PURPOSE OF CE
• To establish project budget
• To order services and materials
• Profit margin is defined as the acceptable rate of return or
compensation for a project, based on the risk associated with the
Types of estimates
• Detailed – Cost of each and everything required for the project is
determined in detail.
• Assembly – Bid by groups of components e.g. making a bed
• Square-foot or analogous – Cost based on average cost per square foot or
any other unit.
• Parametric – Cost determined based on statistical relationship between
building parameters and cost or between building components.(Use of
• Model – Estimate prepared using a computer model and on the basis of
answers of the estimator to questions relevant in calculating cost
• Project Comparison – Cost of proposed project determined in comparison
to the cost of a similar completed project.
Quantity Take off Skills
• Be able to understand and interpret structural drawings and plans
• Knowledge and application of math specifically geometry
• Patience, diligence and punctuality
• Computer literate with special skills in quantity take off and
estimation softwares, Be able to manage a database of cost estimates
• Be able to visualize building from plans
• Experience in Construction processes; Labour productivity, problems,
methods of construction, conversion of productivity to costs
• Strong presentation and writing skills
Types of bids: Competitive
• contractors bid in competition to other contractors.
• Project awarded based on best value or price
• Price - usually the lowest cost proposal is awarded the project
• Best Value – Bids compared based on a specified criteria including
Types of bids: Negotiated
• Contractors and clients negotiate on virtually all aspects of project.
Mutual agreement is required on cost, terms and conditions and a
Types of contracts : Single
• Contract for entire project given to a single contractor; prime
• Prime contractor may hire subcontractors for various phases of
project directly answerable to him
• Markup included (contingencies and risks). Prime contractor may
absorb that markup when subcontractors don’t perform
• Prime contractor has enormous responsibility
Types of contracts : Separate
• Owner hires contractors for different phases and aspects of
• Aspects such as Plumbing, electrical works, General construction
• Markup loss to prime contractor is eliminated
• Choice of contractors lies with the owner
• Owner has to manage project work or may have to hire personnel to
Types of agreements
• Lump-sum or fixed sum: Contractor agrees to work for a fixed price
set through bidding or negotiations. Contractor takes on most risk.
• Unit-price: Price for each unit of work is provided and bids are made
on the basis of estimates made from quantities and unit price. Lower
bidder determined on basis of quantity estimates of owner. Payments
made on actual work. Exact Project cost not known until completion.
• Cost plus fee: Cost paid for actual construction within agreement
terms and conditions
Types of Cost + fee Agree.
• Percentage fee: actual cost + percentage of the actual cost depending
upon actual work
• Fixed fee: Actual cost + a fixed fee agreed upon within contract
• Fixed fee + Guaranteed Maximum cost:
• Sliding scale fee: Actual cost+ a reducing percentage fee (% vs 1/t)
• Fixed fee with a bonus or penalty: Target cost is set up, If cost is less
than target then a bonus fee awarded. A penalty is awarded if the
cost exceeds the target.
• Scope of work: Project and its components are defined
• Time of completion: Start and completion date, completion date expressed in number of days or
a specific date. Liquidated damages and bonus clauses listed here
• Contract Sum:
• Lump sum: Agreed upon cost or bid amount stated.
• Cost plus: Reimbursable and non reimbursable items listed, exact type of compensation stipulated.
• Progress payments: Schedule of payments (due dates) is listed. Payment criteria is given, action to
be taken in case of no payment release is also stated.
• Retained Percentage: Part of the payments is retained as a way of ensuring the contract is not
breached (usually 10%).
• Schedule of values: sales prices for specific items to be used in project is listed. Contractors
overvalue the prices to compensate for change in market values of the items. This is called front
• Work in place and stored materials: work in place is calculated as a percentage of total work
completed. Method of Payments for storage of materials is set.
• Acceptance and final Payment: Retainage partly released after final inspection and certification
and acceptance of work done. The withheld part of retainage is used for maintainenace purposes
over a certain period of time.
Types of bonds
• Surety: Compensation guarantee on breach of contractual obligations. It ensures
contract completion in event of a default by the contractor or principal to the
obligee or owner. Surety company must find another contractor or compensate
for financial losses.
• Contractors may have to work with an unfamiliar specified company and will have
to submit financial reports, experience records and details of projects they have
worked on and are currently working on.
• Bid: Submitted with bid and guarantees that if the bid is accepted the contractor
will abide by the terms of the contract entered into and will provide all other
• Performance: Guarantees contractor will perform all work according to
specifications of contract document
• Labor and Material: Guarantees contractor will pay for labor and materials
Subcontractor bonds: Performance, labor and material bond provided by Sub to prime
License or permit bond: Guarantees that contractor will abide by all local ordinances and
statutes relevant to the project work. Required when law dictates a contractors require
• Contractors should have their business assets insured.
• Gaps in insurance coverage can cause serious financial losses
• Insurance vs bond:
• Insurance involves two parties whereas a bond involves three.
• Worker’s compensation: Provides benefits to family members of employees in
event of their death or injury on site or while working. Rates depend upon:
location, claim history ( deaths on site), type of work (risky or not). Covers
medical expenses, economic loss, lost wages and other benefits.
• Builder’s risk fire: Compensation for damage caused by fires or other
incidents such as explosions, riots , vandalism.
• It is a set of documents that accompanies drawings.
• It contains specifications regarding bidding, contractual obligations,
materials to be used.
• It must be thoroughly read before bidding and estimating costs.
• Construction Specifications institute (CSI) has set a standard format
for PM and Technical specs included in PM.
• 2004 Masterformat is commonly adopted, has 50 divisions.
• Invitation to bid: Advertisments inviting bids by contractors. Can be found in trade journals (ENR), on the
internet and in Newspapers. The invitation describes location, extent and nature of work, Project owner
details, where to obtain bid documents, bid date and time and bid bond requirements
• Instr. To bidders: Procedures to be followed by bidders. Where and when to submit bid docs. Location of
PM and other docs. How to submit bid. Project start & end date. Responsibilities of bidders e.g. visit to
project site. Award and rejection of bid based on particular criteria is owner’s right.
• Bid forms: Standard proposal form to be submitted. Bidders must acknowledge all addenda received,
provide bid security. Price is specified by bidder via this form. Last date for bid submission also listed.
• Form of owner or Contractor agreement: This document specifies the type of agreement that will be made
between the bidder and owner.
• General Conditions: The terms and conditions to which the involved parties must adhere to along with
their rights and responsibilities.
• Supple. GCs: These amend or supplement the GCs according the project requirements.
• Specs: Technical characteristics of the materials, construction methods to be used and quality of work
• Alternates: Owner requests prices for alternate materials or methods of construction via this document and
specifies whether the prices must be added or deducted from bid cost.
• Addenda: Issued after invitation and before bidding to modify documents. Should be acknowledged in an
entry list by bidders as being received.
• Errors in specs: Must be highlighted to project architect or engineer. Clarification requests must be
submitted to engineer and must be sent by engineer to all bidders. Keep a list of all errors.
• Easy to adapt to
Can take off assemblies
Easily viewed in different formats
Prepares standard and custom reports
Can quickly make changes
Time consuming to set up and maintain
Track where quantities come from
Calculate areas and volumes
Inexpensive to reproduce drawings; Can be emailed
• Home office, indirect or general overhead: Operating costs of
• Job, Indirect field, Project, direct overhead: Overhead costs pertaining
to a specific project being worked on by construction company.
• Indirect includes home office rent, taxes, employee salaries and
benefits, Equipment cost and depreciation, utilities cost, travel costs
• Direct includes temporary office design, rent, utilities, site security,
employee salaries, surveys etc.
• Direct overhead is determined through project schedule.
1. List all activities
2. Assign Durations to each activity
3. Sequence Activities
4. Determine start and finish dates for each activity
5. Use precedence diagram to determine duration of project
6. Express duration in calendar days
• Are items overlooked during the estimation process or unforeseen
• A sum or percentage of total cost is reserved
• Used to mask bad estimation practices
• Use rationalized only for price escalation
Estimate of Labor
Number of weeks on the project x Weekly rate
Persons to be relocated x cost per person
Quantity required x productivity rate
Estimate of Material
Quantity required x unit cost
Estimate of Equipment
Duration required x Monthly cost
• Productivity rate = Labor hours / Quantity
• Labor hours = Quantity takeoff x Productivity rate
• Adjusted labor hour = Labor hours x Productivity factor
• PF ; = 1 for average conditions, < 1 for good , > 1 for bad
Factors affecting productivity
• Availability of materials and equipment
• Availability of skilled labour
• Site conditions; maneuverability, climatic, storage facilities
• Allowed breaks
• Productivity rate
Average cycle time × Productivity factor × Crew size
System Efficiency × Quantity per cycle
• Cyclic tasks such as excavation and hauling from pit to job site
Unions and open shop
• Unions set wage rules
• Also have rules regarding holidays and fringe benefits
• Prefer to talk or strike
• Rules may be restrictive
• Union workers are trained through apprentice programs
• Open shop contractors are more flexible and do not encounter restrictive
• Personnel hired by open shop contractors may not trained or highly skilled
at their craft.
• Besides wages, contractors incur other costs associated with employing labor that
must be included in the bare wages.
• Cash allowances : Allowances provided to employees to use their own tools and vehicles (not
based on actual costs of usage).
• Cash equivalents: Funds paid to employee in lieu of benefits such as insurance or vacation pay.
• Taxes: Medicare and social security taxes
• Worker’s insurance: covers medical for injuries, benefits to family members in event of death
on site, lost wages due to injuries.
• Unemployment insurance
• General Liability insurance: Coverage against negligence lawsuits
• Insurance benefits: health insurance, life insurance, disability insurance
• Union payments: payments to union wrt union contract for provision of laborers. Funds used
for training of laborers and providing other benefits to laborers
• Retirement contributions: employer contributes to the retirement program of an employee
• Paid leaves and vacations
• Renting vs buying:
• Depends upon characteristics of usage of equipment
• If usage only occurs throughout the duration of a project and not after that
then renting is the way to go.
• Costs of transporting to and from job site
• Cost of setting up equipment at job site is also included with this cost.
• Go through PM for specs
• Factors affecting cost:
• Type of soil
• Slope adjustment
• Sheet piling or bracing requirement
• Groundwater encountered and pumping requirement
• Storage of topsoil for future use
• Removal of soil from site or storage on site
• Measured in cy or cf
• Bank (undisturbed state) Loose ( excavated soil) Compacted fill
Swell and shrink
• Swell : Volume increase b/w bank and loose, expressed as % increase
in bank volume
• Shrinkage: Volume decrease between bank and compacted condition,
expressed as % age of bank volume
• Units: bank (bcy) , Loose (lcy) , Compacted (ccy)
• 1 cy = 27 cf