Factors Affecting Construction Cost Estimating

Accurate estimation of the construction cost of a project is extremely important. One of the most unpleasant bits of news you may ever have to deliver to a client is that the cost of a project will be more than you had estimated. Construction cost estimating usually proceeds in one of two ways, either the client provides the designer with a maximum budget figure, the limit for construction costs , or there is a preliminary period of study (under the schematic design phase) in which possible schemes are developed and their respective costs estimated.

Some factors can individually affect construction cost estimating include the project:

 

Size

The smaller the project in terms of scope or the number of square feet, the more it will cost per square foot. Contractors have a set of basic “start-up costs.” These start up costs remain about the same in real dollars for every project. Thus for a very large and expensiove project, the start up costs will be a small percentage of the total construction cost. For a small project, since start-up costs remain stable, they will constitute a large percentage of the total construction budget. If the cost of start up for any project is $4,500.00, and the total cost of the project is $450,000.00, the total start-up costs are 1%. However, if the total project cost is $30,000.00 then the start-up is 15% of the total cost. Start-up becomes a major cost factor when estimating construction costs for small to medium sized projects.

 

Type

The type of project or the kind of space you are designing has an impact on estimating construction costs. The cost of construction depends on the time the contractors will need to execute the work, the degree of specialization of the work to be done, and the cost of the materials. Different types of project have different levels of complexity and detail. A school cafeteria wouldn’t require the same amount of time, nor the same level of complexity, as a four star restaurant. Construction costs for the four star restaurant would be much higher than the cafeteria even though it probably would have smaller square footage. Clients may have difficulty understanding variations in costs. There are three variables in any project, and only two of these can be controlled at any one time. These variables are:

  • the level of quality will
  • the size of the building or space in terms of the total square footage
  • the total cost of the project.

If a client wants a high degree of quality, the cost must be allowed to flex. If the client has a rigid budget, and a minimum quantity of square footage, then they must compromise on quality. In this instance cost and quantity are controlled, and quality must be allowed to vary. You must help the client decide whether quality, size, or cost is the their biggest priority and explain what the ‘trade offs’ are in terms of the other variables.

 

Special Construction

Complexity can greatly increase the cost of the project. These conditions may include renovations, heavy loading, i.e. large quantities of files or a library, hazardous materials, etc. Renovation, especially if it requires altering or moving structural components, can be costly because it necessitates demolition as well as building. Quantities of files and books are heavy so the flooring may require additional structural support. Special construction may also be necessary to shield surrounding spaces from noise, fire and other hazards.

 

Project accessibility

Sites may be difficult to access, either geographically or because the space is used during business hours, requiring that the project be scheduled for off hours. This can be a problem when adjacent spaces have sensitive equipment, or when construction materials containing hazardous chemicals are used in the construction process. (You will be surprised how many construction materials do in fact contain hazardous chemicals. This presents a unique problem which has yet to be adequately addressed, because even if the area under renovation can be physically isolated from other areas of the building, very often the HVAC system has not been readjusted, and these chemicals are often circulated throughout the area or building, creating hazards for occupants. This situation is especially critical in permanently enclosed office buildings (those whose windows are non-operating, i.e. they don’t open) since chemicals can linger for long periods of time. The most frequent culprits in terms of hazardous chemicals are glues, paint removers, mastics, carpet backings, and synthetically produced building materials. Be alert for these chemicals: toulene, xylene, formaldehyde, mineral spirits, naphtha, and other kinds of organic solvents. In summary, these factors can increase the time and effort needed by the contractor and result in an increased cost of construction:

  • isolating areas under renovation
  • providing physical access to move materials, equipment, and construction personnel to the site
  • ensuring periods of work when construction will not disrupt the on-going operation of the company

 

Project clarity

Occasionally there may be a situation where the designer can’t provide complete and accurate information to contractors. These conditions frequently occur when projects are located in old buildings for which there are no drawings or specifications documenting the existing structure and conditions. In these situations it is impossible to know absolutely what is inside of walls (without conducting X-ray investigations, which are occasionally done under extreme conditions), or other building components involved in the renovation. Uncertainty of conditions should give both the construction estimator and the contractor pause. Unknown conditions can increase both the risk and the complexity of construction, and some allowance must be made in the costs estimates, particularly if problems are suspected.

 

Project Difficulty

Other factors can also raise costs: The project schedule may be tight, e.g. the client’s current lease is expiring and the work must be completed by a specified date so that the client can move in to their new space. Sub-contractors may have to work over time or neglect other projects in order to finish work on time. This will raise the contractors price for the work because many people will need to devote more hours in a short period of time to the work, increasing the stress on workers, removing them from other projects on which the contractor is working, making coordination of trades more difficult, and finally presenting the possibility of needing to pay ‘time and a half’ to union laborers (which most construction trades are in many states).

Level of detail may also make the project more difficult and costly.  Costs will escalate if there are many components to the work and if components must occur in very tight order or concomitantly, requiring the general contractor to closely coordinate the building trades on the job.

 

Client difficulty

If the client has been difficult during the design process, these difficulties will affect the construction process. A demanding client who may anger construction crews, an indecisive client who may wish to make changes up to the last minute or later will obviously raise costs. The client’s problematic behavior is difficult to explain, let alone bill. It may be wise in these cases to incorporate a larger than normal contingency into your cost estimates allowing these difficulties to be accommodated without having to point out to the client that they themselves are the problem.

 

Contractor problems

A client wants to work with a particular contractor. You know that sometimes this contractor may underbid the project, i.e. they quote a price for the work, which is not adequate for them to actually complete the job. They submit a lower bid than competitors to secure the project. After the contractor low balls the bid, they slowly raise their costs throughout the project by claiming that particular items or services were not included in their original package. Clients will occasionally blame designers in this situation rather than the contractors. To protect yourself, when the client accepts an unreasonably low bid, put it in writing that, according to your estimates, the project should cost substantially more than the contractor has quoted. Contractors also may argue that problems in the process caused delays and that they are entitled to additional fees. However, you can avert this situation by having very clear and accurate drawings and specifications that leave no room for uncertainty. Estimating the cost of these problems is almost impossible, so you should do everything in your power to dissuade the client from employing a a contractor who is known to be difficult or unreliable despite a previous relationship with the client or a low bid.

 

Time of Year

Building construction is a seasonal enterprise. There are periods of the year when contractors are busy and can barely keep up and then there are periods of the year when they are likely to be looking for work. From early January to late February or early March, General Contractors will be seeking work to fill their schedule for the following construction season (approximately early April through late October or early November). During this time you are more likely to get a more competitive bid for a project. After this period it is likely that bids will be higher or the contractors  who are available will be the less qualified and were not hired for other projects.

 

Competition

The competition among contractors in the area where the project is being constructed will also affect the cost of the project. Factors affecting competition include

  • the number of qualified contractors operating in the project area. The more qualified contractors, the greater the potential for competitive pricing and the lower the construction cost. The key here is in the phrase “qualified contractors,” contractors who can successfully complete the project. Many contractors and sub-contractors are suspect. The easiest way to determine whether a contractor is qualified is through their bid. If it is much lower than their competitors’, there is probably good reason. You should be suspicious if any bid is out of line with the others, either very low or very high.  If you obtain five bids for a project: $180,000, $93,000, $83,000, $73,000 and $45,000, you can be relatively sure that the extreme numbers indicates some sort of problem. If the project is awarded to the low bidder, you may have real problems getting a quality project built. In most government projects you may be required to accept the low bid. It is very important to develop very tight drawings and specification to ensure that those who are bidding on a project are forced to complete the project according to your design.
  • to obtain a competitive bid, you must allow bidders some discretion in their pricing of the project. Your drawings and specifications must be specific enough to convey to the contractor the level of quality you expect, but still leave them enough choice to provide opportunities for them to select approaches, materials and personnel which are perhaps less expensive than those which their competitors will choose. In your text (Piotrowski, Chapter 23, pp. 321 – 329) the author speaks of several types of specifications “Closed and Open Specifications.” (Please be sure to read these sections careful along with this lecture).These categories of specification are very important because they can determine the degree of competition possible in pricing a project. A closed specification eliminates most competition, but ensures that every aspect of the project will be constructed or installed as it was designed. If the project is to be high quality, a closed specification is the most appropriate approach to construction documentation. However, if a somewhat lesser level of quality is acceptable, a more open format for your specifications is appropriate. The openness of the specification will allow greater competition in pricing and allow you to produce a cost estimate which is closer to the norm in terms of similar types of projects.

 

Labor Rates

The general state of the economy will affect the cost of a project so it is important to watch what is happening with the rate of inflation in developing accurate construction estimates. When the economy is booming (like it is now) and the unemployment rate is very low, there may be some wage pressure, particularly in the skilled and labor intensive construction industry. If there are indications of inflationary pressures, you must place some limits on your construction estimate. You should either indicate to the client that the period for which such an estimate is accurate will be relatively brief, or include some budgetary contingency for inflation over the period before bids are ‘let’ and the project is awarded to a contractor.

 

Material Costs

The type and availability of a particular material can also affect your approach to a cost estimate. If your client insists upon a particular material or if a particular manufacturer’s product is crucial to the success of a project,  the cost of that  specific item can drive up the cost of the project. This is essentially a closed specification. If, however you can accept a material of equal or somewhat reduced quality, you will leave room for greater price competition and lower the project cost. (Incidentally, the availability of a product or material can also affect the success of a project relative to the client schedule expectations. When you are selecting products or materials, you should also consider the concerns of “lead time” (the time it will take for an order to be manufactured and delivered).

 

General Economic Pressures

The general state of the economy must be considered in developing a cost estimate for your project. Inflation affects not only labor but also materials and the cost of the money the client may need to borrow to complete a project. If you think that there will be an extended period between the time when you develop your cost estimate and the actual time when the project goes out to bid, then you will need to account for inflation in your cost estimate, adding a reasonable percentage to the total cost.

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2 Responses to Factors Affecting Construction Cost Estimating

  1. Marisa Rink says:

    i just saw your comment this is really important to me

  2. Good work, but I think there is need to add – “functional life of components” as one of the factors affecting or influencing construction cost estimate.

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