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CHAPTER 5 How Does the Construction Industry Estimate Soft Costs? Sponsors of major new transit projects approach estimating soft costs differently, depending on how far along the project is in the planning process. Early Phases During the early phases of planning (alternatives analysis or preliminary engineering), a transit project is only conceptually defined, as are the soft costs. At these early stages, transportation planners usually identify a single corridor for construction but develop a range of options for more specific details such as mode, alignment, station locations, and, as a result, construction costs. Therefore, soft costs are usually treated as percentage add-ons to estimates of hard construction costs, as shown in Exhibit 6. Cost estimators apply default unit costs to approximate construction quantities, remediation, and other hard costs, and then simply add a percentage of hard costs for an initial soft cost estimate. How do cost estimators choose these percentages? They typically apply values for each soft cost component from a range based on historical experience and project characteristics, or soft cost "drivers." For example, most estimators will choose higher multipliers for heavy rail than for bus rapid transit and lower multipliers if the sponsor plans to contract the project with an alternative delivery mechanism such as designbuild. Exhibit 7 provides a more complete list, and Chapter 6 demonstrates a technique to tailor a soft cost estimate to a project. How large are the soft cost percentages? Based on a survey of cost estimators at transit agen- cies and consultants across the country, most cost estimators start with a midpoint for these add-ons representing around 2535% of construction costs, as Exhibit 8 indicates. However, cost estimators almost always adjust up or down from these midpoints, so the ranges from which estimators choose the percentages extend higher or lower than these midpoints. Later Phases During the final design phase and as construction begins, estimates of soft costs based on a percentage of construction cost are replaced with more closely tailored, bottom-up estimates that are based on a more detailed understanding of the project than was available in earlier stages. Rather than simply multiplying a construction cost estimate by a percentage, project managers usually develop their own soft cost estimates based on project characteristics that are known with better certainty at this stage, such as the project's work breakdown structure, staffing plans, design contract(s), and even the number and complexity of design drawings. For instance, administra- tion costs may be estimated based on an estimated headcount and project duration, which are in turn based on the construction schedule and number of contracts. 16
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How Does the Construction Industry Estimate Soft Costs? 17 Construction Cost Guideway $ Stations $ Maintenance Yard $ Etc. $ TOTAL $ Soft Costs x Percentage = $ Vehicle Cost Vehicles $ Vehicle Soft Costs $ TOTAL $ Real Estate Cost Acquisitions $ RE Soft Costs $ TOTAL $ TOTAL PROJECT COST $ Exhibit 6. Cost estimation in early project phases. Since the project's specific characteristics are more well-defined in these later stages, sponsors also have a better idea of soft costs that are highly dependent on the specific project sponsor, such as: · Whether a third party will be managing construction; · How the sponsor will account for agency staff salaries and wages; · Who will bear insurance costs (sponsor agency or contractors); and · If the project will require significant effort for environmental work, permits, or public involvement. LOWER % MIXED/MID-RANGE HIGHER % SOFT COSTS % SOFT COSTS SOFT COSTS MODE Bus Rapid Transit Commuter Rail Heavy Rail Light Rail PROJECT DELIVERY DesignBuild DesignBidBuild DesignBuildOperateMaintain Full Turnkey ALIGNMENT Elevated Alignment Tunnel Alignment OTHER CONDITIONS New Right-of-Way Differing Subsurface Conditions Exhibit 7. Project characteristics guiding soft cost percentage estimates within a range.