Understanding Construction Estimating
Every construction project you pass on your daily commute, every house in your neighborhood, and all the local businesses you support had the construction process start with an idea and a design. Once the design was complete it was time to determine the cost of the structure and who was going to build it. The method of determining the cost of any construction project is called an “Estimate”. Other industries use this term as well, like an auto mechanic telling you how much it will be to fix your car. For this article we are going to focus exclusively on construction estimating.
Most people do not understand all that is entailed in putting together a detailed and accurate construction estimate. It is an intricate process to ensure costs are accurate, and that nothing is left out of the estimate. Forgetting to associate costs with a material, equipment or labor item will begin to eat into the expected profit of the project. If multiple items are forgotten, or have incorrect cost associated, it has the possibility of removing all profit from the project and making the project a total failure.
Starting the Estimate
The first thing to happen after receiving a bid package is a thorough review of all plans and specifications of the project. It is important to have a clear understanding of what the project is, all details associated with the project and to know the specific materials that are to be used. Once the plan and specification reviews are complete the estimator will then begin to separate the work scopes to organize their estimate. The goal here is to break down the project so it is easy to follow and put cost to specific items. Once the work items are broken down, the estimator will then begin their material take off for all necessary items. Depending on the project size and complexity, this can be a big task; however, it is crucial to the overall success of the estimate. Once the material take off is complete the estimator will find suppliers for each material they need and request quotes for each item. The estimator will need to ensure that the supplier knows the specific requirements for each material (type, size, color, model numbers, etc.).
The next step is to begin calculating the labor for each work activity and any additional associated equipment. Some companies have estimating software to help with this, while others use historical data from previous projects where they tracked costs and durations. Either way, this is an important part of the estimating process to ensure there is enough money to cover all labor and equipment needs.
Another aspect of estimating larger projects is requesting estimates from subcontractors to help perform a portion of the work. Many times, these work scopes include such work as electrical, mechanical, plumbing, underground utilities, and concrete. When selecting potential subcontractors, it is pertinent to research their company to verify they are qualified to perform the work for which they are being asked to provide an estimate. When subcontractors submit their proposals, they will generally highlight the work they are quoting and note anything they are excluding from performing. Often, you will have multiple subcontractor proposals for the same scope of work, and it is crucial to review each of them thoroughly to verify what each company has included in their price. The low bidder is not always the best option if they do not have all the necessary work covered.
Turning the Estimate into a Proposal
Once all the material, equipment and labor has been covered with the estimate it is time to turn it into a formal proposal. The estimate should be thoroughly reviewed again to make sure nothing has been forgotten. Then it is time to determine the overhead and profit to be added on top of the estimated costs. Some companies have standard percentages they use, while others change with each proposal based on their current workload, availability of labor forces, complexity, and risks of the project. It is not uncommon to use a contingency factor for riskier projects to cover anything unexpected that may arise during the building phase. If the job is more complex than normal, it is not uncommon to use a higher profit percentage. Generally, the overhead and profit are determined by the company prior to submitting their formal proposal and is dependent on the company’s standard business procedure. If the company needs work or really wants a project, it is not uncommon for them to reduce their profit margin in an effort to secure the work. The format of the formal proposal will either be a standard template used by the company they have created, or it will be tailored to follow a format specified by the project owner.
At Arkiay Development Corporation we understand that every project has unique needs. Our experience allows us to provide you with everything you need to take your project from idea to reality. Contact us today to get started.