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 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 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.
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
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.
