How do you prepare a building estimate?

It is obvious that preparing an accurate cost estimate is a challenge. You need to focus on the project, understand the scope and possible construction methodology, source the material suppliers and evaluate the risks. And don’t forget to decide the overhead costs accurately which is essential to run the project. When you do not miss adding cost for any necessary item for the construction and when you make sure to use current market rates for your estimate, you are in the right path for preparing an accurate cost estimate.

Below are some of the things to know before you prepare your cost estimate.

1. Make sure your quantity take off is accurate

Quantity take off is really important for any tender estimate to be accurate. This is really important in Lump Sum projects as the contractor has to evaluate the project documents and drawings in order to prepare his project proposal.

2. Prepare the activity breakdown correctly

If you miss out any construction activity which is essential for the project, you will also lose money on it. Therefore, be sure to include all construction activities in your BOQ in order to estimate the accurate price.

3. Understand the tender document

Although it sounds like construction estimates require a BOQ with accurate quantities and rates, it is also essential that you understand the project requirements. Additional costs may arise due to complexity of the project. Therefore read and understand the tender documents and its requirements before you prepare your cost estimate.

4. Follow the specifications and drawings

It is important to understand your tender documents. While you don’t have time to read all tender documents during the tender stage, it is important to read and understand the drawings and specifications. You have to include the cost for products that follows the specifications. Depending on the quality which the client requires, the rate can be different.It is also necessary to understand the specific clauses applicable for the construction contract agreement if you win the project.Such important things to know include advance payment (if any) ,retention money , progress claim submission,payment response ,liquidated damages,time to completion,variation orders and variations etc.

5. Don’t forget to get quotations from Subcontractors/suppliers

During the tender stage, it is also essential to contact the potential subcontractors and suppliers for quotations. If you receive at least 3 quotations for each of the major items, then you can compare the current market rates before you choose which one to use in your tender estimate. Also, for items which you have to build up your own rates, be sure to use accurate quantities and labour output.

6. Add machinery and equipment cost accurately

Even though your cost estimation is solely depend on the subcontractors’ quotations, don’t forget the heavy machinery and equipment that may require for the project. Include the cost for renting such equipment depending on your construction methodology. Sometimes, subcontractor rates exclude machinery and they expect main contractor to supply those during construction stage. Identify such items in your project in order to not to miss adding costs.

7. Understand the current fluctuations in material pricing

Although for some materials such as steel reinforcement, price fluctuations are allowed in some projects. However, it is important to understand the current market trends and possible risks in price fluctuations.

8. Check the availability of materials and other resources

Scarcity of resources will directly affect the cost of such. In case if your project require such scare materials, be sure to check and study how to deliver the material to the site. Include any delivery charges, transport and other related costs such as loading and unloading to your pricing.

In case if any material is required to import from another country, check the custom duties and taxes which you have to include in your estimation. For such items it is always important to request quotations from potential suppliers.

9. Use a Master Checklist

In your tender cost estimate, you need to include possible costs for overhead. Other than that, there will be costs for authority approvals and permits. Depending on the projects you carry out and depending on the location (due to different laws and regulations), these costs can be different. However, identify such costs for any project and include the price for those. In order to not to miss such items, it is always better to have a master checklist which you can check for each cost estimate. This will avoid missing out any major item from your cost estimate.

10. Identify the risks

Before you start preparing the cost estimate for your project, understand the nature of the project. Identify the possible project risks. All such risks come with a cost. Therefore include such risks in your estimate in order to avoid the burden of carrying out a project which is not profitable.

 11. Use Unit Cost Estimates as Guides only for checking purpose

Don’t use unit cost estimates to prepare your estimate. This will be a risk at bidding stage. Usually such unit cost estimates are used in planning or concept stage in order to roughly estimate the project cost. Therefore use of such unit cost per square foot metre by multiplying the floor area to get the final estimate is really a bad way to prepare your bid.

However, you can use such unit cost to check the accuracy of your estimate. This will be like a thumb rule to compare your cost estimate. But, remember to use a similar project to obtain the unit cost for such practise. If your current project involve different new features where there will be higher costs involve, this method will not give a correct idea.

12. Pay more attention to Cost Centers

Consider the whole project and identify the cost centers. These are the areas that involve the highest percentage of overall project cost. If you do not estimate these construction activities accurately, there is more risk of losing more money than from any other activity include in the same project. Therefore spend more time for such areas of the project and estimate accurately. Add more accurate rates for resources such as labour, material and machinery. Check sub-contractors and suppliers for their quotations. Get help from site personal if they have experience in similar nature of work. In such way, you will ensure these items are correctly estimated.

This piece was originally posted at https://thecontractsengineer.com/preparing-accurate-cost-estimation-construction-bid/

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