Common errors in construction estimating
May 31, 2013
COST ESTIMATING: COMMON SOURCES OF ERRORS
ParsCo Cost Engineers are experts in the field of cost estimating. Over the years, ParsCo has identified with clients the most common source of errors within their cost estimating systems.
For most companies, it is seldom that a cost estimate for bidding on a construction project that is perfect, doesn’t contain errors of one kind or another, or leaves out a scope all together. Too many errors on the plus side can be a major reason for a bid not being competitive. Too may errors on the minus side can cause the contractor to lose money if awarded the contract. Below are some of the most common sources of errors in construction cost estimating that ParsCo identifies with clients:
1. Errors in arithmetic: Estimates made on construction projects are arithmetical calculations of quantities and cost of materials and labor costs to install materials or perform various operations. In order to avoid errors in arithmetic, the estimator should use an electronic calculator with a recording tape, have the calculations checked by another person, and attach the tape to the estimate sheet for backup.
2. Taking Wrong Measurements from Plans and Specifications: Errors in measurements and dimensions taken from plans, drawings, and specifications result in corresponding mistakes in the cost of construction items based on those measurements.
3. Using the Wrong Wage Rates for Labor: Hourly labor wages for construction workers vary countrywide. You should consistently verify current wage rates and fringe benefits for the building trades involved through local union offices, other contractors, supply yards, and other reliable sources. Overtime rates are generally one and one-half to two times regular rates depending on labor agreements and union rules.
4. Insufficient or Excessive Allowances for Labor: A frequent cause of error in estimating is allowing too much or too little for labor to do the job.
5. Materials and Supplies Improperly Priced: Always be sure that building materials and supplies are correctly described as to kind, quality, size, and dimensions. Also confirm that they are priced competitively.
6. Using Incorrect Units of Measure: Using a wrong unit of measure can result in substantial cost increases or decreases. For example, be careful not to record lineal feet for lineal yards, square feet for square yards or cubic feet for cubic yards, and so forth.
7. Including Poorly Maintained Machinery or Equipment: Machinery or equipment to be used in construction, and included in the estimate or bid, must always be checked for efficient serviceability. Preparing an estimate on a construction project and contemplating the use of poorly maintained machinery or equipment is unwise. Breakdown, repairs, and idle time can be costly, delay completion of the project and invite penalties.
8. Failure to Visit the Project Site: This source of error might well be number one on the list because of its importance in the early stages of cost estimating. Visiting the proposed site of the project enables the cost estimator to inspect topography, check the soil by boring if necessary, determine if protection of adjacent properties will be needed, and check distances to railroad sidings, supply centers, and the proximity to sources of labor. If existing structures have to be demolished or removed from the premises, the estimator is able to properly determine the probable cost.
9. Overlooking or Miscalculating Haulage Costs: The cost of hauling materials, supplies, machinery, and equipment to a project can be a very expensive item in an estimate. Access to the job site may be difficult because of poor roads or no roads, heavy traffic to and from supply sources, or the requirement to obtain permits, and so forth.
10. Failure to Review Building Codes, Permits, and Inspections: Cost estimates and bids on construction projects are subject to local, state and federal building codes, permits, and inspections.
11. Failure to Consider Quality of Workmanship Required: A contractor who is accustomed to working on projects that require high quality workmanship may not be set up to bid or estimate projects of mediocre, low grade workmanship. Conversely, a contractor who usually works on cheap structures is frequently at a disadvantage when it comes to bidding on the construction of upscale residences or commercial buildings where only the finest quality of workmanship is acceptable. Failure to give proper consideration to the quality of workmanship a project warrants can lead to overestimating or underestimating.
12. Ommitting Items the Cost Estimator Considers to be Minor: Sometimes items such as scaffolding, ramps, and guardrails, are left out of an estimate on the assumption that their cost is relatively minor and can be absorbed in the overall bid. On small projects a contractor may gamble on his workers handling such items routinely. This can be a costly error.
13. Duplicating the Work of Subcontractors: Subcontractors often prepare their cost estimates from the plans and specifications without the guidance or supervision of the general contractor. They take off details and include all of the items they assume to fall within their particular trade. As a result there frequently is overlapping with the work of the general contractor or other subcontractors.
14. Failure to Review the Bids of Subcontractors: The owner looks to the general contractor for the completion of the work in compliance with the plans and specifications. The owner does not look to the subcontractors. It is very important that the estimates of subcontractors are carefully reviewed to be sure they comply with the plans and specifications.
15. Overlooking Items: The causes of overlooking items when preparing an estimate or bid are many. The following are typical:
a. Lack of attention to details.
b. In too great of a hurry to complete the cost estimate.
c. Too heavy a workload.
d. Basic lack of experience.
e. Delegating part of the estimate to others.
f. Failure to use a reliable checklist.
An important safeguard against overlooking items is to have ParsCo independently review and double check the cost estimate.
16. Taking Shortcuts in Cost Estimating: Taking shortcuts when making an estimate can be risky. Often there is a temptation to take shortcuts when under pressure because of time-limit in which to complete the cost estimate or because of a heavy backlog of work. Shortcuts take the form of guesstimating, using square feet or cubic foot costs in place of details, and using lump sum figures picked out of the air, all of which have inherent risks.
17. Not Allowing for Realistic Contingencies: Some construction projects may have inherent and unusual problems that should be recognized when the cost estimate is being prepared. Failure to make the allowances or contingencies may result in not getting the contract or losing money if awarded the contract. These contingencies include severe winter weather conditions, or extremely hot and humid climates. The project may be located in an area of the country subject to heavy rainfall. Justifications for a realistic contingency include anticipated labor troubles, material shortages, or political problems.
18. Including Contingency Items Without Reason: A opposed to making allowances for realistic contingencies, it is poor policy to make flat allowances for contingencies without good reasons, particularly when competition is strong.
19. Inadequate or Excessive Overhead Charges: There are two types of overhead:
a. Specific overhead charged to a specific job or operation.
b. General overhead not chargeable to specific jobs or operations.
The cost estimator should distinguish between two types in allocating overhead. Assuming an overhead charge of 10, 15, or 20 percent without analysis may be too high or too low. There are overhead charges that range as high as 30 percent or more of the job cost. But these are usually confined to subcontractors specializing in such things as refrigeration, heating and air conditioning, power installation, and so forth. Whether a general contractor is justified in charging overhead on a subcontractor’s cost estimate is a matter of judgement.
Attention to detail is critical when completing an estimate.
If you are in need of cost engineering and estimating assistance, contact ParsCo professionals.
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