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A GUIDE FOR COST ESTIMATING

Draft Chapter for Review


Historical Bid-Based Estimating

AASHTO Technical Committee on Cost Estimating

ADMIN DRAFT NOVEMBER 6, 2006


A GUIDE FOR ESTIMATING USING HISTORICAL BID PRICES

I GENERAL OVERVIEW.............................................................................................3

II. PROS & CONS OF USING HISTORICAL BID BASED ESTIMATING......................4

III. ESTABLISHING, MAINTAINING, AND UTILIZING A BID HISTORY DATABASE....6

IV. USING SPREADSHEETS FOR DATA ANALYSIS IN ESTIMATING COSTS............9

V. ESTIMATING LUMP SUM ITEMS...........................................................................10

VI. ESTIMATING PROJECT SPECIFIC OR UNIQUE ITEMS.......................................14

VII. BIDDING CLIMATE.................................................................................................14

VIII.REFERENCE MATERIAL.......................................................................................16

IX. TOOLS.................................................................................................................... 17

X. Skill Sets Required................................................................................................19

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I General Overview

Cost Estimating is a critical component of the project development process. The process is often
complex involving the collection of relevant data relating to the scope of a project, anticipated
resource requirements, and expected changes in resource costs. The process includes both the
technical evaluation of the information available and the subjective side of estimating, which
includes the evaluation of what the data truly means to the project costs.

Many different methods for developing Letting Estimates exist in practice. The most common
method used in developing estimates for transportation projects is historical or bid-based
estimating. This method uses data from recently awarded contracts as a basis for the unit prices
on the project being estimated. Data from previously awarded projects is typically stored in a
database for three to five years to provide the historical data to the estimator. The more data that
is available and organized by project types, size, and locations, the better the estimate that can
be produced. Unit prices are adjusted for the specific project conditions in comparison to the
previous projects awarded. Adjustments are generally made based on the project location, size
of the project, project risks, quantities, general market conditions, and other factors.

There are many factors that need to be considered to develop an accurate letting estimate using
historical bid prices. These factors pose a certain level of risk in developing estimates using this
method. However, this method is the most common in state DOT’s due to the fact that it is
efficient in terms of staff resources versus other methods of estimating and has proven to provide
reasonable estimates on typical projects.

The discussion contained herein is meant to identify factors that could be considered to have an
affect on the cost of construction for a project, and more specifically individual contract bid items
and their unit prices. The degree to which any factor may affect the cost of any given bid item is
indeterminate; i.e. there is no one correct answer in determining a cost. Common sense,
experience and judgment all play a role in using historical bid prices to determine what a
reasonable unit bid price and overall final contract estimate may be.

The factors described below are not meant to be a comprehensive list of things that affect cost
but are representative of the types of factors that could be considered as important in establishing
a useful bid history database (see Chapter III – Establishing, Maintaining, and Utilizing a Bid
History Database). Other factors such as regional, local, political, and materials, etc., should be
considered by each agency to determine if they add value to their particular situation and bid
history database. Additional factors may also need to be considered in establishing unit bid price
estimates and overall contract costs. Samplings of some of these factors are presented below.

Geographic Considerations
Geographic considerations can have a profound affect on the selection of unit bid prices. A
project’s location, whether in an urban, suburban, or rural setting should be considered in
establishing bid prices. Depending on a State’s standard specifications, some of the cost
considerations relating to a project’s location may be accounted for in the mobilization bid item.

A project in an urban setting generally has to contend with construction operations occurring in
more confined work spaces, greater volumes of traffic, limited hours of operations, night time
work, etc. Some of these factors may be offset by availability of local contractors, materials,
equipment and personnel.

Projects located in rural settings have factors that affect the establishment of unit bid prices
contrary to projects located in urban settings. Construction operations may have less restricted
work areas, less traffic to contend with, and additional hours to complete the work; all factors that

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increase productivity. On the other hand, materials, equipment and personnel may all have to be
brought in from out of the area, which may increase those costs related to transportation, support,
wages, per diem, etc.

On projects that utilize large quantities of aggregates, whether for base, surface, earthwork, etc.,
the location of material sources has a large impact on costs. Nearby material sources reduce
trucking and material handling costs, production rates, and labor costs. On rural projects, the
cost of bringing in a concrete batch plant, hot mix plant, etc., may increase unit bid prices, but
again depending on a State’s standard specifications, those costs may be directly attributed to
and reflected in the mobilization bid item.

Terrain may also be a consideration in establishing an items cost. Mountainous terrain and steep
grades cause production rates to fall whereas level terrain and straight roadways generally have
the opposite affect.

Other location related considerations that affect costs could occur due to local policies, taxes,
restrictions, air (attainment vs. not-attainment areas) and water quality, etc. For example, in the
Lake Tahoe Basin located on the California-Nevada border, the Tahoe Regional Planning Agency
oversees activities within the basin. Locally specific rules and regulations governing noise,
pollution, disposal of materials outside the basin, working hours and available construction
season all increase the cost of construction within the basin. Another example of a location
related consideration is that of projects located on tribal lands. Tribes may impose TERO (Tribal
Employment Rights Office) Taxes for projects on tribal lands. These taxes generally range from
1-4% of the cost of the construction on the tribal lands but vary from tribe to tribe.

Quantity Considerations
The quantity of a given material on a project affects the unit cost of constructing and/or supplying
that item. This is not just a supply and demand issue, but also one of production efficiency and
economy of scale. Generally speaking, the unit price for larger quantities of a given material will
be less than smaller quantities. Suppliers offer discounts for larger quantity orders, mobilization,
overhead and profit are all spread out over a larger quantity, thereby reducing their affect on each
unit. Waste is also spread over a larger quantity thereby having a smaller impact on each unit.
Larger quantities also give rise to efficiency by gaining experience and expertise in completing
the work.

Projects with very large quantities of certain materials may actually cause an increase to the unit
bid price. For example, a project with numerous or large structures may affect the market for a
particular type of steel, availability of cement, or even tie up a regions labor resources.

Small quantities of items of work are less cost effective to construct and hence lead to higher unit
prices. Not only do suppliers charge more for smaller purchases, in some instances, the lot size
or the amount that has to be purchased is greater than the needed quantity. Small quantities do
not generally allow for high production rates or other efficiencies, again causing a higher unit cost.
Smaller quantity items are also frequently subcontracted out, this practice increases a
contractor’s overhead and they usually apply a markup to those items.

Item Availability
Materials that are readily available, or ones that are commonly used, are generally less expensive
to purchase and install/construct. The contracting community is familiar with these types of items
and this experience is thought to reduce costs and risks. Materials that are in short supply are of
course more expensive and this should be considered in establishing the unit price.

Scheduling/Lead Time
To be efficient, a Contractor needs to schedule his resources. When a contractor can plan for
and maximize his resources, he can become more competitive in his bidding. State Highway
Agencies should strive to let projects out early so as to allow Contractors ample lead-time in

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planning their work. This lead-time however, needs to be considered in the estimating process by
estimating the project based upon when it is expected to be built. For example a job that is two
seasons long and has the majority of its paving in the second year, should attempt to account for
this fact.

II. Pros & Cons of using Historical Bid Based Estimating

Historical bid-based estimating is typically the most efficient method for developing an estimate
for items that have adequate historical data available. Implementing a bid history based
estimating process enables an agency to estimate the cost of proposed work using a minimum of
resources. Similar projects with similar items, quantities, and locations can generally be
estimated quickly utilizing historical bid data and engineering judgment.

Bid history based estimates can serve as the basis for more detailed methods of cost estimating.
By establishing the procedures for collecting, retrieving and analyzing bid data; an agency has
readily available information for other areas of concern such as contract modification agreements.
The bid history information is also valuable for other reports not necessarily related to estimating.

A bid history is essential for analysis of contract bids. Maintaining a strong bid history can
discourage undesirable bidding practices. A bid history is also valuable for use in evaluating
contractor proposed changes such as value engineering/analysis proposals. The information
necessary for bid history based estimates is useful when preparing preliminary estimates, or
comparing design alternates.

Some of the disadvantages of historical bid-based estimating are that a database of bid data
must be maintained and consistent bid items must be utilized on all contracts. The work covered
by these bid items must be consistent as well. For example, if a trenching item that is routinely
used for an excavation of 24” in depth is used for a different depth, the bid data becomes skewed
and not reflective of the actual work performed. Unique or seldom used items are also difficult to
estimate utilizing this approach due to the lack of available historic data. This method is often
considered to be least accurate from a scientific basis and most susceptible to individual project
conditions that may or may not apply to the project being estimated. Unbalanced bids can also
be an issue; if not caught or handled appropriately in some manner, the submittal of unbalanced
prices by the contractor has the potential to skew or contaminate the bid history database.

For a program based on historical bid-based estimating to be successful, the projects and bid
items must be consistent in regard to bid items, scope, and administration. Inconsistencies in
projects and non-typical projects are opportunities for inaccuracies in historical bid based
estimates. The inconsistencies and factors that make bid items or projects non-typical must be
factored in and considered in the development of bid-based estimates.

Utilizing historical bid estimating techniques is difficult for lump sum items. Most lump sum items
are very different from one project to another. For that reason, utilizing past bid history is often
not a good indicator of the future bid price for lump sum items. However, if the bid history
information can be used as a basis and tied back to the work involved, a fair estimate can be
produced from the data. For example, if a project had a demolition item to remove 8 typical
residences on a project. The bid history could be used as a basis to establish a cost per typical
residence for demolition. Of course information on the definition of “typical” in this instance
should be noted or recorded in the database for future use.

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III. Establishing, Maintaining, and Utilizing a Bid History Database
In order to prepare a historical estimate it is necessary to accumulate bid information; a very
effective way to do this is to establish a database. The database can be as simple or elaborate
as the estimating needs dictate. It is advisable to track as many aspects of the project as
practical. Many methods are available to capture the data needed to perform a historical
estimate. When establishing a database, consider all aspects of a project that may become
necessary when preparing an estimate. It is generally easier and more accurate to cope with too
much data than not enough. The following is a listing of items that could be considered when
establishing a database:

 File Number  Contractor Address


 County  Work Type(s)
 District  Funding
 Bid Item Number  Completion Date
 Item Description  Working Days
 Item Quantity  Estimate Preparer
 Item Amount  NPDES Acreage
 Unit of Work  Hourly Work Restrictions
 Letting Date  A+B Bidding
 Number of Bidders  Road/Route
 Low Bidder Amount  Project Number
 Second Bidder Amount  Warranty
 Third Bidder Amount  Staging Area
 Estimated Unit Price  R/W Restrictions (area available for
 Low Bid Unit Price work)
 Second Bid Unit Price  Urban vs. Rural
 Third Bid Unit Price  Special Construction Area
 Length of Project  Project Limits
 Contractor Name

By including those aspects of a project that have an effect on the cost of the work it is possible to
retrieve and analyze the data to estimate the reasonable cost for anticipated work. It can be very
useful to add a comment field where the estimator can add appropriate comments that may affect
the determination of a unit price.

To organize the data it is helpful to collect data by category such as: General Project Information,
Bid Data, and Project Specific Information. Using a Data Entry Form to input General Project
Information and Project Specific Information is an effective way to collect project information. The
following is an example of a Data Entry Form to input general and specific project information into
the Project Information Table of a database:

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Data Entry Form Example

Using a spreadsheet is an effective way to import bid data. The following is an example of bid
data placed into a spreadsheet to be exported to a database:

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Once Tables for data collection have been established, using database queries is a good way to
retrieve the stored information. A properly constructed query will retrieve data that is relative to
the situation for which an estimate is being prepared. The following is an example of a routine
query to retrieve data for a specific bid item:

In addition to being useful for routine estimating, a well-constructed database can be very useful
for ad hoc situations. Specialized queries can be devised as needed.

For example, a simple query can provide the total linear feet of the various sizes of reinforced
concrete pipe let to contract over a certain period of time. Another query could provide the total
mileage of resurfacing projects let within a given time period or to pull data within a geographic
area for different grades of asphalt. This data could then be analyzed to determine the potential
costs for various asphalt grades on future projects in the area. Although not directly related to
estimating, this type of information is valuable to management and the construction industry as
well.

For a database to be effective, it needs to be routinely updated. It is recommended that the


database be updated at least semi-annually. During periods where costs are fluctuating rapidly
(inflation or deflation) it may be advisable to update the database monthly or even in real time as
bids are entered. It is imperative that estimators have the most up to date data available to them
in establishing unit bid prices. In addition during times of rapidly fluctuating prices, it is also
advisable to limit the period of time that unit bid prices are analyzed from; i.e., looking at unit bid
prices from too far back in time will skew the selection of an appropriate unit bid price.
Depending upon the bid items selected and the data in a given database, three months of data
may be sufficient in establishing a unit bid price.

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IV. Using Spreadsheets for Data Analysis in Estimating Costs
While databases are very useful for storing and retrieving data, in order to perform computations,
and analysis of data, a spreadsheet works much better. It is possible to perform a number of
mathematical operations after data is placed in a spreadsheet.

When analyzing data to determine a unit bid price, contractor unit bid prices that are obviously
unbalanced, either too high or too low, should not be considered. Using only the lowest unit bid
prices received for each item of work on a given project to determine unit bid prices may result in
a letting estimate that under predicts project costs. Whereas using only the average unit bid
prices received for each item of work may result in a letting estimate that over predicts project
costs. However, since the successful bidder is the one that turns in the lowest bid (there are of
course exceptions) the use of the lowest unit bid prices is generally a better predictor of project
costs. The most accurate method to consider is dropping outlying data from the set and then
using weighted averages, regression analysis, etc to determine the most appropriate unit bid
price.

Restraints of time and manpower at times require that estimates be prepared quickly and with a
minimum of effort. Spreadsheets can optimize resource utilization by focusing on the major cost
items in a project. For most projects the bulk of the cost can be accounted for in a relatively few
items (Pareto Principle or 80-20 Rule) of contract work. Using normal spreadsheet functions it is
possible to compute average prices for each item of contract work. At this point, major items can
be determined as a percentage of the total amount. Major items are those items, which comprise
a certain percentage of the total amount. Eighty percent has been used effectively in typical
estimating practices. For example on a mill and overlay project, the majority of cost may be in the
cold milling, plantmix, shouldering material, mobilization and traffic control items with relatively
minor costs associated with striping, guide posts, etc.

Easily available software allows computation of averages, weighted averages, standard deviation,
etc. Data can be sorted, filtered, plotted, and analyzed in numerous ways. As the following
example shows:
In the above example, information for variable depth milling is presented for federal resurfacing
projects in a specific given geographical area that were let between February 2003 and April
2004. In addition a graph showing cost vs. quantity with a trend line fitting the data has been
plotted. The average price and weighted average price have been computed and a price (G:1)
based on the quantity (H: 1) has been computed.

The above example is for purposes of illustration. It is possible to select data, and plot graphs to
determine relationships relative to the project being estimated in numerous ways.

Based on experience, an estimator can use easily available spreadsheet functions to select and
analyze data appropriate to the situation being estimated, to arrive at a reasonable cost for the
anticipated work. It is also possible to perform multiple regressions to discern more complicated
cost relationships.

For routine items of work, using average prices, or regional prices is as effective as more detailed
analysis.

V. Estimating Lump Sum Items


The Lump Sum bid item should generally be used when an item of work can be defined by a
transportation agency in general terms, i.e. the finished product can be easily defined but not all
the components or details can be easily determined. This fact can make estimating lump sum
items difficult for the estimator. The more information and breakdown of a lump sum item that an
estimator has to work with, the greater the likelihood that an accurate lump sum estimate can be
developed. However, if the lump sum item in question could be easily quantified, then a payment
method other than lump sum could easily be used and estimated. In any case, an estimator
should try and define a lump sum in terms of its simplest, most basic components and should
consider other factors that may not be easily estimated. By breaking out a lump sum item into
smaller items of work that an estimator may have historical data on, and then applying
reasonable estimated prices to those sub units, the estimator can more accurately establish a
price for the overall lump sum item.

Since breaking out a lump sum item into smaller components is difficult and time consuming,
many state agencies apply percentages or ranges to some lump sum items based upon historical
data for similar project conditions. When determining estimates in these instances, the more
consideration that can be given to an item’s many components, the greater confidence in
determining a reasonable estimated price could be realized. Estimating methods other than
historical bid based techniques may be more applicable for lump sum items.

Different state DOTs use the lump sum method of payment for different items or types of work.
The items of work shown below are some representative examples of what some states use the
lump sum method of payment for.

A. Mobilization
Mobilization is a contract pay item used to cover a Contractor’s pre-construction expenses and
the costs of preparatory work and operations. Since there is no clear list as to what this work
effort is and each Contractor has the ability to adjust their bid as needed to cover these
expenses, there are no true rules as to what percentage or value should be used per Contract.
Mobilization costs are most often dependent on the amount and size of equipment and staff the
contractor will need to relocate for the project. Many projects will require that the contractor
mobilize the crew and equipment multiple times.

Another major factor to consider when estimating mobilization costs is the contract specifications
in regards to mobilization. Do the specifications include payment restrictions or limits? When will
the contractor receive partial or full payment for mobilization? How much of the mobilization cost
will the contractor be required to finance? The specifications may play a significant role in
determining an estimated value for mobilization.

Consideration should also be given to the location of a project, the complexity of a project, the
need for specialized equipment, the type of work and the working season. If the project will
extend over more than one construction season, this should be considered when determining
mobilization costs as the Contractor may demobilize for the winter and remobilize in the spring.
Rural projects vs. urban, projects with multiply work sites, projects with a lot of preparatory
removal items, projects with large quantities of excavation or projects extending over two seasons
where the Contractor would be expected to shut down operations and move out will typically
require a higher mobilization percentage.

To adequately estimate mobilization costs on a project utilizing historical based data, the overall
project must be very comparable in size, location, and work involved. For this reason,
organizations that rely on historical based estimating methods often use a parametric figure to
estimate mobilization costs. This figure is normally a percentage of the overall construction item
total in the range from 6% to 12%. Some examples of this follow:

 The typical mobilization estimates for a roadway project may be 8% based on past
history for a state.
 The typical mobilization estimate for a structures project may be 10% based on past
history.

The examples above illustrate the difference in mobilization costs dependent upon the resources
and effort required. A roadway project typically involves the mobilization of several pieces of
medium sized equipment to a temporary or mobile location. A structures project often involves
the relocation of significant large pieces of equipment to a fixed location and most often require
that large pieces of equipment be mobilized and demobilized multiple times depending upon the
staging of the project. Each time equipment has to be mobilized to a project or to a different site
within a project, there is an associated cost to the contractor to relocate the equipment and
resources.

Other major factors to consider when estimating mobilization are project location, multiple
construction seasons and winter shutdowns. Projects in remote locations have higher costs to
relocate equipment, labor, and other resources to the site. Adjustments for these costs need to
be made to historical data prior to applying the price to a new estimate. If a project carries over
multiple construction seasons and will be shutdown for the winter or other environmental
restrictions, the costs need to be accounted for in the estimate. Can it be anticipated that the
contractor will mobilize the equipment to another project and have to remobilize, or will the
equipment and resources be idle during the shutdown. These factors need to be considered and
appropriate adjustments made to accurately estimate the true mobilization costs for a project.

B. Traffic Control
The construction of nearly all projects can be executed in numerous ways. Each contractor will
attempt to determine the most efficient and economical approach based upon the given project
and the experience and resources he has available to him. No matter how much time and effort a
state agency spends in evaluating how a project will likely be constructed, contractors will have
different ideas on how to prosecute the work to their advantage. This innovation by contractors
can realize cost savings for state agencies and can quickly make all their efforts in developing a
usable traffic control plan obsolete. That is why many states now use the lump sump method of
payment for traffic control/maintenance of traffic in lieu of developing full-scale traffic control
plans. The use of the lump sum item for traffic control can have a significant reduction in
preliminary engineering effort. Even so, considerable effort on the part of the state agency needs
to occur to approximate the types and quantities of traffic control devices, the number of times an
item has to be moved and the duration that the items will be needed.
If the state agency feels that certain limitations are of significant importance, then those
limitations need to be identified and stated in the special provisions/specifications for that project.
Items such as when lane restrictions can be imposed, duration that a detour can be in place,
maximum length of work zone, etc., will all have a bearing on the minimum number and type of
devices that are necessary to prosecute the work. Big-ticket items that the state agency will
require such as minimum amounts of portable pre-cast concrete barrier rail, number of
changeable message signs, arrow boards and truck mounted impact attenuators should all be
identified. This informs the contractor that these items have to be used in the construction of the
project and that they need to be included in their bid.

The establishment and identification of these big-ticket items, consideration of the anticipated
phasing/staging of the work along with imposed limitations, as well as approximate types and
numbers of other anticipated traffic control devices, will all aid the estimator in establishing a
reasonable lump sum cost. By breaking out the larger lump sum item into its anticipated core
components, the estimator can rely on historic bid data for those items and the given limitations to
come up with a reasonable lump sum cost.

C. Clearing & Grubbing


Clearing & grubbing is used to remove and dispose of all vegetation, trash, natural and manmade
objects that need to be removed from a project’s worksite in order to allow construction of the
anticipated improvements. Although payment for clearing and grubbing is sometimes measured
by square yard or acre, it is also frequently paid for on a lump sum basis. When payment is
made on a lump sum basis, the estimator needs to have knowledge of the area to be cleared.
The size of the area to be cleared, the type of terrain, types of obstructions to be removed or filled
in, density of brush, trees, rocks, etc., will aid in estimating. By analyzing this information and
comparing to previous projects with similar characteristics, the estimator can determine a
reasonable estimate.

If the breadth or scope of a project is unique, then breaking the item out into smaller components
may aid in determining an estimated cost to perform the work. By breaking the area to be cleared
into quantifiable segments that may be similar to clearing & grubbing that has been previously
performed, an estimator can add up the segments to produce a reasonable estimate. Similarly, if
the area is broken out into smaller categories or units that historical data may be available for; the
individual units can be estimated and summed to form a reasonable estimate.

D. Structural Steel
Some states pay for structural steel to be used in the construction of bridges by the lump sum
payment method. The lump sum payment will usually include the cost of all metal used in the
construction of the bridge including nuts, bolts, washers, stud connectors, scuppers, plates,
anchorages, etc., and also includes all costs of fabrication, delivery, and erection. In order to
determine a reasonable cost estimate to use for the lump sum item, the weight of material needs
to be calculated. This, however, is time consuming to calculate with a high potential for error.
When calculating the weight of each plate, every clip has to be cut out, the weight of holes have
to be deducted, and the weight of bolts added to get an accurate total weight. The main girders
themselves are not too difficult to calculate but the cross-frames, bearings, and splices are time
consuming and always difficult. Because of these difficulties, an approximate weight is
calculated.
Once the approximate weight is calculated a cost per pound is applied to get an estimate of cost.
This cost is based on historic bid price data for projects/bridges with similar characteristics. The
estimate is then adjusted for any project specific issues.
E. Moving Items
An item that may be included in projects involving the development of a new corridor or the
widening of an existing corridor is lump sum “moving” items. Developing estimates for the costs
to move items based on historical bid data is only possible when comparable data exists. House
relocation costs can be estimated off historical data and adjustments made to account for the
distance of the relocation, the terrain that must be traversed, utility relocations that may be
required to account for moving a building on a surface street, the size of the building and the
structure type. In cases where relocation of items is not required for historical significance, the
work may not be cost effective.

F. Demolition
Estimating demolition lump sum items again requires that the estimator understand the work
involved and the commonalities between the work proposed and the historical bid items. Many
times demolition work is similar in nature involving an excavator and trucks with trash trailers.
This type of operation is the most common and the difference in bid item price is determined
based on the number of days the operation will take to remove the necessary items. Special care
should be taken when known environment hazards exist within the demolition area. The
hazardous material removal and remediation needs to be accounted for in the bid item depending
on what the material is and the significance to the contractors operations.
VI. Estimating Project Specific or Unique Items

A. First Time Used


On occasion, items of work that an agency has little or no historical data to aid in establishing unit
prices are included in a project. In these instances, similar items may provide some guidance,
but additional investigative work may be necessary. If the item is thought to be of minor
significance, spending much time in determining a reasonable bid price may be of little benefit. If
the item is considered major or is likely to be significant to the bid, research should be conducted
to establish a cost. Contacting others that may be familiar in the use of the item in question can
usually help in determining a cost. Suppliers, other state Department of Transportations, the
Transportation Estimators Association’s List Service (See Chapter VIII – Reference Material),
Regional Transportation Commissions, Port Authorities, Consultant Letting, and even contractors
can be a valuable resource in establishing costs. Be wary in relying on estimates from a single
contractor; multiple sources should be utilized.

If the item in question is unique in some manner, whether it’s innovative, new or experimental, or
considered a specialty item, costs may need to be adjusted to account for the contractor’s
unfamiliarity with it and potential increased risk in construction. If the work is likely to be
subcontracted out, the prime contractor may also add markup to the subcontractor’s price.

B. Force Account
Force Account is a method of payment that pays the contractor his actual expenses for all labor,
materials and equipment to complete the work. To this figure, markups for materials costs, labor
surcharges, and overhead & profit may be added. The force account method of payment is used
primarily for “extra work”, i.e., work that is unforeseen at the time that a project is let or advertised
and is discovered during construction; or for items of work that are poorly defined and may or
may not be expected to be used during construction. This second case is the one most
frequently encountered by the estimator. Since the contractor does not usually bid upon this
work, there is little incentive for him to reduce costs or prosecute the work diligently. Because of
this, the force account method of payment is discouraged.

When an estimator is charged with establishing a reasonable cost for work to be paid for under
the force account item, he should try and establish the scope of work to be accomplished. Once
the scope is developed, it can be compared to historic bid price data for similar items of work. If
no comparable history exists, the force account item should be broken out into its anticipated core
components, the estimator can then rely on historic bid data for those items and the given
limitations to come up with a reasonable force account estimate. If no such data exists for even
the smaller core items of work, the estimator may need to estimate the amount and costs of labor,
materials and equipment to execute the work, much like what is done when estimating using the
“cost based” method of estimating.

VII. Bidding Climate


A. Time of Season
Depending on when a project is advertised and subsequently bid has a major influence on the bid
prices. Contractors typically have a time of year that is busier than others. This is normally when
contractors prefer to do the majority of their work. This is normally directly correlated with the
weather and when the conditions are the most conducive for construction activities.

If a contractor has fully allocated his maximum resources for their season, they are less likely to
bid on another project either competitively or at all. For this reason there is a benefit to the
agency to advertise the project as soon as possible prior to the peak season, to allow the
contractor to plan, schedule and seek as many opportunities as possible to find efficiencies in
their work plan. This also creates a more competitive bid climate and lower bid prices.
The estimator preparing the final engineers estimate needs to be aware of the time of the
advertisement and account for any expected fluctuations in bid prices due to the time of season.

B. Expected Competition/Contractor Availability


Projects that are advertised for bids late in the season or after contractors have scheduled their
work for the year, can expect higher bid prices. This is due to the lack of competition or
contractor availability. Projects that are bid during a period of time when a large number of
contractors are available are bid more competitively. Contractors know that they must bid the
lowest possible price to be able to get the contract.

C. Other Contracts
In much the same way as the expected competition and availability influences bid prices, the
same influence can be a result of multiple projects being advertised at the same time. The
contractors only have so many resources available to develop bids for projects. Many times in
the case of large projects, a contractor does not have the resources to develop bids for more than
one project at a time. The most prudent course of action in this case is to manage the program of
projects to ensure that this does not become an influencing factor on the bids. If this cannot be
prevented, then the estimate needs to reflect that multiple bids will be developed at the same
time. Contractors will most often account for this in their bids as a risk and may adjust their bid
prices by as much as 10-20%.

Another factor to consider in a multiple contract environment is the resources required for the
projects and if multiple active projects in an area will create conflicts. For example, multiple large-
scale bridge projects in a given area may create a shortage in structural steel. In these cases the
estimator must be aware of the ability of the market to support multiple projects.

Having multiple contracts in an area may create conflicts between the projects. These could
range from traffic control, labor issues, direct coordination issues, etc. These conflicts need to be
considered in the calculation of production rates and subsequent bid item prices.

D. Specialty Work
Specialty items are not necessarily new items or new construction methods, but are items that
are somehow different than the majority of the work on a given project. On a pavement
rehabilitation project, signal work may be classified as specialty work whereas it would not be on
a project that was predominately signal and lighting work. Projects that include specialty work or
are comprised totally of specialty work items need to be characterized correctly when estimating.
Estimating specialty work or bid items requires a thorough understanding of the work involved
and the resources required to accomplish the work. When estimating specialty items utilizing
historical bid data, the comparisons between the work and the differences must be fully
accounted for in the development of the estimate. Another factor to consider is the number of
qualified contractors capable of doing the project or elements of work. Other examples of
specialty work may be landscape, guideposts, fencing or mechanical rehabilitation of moveable
bridge components.
VIII. Reference Material

AASHTO
The American Association Of State Highway and Transportation Officials (AASHTO) have created
estimating software called Trnsport. Information can be found online at http://aashtoware.org/

TEA
The Transportation Estimators Association’s (TEA) website has estimating information, links to
other useful sites and they also operate a list service for posting questions and announcements.
The TEA’s website can be found at http://www.tea.cloverleaf.net

ASPE
The American Society of Professional Estimators (ASPE) serves construction estimators by
providing education, fellowship, and opportunity for professional development. Their website is
located at http://www.aspenational.com

AACEI
The Association for the Advancement of Cost Engineering has useful information and links for the
cost estimating profession. They can be found online at http://www.aacei.org/

TRB-NCHRP
Administered by the Transportation Research Board (TRB) and sponsored by the member
departments (i.e., individual state departments of transportation) of the American Association of
State Highway and Transportation Officials (AASHTO), in cooperation with the Federal Highway
Administration (FHWA), the National Cooperative Highway Research Program (NCHRP) was
created in 1962 as a means to conduct research in acute problem areas that affect highway
planning, design, construction, operation, and maintenance nationwide. A recent research project
numbered 8-49 relates specifically to cost estimating. The NCHRP website can be found at
http://www4.nas.edu/trb/crp.nsf
IX. Tools
The tools for preparing historical estimates can be as simple or elaborate as the estimator’s
needs. A number of estimating software programs are available to help with performing bid
based estimates. The decision as to which of these tools, if any, to use depends on the situation
of the estimator and the transportation agency he represents. With a measure of computing skills
it is possible to use widely available software packages to meet the needs of most estimating
circumstances. With experience the estimator can develop databases and spreadsheets to
satisfy his individual estimating requirements.

As with any other profession, staying abreast of current literature is beneficial in pursuing the
occupation of estimating. Engineering and business publications can be a good source of
information.

Using cost indexes can be very helpful when preparing estimates. Although it may be difficult to
determine specific relationships between actual costs and indexed prices, monitoring cost
indexes can give the estimator an indication of cost trends. The Bureau of Labor Statistics -
Consumer Price Index is a good indication of general cost trends. Steel indexes can be helpful
when estimating projects containing manufactured steel products. Liquid asphalt, fuel and
aggregate indexes are very helpful when estimating paving projects. If such indexes are not
readily available it is not very difficult to set up and maintain an index for these types of items. An
example of a relatively simple liquid asphalt and fuel index follows. The monthly index shown
below is established using the average of quotes from local suppliers of liquid asphalt. The
unleaded and diesel indexes are generated similarly.

Liquid Apshalt Monthly Average


Bid Price
Monthly Index

$300.00
$250.00
$200.00
Dollars

$150.00
$100.00
$50.00
$0.00
F eb-02 M ay-02 Sep-02 Dec-02 M ar-03 J un-03 Oct-03 J an-04 A pr-04 A ug-04 Nov-04

Letting Date
Dollars

$-
$0.50
$1.00
$1.50
$2.00
Jan-02

Mar-02

May-02

Jul-02

Sep-02

Nov-02

Jan-03

Mar-03

May-03
Monthly Fuel Index

Jul-03

Sep-03

Nov-03

Jan-04

Mar-04

May-04
Diesel

Jul-04
Unleaded
X. Skill Sets Required
All projects are to some degree unique in character. To accurately develop an estimate for the
costs to construct a project, an estimator must be capable of mentally constructing the project
and accounting for all the activities necessary to complete the project. For this reason an
estimator must have a systematic approach to ensure that all cost items have been incorporated
into the estimate, and that no duplication exists.

The quality of an estimate is directly related to the skills and abilities of the estimator. The
following skills are desirable qualifications of an estimator:

 Knowledge of Construction Practices and Methods


 Knowledge of Construction Materials and Production
 Knowledge of Contract documents and administration
 Knowledge of Project Management
 Understanding of Construction business and economics
 Experience in Construction and Design
 Understanding of Environmental, Legal, and Code Requirements

These skills alone do not necessarily create a good estimator. The ability to develop good
estimates is often referred to as the art, which cannot be quantified.

Estimate preparation can be tedious. When the average project contains dozens of items and
larger projects could have hundreds, determining an appropriate unit cost for these items can be
monotonous. Reviewing the bid history database for like items with similar characteristics can
take considerable effort and concentration. Although there is no perfect candidate to perform this
function, some attributes are desirable. A degree in engineering, math, statistics, accounting or
even business is desirable although it is not essential. Individuals with good analytical skills and
those with construction experience in the field are especially desirable. Individuals with a good
temperament are also sought-after.