A construction estimate is a cost estimate for the completion of the entire scope of work of a project. Estimate by definition is an approximate calculation or judgement of the value, number, quantity, or extent of something. The word estimate should be deemed an archaic term in the world of construction. Rather, it should be called a "promise". A promise to get the project scope completed based on the amount presented and agreed to.
Drawings, Building Codes, and Contract terms are all considered in estimating the cost.
Semantics aside, estimating and bidding a construction project is the first and most important step in achieving the end users' goal. It sets the foundation on which a project will operate as well as the financial commitment a client will be contracted under and responsible for.
An estimate should clearly define all monetary aspects of a project and the pricing qualifications that affect the total. It should include general conditions, subcontractor/trade costs, allowances, fees, insurance, and taxes. It is formulated from the specific scope reflected in the scheduled architectural and engineered design.
"The word estimate should be deemed an archaic term in the world of construction. Rather, it should be called a "promise". A promise to get the project scope completed based on the amount presented and agreed to."
Who Generates the Estimate?
Some general contractors retain a dedicated estimating department. This group is focused solely on estimating/bidding and scheduling/planning projects as they are received. Once the project is awarded to said general contractor, the project is handed off to an assigned project management group. This group typically consists of a project manager, project coordinator or project assistant, and a superintendent. On occasion a project accountant or controller will also be assigned.
Other general contracting firms utilize the method "eat what you harvest". In other words, the estimating/bidding and scheduling/planning will be performed by an assigned project manager, or the project manager that developed the opportunity. This approach allows the project management team to gain full understanding of the project scope and its budget, which becomes an advantage throughout the life of the project.
The Estimator will use a variety of sophisticated tools to develop the estimate.
Guide with 10 Steps in the Commercial Construction Estimating & Bidding Process
A project Request or Proposal ("RFP") is released by one of the project related entities from the end user's side to the general contractor; either through the end user's company representative, of their real estate broker, architect/engineer, construction manager, or other designated consultant.
Once the RFP and a full set of drawings are received by the general contractor, they are reviewed by the assigned estimator/project manager to define the scope. The scope will determine which trades will need to be solicited for bid. This is the most important step as it can be the difference between sufficient subcontractor pricing coverage and an inaccurate budget.
When the scope is finalized, a list of subcontractors is compiled for distribution. The subcontractors are selected based on the size of the project, experience with similar projects, manpower implications, insurance coverage, and most importantly, the client.
A bid invite or RFP is then released to the solicited group, generally with a requested bid turnaround of one week. Response time often depends on the size of the project and the end user's requirements for submission.
The bids are returned to the general contractor and organized by trade in order to simplify comparison between competing bids within the respective trade/code.
Next, the bids are qualified and reviewed for proper scope coverage prior to incorporating into the estimate. The subcontractor with the most complete scope, and generally the lowest cost, is then applied. Subcontractor bids can only be fully qualified when each competing number in a specific trade has all necessary scope included. If any portion is missing, it is the general contractor's responsibility to gather any necessary costs associated with including the missing pieces. This ensures the playing field is level for all bidders.
After all subcontractor costs have been qualified and implemented, the general conditions budget is then determined.
With all necessary subtotals completed, the project overhead is quantified. This includes project insurance, project fee, and any necessary taxes.
Finally, the overall budget is completed and packaged into a response to the RFP which is submitted to the owner or their representative.
A project award is subsequently given upon review and qualification of the general contractor's overall bid.
What Should Be Provided with the Construction Estimate Response Package
The response to the RFP should include all of the following items to properly evaluate the general contractor's submitted bid and their qualifications to deliver the project for the budgeted costs within the scheduled timeframe allotted.
The general contractor's general conditions costs or project specific operating costs
The project scope and divisional code/subcontractor costs
The project insurance, profit, and necessary tax fees
Project scope specific qualifications and clarifications
Organizational chart of the project team with resumes
Project experience and similar projects
Company safety policies and regulations
References
Chris Holland is the President of ONYX Constructors LLC, a Houston based General Contractor focused primarily on building interior workspaces. You can contact him at cholland@onyxconstructors.com.
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