Construction is a risky process that entails numerous variables. Every stakeholder in the construction industry knows this. When coming up with an accurate project estimate, it can pose challenges, especially for people working within the construction industry.
A transparent forecast of any project before it begins is very crucial. This is especially true for contractors, property owners, and the cost estimator working on the project. A cost forecast often sets the project in the right direction and ensures that there are no delays.
A cost estimate also helps inform the client and contractor how long the project will take before it even begins. This is very crucial to the success of the project. While coming up with cost estimates, it is essential to keep in mind variables like the design, site location, and specs as well as the availability of labour.
An estimate that is set too high is a disadvantage for contractors since the client will go with another bidder. However, it is important to have an accurate bid. Coming in too low will open an entirely different can of problems. Overestimating and underestimating both have negative consequences when it comes to construction.
As such, understanding the ins and outs of the construction industry is important, especially cost estimating. Constructing estimating is perhaps the most crucial step of the construction process. Therefore, it is important that we discuss how to do construction estimating.
Understanding the Construction Estimation process
It is essential that contractors and property owners understand the process of cost estimation. First, they must have some general knowledge of the construction process. To help smooth the process, below is an outline of the primary phases of project construction.
Commissioning a project
In simple terms, commissioning a project is the verification process that the owner’s specifications regarding designs are met. This is basically the earliest stage of the construction process and usually runs up to a year of building use or occupancy. Commissioning a project is done by a commissioning provider, who in many cases is a firm that has experience in commissioning structures.
Determining building requirements
Moving from the commissioning a project phase, the elements is when the pre-design phase begins. In this phase, the project specifications and requirements are outlined. This also includes the function of the building, the projected cost, location, and any other conditions, legal or otherwise that pertain to the project.
Choosing a design team
The design team is the next step in the construction process. The project owner will contract an architect who forms a team of consultants and comes up with project design. Depending on the design, the project will need to meet specific criteria, for instance, housing hazardous materials. In such a case, the design team needs additional consultants to guarantee that the structure meets all necessary requirements. Despite having a team, the architect runs this phase and oversees all the aspects of the project design process. However, the group of consultants may include an engineer, especially for industrial construction projects.
Designing the structure
Once all the requirements are met, and the team of designers has an idea of the expected project design, the architect creates building designs. In this step, a couple of things happen, such as:
- The architect should present an outstanding design to the client who’ll approve the design
- Once that’s done, the architect collaborates with consultants to decide on design specifics that are in line with the requirements.
- Lastly, the architect will create and present construction drawings.
This is the construction documents phase. From these blueprints, the contractor will build. It is important that the specifications on the design appear in MasterFormat, which is the standard format. Estimators work off of the blueprints to produce and revise costs for a project.
Bidding based on the scope of work
At this stage, the construction documents are finalized and released to the contractor. The contractors can now begin bidding on the project. Also, the instructions on how to submit bids, a sample contract agreement, and any financial and technical requirements are included. It is essential to define the scope of work. These documents help contractors come up with estimates. For a fair bidding process, all contractors receive identical information. The project owner will then choose the most suitable bid for the project.
Signing the contract
After selecting a contractor, they need to prepare an agreement with the owner and sign these documents. The contract documents entail the bidding documents, which become a legal contract between the owner and the contractor. There are numerous contract types that a contractor and an owner can enter into depending on how complete the construction design is. These different types of contracts serve to satisfy different payment scenarios.
At this point, construction can now begin. The contractor will oversee the building and ensure that it is in line with the construction documentation. A general contractor enlists specialized contractors for different tasks in the construction process. The contractor is responsible for overseeing cost control. It is important that the expenditure does not exceed the estimates. Cost control is the only way that a contractor can make profits from a project.
When the building is almost done, the contractor requests the architect to conduct an in-depth completion inspection. In the inspection, the architect verifies the status of the project. At this stage, the contractor must have the punch list, which is a document that lists any incomplete work and any necessary corrections. The architect can add any incomplete items to the punch list after inspection.
The contractor, at this stage, will have cleared all the incomplete work detailed on the punch list. After that, the architect comes in for a final inspection. If the project is completed according to construction specifications, then the architect issues a certificate of final completion. With this certificate, the contractor can receive the full payment for the project.
A guide to Construction Estimating
Construction cost estimating is a phase in the construction process that dates back to the 18th century. British quantity surveyors first introduced it.
Back then, the process was nothing short of time-consuming and tiresome, but it was effective. Today, estimation techniques have evolved, and the process is much more seamless.
The construction estimating process is essential to the success of any project, regardless of the project size. Therefore, let’s explore construction cost estimating:
The Take-off Process
Precision is everything when it comes to the take-off process. Contractors cannot prepare accurate and competitive bids without accurately detailing everything about the project. It is vital that contractors research and compile data as precisely as possible. Misinformation in the construction industry is very detrimental. These can hinder the construction estimate and cause losses.
Keep the Unit Cost Estimating guides realistic
Estimations based on unit cost estimating guides are not fool-proof. Therefore, to obtain accurate estimations, you have to be realistic. This is mainly because of the variables that affect your project. In these cases, the unit cost guides should only be used as a ballpark measuring tool.
The organization is essential: The master checklist
The obvious things are often overlooked, which is why it is important to stress this. Using a master checklist is perhaps the most effective way to track the cost estimation process.
The checklist also prevents you from forgetting crucial details and steps in the estimating process. For instance, it is easy to forget landscaping, permits, or other requirements. With a master checklist, you can even track costs and also organize all your information in one place.
Pay attention to Details across all platforms
When handling a project with many phases, a lot of information, and variables, it is easy to focus on some areas and overlook other areas. In the construction industry, you cannot afford to ignore even the tiniest detail. These trivial items can lead to cost overruns and other financial pitfalls that could frustrate the process. When in doubt, consult specific subcontractors and consultants who can assist.
Labour specialization is key, but have an hourly rate
During the construction process, specialty labour is not only required to include their regular wages and benefits but also adhere to state and federal payroll costs. As a result, you should consider this when establishing their hourly rate. With this in mind, you can then build on the specialty crew and determine the crew rate.
Define cost analysis
There are risks involved in every project. Therefore, it is crucial to define the project risks as well as a factor in the costs resulting from these risks. To start with, look at previous projects, this helps in identifying the unknowns that become profit predators. Past data is an excellent reference point, especially for general contractors. These records help with future estimation.
Understand price fluctuations
Market value trends will always affect the estimation process. The prices of products and materials are in a state of flux, and therefore, construction cost estimators must be in the know whenever a shift occurs.
It is also imperative to pay attention to factors that affect pricing. Some questions that could guide an estimator include:
- Do you have delivery challenges? Are they specific
- Is the product custom?
- Is there a high demand for a product or material?
- Is the material or product needed faster than the manufacturer’s turn-around time?
- What are the seasonal limitations that affect logistics or shifts to the market price?
Determine Project Cost Centers
When creating project cost estimates, you need to be sure what portions of the project contribute to the overall project expenditures by the most significant percentage. With this in mind, you can focus on cost centers to define the scope, tasks, materials, and labour required.
Account for operation costs and project support
This is important for general contractors and owners. Expenses that may fall out of the scope of material costs and direct labour but still relate to the project. It’s important to keep this in mind so that you can account for these costs. These include:
- Job site offices
- Administration and project operation costs
- Architectural and engineering services
- Land acquisition costs
- Legal services
- Shipping and storage
Outline equipment requirements
To ensure that you don’t forget or overlook the necessary equipment for the construction process, it is important to outline the equipment requirements for the project. Also, ensure that the equipment is the right size. This helps reduce and avoid redundancies. When coming up with estimates for the project, remember to consider small tools and equipment.
Evaluate subcontractor quotes
This is another crucial step to construction estimating. Here, you check potential subcontractor quotes. Always compare more than one for every scope of work on material and labour basis. In other words, you need to be thorough when considering which subcontractors to work with for the project. A subcontractor who can provide a solid estimate based on project scope is the best decision for any construction project.
Consider the chance of success before placing a bid
For contractors, this is the only sure way to make profits. Having a record of previous bids and their outcomes can help inform your decisions moving forward. Keep track of every bid and assess your progress. At the same time, compare your profit margin to those of competing bids. Through this, it is easy to spot bidders that constantly underbid you or bid against your projects. In such a case, consider withdrawing your offer because you need to make profits, not losses.
Maintain an open line of communication with your material supplier
Without proper materials for the project, you’ll find yourself frustrated. Therefore, it is important to foster a relationship with your supplier. Check with your material supplier and get their professional insights when purchasing materials. Remember, both of you stand to benefit from this. Once you build trust with a supplier, they’ll recommend the best-suited materials for your projects to help you remain within the budget.
Track your progress
Accurate project estimates are only one part of the construction estimating process; however, they set the pace for everything else. Executing each project thoroughly requires a lot of resources; therefore, you have to utilize various tools to track your progress and ensure accuracy. Worksheets, estimating products, and the software will help you create competitive and attractive bids that will turn profits and guarantee successful projects.
To sum up
Construction cost estimating is not an easy process, but it is crucial for the success of any project. The construction industry understands this, and while the techniques have evolved, there is still a lot of groundwork and mathematics to be done. Therefore, accuracy is key to succeeding in construction estimating. Adhering to this guide goes a long way to help understand how to tackle the process systematically.