Cost Estimating Woes 1

[lamojai]

Has anyone had the experience of giving a cost estimate to their supervisor and then supervisor reduces the amount of the estimate? Then the bids for the work come in and they are over the estimated cost of construction. Anyone else had that experience?

 

[cvg]

unfortunately it happens all the time. Main thing to remember is - you do not want to be the low bidder. It is always better to estimate conservatively so that budgets are sufficient and if the bids come in lower than your estimate, than you look like a hero.

 

[bimr]

Sure it happens.

Probably happens more frequently at the smaller firms where there is little or no access to estimating references and resources as well as no trained estimating professionals.

Protect yourself by keeping a paper trail. Make the scope in your estimates more descriptive and detailed. Obtain quotes on items.

It is not likely that someone would be willing to lower the estimate when there are indisputable facts staring him in the face.

 

[GoldDredger]

Never had that experience. Most engineers I know will be conservative on that. I think if you come in lower than what it will actually cost, it really puts the developer in a bind because they are getting financing based on that amount. Did you guys add the contingency as well (btwn 10% and 25%)

Remember though, it is 'An Engineers Opinion of Probable Cost', not a cost estimate. (I suppose there is some legal interpretion between the two which is lost on me) I think what is more important is making sure you quantities are correct (Ie cut/fill, asphalt/concrete, sewer pipe, water, FH, etc)

Here is a hypothetical situation that someone told me once. Suppose you screw up your quantity estimate and did not count 1,000 feet of storm pipe. A savy contractor in business for 30 years sees your mistake but keeps his mouth shut.

On his bid, he lowballs everything except storm pipe, which he hyper-inflates. Overall his bid comes in low (gets the contract), but his unit cost for storm sewer is $500 per linear foot.

Then when the inevitable change order comes, he can point to his agreed upon bid amounts and make a killing....or so the story goes...wonder if that could happen.

 

[BADMANWINS]

Breaking out material costs and labor costs is a good way to show your supervisor that the cost of construction has gone up since his job in 1989. Using the ENR indexs and past bids is also a good way. To identify up front whether a savy contractor picked up on a take-off mistake, conduct a side-by-side comparison of your Engineer's Opinion of Probable Construction Costs and all contractor bids (or at least low three) and review significant outliers before award.

 

[cvg]

if you are using previous bid tabs, it is critical that you adjust those to the current date and the ENR index is one good way to do that. Also, you should attempt to get recent and local bids. For instance, if all the contractors in the area are busy, the bids will be very high as they will not have time to do the work. If there is a slowdown, like right now, contractors may be out of work, hungry and desperate to get work. Competition is stiff and they may lowball the bid just to get it.

 

[graybeach]

Supervisors sometimes do stuff like this because they fail to appreciate all the intricacies of the work that was done. I try to always listen carefully when supervising others, but I have ended up with egg on my face at times. Next time this happens to you, make your case a few separate times ("Are you sure you want me to lower the estimate? I have several sources suggesting otherwise..."). Give your supervisor plenty of chances to hear what you are saying. Save an email, but don't make a big deal and say, "I told you so," unless you are pushed. A good supervisor will acknowledge that he was wrong. Just resolve yourself to help deal with the aftermath.

 

[GrumpyG]

Many times I have dreaded being the low bid because of the agressiveness of my unit manager. However, the unit manager always fostered a real team attitude. We all helped each other when things didn't work. Typically, there never was a big difference in pricing, and the unit head always insisted that operations needed to perform the work at that market value. No finger pointing was tolerated.
Ultimately, the agressive use of risky subcontractors who later defaulted proved to be our biggest problem.

The unit head/supervisor also understands his cash flow, revenue and overhead needs. The supervisor may be more or less aggressive depending on those needs.

I always figure things worst case or include easy items to cut out. The supervisor then has easy targets to reduce costs. They are satisfied they did their job, and the guts of the estimate remain.

 

[stanier]

Many a supervisor will reduce a budget by 5-10% and give it to the project manager to try and achieve. The PM does this by cutting corners and screwing subcontractors.

It is a crude management tool that the less sophisticated and even some large comapnies use to drive their people harder.

If a company takes risks and low bids to get work and then screws suppliers they will eventually go bust. What happens is suppliers and subbies quote high to the company at bid stage expecting to get screwed down to the price they need. Eventually the company stops winning work and goes belly up.

Some old adages in this business:-
1) Do not contract risk.
2)Any fool can get work with a low bid.
3)If a price is too low then do not expect what you have asked for.