Construction estimates are the lifeblood of any construction company. Put simply, they’re how general contractors win the jobs they need to succeed. At best, bad estimates mean unprofitable jobs, and at worst, losing jobs altogether. When done well though, estimates allow contractors to win more work, control job costs, and bring home a bigger net profit.
If you want your business to thrive, you need to master estimating. To help give you a leg up, we’ve compiled this resource on the types of estimates you may need on projects.
Key Takeaways
- Several types of construction cost estimates may be used during a project’s design and construction.
- Early estimates are used to prepare construction cost estimates and keep the project on budget during the early design stages. Project comparison, square foot, and assembly estimates may be used to prepare these early estimates.
- Detailed estimates are used to prepare accurate construction cost estimates for the project's materials, labor, equipment, subcontractors, and project overhead costs. Ultimately, they’re used to establish the price for the construction contract.
Why Are Construction Estimates Needed?
Construction is an expensive industry. Unless you’re a billionaire, you can’t write a blank check for a project - you need to know how much cost to anticipate, so you can get the right loans, etc. Successful project cost estimating helps stakeholders understand these costs, so they can control construction costs and avoid overruns.
On the GC side, construction estimates help contractors prepare bids and change orders for their clients. If you find yourself working on design-build and construction manager-general contractor (CM/GC) projects, you’ll help prepare estimates as a project is planned. These will help ensure the design created can stay within the owner’s budget.
Professional estimators use different cost estimation methods to project budgets at various project planning and construction stages. Of course, as a job progresses, the accuracy of these estimates increases. The best construction managers establish an estimating process that matches these different types of estimates to the stage of the building’s design.
Below are the most common types of construction estimates you may need to use on a project.
Early Estimates
Preliminary cost estimates, order of magnitude estimates, and conceptual estimates are used to prepare a rough estimate of a project’s building costs in the early stages of design. A building’s design can be divided into four phases:
- Programming
- Schematic design
- Design development
- Construction documentation
Estimates may be prepared at each design phase, at specific design points (such as 50% complete), or updated continually throughout the design.
During programming, the stage where a project’s performance requirements are established, an order of magnitude estimate is needed to assess the project’s feasibility. This estimate is often based on written building descriptions and may include some sketches. This estimate helps the owner determine whether or not the project is financially viable, and whether they should invest money in its design.
During schematic design, the building’s concept begins to take shape. At this point, a budget estimate is needed to verify that the proposed design aligns with the owner’s budget. This estimate is often based on basic plans and elevations that show the space allocation, the spatial relationship among the spaces, the circulation routes, and the site layout.
Next, during design development, the building’s design is refined; details are added to the floor plans, elevations, and building sections, and the structural, mechanical, electrical, and plumbing (MEP) systems are integrated into the building. Here, an estimate is needed to make sure that the anticipated project costs for the design still align with the owner’s budget. Oftentimes, cost estimates are prepared as well to compare design options, (steel versus concrete frames, etc.).
As more design information becomes available, these early estimates are revised or replaced with detailed estimates, which we’ll explain in more detail later.
Several different types of estimates may be used to prepare early estimates. The most common include project comparison, square foot, and assembly estimates.
Project Comparison Estimates
Project comparison estimates are one of the easiest to prepare and require the least information. To make them, you simply need to consult historical costs from a similar project. You’ll add or deduct money from the historical costs for any difference between the projects. Common adjustments might include:
- Differences in the design
- Project location
- Inflation
- Changes in labor agreements
- Changes in the construction market
For a project comparison estimate to be accurate, the GC must have built a similar project. The ideal situation for a project comparison estimate is when an owner wants to build another project using the same plans. Because no two sites are the same, project comparison estimates are often more accurate for estimating building costs than site costs.
An estimator may use the project comparison estimate for the buildings and another method for the site. For this reason, we recommend the construction costs for the building and the site be budgeted and tracked separately in your accounting system. For example, building concrete and site concrete will need separate cost codes.
Square Foot Estimates
Square foot estimates require a bit more work and information than project comparison estimates. These are prepared by determining the historical cost per square foot for similar projects and multiplying that cost by the proposed building’s plinth area (the total square footage, including the walls). These estimates are also adjusted for differences in the design, location, inflation, changes in the labor and construction markets, and any other factor affecting the project’s cost.
The historical cost data should come from buildings with a similar use, size, and structural design. To get the most accurate estimate, the size of the buildings used to calculate the historical cost should be within 10% of the proposed building, as the cost per square foot typically decreases as the building size increases.
If you need help with square foot estimating, you can find published cost data available. For example, Gordian® RSMeans Square Foot Cost Books contain data for several building types and sizes and include adjustments for the building’s perimeter and story height.
Assembly Estimates
Moving up the chain, assembly estimates are more complex than both project comparison and square foot estimates. To prepare an assembly estimate, the estimator will divide the building into assemblies. An assembly is a group of components that perform a specific function. For example, an interior wall that separates the building’s spaces and creates its rooms is an assembly.
Assemblies may consist of framing, sound insulation, drywall, and finish materials (such as paint and rubber base). Estimators price each assembly using historical data, and the estimated costs of the assemblies are added together to determine the building’s estimated costs.
Assembly estimates require enough information about the project to determine the components for each assembly. For example, you’ll need to know if the interior walls include sound insulation. And while they’re more difficult to put together, this level of information allows assembly estimates to be more accurate than square foot and project comparison estimates.
Pricing for assemblies may be developed in-house using spreadsheets such as Excel. Estimating software often includes an assembly estimating function, allowing estimators to prepare assembly estimates quickly. Gordian® RSMeans Square Foot Cost Books also contains data for many building assemblies in addition to square foot pricing.
A Heads Up on Early Estimates
Because of the limited design information, estimators will need to make a lot of assumptions about the project’s design and the quality of the finishes when preparing early estimates. When providing these estimates to stakeholders, make a point to clearly communicate and explain the assumptions behind them so the GC and the clients have a mutual understanding of what is included in the estimates. If you don’t establish clear expectations around what’s included in the estimate, it can strain relationships and lead to unhappy project owners.
Detailed Estimates
Detailed estimates (also known as definitive estimates or unit price estimates) are used to determine an accurate cost estimate for a construction project's material, labor, equipment, subcontractor, and project overhead costs. For design-bid-build projects, detailed estimates are used to prepare the bid estimate and establish the contract price and budget. This estimate is based on the completed construction documents.
On construction manager/general contractor (CM/GC) and progressive design-build projects, the GC is hired during the design phase without establishing a price for the construction contract. The owner and the GC have to agree on the construction contract price once the design phase is complete enough that both parties are comfortable setting a price. During this process, the contractor prepares a detailed estimate and proposes a price to the owner. The owners hire an independent cost estimator (ICE) to prepare a detailed estimate to check the GC’s price. A contract price is then negotiated between the GC and the owner.
During construction, detailed construction cost estimates are used to:
- Prepare pricing for change order
- Forecast estimate cost to complete
- Forecast final costs and profit
Projecting the estimated cost to complete is part of sound cost control procedures and control estimates. The estimated cost to complete is also required to prepare financial statements and taxes for GCs using the percentage of completion accounting method.
Detailed estimates require project management to use an estimation method that produces an accurate estimate of the total project costs. The best estimating technique for this is a bottom-up estimate that contains a detailed list of all the items needed to complete the project. A unit cost is applied to each of these line items to determine its costs. Costs are grouped by cost codes, and the line items are added together to get an estimated cost for each cost code. The cost codes are then added together to obtain an estimated cost for the project.
Here’s how materials, labor, equipment, subcontractor, and project overhead costs are estimated:
Material Costs
Material costs are determined by preparing a quantity takeoff (QTO) of all materials required for a project. During the QTO, the estimator analyzes the construction drawings and quantifies the needed materials, grouping them by supplier type.
The material lists from the QTO are then sent to suppliers for pricing. The material cost is determined by multiplying the material quantities by the unit prices from the selected suppliers. The material costs are totaled by cost code and incorporated into the estimate. These material lists are also used during procurement to order the materials.
Labor Costs
Labor costs for in-house crews are determined by estimating the hours required to install the materials identified during the QTO. The labor hours are based on the crew’s estimated productivity. Productivity is the quantity of materials the crew can install in one labor hour, one clock hour, or one day.
Your best source for productivity rates is historical data from past projects. When using historical data, the data must be from similar projects to the one being estimated; otherwise, the labor hours could be too high or too low.
The labor costs are determined by multiplying the labor hours by the crew’s average hourly burdened wage rate. The burdened wage rate includes labor burden and fringe benefits and represents the total cost of the employees. Labor burden includes Social Security, Medicare, unemployment taxes, and workers’ compensation and liability insurance. Fringes include employee benefits, such as insurance, retirement, and paid time off.
The wages, labor burden, and fringe benefits must comply with federal and state laws, such as the Davis-Bacon Act and the Fair Labor Standards Act. We recommend working with your payroll accountant to identify all the labor costs.
Equipment Costs
Equipment costs are determined by estimating the number of hours the equipment will be needed on the project and multiplying it by an hourly rate that covers the cost to own and operate the equipment.
The equipment’s hourly costs should be based on the estimated annual costs divided by the estimated number of hours the equipment will be used during the year. The actual costs from the past months should be considered when estimating the annual costs for the equipment.
Subcontractor Costs
To determine subcontractor costs, you’ll need to send prequalified subcontractors a request for a quote. The best subcontractor bids for each cost code are included in the estimate. When the bids contain different scopes of work, they must be leveled. Bid leveling involves adding or subtracting from bids to make their scopes of work the same.
Because subs often perform most of the work on a construction project, the GC will need to maintain a good working relationship with a large pool of prequalified subcontractors.
👉 Learn more about building good relationships with your subs.
Project Overhead
A detailed estimate of the project overhead costs is prepared by quantifying the materials, labor, and equipment needed to support the project's construction. Project overhead can include:
- The project management team
- Testing
- Inspections
- Temporary facilities (office, storage, parking, etc.)
- Traffic control
- Weather protection
- Erosion control
- SWPPP
- General equipment
- Cleanup and trash disposal
- And much more
Bid Estimates
The total costs for a project are calculated by adding together the material, labor, equipment, subcontractor, and project overhead costs. You’ll then add any markups (bonds, insurance, and profit) to these costs to get the bid for the project.
Wrapping Up
At the end of the day, accurate estimates help you not only win more work, but price jobs in a way that protects your profit. Taking the time to hone your estimating skills is one of the best investments you can make as a construction professional.