Construction management is diverse by nature, encompassing a wide range of tasks that support efficient, safe and cost-effective construction projects. Many tasks contribute to this overarching vision of project success, including scheduling, risk management and quality control, all of which are instrumental to keeping projects on track.
Also essential? Construction estimating and construction bidding. These determine the financial viability of construction projects while setting the stage for optimal results in all construction phases to follow. This can have a powerful impact not only on overall resource allocation and financial management, but also on scheduling, team coordination and so much more.
Why Accurate Estimating Matters In Construction
Estimating forms the basis for financial success in any construction project. This allows for greater control over construction costs, limiting financial risk while also reducing the potential for cost overruns and other issues.[1] Accurate estimating enhances every aspect of project planning, providing the in-depth insight needed to anticipate (and navigate) a wide range of challenges.
What Is Construction Estimating?
Construction estimating determines how the costs necessary for completing construction projects are calculated. This encompasses direct costs (such as labor and materials) along with indirect costs (such as the depreciation of construction equipment). These details ultimately determine whether construction projects are feasible.
Estimate Classifications (AACE System)
With many projects, construction estimating is heavily influenced by AACE (Association for the Advancement of Cost Engineering) International, which has established the trusted Cost Estimate Classification System.[2] Featuring a series of five classes, this resource reveals the progression in estimating maturity, beginning with initial, largely conceptual estimates (Class 1) to detailed estimates involving well-defined scopes.
Components of an Accurate Construction Estimate
Every construction project estimate should detail the main costs incurred throughout every phase of the project. While these costs can vary considerably from one project to the next, they usually encompass a few key categories:
Direct Costs
Closely linked to the tangible process of construction, direct costs reflect specific activities that need to be completed for structures to actually be built.[3] These costs may be clearly measurable, but they can hold some element of variability
Labor, Materials, Equipment Rates
Labor has a significant impact on the overall cost of construction, involving skilled tradespeople and other workers who handle essential tasks ranging from framing to plumbing and beyond. Labor-related costs could include not only hourly wages, but also potential overtime pay depending on project scheduling challenges.
Other examples of direct costs include the actual materials used to construct buildings, such as concrete, lumber or steel. Tools and machinery expenses must also be taken into account, including major equipment such as excavators and forklifts, along with power drills, nail guns and more.
Productivity Factors and Crew Outputs
Crew output references how efficiently crews can carry out measurable amounts of work but may be influenced by variables known as productivity factors.[4] From weather to site conditions, these factors may play heavily into estimations surrounding labor costs.
Indirect Costs
Indirect costs can feel more complicated to clarify because they do not appear as closely tied to specific activities.[5] Still, these have a huge impact on construction projects and must therefore be fully understood. These may vary from one project to the next, but tend to encompass the following:
Jobsite Overhead: Supervision, Safety, Utilities
Professionals such as site supervisors offer oversight rather than directly contributing to tangible construction progress. This labor is considered an indirect cost because it involves general support and is not linked to specific units of work.
Safety equipment and training may also be deemed an indirect cost, for while this provides much-needed protection, it does not directly determine the work completed. Similarly, utilities such as power or water support overall job site productivity but cannot be attributed to specific construction activities.
Corporate Overhead
Not all overhead involves the actual construction site. Ongoing business expenses known as corporate overhead can be just as influential. These could involve office-based rent or utilities, along with administrative support, enterprise systems or even marketing expenses.
Risk, Contingency and Escalation
Risk management can play heavily into indirect costs. Risk involves the potential events, such as weather issues or supply chain challenges, that could impact scheduling or project cost.
Contingencies can help to overcome minor concerns, such as modest scope changes, without the need for contract renegotiation. Escalation offers an avenue for managing risks in the face of volatile prices, offering the ability to share risks.[6]
Methods and Tools for Estimating
Estimating may be precise, but there is some level of intuition involved. Estimators can strike the ideal balance between data-driven strategies and professional judgment by implementing tried-and-tested estimating tools and techniques.[7] While there are dozens of potential methods available, these tend to fall into a few main categories, as highlighted below:
Traditional vs. Digital Estimating
Reliant on blueprints and spreadsheets, traditional methods offer familiarity and, in some cases, a limited learning curve. This straightforward approach may be appealing for some smaller projects.
These days, due to the sheer complexity of construction projects (and the proven ability of enhanced data to boost accuracy), construction leaders favor digital estimating methods, which replace the basic spreadsheets of yesteryear with specialized software.
These comprehensive categories could include numerous specialized estimating approaches. Some of these, for instance, would parallel conventional methods by prioritizing approximate comparisons and prior experiences. Parametric estimating also draws on past pricing details but applies parameters and, often, simple algorithms to improve precision.
Methods such as assemblies and systems estimating are more likely to be tech-enabled, making extensive use of advanced modeling tools or digital databases.
Manual Takeoffs vs. Digital Takeoff Software
Revealing the quantities of materials needed for a particular construction project, the material takeoff forms a critical phase within the overarching estimating process. It’s named after the need to “take off” items while listing materials in detail. The quantities verified during the takeoff are then incorporated in broader estimates that also reflect pricing details.[8]
Traditionally, takeoffs were completed manually, in a time-consuming process that forced estimators to consult blueprints and make measurements by hand. These days, however, digital takeoff solutions streamline this process, with specialized software offering more accurate insights into material quantities and other critical details. This ensures the construction project estimate accurately reflects labor, material and equipment requirements.
BIM Integration
Building information modeling (BIM) brings a holistic approach to design and construction processes, replacing traditional blueprints with data-enriched 3D models. These help convey complex specifications and spatial relationships.
Insights from BIM can, in turn, be integrated into various aspects of the estimating process, revealing optimal material quantities and detailing potential labor or scheduling requirements.
The Construction Bidding Process
Estimating provides much-needed insight into the quantities and prices of relevant labor, equipment or materials, but bidding determines how construction management professionals leverage that information. While estimating will always precede a successful bidding effort, the bid is a crucial next step that transforms estimating details into a viable proposal.
Understanding Contract Types
Many contracts can shape the bidding process. These should be carefully selected based on the realities of the project in question, including its constraints and core project goals. Varying budgets, timelines and scopes of practice heavily influence these contracts. Common options include:
Lump Sum Contracts
Lump sum contracts involve clearly defined projects, along with the agreement to complete all work for a single, fixed price. These can be favorable when project scopes are well-understood and unlikely to change. This calls for thorough research and planning to ensure that all potential costs (and risks) are taken into account, primarily so that surprises can be minimized.
Unit Price Contracts
Detailing individual costs associated with specific elements (known as units) of completed work, unit price contracts enable separate billing, reflecting the various costs that contribute to any given portion of work. This ability is essential when the scope of work (or its duration) is not clearly defined.[9]
Cost-Plus and GMP Contracts
Encompassing not only the costs associated with projects, but also added fees, the cost-plus contract aims to account for overhead. While this can be an excellent option when the scope remains unclear, it can increase the risk of disputes if change orders prove necessary.[10]
Guaranteed maximum price (GMP) contracts establish top prices for projects, prompting contractors to absorb any additional costs. Sometimes referred to as the construction manager at risk contract, this minimizes risk from the owner’s perspective.[11]
Bid Leveling
Providing the chance to compare various bids, a crucial process known as bid leveling can reveal scope gaps or pricing issues that might be missed if bids are only examined individually.[12]
Bonds and Bid Compliance
Construction bonds offer protection against non-performance, increasing the likelihood that terms of the contract will be fulfilled.
Bid bonds reference the ability to complete projects as bid, while performance bonds ensure that work is performed according to the specific requirements of the contract. Payment bonds offer protection against liens, and although frequently tied to public projects, may be involved in some commercial projects as well.[13]
Best Practices for Accurate Estimating and Bidding
Regardless of the preferred method or contract for determining costs and quantities, certain estimating best practices consistently support accuracy and efficiency, providing critical early steps toward overall project success. We’ve identified these crucial techniques and strategies below, revealing how these mitigate risks while ensuring that all budgets and timelines are realistic.
Data-Driven Takeoffs and Benchmarking
Data-driven solutions elevate both estimating and bidding by providing detailed insights into material quantities based on a wealth of historical information. Benchmarking elevates this by using industry standards as a point of comparison. These days, artificial intelligence is a big part of the picture, with estimators using powerful tools to analyze sizable datasets while emphasizing data-driven decision-making.
Communication with Subcontractors and Vendors
Estimating and bidding are not merely about number crunching. These processes call for in-depth communication. Estimators can better understand availability and pricing by engaging with subcontractors and vendors. This, then, ensures that both estimates and bids are as accurate as possible.
Clear communication further enhances bidding by clarifying availability and timelines. This could even pave the path towards a more competitive bid.
Quality Control Before Bid Submission
Prior to submitting bids, all takeoffs and other specifications should be double-checked, with additional compliance checks confirming that bids fulfill specific terms and requirements. Cross-checking can verify the accuracy of all algorithms or formulas. These added efforts could greatly limit the potential for issues such as overruns or underbidding.
Career and Business Implications
There are many promising opportunities available within the diverse construction management industry. Those looking to get a strong start in this field may be drawn to estimating, which can provide powerful insights into the field as a whole while also offering the chance to continue developing both technical and management skills.
The Role of Estimators in Construction Firms
Estimators form the crucial link between ambitious ideas and concrete planning. They play a huge role in shaping the overall financial strategy of any given project, influencing whether these projects are successfully (and profitably) completed, and also whether bids prove competitive enough to secure contracts in the first place.[14]
Skills Employers Look for in Estimators
Estimating is both highly technical and uniquely strategic. To that end, estimators must develop a unique blend of competencies, including not only the ability to read blueprints and navigate complex takeoff software, but also soft skills such as critical thinking, problem-solving and attention to detail.
How Accurate Bidding Builds Client Trust and Repeat Business
Accurate bidding promotes trust through transparency, ensuring that all parties fully understand project expectations or requirements. From the client’s perspective, this signifies reliability. Disputes are less likely when clients are fully informed. This supports project success and client satisfaction, thereby increasing the potential for both repeat business and positive referrals.
FAQs About Construction Estimating and Bidding
What is the most accurate method of construction estimating?
No one construction estimating method will consistently yield the best results. Estimating method selection depends on available information and project priorities. Data-driven solutions involving assembly and system estimating tend to be more precise than manual methods.
How do contractors calculate labor productivity?
Labor productivity can be confirmed by dividing the work completed (known as the output) by the total hours of labor (the input). Historical data and currently relevant site conditions can refine these calculations.
How do bonds protect owners in construction projects?
Bonds can safeguard owners from contractor-driven project losses by ensuring the fulfillment of contractual obligations. Should contractors default, bonds provide reassurance, helping owners avoid additional expenses or associated legal complications.
Which estimating software is best for small vs. large projects?
Many construction teams have traditionally used spreadsheet-based solutions for small or simple projects, but Bluebeam’s takeoff and estimating tools can improve precision. For large or complex projects, construction managers favor Autodesk Takeoff and Procore.
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Sources:
[1] Pasini, B. et al. “Construction Cost Estimating: A Step-By-Step Guide.” Procore. https://www.procore.com/library/construction-estimating
[2] AACE International. “Guide to Cost Estimate Classification Systems.” https://library.aacei.org/pgd01/pgd01.shtml
[3] Roberts, M. et al. “Managing Direct Costs in Construction — and Their Impact on the Budget.” Procore. https://www.procore.com/library/direct-costs-construction
[4] Construction Management Association of America. “Construction Productivity.” https://www.cmaanet.org/sites/default/files/resource/Construction-Productivity_0.pdf
[5] Primsky, J. et al. “Indirect Costs in Construction: An Essential Guide.” https://www.procore.com/library/indirect-costs-in-construction
[6] Construction Management Association of America. “Escalation.” https://www.cmaanet.org/sites/default/files/resource/Escalation.pdf
[7] Ashburn, B. et al. “Construction Estimating Methods: Techniques for Predicting Costs with Confidence.” Procore. https://www.procore.com/library/construction-estimating-methods
[8] Scalisi, T. “What Is a Construction Material Takeoff?” https://www.procore.com/library/construction-material-takeoff
[9] Riso, T, et al. “Unit Price Contracts in Construction.” Procore. https://www.procore.com/library/unit-price-contracts
[10] Baheti, Y. et al. “What is a Cost-Plus Contract in Construction?” Procore. https://www.procore.com/library/cost-plus-contracts
[11] Riso, T. et al. “Guide to Guaranteed Maximum Price (GMP) Contracts in Construction.” Procore. https://www.procore.com/library/gmp-contracts-construction
[12] Schroeder, J. “What Is Bid Leveling?” https://www.youtube.com/watch?v=3NZ0zQymhJo
[13] Scalisi, T. “What is a Bid Bond in Construction?” Procore. https://www.procore.com/library/bid-bondsnumber crunching; these processes require
[14] Gerardi, J. “Construction Estimator Career Guide.” Autodesk. https://www.autodesk.com/blogs/construction/construction-estimator-career-guide/