As a House Project proceeds, from the Design Intent Drawing Package thru the Construction Drawing Package, two distinctly different cost estimating processes can be employed. In the DID Phase, a Conceptual Estimate is provided. In the Construction Drawing Package, a more defined Statement of Probable Construction Costs is available. A quick review of each form of Estimate is provided.
Conceptual Cost Estimate
A Conceptual Estimate is utilized early in the design process when there is limited information available. Generated upon the completion of the Design Intent Drawing Package, the goal of the Conceptual Estimate is to establish an “Order-of-Magnitude” for the project. That is to say, a “broad view,” where construction details and methods are not considered, or included, in the Estimate.
In generating the Conceptual Estimate, the three (3) primary factors that are considered include:
- Past projects of similar size and scope.
- Current construction costs.
- Geographic location of the project.
In the Conceptual Estimate, the Construction Specifications Institute (CSI) Uniform Numbering System (Master Format) is employed. In the Conceptual Estimate, Divisions 1 thru 16, are line itemed with a square footage and a cost per square foot. The result is a total estimated cost for each Division, which in turn, are added together to provide a total Conceptual Cost Estimate.
If a small house, say 1000 square feet, costs $150,000 to build in a specific geographic area, it is reasonable to assume that a similar house, in size and scope, will have similar construction costs. Should the small house be located in a different geographic area, then the Cost Estimate would need to be adjusted to reflect the cost differences.
The contingency for a Conceptual Cost Estimate may be as high as 20%.
Statement of Probable Construction Costs (SPCC)
The Statement of Probable Construction Costs is utilized during the development of the Construction Drawing Package. The Statement is modified as the project proceeds into the construction phase. The goal of the Statement of Probable Construction Cost is to provide a line itemed estimate, based upon the Conceptual Estimate, that is adjusted as cost information is received.
The Statement of Probable Construction Costs is based upon three (3) primary methods:
- Identification of subcontractors, installers and vendors.
- Identification of costs through a bidding and negotiation process.
- Definition of Allowances for unknown or undecided scope of work.
Similar to the Conceptual Estimate, the CSI Uniform Numbering System (Master Format) is employed. However, in the Statement, each Division 1 thru 16 is further broken down into Subsections. For example, the Division 3 – Concrete is subdivided into two subsections. The first for Concrete Footings and Foundations, and the second for Concrete Slabs. In addition, the Concrete Slabs can be subdivided into Interior and Exterior Slabs.
The Statement is based on simple mathematics is to generate total costs. In the Statement, the first column defines the Type of Unit. The Units utilized include EACH, LINEAR FOOT, SQUARE FOOT, ALLOWANCE, and BID. The Unit is then quantified and valued. The end result is a SUBTOTAL for each subdivision line item. The subdivision line items are added together resulting in the TOTALS. For Reference Purposes, an added column reflects the name of the provider ie; Contractor, Bidder, or Owner.
The Statement of Probable Construction Costs is designed as a “dynamic working tool”. Utilizing an Excel Spread Sheet, changes in the allowances and bids can be inserted into the Statement, and their impact immediately identified.
Generally, the Contingency Factor is around 5% and is refined as bids are received, and Allowances allocated.
The Contingency Factor
The Contingency Factor is the percentage of the construction costs based upon the number of unknown factors, that may or may not occur. Because many cost factors are not clearly defined, the Contingency allows for broad cost coverage, until such cost factors can be defined. The Contingency Factor does not include increases in the Scope of Work or any Owner directive changes. In addition, it is not utilized as a “cushion” for the addition of any future costs that may or may not occur.
The Conceptual Estimate requires a higher Contingency based upon the limited information available. In contrast, The Statement of Probable Construction Costs employs a lower Contingency because more defined information is available. In both instances, the Contingency factor is factored into the subtotal amount, thus contributing towards the total cost.
Importance of the statement of probable construction costs (SPCC)
As the SPCC begins to be developed, the Owner is allowed to make informative decision making through three (3) processes.
- The Owner can adjust the Scope of Work:By rethinking finishes, or reducing costs, alternatives are quickly generated so as to reduce, maintain, or even expand on the Scope of Work.
- The Owner can decide to involve Sweat Equity into the Project: While Bid Costs will include both Labor and Materials, the Owner may decide to self-perform on the installation of finishes, siding, or other trades.
- The Owner can adjust the time frame, and phasing, of the Project: By having certain trades work in the summer months, and other trades working in the winter months, the phasing of the project can be extended or compressed.