Costing a Construction Estimate: What Owners Need to Know

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By Rory Woolsey, CEP, Professional Construction Cost Consultant

This blog post originally appeared in Building Design + Construction.

Budgetary estimates are often an overflowing well of frustration for building owners and their representatives. There are so many ways a budget can go bad. Often, budgeting mistakes can be traced back to construction costs. Sometimes, the costs themselves are out-of-date. Other times, user error is to blame and good data is misapplied. In either case, these early mistakes can ripple throughout the life of the project. But, the situation is far from hopeless. Budget miscues are entirely avoidable if building owners and reps stick to the basics and follow time-tested estimating methods.

Understand the Types of Costs

All costs included in a unit price estimate fall into one of two categories: direct costs or indirect costs. Direct costs are those linked to the physical construction of a project. Material, labor and equipment prices all fall into this category, as do subcontractor costs. Direct costs are commonly called “bare” or “unburdened” costs.

Indirect costs are incurred in completing the project but are not applicable to any specific task. Some indirect costs, such as supervision, insurance and temporary facilities, are associated with the job site. These costs can be estimated in detail but are typically calculated as a percentage of direct costs and included in CSI MasterFormat Division 1 of the estimate.

Some indirect costs don’t come from work at the job site. Main office overhead costs are indirect costs associated with the operation of the contractor’s main or home office. These costs are typically calculated as a percentage of the total project cost and added at the end of the construction estimate. Some costs, such as professional services, may be counted as either project overhead or main office overhead, depending on how the resource is used.

Gathering Cost Data

Every item in the construction estimate must contain an associated cost — every single item. That’s a lot of costs to get together and it’s best to estimate them one at a time. Fortunately for you, there are options for finding reliable construction costs.

Costs from previous projects and estimates: Sometimes the best place to look for cost data is your last job, provided the estimate for your last job was accurate.

Published cost data: There is a lot to be said for published cost data from independent sources. Cost databases are researched and maintained by teams of cost engineers with industry experience. You can rely on these sources for costs you, your subs and your suppliers do not have readily available. Published costs are also great for validating your costs and costs you receive from other sources. In the construction industry, RSMeans data from Gordian is synonymous with detailed costs. RSMeans data contains more than 85,000 unit line items gathered and scrutinized by a team of engineers who spend a collective 22,000+ hours every year verifying the validity of their cost data. To ensure you have recent, localized construction prices, there is no beating published cost data.

In all likelihood, you are going to use multiple sources of cost data during the course of an estimate. No matter which source you are using at a given time, you should follow the same system and sequence for pricing as you did for the quantity takeoff. If you started with the footings for the takeoff, start with the footings when you apply costs as well. Keeping consistent throughout the project will make it easier to check that your estimate is complete.

Organizing the Data

That’s a lot of information to get your arms around — you need a system to handle it all efficiently. Your goal is to transfer everything from the quantity takeoff to the cost estimate one time, without rework. This is a tall task but doable if you follow this procedure:

  • Code each document with a CSI MasterFormat division number in a consistent place. Give yourself only one place to look for division.
  • Within each division, identify, list and assign costs to each component or individual construction item. This level of detail and definition is necessary to complete an accurate estimate.
  • Use telephone quote forms and templates for uniformity.
  • Document the source of every quantity and price.
  • Use a logical, consistent directory filing system and file naming conventions.
  • Back up all important data.

It’s the Simple Things

Ultimately, it’s the simple things that separate high quality, accurate budgetary estimates from poor ones. Understanding your costs, knowing where to find accurate cost data and organizing the data in a way that’s easy for others to comprehend will lead to a successful estimate.

Order your 2020 RSMeans data construction costs today!