FACTORS AFFECTING CONSTRUCTION COST ESTIMATE

Preparation of a construction cost estimate for any project is a very complex process. Process of
construction cost estimation contains many variable factors. Every variable has to be correctly estimated
based on proper study, past experience and research to calculate total project cost of construction.

Construction Cost Estimate for Projects

There are many factors which affect the construction cost estimate and have significant impact on
project cost and they are as following:

1) Similar Construction Projects: For the construction estimate, the best reference will be similar
construction projects. The final cost of those similar projects can give the idea for the new construction
project cost calculation. The final cost of past project needs to be factored with current construction cost
indices.

2) Construction Material Costs: Construction material cost consists of material cost, shipping charges and
taxes applicable if any. So, it is important consider all these variations while calculating construction
material cost.

3) Labor Wage Rates: Labor wages varies place to place. So, local wage rate should be considered in
calculation. If the project has to be started after several months of estimating the project cost, the
probable variation in wage rates has to be considered in the calculation.

4) Construction Site Conditions: Project site conditions can increase construction costs. Site conditions
such as poor soil conditions, wetlands, contaminated materials, conflicting utilities (buried pipe, cables,
overhead lines, etc.), environmentally sensitivity area, ground water, river or stream crossings, heavy
traffic, buried storage tanks, archaeological sites, endangered species habitat and similar existing
conditions etc. can increase the project cost during construction phase if these variations are not
considered during estimation.

Construction Site Conditions

5) Inflation Factor: A construction project can continue for years before completion. During the
construction period, the cost of materials, tools, labors, equipments etc. may vary from time to time.
These variation in the prices should be considered during cost estimation process.

6) Project Schedule: Duration of construction project is affects the cost. Increase in project duration can
increase the construction project cost due to increase in indirect costs, while reduction in construction
cost also increases the project cost due to increase in direct costs. Therefore, construction project
schedules also need to be considered during project cost estimation.

7) Quality of Plans & Specifications: A good quality construction plans and specifications reduces the
construction time by proper execution at site without delay. Any vague wording or poorly drawn plan not
only causes confusion, but places doubt in the contractor’s mind which generally results in a higher
construction cost.

8) Reputation of Engineer: Smooth running of construction is vital for project to complete in time. The
cost of projects will be higher with sound construction professional reputation. If a contractor is
comfortable working with a particular engineer, or engineering firm, the project runs smoother and
therefore is more cost-effective.

9) Regulatory Requirements: Approvals from regulatory agencies can sometimes be costly. These costs
also need to be considered during cost estimate.

10) Insurance Requirements: Cost estimation for construction projects should also need to consider costs
of insurance for various tools, equipments, construction workers etc. General insurance requirements,
such as performance bond, payment bond and contractors general liability are normal costs of
construction projects. In some special projects, there can be additional requirements which may have
additional costs.

11) Size and Type of Construction Project: For a large construction project, there can be high demand for
workforce. For such a requirements, local workmen may not be sufficient and workmen from different
regions need be called. These may incur extra costs such projects and also for the type of construction
project where specialized workforce is required.
12) Location of Construction: When a location of construction project is far away from available
resources, it increases the project cost. Cost of transportation for workmen, equipments, materials, tools
etc. increases with distance and adds to the project cost.

13) Engineering Review: Sometimes it is necessary to carry out technical review of construction project
to make sure the project will serve the required purpose with optimum operational and maintenance
cost. This review cost shall also be added to the project cost.

14) Contingency: It is always advisable to add at least 10% contingency towards the total project costs for
unforeseen costs and inflation.

ESTIMATING CONSTRUCTION COSTS - WHAT FACTORS SHOULD YOU CONSIDER?

Published May 16, 2016 by Whirlwind Team

inShare

Estimating_Construction_CostsComing up with an estimate for a construction project often seems to

include everything (even the kitchen sink). As well it should since a number of factors can impact that
estimate. Plus, the estimate will have its own impact, including whether you get the job and whether you
make money on it if you win the bid for the project.

Experience is the best foundation for a realistic bid and within that experience, you will find there are
factors that you need to look at for every estimate. You might even have a checklist of sorts to help you
wrap your head around each project as you develop your bid.

FOUR COMMON TYPES OF ESTIMATES

Not every estimate is the same. Different restrictions and understanding apply, and certain estimates are
more like estimates of estimates, just to get things started.
Planning estimate aka ball park estimate

Just like it sounds, this is a pretty loose estimate providing a rough approximation of the costs. It should
only be used for informational purposes, but it can be handy for qualifying customers and acting as a
springboard to a more complete estimate.

Budget estimates

Somewhat like a planning estimate, a budget estimate is based on some preliminary cost data that may
be well-defined but not complete or verified. Generally, there are basic rules set for how this budget is
developed and used.

Firm estimates

Here is where you get to the nitty-gritty. This is the estimate based on cost data accurate enough to use
for entering into a binding agreement.

Not-to-exceed/Not-less-than estimate

This type of estimate provides tighter parameters and is based on a firm estimate. As negotiations are
taken up, the firm estimate may need to be tweaked to meet new budgetary rules introduced by the
needs of the project.

FACTORS IMPACTING ESTIMATES

Similar projects

Comparing a project that is highly similar to the proposed project is the best reference you will find upon
which to build a reliable estimate. With all things being somewhat equal, having constructed a similar
project will give you the best numbers for material and labor costs, particularly if the new project is in
the same region of the country.

Labor and materials

Labor and material costs shift depending on supply and demand.

Construction material costs are impacted by availability, shipping costs, and taxes, among other things.
Labor costs are affected by the type of skills needed, the number of available workers, and the local
wage range. If local workers don’t have the requisite skills, you need to consider the cost of transporting
and boarding workers from farther away.

The farther away the start date and the longer the timeline, the more variability will be seen in these
particular costs.

Project size and type

Next up is the size of the project. Obviously, a small warehouse will likely cost less to build than an arena.
The larger the project, the more materials, and labor will be needed, and the construction schedule will
stretch out accordingly.

The type of project is another fairly obvious area. Looking at the comparison above, a warehouse is
probably a lot less complicated to build than the arena as well. If everything were a big box, estimates
would be easier, but people seem to want different types of buildings for different things.

Site location and conditions

The location of the site affects the estimate in a couple of different ways.

One consideration is whether the site is out in the boonies or square in the middle of town. If the site is
distant from resources, transportation costs will go up, and it may be more difficult to contract the right
labor. If your project is hemmed in by existing structures, different issues come to the fore: noise
abatement, differing building codes, delivery issues, and more.

Something else to think about is the difficulty in reaching the site. A very remote site with few utilities
and resources and potentially nowhere for workers to stay will impact labor costs and transportation of
bother workers and materials.
Site conditions, as far as they can be predicted, can differ significantly from one place to another. The
typical weather and environment in Seattle are not the same as West Texas. The soil type can be easier
to work with or it can introduce some complications. If you are lucky, the site has been adequately and
appropriately prepared, which will make the estimate easier.

Plans, specifications, and scheduling

The more detailed the plan, the better the specifications, the easier it will be to figure out probable
costs. If the plan is vague, lacks specifications, or has not been adequately reviewed prior to construction
beginning, you may be looking at a lot of changes and rework.

In a competitive market, you may feel you have to take on a project like this. Just realize that your
estimate may require contingencies to cover the lack of detail. Of course, scheduling for an incomplete
plan will be difficult as well. Determining which subs to use, the ability to call them back for rework or
changes promptly, and trying to manage material delivery will make it hard to figure out how long the
project will ultimately take, what weather conditions may be prevailing during that time and other
dominoes that will easily topple over.

Regulatory requirements and insurance

Permitting and approvals can be expensive depending on the location. Different states have different
building codes to meet, some more stringent than others. Some regions have additional considerations,
such as construction in seismically active zones. As mentioned earlier, regulatory requirements for
construction within a highly populated area may have additional terms to meet than if the project was
outside of the city limits.

The insurance coverage you need will depend on the type of construction, the materials, tools, and
equipment in use, and your company’s liability record, to name a few caveats. Insurance policies may
need to be customized to the state or local level, as well. The details of the project will have some of
these answers.