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How Accurate Can Your Construction Estimates Be? – a Consultant’s View

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by Larry L. Cockrum, CPE

As a cost consultant, I am frequently asked by architects or owners, “What degree of accuracy do you guarantee on your estimate?” or “Percentage wise, how close will your estimate be to the bids?”  I tell them there is no guarantee; it is my best judgment of cost based on available information.

I like to tell them about the $103 million estimate where the bids came in at $103.3 million, or the $7 million estimate for a renovation/addition project that bid at $7,065,000.  There are plenty of success stories I can tell, but once in a while the bids may be significantly above or below the estimate.

Several years ago, I received a bulk-mailed advertisement from an estimating service that included a statement that their estimates were guaranteed within two percent.  It didn’t say what level of estimate this was for, nor did it explain what would happen if the difference wasgreater.  Could they really feel confident enough to give that guarantee on an estimate from schematic of fifty percent design development plans?  It seemed to me that such a statement could invite more trouble than it would give a marketing advantage.

Thinking about the spread on bids from contractors -- even on hard bid projects with completed plans and specifications -- I went through the bid tabulations for twenty-five competitively bid general contract projects.  Each project had a minimum of four bidders, and some as many as ten.  On some projects, the difference between the low and the high bids was as little as one-half percent (0.5%), while, on others, as much as thirty percent (30.0%).  The average difference for all the projects was seventeen percent (17.0%).

To confirm this research, several years later I went through the same exercise on a dozen projects.  These competitively bid projects had a minimum of three bidders and as many as nine.  The lowest spread on these projects was three percent (3%) and the greatest was thirty-five percent (35%), with the average difference beingsixteen percent (16%).

To me, the above surveys say that, if general contractors bidding with the same documents can’t get closer than a 15%-20% spread, it is unrealistic to guarantee an estimate to be within a specific, small percentage.  A “Murphy’s Law” type axiom for estimating is: 

“The same work under the same conditions will be estimated differently by ten different estimators or by one estimator ten times.”

Another says:

“It is an estimate not an exactimate.”

Estimating is both scientific and an art form.  Scientifically, we are methodical, meticulous, organized, and orderly in our takeoff and pricing of the project as we see it.  The art comes in being able to forecast what the economy, market conditions, and competitiveness will be in six months or a year, when the project is bid.  There are times when the estimate is not well received by the architect, who wants to give a biggerproject than the owner can afford, or the owner, who wants a monument and suddenly realizes he doesn’t have the resources to afford hisdream.  Tactfulness and thick skin are additional attributes of a successful cost consultant.

The DPIC’s Risk Management Handbook for Architects and Engineers advises that the term “Opinion of Probable Cost” be used rather than “Estimate.” The term Estimate carries a connotation of greater degree of accuracy than an Opinion.  Of course, DPIC’s comments are being directed to design professionals whose expertise is not in the field of cost estimating.  All too often, designers opt not to hire a competent cost consultant for each project, instead relying on historic data and square foot costs to arrive at a projected cost for this unique venture.  The result really is an opinion of cost, not an estimate.

From a marketing standpoint, cost consultants want to stress the expertise contained within the estimating process and the accuracy of previous projects.  From a legal standpoint, we need to attach disclaimers to the document to protect against liability issues.  On the one hand, we tell our clients how good we are, and on the other, we say we aren’t responsible if there is a cost problem.  The key to achieving this balance is byeducating your clients, whether designers or owners.  Impress upon them that the accuracy of the estimate is in direct proportion to the written or verbal descriptions of the project that you are given.  Remind them of the risk attached to lengthy time projections.  Involve them in the estimating process whenpossible, define your assumptions, and request the client’s agreement before you present a price for the project.

Managing the client may be as important as reporting the cost.

This is an excerpt from the book Standard Estimating Practice 9th Edition, from the American Society of Professional Estimators. This book provides a step-by-step blueprint for developing accurate and clearly-documented cost estimates. Standard Estimating Practice is available from BNi Building News at www.bnibooks.com


 

Tags: Costs, Estimating Construction



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