Analyzing Construction Cost Estimates - Issues

When you're putting together a cost estimate or you're analyzing a cost estimate there's a few issues that are really important to keep in mind. One of them is that there is a number of sort of regional differences between ways that people put some of these pieces of information together, there's sort of different levels of expectation, but also there's different project type differences. If we're doing a residential project, that residential project will likely line up in one particular way versus an office project versus a developer versus a state run or federally funded project.

Each of those will have their own sort of way that they are expected to be put together. But also what the bid forms are probably going to look like, there's going to be different qualities to each of those different types of projects that are gonna play out through the bid forms and through the cost estimating process. And some of that just makes logical sense. More commercial buildings will have, obviously, much more commercial type materials, you're more likely to have curtain walls in a commercial building than you are in a residential building for example.

So things will just sort of naturally lean towards one versus another in these different uses and therefore the process of putting together a cost estimate, the process of putting together a bid or a bid form will likely have a slightly different sort of aspect to it. And then there's certain other elements that are likely to come up. One of them is the funder differences. So I mentioned this a little bit earlier as well. If I have a federally funded project or a city funded project, that's going to bring with it a whole series of issues that are about how that entity wants their projects to be funded and therefore how the bids need to work.

So they may have specific bid forms that they require, they may have specific ways in which the cost estimates must be broken down so that they have an ability to check pricing across many different projects over a whole region, they may have other issues that are important on their agenda that don't have anything really to do with this particular project like are people being hired locally, are there minority or women owned businesses, things like that that are important to the funding agent but not necessarily part of what the ownership of the particular project is all about.

So understanding what those requirements are would be really important. And the obvious big ones are these issues for federally funded and other government funding projects.

But even typical banks might have their own set of requirements. So it's not just big federally funded entities or city funded entities, you know even your typical bank might have a specific set of rules about how they want the bid forms to look or how they want to be able to compare information from one project to another because that's one of the things they feel like they're bringing to the table. Often projects will be funded from investment sources, or they might be funded from grants from specific foundations, something like that.

Each of those different entities is likely to have their own set of paperwork, their own set of baggage, their own set of ideas about how this information should be shared and how it should be sort of brought forth. So understanding where the funders are is similar to understanding what the nature of the client is, and it's important because the work of the architect as well as the work of the GCs and all the other people involved need to be able to fit in to that funding stream.

Obviously if they are the funders they're gonna have a lot to say and so you don't want to not do what the funder wants you to do. And then there's another sort of area which I'm gonna group together, I'm gonna talk about the bidding climate and local rates. These together are ways of starting to understand that not every bidding situation is going to be the same. I mean, not only are there gonna be these regional difference and project type differences and if it's federally funded versus privately funded and things like that, but also just the sheer fact that I'm doing a project in, maybe somewhere in Tennessee versus doing it in Hawaii.

You know Hawaii, the economy is an island economy, it's gonna be very expensive because they have to ship a lot of materials in, there's a whole different way of sort of approaching projects because of the nature of the fact that it's an island and it has this sort of special sort of quality, a special expensive quality. So the local rates are just going to be higher in that location than they are in some place like Tennessee that has access to everything, it can get materials from anywhere, it can get labor from anywhere, it's sort of right in the middle of everything, so that's going to push its pricing down in that sense.

So the local rates would be very important to have a very clear understanding of. That if you're an architect working out of San Francisco, but you're doing a project that is in sort of rural Nevada, well there's going to be a very different price point between those two locations, and if you're thinking about it through the lens of San Francisco pricing then you're not going to understand the bids at all coming from rural Nevada.

So understanding what the local rates are would be very important, that's a huge deal. There's a whole series of ways that this is done, you'll often find if you're doing kind of online estimating where you have those sort of question answer things where you put a bunch of information in and, you know, yes it's a wood siding and, you know, it's got this kind of floor and this kind of structure and you're typing all that information in, somewhere along the way you've typed in what the zip code is of that project, and that's a way for that online cost estimating generator to sort of locate what the local rates would be and then adjust specifically towards that specific local place.

So understanding kind of what the real prices are in a very specific local zone is an important aspect of this. And those differences will be a lot.

The difference between the lowest price and the highest price in the United States might be as much of a difference as say 67 cents compared to a dollar 25. So a typical one might be a dollar, but it can be much lower and it can be much higher. So that local rate becomes hugely important in terms of evaluating and understanding what the bids are actually telling us when they come back. Similarly there's this idea of the bidding climate, and that bid climate is a sense that there's stuff that's happening all the time and that no set number is going to stay that number for any length of time.

You'll find that the economy gets a little bit better and suddenly the contractors are being sought after and that they are ready, they have lots of projects available to them, and just in a matter of months all of a sudden what would have been priced out at 170 dollars a square foot suddenly is now going at, you know, 190, 200 dollars a square foot. And it's just because they're now busy and it's, they don't need to be as competitive and so their prices are going to rise up.

Or, conversely, economy feels a little shaky or something, a big company moves out of town and suddenly everybody's a little nervous and those prices are now starting to come down and now you have a lot more people bidding because they are worried and so you're going to get more options, therefore the prices are going to come down. Being on top of that, you'll never be, no architect will ever be totally on top of it, there's no way you could know every intimate detail about what's going on in that sort of general contractor climate, but the idea is that you should probably know more than the client so that you have the ability to advise the client about the bidding climate in that moment.

So you can be saying yes, this is a good time to move forward, or this would be a great time to get more bidders because I think we can bring the price down, or maybe this would be a good time to lock in with somebody, get a negotiated bid going, get them tied in to the project because you're worried you're gonna lose them because things are changing or the prices of certain materials are going up.

Things like concrete sometimes will just suddenly become much more expensive or plywood or OSB or something like that because there's a big rush for use of that material, and so you'll find that those specific materials suddenly become hard to find. And so if you based your design on it, that can become a big problem. So the expectation is that you, as the architect, are bringing some of that information into that conversation, that you're aware of these changes, you're aware of the, sort of, general bidding climate, you're aware that certain materials have suddenly started to skyrocket.

So one of the expectations is that the architect is aware of these issues and keeping themselves up to date about these issues so that they have the ability to be able to talk to the client and give them reasonable advice about it all. So understand that when we're talking about these cost estimates, there's a lot of different elements that can impact both the way they look, the way that they're prepared, and the way that you understand the information when you get those bids back so that all of those different parts are part of the analyzing process to the cost estimate.

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