Contractor Bidding
Who is involved in developing project estimate (assuming it is being completed externally)?
  • Owner Team
    • Project Manager
    • Construction Manager/Superintendent
    • Cost Estimators
    • Cost Control Group
    • Schedulers
  • Consultant Team
    • Engineering Team
      • Cheif Estimator
      • Lead Estimator
      • Discipline Estimators:
        • Earthworks
        • Structural
        • Mechanical
        • Electrical
        • Piping
  • Various Bulk Material Suppliers
  • Various Equipment Manufacturers
  • Speciality Contractors/Sub-Contractors
What are the engineering inputs of a detailed estimate?
  • Plot Plan
  • Equipment and Piping Layouts
  • PFD's (Class 3)
  • Piping and Instrumentation Diagrams
  • Single-Line Diagrams
  • Equipment and Motor Lists
  • Instrumentation Lists
  • Piping Isometrics or Piping BOM
  • Technical Specifications
What are the Owners inputs of a detailed estimate?
  • Document of Understanding or Detailed Scope
  • Defined and Set WBS
  • Project Area Demarcation drawings
  • Preliminary Construction Execution Strategy
  • Preliminary Contracting Strategy
  • Preliminary Schedule
  • Estimate Schedule
What are the steps in producing a detailed estimate?
  1. Choose Estimating team
  2. Distribute the project scoping document/document of understanding
  3. Hold estimate kickoff meeting
  4. Prepare/Distribute an estimate preparation plan or schedule
  5. Prepare/Distribute and set the WBS and estimate structure
  6. Prepare/Distribute BOE (Basis of Estimate)
  7. Gather/Distribute engineering data (drawings, specifications, equipment and instrumentation lists, and MTO's)
  8. Distribute preliminary construction schedule
  9. Distribute construction execution plan and contracting strategy
  10. Estimate direct and indirect cost
  11. Estimate engineering costs
  12. Estimate owners costs (by owner consultant controlled)
  13. Estimate reviews - Key Estimating Milestones
  14. Updates/Adjustments from reviews
  15. Conduct Risk Analysis
  16. Determine escalation costs
  17. Determine contingency costs
  18. Package and deliver completed estimate
What are the cost components of a detailed estimate.
  1. Construction direct costs: (party responsible for estimate)
  2. Construction indirect costs: (party responsible for estimate)
  3. Construction Mark-Ups/Fees: Contractor (if bidding) Owner (if tendering)
  4. Engineering Cost: Engineering Consultant
  5. Owner Costs: Owner
  6. Taxes and Duties: All Parties
  7. Escalation: Owner
  8. Contingency: Owner
  9. Total Installed Cost
What are direct costs?
Resources that are expended solely on completing an activity or asset. In construction it is the cost of installed equipment, material, labour and supervision directly in the physical construction of the facility.
List types of direct costs.
  1. Material Take-Off (MTO)
    • Process of identifying, quantifying and listing the components of the project into an estimate sheet
    • Done from drawings, lists, and other information provided
    • needs to align with the WBS and estimate structure
    • Class 3 estimates relies on MTO by engineers (not enough detail for 3rd Party)
  2. Labour Rates
    • Contractors have very good data of labour productivity
    • Owners/Consultants have a hard time deciding on productivity adjustments
    • Sources of Productivity Factors - Trade Union Agreements, Historical data (internally)


What factors impact productivity?
  1. Weather conditions
  2. Access to and around site
  3. Site storage space
  4. Nature of Project, its size and complexity
  5. Distance from material and equipment sources
  6. Wage and price levels at the job location
  7. Quality of supervision
  8. Quality of Labour
  9. Motovation/Morale of workers
  10. Type and quality of tools and equipment
  11. Experience and data of similar projects in the past
Others and Engineering Consultants include small tools and consumables, fees, overhead and miscellaneous indirect costs into their base rate, is this a good practice?

It’s not a good practice. Base rates should reflect the accurate prices of the item in question. Small tools & consumables, fees, overheads and other miscellaneous construction indirect costs etc.

should be separate headings/line items. Since these costs change dramatically and are very much driven by local factors and the nature of project.

Also, indirect costs are crucial part of the estimate and should be tracked separately, without diluting the base cost.

What are the components of Labour Rates?


  1. Base Wage : Amount paid directly to employee (sources previous projects, labour contracts, unit rate supplied by contractor, engineering firms, government labour statistics, published labour databases, estimate publications (RSMeans)
  2. Labour Burden (Fringe Benefits): 
    1. Staturtory Holidays & Vacation Pay
    2. Union Benefits, Fees and Dues
    3. Government Burden (CPP, EI, WCB)
    4. Overtime (Shift or Spot)
What needs to be considered when dealing with overtime?
  • Estimator needs to consider overtime pay formula
  • Overtime varies from straight time to 1.5 to 2 times of regular pay
  • Fringe benefits are not included in overtime rate
  • CPP & EI will be included
What is Fully Loaded or Billing Rate (FLR)?
  • Owner is employing a person on a contract basis - and is only paid when on the job
  • FLR is base salary + all additions for hours worked
  • Does not include sick time, holiday or vacation pay
  • Base rate is adjusted to reflect this
What are some disciplines that have common approaches in their estimating?

Piling, concrete, structural steel, piping, insulation, painting, electrical, instrumentation and controls. Some examples:

  • Man-Hour Production unit manuals exists for the estimating
  • Itemized quantities are individually laboured and priced to form estimate
  • Quantity driven (not crew driven like earthworks or mechanical equipment estimate)
  • Learning curve is quicker
  • Equipment used should be included
Direct Costs in earthworks is difficult to estimate. Why?
  • Owners/Engineering Consultats commonly incorrectly estimate
  • Extensive experience is needed to estimate earthworks properly and require field experience
  • Unit earthworkers cost is different for each estimate because ground conditions, field composition and equipment size impact productivity
  • Fleet Production depends on terrain, condition of roads, location of borrow pit
What are some of the challenges when estimating Mechanical equipment?
  • Outdated Man-Hour Manuals
    • technology has changed manufacturing and shipping
    • Equipment is coming to site in larger pieces for less field assembly and fit-up
    • CM/Superintendent assistance is needed of install and constructability
    • Rely on crew type estimate
    • Need to know various types of cranes and lifting equipment
    • Need to know if any items being shipped need install and assembly
What two types of Material costs are required for a definitive estimate?
  1. Contractor Bulks (purchased by contractor)
  2. Tagged Equipment (owner supplied: long delivery items & contractor bulks *if owner receives special pricing)
Who should be responsible to provide pricing for tagged-equipment?
The owner/consultant are responsible for pricing of tagged-equipment as they may have existing agreements for the best price of the equipment or material being used.
What should be used in pricing material costs?
  • Vendors quotes (Class 1,2,3)
  • Historical data (Class 3)
  • Other considerations:
    • Freight
    • Hauling Requirements
    • Taxes
    • Customs Duties
    • Material Storage Costs
    • Special Storage Requirements
    • Double Handling Costs
What are indirect costs?
  • Costs that are not directly attributable to the completion of an activity
  • Difficult to estimate
  • May be referred to overhead costs
  • Required for the completion of activity
List two types of methods used in estimating indirect costs?
  • Bottom-Up Method
    • very accurate but takes time
    • calculated on an item by item basis
    • considers schedule while estimating costs
    • preferred for Class 1&3 estimates
    • used by Contractors
  • Conceptual Method
    • less accurate but quick
    • preferred for Class 3 and up
    • used by owners/engineering consultants
    • high level, no details based on % of direct costs
How do you distinguish between the owners and contractors indirect costs so that there is no double dipping?

Make sure that there is a summary created for indirect costs:

  • Construction Management Staff: Onsite
  • Construction Management Staff: Offsite
  • Temporary construction facilities
  • Construction services
  • Construction Major Equipment
  • Construction Minor Equipment
  • Construction Small Tools and Consumables
  • Other distributable costs
How do you calculate Mark-Up and Fees?
  • no set formulae
  • Mark-up is calculated based on bidding strategy which depends on a number of factors
  • calculated as % of direct and indirect costs
Should tagged-equipment be included in direct costs when calculating mark-up and fees?

Tagged equipment prices should be excluded from the mark up and fees.

How should engineering and owner costs be calculated?
  • should be based on the Class of estimate
  • % total of total construction costs (Class 3,4&5)
  • detailed line by line estimate (Class 3,2&1)
  • most estimates use techniques that are bottom-up estimating
  • owner's costs represent major components of the costs
Who is responsible for escalation and contingency estimating?
Owners should perform and provide values to include in estimate. Organizations have in house models to calculate contingency and escalation. Require contingency management.
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