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22 Estimating Soft Costs for Major Public Transportation Fixed Guideway Projects
80.01 Preliminary Engineering
80.02 Final Design
80.03 Project Management for Design and Construction
80.04 Construction Administration and Management
80.05 Professional Liability and Other Non-Construction Insurance
80.06 Legal; Permits; Review Fees by Other Agencies, Cities, etc.
80.07 Surveys, Testing, Investigation, Inspection
80.08 Start Up
Exhibit 11. Mapping SCC 80 components to categories applied
in this Guidebook.
Therefore, while each of these indicators quantifies soft costs in some way, it is suggested that
the most appropriate measure for a soft cost estimate is as a percentage of hard construction costs
(excluding real estate and vehicle costs).1
Four-Step Process
The recommended estimation technique contains four steps:
1. Begin with default averages. As a starting point, begin with average actual historical soft costs
for each component.
2. Adjust based on mathematical relationships. Next, adjust the soft cost estimate following the
numerical relationship between the project's characteristics and historical soft costs.
3. Adjust based on categorical relationships. Next, increase or decrease the soft cost percent-
ages based on how the project fits into any of several unique situations.
4. Apply judgment. Finish the estimate by applying some degree of discretion based on knowl-
edge about the unique and intangible qualities of the project and its sponsor.
To simplify the analytical procedure, this technique consolidates the eight components in
FTA's Standard Cost Category 80 into five basic components for estimation purposes, as shown
in Exhibit 11. Once estimation of these components is completed, the five categories are converted
back into FTA's structure.
The five components broadly align with FTA's SCC structure, but they combine some categories
that are either a relatively small cost (e.g., Other) or are so similar to other categories that many
agencies lump them together for estimating purposes (e.g., Project Management for Design and
Construction, and Construction Administration and Management).
The following describes the four steps in more detail:
Step 1: Begin with Default Averages
Exhibit 12. Default As a first step in estimating soft costs, begin with the default soft cost percentages as defined
soft cost averages. in Exhibit 12. These values are based on average actual historical as-built costs. They are consis-
1
Because the FTA instructs project sponsors to classify professional services costs related to vehicles and real
estate into SCC 60 and 70, it is inappropriate to include real estate and vehicle costs as hard costs for the
purposes of this Guidebook.
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How to Estimate Soft Costs for a New Project 23
tent with average midpoint estimates currently used in the industry, and so provide a safe and
well-established starting point for estimation purposes.
It is important to continue past this step, however. These default averages only begin to estimate
a project's expected soft costs. The averages are a "naďve" starting point from which to quantify
soft costs, because they only describe a "typical" project sponsored by a "typical" agency in "typical"
conditions. Transit construction projects and their sponsors come in all shapes and sizes, and no
project is entirely "typical."
Step 2: Adjust Based on Mathematical Relationships
In this step, adjust the default percentages based on the project's characteristics that have been
shown mathematically.
Alignment Length
Transit capital projects with alignments (length of track or guideway) that stretch for longer
distances tend to incur somewhat higher soft costs as a percentage of construction cost. Recom-
mended adjustments to the default values are summarized in Exhibit 13. Add 1.3% to the total
soft costs percentage estimate for every 10,000 linear feet of guideway2 constructed, with 0.9%
added to PM/CA and 0.4% to Other. Be sure to perform this calculation proportionately if the
project would construct more or less than 10,000 linear feet of guideway. For example, for 5,000 Exhibit 13. Alignment
linear feet, add 0.45% to PM/CA and 0.2% to Other. length formula.
Construction Costs
Other things being equal, more expensive construction projects tend to display somewhat
smaller soft cost percentages than less costly projects, mostly because their construction adminis-
tration, project management, insurance, and other costs do not rise proportionally to construction
costs. Recommended adjustments to the default values are summarized in Exhibit 14. For every
$1 billion in construction cost estimate, subtract 6.0%: 4.5% from PM/CA, 1.0% from Insurance,
and 0.5% from Other.
It may seem counterintuitive to adjust up for alignment length and down for construction
cost, since both measures broadly describe the magnitude of the project. Historically, however,
these two measures in tandem are good predictors of soft costs and will capture the special Exhibit 14. Construc-
cases where short, expensive projects (such as a tunnel project) or long, less-expensive projects tion costs formula.
(such as service on existing right-of-way or in less developed areas) tend to demonstrate differing
soft costs.
Mode
Heavy rail projects tend to incur somewhat higher soft costs than light rail, perhaps due to
their relative complexity. Heavy rail projects can typically involve constructing guideway and
systems that have been designed to more rigorous engineering standards that support more
complex systems, move higher passenger volumes, and operate at higher speeds relative to light
rail. Therefore, recommended adjustments to the default values are summarized in Exhibit 15.
If the project is heavy rail, add 6.0% to the total soft cost percentage: add 1.5% to PE, 3.5% to
PM/CA, and 1.0% to Insurance. Exhibit 15. Mode
formula.
2
Length of guideway should measure only the length of the construction from beginning to end, regardless
of double tracking, track miles, etc.
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24 Estimating Soft Costs for Major Public Transportation Fixed Guideway Projects
Installation Conditions
A project to construct a new, stand-alone transit line that is not adjacent to any previous
service will usually require less design costs than projects to extend or expand an existing rail line.
When a construction project interacts with existing transit service in any way, more engineering
and design work has typically been required in the final design phase. Working on or near an
active rail right-of-way poses additional logistical challenges that must be planned for, and may
also trigger additional safety requirements. Extending a rail line will mean integrating the new
track and station(s) into the older infrastructure, and additional work is usually required to ensure
that signal, power, safety, and other systems operate compatibly. Recommended adjustments to the
Exhibit 16. Installation default values are summarized in Exhibit 16. If the project is to be installed under no active adjacent
conditions formula. or adjoining rail service, subtract 4.0%: 3.0% from PE and 1.0% from FD.
Delivery Method
When sponsors choose to procure their projects through an alternative delivery mechanism
such as designbuild, designbuildownmaintain, or construction manager/general contractor,
these projects have historically incurred lower soft costs. In addition, these alternative delivery
methods tend to frontload more design and planning costs in preliminary engineering.
However, these project's lower soft costs may be partially the result of differences in measure-
ment rather than a real reduction in cost. Contractors may simply categorize their costs in dif-
ferent ways than transit agencies (in the construction line item, for example), which makes that
project's soft costs as a percent of construction appear low. Recommended adjustments to the
default values when estimating soft costs in early project phases are summarized in Exhibit 17.
Exhibit 17. Delivery If the project is to be delivered through a non-traditional (i.e., outside of designbidbuild)
method formula. mechanism, add 1.0% to PE, subtract 1.0% from FD, and subtract 7.0% from PM/CA.
Note that in a designbuild or other alternative project delivery method where the division
between a contractor's design and construction costs may be less transparent to a project spon-
sor, FTA still directs grantees to report design costs incurred by the designbuild contractor
in SCC 80.
A word of caution on delivery method: alternative project delivery methods entail a cultural
shift in the way the sponsoring agency develops and executes these projects. Because these alter-
native methods are not yet very common in the United States, the project's sponsor may not fully
understand them. For example, being unfamiliar with the required level of design or the heavy
focus on performance-based/functional specification under a designbuild, some transit agen-
cies may continue to work in a more traditional mode (i.e., prescriptive specifications and higher
level of design), unknowingly duplicating soft costs.
If the alternative delivery method is relatively new to the project sponsor, subtract a lower per-
centage (e.g., 3.0 or 4.0%) from PM/CA, depending on the level of project sponsor support required.
Economic Conditions
The overall health of the economy, as well as the level of construction activity, can affect the
construction bids a transit project sponsor can expect to receive. If the construction sector or
economy at large is in a downturn when a project sponsor accepts bids, contractors may reduce
their bids due to economic forces. In this case, soft costs computed as a percentage of the engi-
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How to Estimate Soft Costs for a New Project 25
neered construction cost estimate might look relatively higher simply because the bid construction
cost is lower. Historically, some change in soft costs can be attributed to the rate of Gross Domestic Subtract 1.5% TOTAL for every
Product (GDP) growth when construction contracts are bid, after accounting for other variables. percentage point the U.S. GDP
has grown since the previous
Although GDP growth rises and falls with the economy, it has historically risen an average of year, if project to be advertised
2.5% to 3.0% per year. for bid within one year:
It is difficult to use this driver to estimate soft costs for a project years away from construction
since future GDP growth is difficult to predict. If the project is to be advertised for bid within a
year, however, for every percentage point the U.S. GDP has grown since the previous year,
subtract 1.5% from the soft cost percentage: 1.0% from FD and 0.5% from PM/CA. Conversely,
for every percentage point the U.S. GDP has shrunk since the previous year, add 1.5 percentage Exhibit 18. Economic
points to the soft cost estimate to the same components. These recommended adjustments to conditions formula.
the default values are summarized in Exhibit 18.
For example, suppose a project will be advertised within months, but the economy is strong
and this year's GDP is 4% higher than last year's. A transit agency sponsor might expect relatively
higher construction bids because of the market demand for construction expertise. If construction
costs are high, soft costs as a percent of construction costs will likely fall, so an estimator using
this methodology might subtract up to 4 × 1.5% = 6.0% from the soft cost estimate.
Step 3: Adjust Based on Categorical Relationships
In this step, adjust the soft cost percentages based on characteristics of the project or its context.
These characteristics may be more difficult to assess for a given project, and cannot always be
measured as a "yes" or "no." Therefore, with this methodology it is recommended to adjust
percentage estimates up to a certain limit. Deciding to what degree any project fits into the
categories shown in this section will require some degree of judgment and professional experience.
Unusually Long Project Development Phase
A significant component of engineering and design cost is simply the salaries and benefit costs
of planners working on the project. When the early project development phases for a project take
an unusually long time, these costs tend to continue to be charged to the project, increasing overall
soft costs. Historically, when more than approximately five to seven years elapse between entering
preliminary engineering and the beginning of construction, projects have shown higher soft cost
percentages on the order of 7.0% of construction costs.
Add up to 7.0% TOTAL if the
Some judgment will be required to predict a construction date and determine when the planning overall planning phase will
continue longer than five to
stages begin. If the overall project development phases will likely continue longer than seven years, seven years. Apply fewer
and if planning and engineering work continue steadily, make the recommended adjustments to percentage points for shorter
planning phase:
the default values summarized in Exhibit 19. Add up to 1.0% to PE costs and up to 6.0% to FD.
Apply fewer percentage points depending on the length of the planning process.
Unusual Political Influence
When public involvement or political pressures are high, such as in a contentious design and
planning process, soft costs tend to rise relative to construction costs, as much as 6.0%. When, Exhibit 19. Unusually
for example, multiple planning boards, citizen advisory councils, and officials must approve the long project develop-
design, and could even call for a redesign, make the recommended adjustments to the default ment phase formula.
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26 Estimating Soft Costs for Major Public Transportation Fixed Guideway Projects
values summarized in Exhibit 20. Add up to 6.0%: up to 1.5% to FD and up to 4.5% to PM/CA.
While intuitively a more contentious planning process would tend to drive up costs earlier in
project development (such as PE), the data on which this Guidebook is calibrated indicate that
actual cost percentage increases occur earlier--in FD and PM/CA.
Agency Tendency to Minimize Capital Charges
When a transit agency sponsors a construction project, it usually contributes some of its own
Exhibit 20. Unusual labor and even materials. Agency employees often inspect construction activities, monitor safety,
political influence administer the contract, acquire property, manage the project, and perform many other tasks.
formula. As opening day approaches, agency staff contribute time coordinating testing, training, safety
inspections, and shared tasks with other agencies. The agency chooses whether to charge these
expenditures to the capital project (either directly or as an overhead-type allocation) or to absorb
them into the operating budget, and project sponsors each have different internal policies for this.
In the past, agencies that have strongly tended to minimize capital expenditures have shown a re-
duction of up to 6.0% in soft costs as a percentage of construction. Recommended adjustments to
the default values are summarized in Exhibit 21. Depending on the sponsor agency's internal
policy on capitalizing costs, subtract 3.0% from the PM/CA, 1.0% from Insurance, and 2.0%
from Other.
Step 4: Apply Judgment
At this point, this methodology has produced a set of five soft cost percentages for PE, FD,
PM/CA, Insurance, and Other that are tailored to a given project based on its characteristics and
Exhibit 21. Capital some judgment about its context. However, these more objective techniques must always be
minimization formula. tempered with some degree of discretion based on knowledge about the unique and intangible
qualities of the project and its sponsor. Rely on the characteristics in Exhibit 22 to add to or
subtract from the resulting soft-cost percentage estimate.
If this methodology has resulted in an unintuitive or unusually low percentage estimate, use
judgment to adjust to a more reasonable percentage. For example, any negative values could
However, these
more objective
techniques must
always be tempered
with some degree
of discretion based
on knowledge
about the unique
and intangible
qualities of the
project and its
sponsor.
Exhibit 22. Characteristics influencing soft cost
percentages.
