When preparing an estimate, it is best to use historical data from your company’s past construction projects. It is the only data that accurately represents how your company constructs projects, its unique strengths, and the local subcontractor market. Wise GCs use their accounting system to collect this data and then leverage it to prepare competitive bids that will turn a profit.
Key Takeaways
- Historical data (construction cost data from past projects) are often used to prepare estimates for future projects.
- Historical square foot costs can also be used to prepare conceptual and budgetary estimates for customers, check subcontractor pricing, and check in-house estimates.
- Square foot costs are developed by determining the cost per square foot or other appropriate unit of measure.
The Cost Information Cycle
Well-managed construction companies keep a historical record of construction costs and leverage this information when submitting bids. To use historical data, construction managers must understand how the cost information flows through the company. The information cycle should look like this:
- Detailed construction estimates are used to prepare construction bids and establish the budgets for construction projects.
- As the construction work progresses, the actual construction costs are tracked against the budgets. A proper accounting system will not only track the construction cost for in-house work but also the number of labor hours and the amount of work performed during those hours. The labor hours and units of work are used to determine labor productivity.
- Historical labor productivity and cost data are used to prepare construction cost estimates for building construction, which become the budget for the next project. And so, the cycle endlessly repeats.
For historical information to be useful, your project management team must validate the data to ensure that all costs have been accurately captured. Otherwise, your cost estimates will be based on inaccurate costs.
Construction Cost Databases
General contractors should develop and maintain square-foot and unit cost databases.
Databases for Square Foot Estimates
Square foot estimates are based on a unit of measure that can be determined early in the design process. The most common unit of measure is square feet (hence the name), although other units may be used. For example, the number of apartments may be used for an apartment building. The square foot costs vary based on the building type, size, and type of structure. These costs are commonly adjusted for building perimeter and story height as these will affect the costs.
Square foot estimates perform two critical functions for general contractors:
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First, they are used to prepare conceptual and budgetary estimates for customers. Suppose a customer is considering constructing an office building. In this case, they would want to assess its financial feasibility before investing time and money into its design. Well-trained estimators can use square foot estimating to quickly prepare a rough estimate (+/-20%) for the project so that the customer can decide whether to proceed with the project’s design.
Square foot estimates must be used with caution. These costs can only be used on similar buildings with similar construction and size. If the proposed project varies substantially from the projects used to develop the cost data, they can produce inaccurate estimates, which can strain the GC-customer relationship.
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Second, GCs can use them to check subcontractor pricing and detailed estimates for in-house work. By determining the square foot cost for a building system or a cost code, GCs can quickly spot out-of-whack pricing and check it carefully for errors. Good construction managers use square foot cost to check their estimates on every project.
Databases for Unit Cost Estimates
Unit cost estimates are used to prepare detailed estimates for in-house work, including construction materials, labor, and equipment costs. They account for all the materials needed to construct a project, including the installation labor and required equipment.
Commercial Databases
There are commercially available databases that provide construction cost data. A couple of the most popular ones are:
- RSMeans cost books contain construction cost data for the United States and Canada. The cost data is organized by the CSI MasterFormat® and is published annually.
- Gordian RSMeans data online is a digital version of the RSMeans cost books.
- BNi General Construction Costbooks
Commercially available cost data is not as accurate as in-house cost information, as it doesn't consider several cost factors, like how your company approaches construction, the skill level of your workforce, and local market conditions. However, it can be used to check subcontractor pricing and estimates for in-house labor and when historical data is unavailable.
Developing Square Foot Costs
The first step in developing costs for a square foot database is to choose an appropriate unit of measure for the building type or system. For it to be usable, the unit must be available during the early stages of the project’s design. For example, on an apartment project, the unit for the framing may be the building’s square footage, whereas the unit for the heating may be the number of apartments.
The next step is to determine the historical cost. The bids (for subs) or historical costs (for in-house crews) are divided by the unit of measure. In the apartment example, the company's in-house framing costs would be divided by the building’s square footage, and the heating bid would be divided by the number of apartments.
Estimators need to carefully document the type of construction and other factors that affect the costs so that they know what the costs represent. When using these costs to prepare estimates for clients, they need to communicate to the client what the costs represent so that they can manage their client’s expectations.
Additionally, estimators can develop a square-foot estimating template for a specific building type to be used as an estimating tool to prepare conceptual estimates quickly. This works well for GCs that specialize in a particular type of work.
Developing Unit Price Costs
Historical unit price costs are used to develop detailed cost estimates and construction budgets. They can be used in different estimating formats, from building a simple estimating spreadsheet in Excel to customizing the line items in a construction cost estimating database in an estimating software.
They are more difficult to determine because GCs will need to determine the productivity (units of work per labor hour) for different tasks performed by a crew. For example, the number of cubic yards of concrete a crew can form and pour per labor hour will be different for a sidewalk than for a building slab. This requires GCs to track the time it takes to complete the various building components.
Final Thoughts
The development of a cost database can be overwhelming. We recommend that you start small and build a few cost items at a time, and soon, you will have a comprehensive database of building costs. The time invested in developing a cost database will pay for itself through more accurate estimates, which reduces your chances of losing money on a job and increases your chances of winning more work. Most importantly, you will have increased confidence in your company’s estimates.