Institute of Distance Learning

BT 358 Construction Estimating and Price

Analysis

Lecture 1
Course Content

The Estimating and Bidding process

All-in rates determination and materials adjustments
Unit rate computation for construction items
Price analysis
Price and contract strategies
Main Objectives of Course

By the end of this course, you should be able to:

Understand the step-by-step procedure adopted in practice to
establish cost estimates at the tendering stage of construction
projects
Acquire the data and methodology required for detailed cost
estimation of construction work items
Appreciate the design and development of reports such as
adjudication and tender evaluation reports
Appreciate pricing strategies used by contractors to achieve
financial objectives
THE UNITS IN THIS COURSE

Unit 1: The Cost Estimating Process

Unit 2: Principles for Computation of Estimates
Unit 3: Tender Submission and Action after
Submission of Tender
Unit 4: Building up Estimates
Unit 5: Estimating for Preliminaries
Unit 6: Price Analysis
 
REQUIRED READINGS

Harris F and McCaffer R. MODERN CONSTRUCTION

MANAGEMENT 4TH EDITION Professional Book Chapter 9
Hackett M, Robinson I & Statham G, (2007) AQUA GROUP
GUIDE TO PROCUREMENT, TENDERING & CONTRACT
ADMINISTRATION Chapters 3,4,8-15
Amoah Mensah, K., (1995), MANUAL FOR ESTIMATING
Ashworth, A. & Hogg, K., (2007) WILLIS PRACTICE AND
PROCEDURE FOR THE QUANTITY SURVEYOR, Blackwell
Publishing, Oxford
UNIT 1
THE CONSTRUCTION ESTIMATING PROCESS
Unit Objectives
By the end of this unit, you should be able to:
Outline the sequence of activities which make up the
Estimating and Tendering Process for construction projects;
Explain what happens at each stage of the estimating and
tendering process;
Explain what strategies contractors use during estimating to
improve cashflow.
 
Introduction to Tendering and Estimating

Tendering and estimating phase: Interface between design and

construction phase of a traditionally procured contract.
Tender Preparation is the total processes undertaken by a
contractor to estimate the net prime costs of the works involved
in a project
The function of estimating is to establish the net prime cost of
completing the works indicated in the contract documents
Once the total estimate for a project has been obtained, it can
be converted to a tender figure by adding a charge for head
office overheads, profits and allowances for contractor’s
overheads.
Stages in the Estimating and Tendering Process

1. Development of tender list and invitation to tender;

2. The contractor’s decision to tender;
3. Project appreciation;
4. Enquiries and quotations;
5. Planning and temporary works;
6. “All-in” Rates and Unit Rate Pricing;
7. PC and provisional sums;
8. Project overheads;
9. Completion, adjudication and submission of tender;
10. Action after submitting tender.
Stage 1: The Invitation to Tender

Tender List and Invitation to Tender

The contractor will be expected to formally respond to the
client’s invitation to tender.
If the contractor’s response is positive, it will indicate to the
client and his consultants whether the contractor has the
necessary expertise, experience, management, resources
(including financial) and knowledge of the location to
adequately construct their works in the time required.
Once a contractor has indicated his intention to submit a
tender, it will only be under very exceptional conditions that
such a contractor should decide not to submit a final tender.
Stage 2: Decision to Tender

When a contractor makes it onto a

client’s tender list and is invited to
tender, the contractor now needs to
make a decision whether or not to
formally put in a bid for the project.
Decision to Tender – Factors considered

The conditions of contract for the project;

The contractor’s workload or timetable;
The type of work and resources needed for the project;
The tender information provided;
Commercial factors;
Credit standing of the client;
Source of funding for project;
Knowledge of Client;
Timescale for offer;
Knowledge of competitors also interested in the project;
Importance of the project to the client and the contractor;
Knowledge of local conditions – availability of labour, plant and materials;
Risks involved – cash flow, future business, etc.;
Terms of payment for the project;
The contractor’s overheads, mark up and profit; and
The method of evaluation and award to be used for the project.
The Estimating Team

This is the team put together by the contractor to

handle the tendering and estimating process once the
decision to tender has been made.  
In general, some of the members who make up the
contractor’s estimating team are: estimator, planner,
buying officer, engineer, plant manager, quantity
surveyor, insurance officer and operations manager.
What happens when the tender documents are received?

Estimating department must complete a Tender

Information Form.
Acknowledgement or receipt of the enquiry must be
sent to the client or his consultant.
Where an approximate cost of the project is provided,
this must be reconciled against any advice given at the
time of pre-selection.
If no approximate cost is given, an early assessment
must be made by the estimator to determine the
approximate cost of the project and the scope of works.
Inspection of tender documents

Made by the estimator mainly responsible for the

production of the cost estimate.
The estimator must then make a checklist of all the
documents received.
In larger construction companies, these documents
may be inspected by the chief estimator as well as
other members of the contractor’s organisation.
- The estimator will have overall responsibility for
the co-ordination of the views of the other parties
who examine the documents.
Objectives when inspecting tender documents

To confirm….
Whether the documents received are those specified
in the enquiry;
That the documents and information are adequate for
assessing costs; and
That sufficient time is available for the production of a
tender.
Information required for the preparation of an estimate

Drawings;
Specifications (including performance specifications
where possible);
Schedules;
Technical reports;
Programme of work periods for major nominated
subcontractors; and
Bills of quantity.
Stage 3: Project Appreciation

Having decided to tender for the project, the next

stage is for the contractor is to gain an in-depth
understanding of the project’s requirements and to
devise a strategy for the timely completion of the
complex, interrelated activities involved in the project.
Project Appreciation
Management of estimates
All projects in an estimating department must be entered
in a tender register.
Co-ordination meetings may be needed with
management and other departments within the
contractor’s organization to establish key dates, decide on
actions necessary and monitor progress during the
production of the cost estimate.
The chief estimator will prepare a bar chart each week to
plan the estimator’s work-load showing both present and
possible future tenders.
Project Appreciation
Checking the tender documents
After the contractor has decided to tender for a
project, the estimator must ensure that all the tender
documents have been received.
A letter is sent to client or consultant to acknowledge
receipt of documents and confirm that a tender will be
produced by the due date.
This letter sent to the client should also record any
discrepancies in the documents received.
Timetable for the production of the
estimate and tender
A timetable must be established which highlights the
key dates in the production of the estimate and tender.
This is the responsibility of the estimator. When
prepared, the estimating timetable will be an essential
document for all those associated with the tendering
function.
Examination of the tender

The conditions of contract, bills of quantity, general

arrangement drawings, specifications and any
supporting documents, such as soil reports, site
industrial relations policy, or specialist information
must be examined in detail by the estimator or other
personnel in the contractor’s organization
Any discrepancies in the tender documents must be
noted by the estimator for future reference to the
appropriate consultant for clarification.
Conditions of contract and appendix

At this stage the estimator must consider in more depth

the consequences of such conditions and note his
recommendations for dealing with the situation on the
‘Estimator’s summary’.
Any further particulars received during the tender period
concerning the conditions of contract and appendix
details, must be noted and entered in the ‘Estimator’s
Summary’.
The estimator must ensure that appropriate action is
taken regarding any cost implications of revised or
additional information received.
Conditions of contract and appendix

Examine to confirm that……

All forms of contract used are standard forms of contract;
Conditions of standard forms are amended;
Non-standard payments or retention provisions are included and the
effects that such alterations may cause regarding the contractor’s liability
for payments to sub-contractors;
Bid bonds, performance bonds or parent company guarantee are required;
Insurance requirements are met by the contractor’s standard policies, or
can be obtained within the current insurance market at reasonable rates;
Nomination procedures will be followed without amendment;
Liquidated damage requirements are acceptable
Amendments to other project information have been reflected in the
conditions of contract.
Specifications, bills of quantity and drawings

The estimator must have a thorough understanding of the

specification
A schedule must be prepared for use in obtaining
quotations for various materials and elements to be sub-
contracted.
The estimator must first of all group together relevant
items from the specifications and bills of quantity into
respective trades and if necessary, individual suppliers.
The attention of the consultants must be drawn to any
problems, particularly when an estimator is concerned that
poor specifications could make his tender less competitive.
Specifications, BOQs and drawings

Estimator should look for factors which will influence pricing

such as:
Standard and completeness of the drawn information;
Tolerances required;
Clarity of the specifications requirements and the quality required;
Buildability;
Whether load bearing and non load bearing areas can be identified;
Extent of use of standard details indicating construction experience;
Evidence of design coordination of services and structural needs;
The amount of information concerning ground conditions
Problem areas and restraints on construction in the design.
Outstanding information

The estimator should put together queries arising

from the inspection of documents
Queries raised will be resolved through meetings and
discussions between the estimator and his team and
the consultants on the site visit.
All queries raised with consultants should be in
writing stressing urgency of needed information
Any significant decisions communicated to one
contractor by the consultant, must be communicated
to all tendering contractors.
The need to visit the site

The visit to the site must be made once the preliminary

assessment of the project has been carried out and a
provisional method and sequence of construction
established.
As well as visiting the site itself, the opportunity must be
used to examine the general locality and to establish the
extent of construction-related activity in the area.
Visits should also be made to local labour agencies and
suppliers in the area.
After visiting the site, a comprehensive report of the site
visit must be prepared.
Visits to consultants

In practice, visits will normally be made to the architect, but

it helps to visit the consulting engineer, services engineer
and quantity surveyor, in order to meet the personalities
who will subsequently be involved in the project.
Detailed drawings, reports of site investigations and any
other available information must be inspected and notes
and sketches made of all matters affecting either
construction method temporary works or the likely cost of
work.
 A critical assessment must be made of the degree of
advancement and quality of the design.
Stage 4: Enquiries and Quotations

After tender checking and the project appreciation

stages, the next phase is to make all the necessary
enquiries needed to sub-contractors and suppliers,
obtain quotes and then to start to plan the work.
A contractor’s success in obtaining a contract depends
upon its success in obtaining good quality quotations
for materials, plant and items to be sub-contracted.
These elements typically account for over 70% of the
value of direct works, so obtaining accurate and
complete quotes is very important.
Enquiry Documents

Enquiry abstract forms should be produced which

enable the estimator or buyer to list the materials and
trade packages which need quotations.
The contractor must ensure that comprehensive
records of the various elements of project information
sent to suppliers and sub-contractors are maintained.
The use of the standardized documentation and
procedures assists at this stage in the methodical
preparation of the estimate, and allows an interchange
of personnel at any stage.
Lists and Pre-selection

Contractors must maintain comprehensive records of

suppliers, and sub-contractors.
These records must include:
i. Details of past performance on site;
ii. Previous performance in returning complete
quotations on time;
iii. Extent of geographical operation;
iv. Size and type of contract on which previously used;
v. Information concerning contacts; and
vi. Address, telephone and facsimile numbers.
Lists and Pre-selection

A questionnaire may be used to establish the resources and

abilities of subcontractors concerning:
i. Area of operations;
ii. Size and type of work;
iii. Labour and supervision available;
iv. Size and type of work previously carried out;
v. References from trade, consultant and banking sources;
vi. Insurances carried by the sub-contractor(if relevant); and
vii. Confirmation of holding of relevant sub-contractor’s tax
exception certificate (if relevant).
Programme and Method of Construction

The programme of construction is a schedule which

shows the activities required to be undertaken, the
required durations, their start and finish dates.
The method of construction is a description of how
the contractor proposes to carry out the required
activities.
Programme and Method of Construction

Suppliers and sub-contractors must be advised of the

programme requirements and any aspects of the
method of construction that are relevant.
Programming information must necessarily include:
The anticipated start date for the main contract;
The approximate start dates for sub-contractor, or
materials deliveries;
The required completion date(s);
Key information significance to progress of works; and
Phasing.
Plant requirements

The contractor’s plant requirements should be established

in the method statement and the programme.
The duration for which the plant is needed on site will be
established from the tender programme.
The estimator must firstly compile a ‘schedule of plant
requirements’, in which the type, performance
requirements and durations for the plant should be listed.
A note must be made of the schedule of any additional
requirements associated with a particular item of plant
which must be provided by the contractor. E.g. Power
supply for tower crane
Plant requirements

The options available for obtaining plant:

Purchasing plant for the contract;
Hiring existing company owned plant; and
Hiring from external sources.
Domestic Sub-contractors

Sub-contractors will require the same details and

information about the sub-contract works as the main
contractor requires for his tender.
Selection of sub-contractors will take into account
skill, performance, integrity, responsibility and proven
competence in health and safety matters and for work
of similar size and character to the project under
consideration as well as the sub-contractor’s interest in
tendering for the particular project.
Materials

In relation to materials, any responses from suppliers

should be recorded on the resource abstract sheet or in
a materials quotations register.
In some practices, rates are entered on a Materials
Comparison Form for use during the pricing stage.
Any discrepancies and divergence from the enquiry
must also be recorded on the register for later
evaluation, before selection of the quotation to be
used in pricing unit rates.
Plant

Rates for plant are entered on a Plant Comparison

Form for use during the pricing stage.
Any discrepancies and divergence from the enquiry
must be identified and also recorded on the register.
Where a performance specification was provide for the
plant, quotations must be carefully checked to ensure
that the plant offered meets the requirements defined
at the enquiry stage.
Stage 5: Planning and Temporary Works

Planning takes place once enquiries have been made

to sub-contractors and suppliers and quotes obtained.
The planning stage outlines how and when activities
proposed under the project will be undertaken.
Principal quantities

The first part of the planning stage is to extract the

principal quantities from the bill of quantity for the
main elements of work.
This involves the operations likely to form important
and critical items in a programme.
Principal quantities are usually provided in bills of
quantity for civil engineering work but rarely for
building.
Method statements

Written descriptions of how operations will be carried

out and managed during a project.
Should not only deal with the use of labour and plant
in terms of types, gang sizes and expected outputs, but
also include the way in which the project will be
organized.
In preparing the method statement, a contractor will
gain a competitive advantage by finding innovative
and the most cost effective systems for temporary
works and materials handling.
Method statements

Primary purposes:
To establish the principles on which the estimate is
based; and
To acquaint construction personnel with the resource
limits which have been considered in preparing the
estimate and to describe the method of working
envisaged at the tender stage.
The tender programme

This is the programme which shows a schedule of works

involved and when contractor proposes to undertake them.
Many standard forms of contract require contractor to
submit copy of programme at an early stage of the contract.
The contractor will not always be required to submit a
tender programme with his tender.
In some cases, the contractor may only be required to
confirm by signing form of tender that all works will be
executed in accordance with start and completion dates
stated in project information received from consultants
Temporary works

The temporary works element of a project is designed

by the contractor and as such is an important
opportunity to improve tender competitiveness
Includes access routes, restrictions, areas for storage
and accommodation, temporary service connections
and distribution, temporary spoil heaps, carnage,
batching plant, hoardings and scaffolding.
Mid-tender review

The estimator should report regularly to management

as part of the management of the tender process.
A mid-tender review meeting provides an opportunity
for the estimator to explain his approach and others to
give their ideas and expectations for large projects.