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How to Estimate Soft Costs for a New Project 27 be restored to zero. Further, if the net effect of adjustments suggested here results in soft cost estimates below 15% or above 50%, apply judgment as well. In the decades of historical experience analyzed to support this Guidebook, no transit project has shown soft costs lower than 11% or higher than 54% of construction costs. Finally, convert the soft cost percentages from the five components estimated here back into the eight components called for in FTA's SCC structure. For Project Management and Construction Administration, divide the soft cost percentage estimate between SCC Components 80.03 and 80.04, 60% of the estimate to Project Management, and 40% to Construction Administration. This ratio is based on a consistent pattern with historical projects over time. For Other soft costs, some judgment will be required based on knowledge of the project sponsor. However, this estimate is relatively small, making the sub-allocation to SCC components less precise. Begin by dividing the soft cost percentage estimate for Other costs developed here into even thirds between SCC components 80.06, 80.07, and 80.08. Then, adjust using the following guidelines: 80.06 Legal; Permits; Review Fees by Other Agencies, Cities, etc. If the project falls under the purview of multiple municipalities, counties, or other political jurisdictions, or if the project requires multiple difficult permits, increase this component's share. Otherwise, leave this component with roughly one-third of the Other costs. 80.07 Surveys, Testing, Investigation, Inspection. The base one-third allocation is likely sufficient for this component. 80.08 Start Up. If the sponsor agency capitalizes startup and operations testing, maintain or possibly increase the estimate. Otherwise, decrease this component's share, potentially to zero. Applying These Steps: Two Example Projects How might this four-step process be applied to a real project? The following provides a case study on two hypothetical but nevertheless "typical" situations: Shelbyville Light Rail Springfield's Metropolitan Transit Authority (MTA) has just finished an alternatives analysis on the Shelbyville corridor. As a result of this process, the MTA has selected light rail as a Locally Preferred Alternative and believes that the project can use an existing freight right-of-way. This will be Springfield's first rail transit service. The planned 7.5-mile alignment begins at an inter- modal hub in downtown Springfield with connections to Amtrak, and extends north through several neighborhoods in another county before terminating in Shelbyville. The new rail service will leave downtown on a new flyover from the terminal, and then the new tracks will be laid parallel to an existing freight line, with additional grade crossings constructed or reconstructed as needed, as shown in Exhibit 23. The project will require some re-grading and mitigation work that will impact the Pockomock Swamp, an environmentally sensitive area. MTA plans to construct the project using a construction manager/general contractor (CM/GC) project delivery approach with a guaranteed maximum price, and hopes to open the line for service by 2014. MTA has a preliminary construction cost estimate of $425 million based on construction quantities and unit costs, and a ridership forecast from a forecasting model from the design Exhibit 23. Schematic consultant team. The construction cost estimate includes a contingency and is expressed in year- map of Shelbyville of-expenditure dollars, escalated at 3.75% per year. Light Rail.

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28 Estimating Soft Costs for Major Public Transportation Fixed Guideway Projects MTA feels the proj- Based on this information, MTA feels the project may be a good candidate for federal New Starts funds. Therefore, the project manager's next task is to assemble a capital cost budget in FTA's ect may be a good SCC format. But while MTA has chosen an alignment, many details are still left to be decided, candidate for fed- such as the exact location of the new rail maintenance facility, coordination with the existing eral New Starts freight railroad, and traffic impacts downtown from the flyover construction. To estimate a value for SCC 80, MTA turns to this Guidebook's methodology. funds. Therefore, the project man- Step 1: Begin with Default Averages ager's next task is to assemble a capi- Begin with the default averages suggested in Exhibit 12, totaling 29.5 percentage points. tal cost budget in FTA's SCC format. Step 2: Adjust Based on Mathematical Relationships But while MTA has Alignment length. The Shelbyville line will be approximately 39,200 linear feet, so MTA adds 3.92 1.3% = 5.1% to PM/CA and Other, for a total of 34.6% chosen an align- Construction costs. A construction price tag of $425 million implies a reduction of 0.425 6.0% ment, many details = 2.6% points across PM/CA, Insurance, and Other, to total 32.0%. are still left to be Mode. This project is light rail, so no adjustment is necessary. Installation conditions. The project is sharing the right-of-way with an active railroad, which decided. . . . To may create challenges for design and construction teams. Therefore, MTA makes no reduction estimate a value to the soft cost estimate. for SCC 80, MTA Delivery method. Since MTA expects to hire a CM/GC, this will likely reduce MTA's costs of project oversight but may require some extra effort during preliminary engineering. Deduct turns to this 8.0% from PM/CA and FD, and add 1.0% to PE, for a total of 25.0%. Guidebook's Economic conditions. The project manager hopes to advertise the project for bid within the methodology. next year, and the economy is currently growing after recovering from a fairly strong recession. The project manager looks up the U.S. GDP from the U.S. Bureau of Economic Analysis website. Since the latest quarter's data shows that the GDP has increased by 1% since last year, MTA subtracts 1.5% from FD and PM/CA, for a new total of 23.5%. Step 3: Adjust Based on Categorical Relationships Long development phase. This project has so far been progressing quickly, so no adjustment is necessary. Political influence. This project is subject to review from both the Shelbyville and Springfield City Councils, who have historically disagreed on many issues. Because of this uncertainty, MTA adds 2.0%, 1.51.% to PM/CA and 0.5% to FD, for a new total of 25.5% Agency tendency to minimize capital charges. This is MTA's first rail project, and the proj- ect manager has no reason to expect this tendency of the agency, so no adjustment is necessary. Step 4: Apply Judgment After arriving at an estimate of soft costs at 25.5% of construction costs, MTA's project manager reviews the estimate for reasonableness based on the project sponsor's knowledge. Relying on judgment, the project manager makes the following changes: Deducts 2.0% from FD because of existing right-of-way. The existing freight railroad company has so far been a cooperative partner in the project, and the project manager expects to rely

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How to Estimate Soft Costs for a New Project 29 SOFT COST ESTIMATE AS PERCENTAGE OF SCC COMPONENT CONSTRUCTION COST 80.01 Preliminary Engineering 3.0% 80.02 Final Design 8.5% 80.03 Project Management for Design and Construction 5.5% 80.04 Construction Administration and Management 3.6% 80.05 Professional Liability and Other Non-Construction Insurance 1.6% 80.06 Legal; Permits; Review Fees by Other Agencies, Cities, etc. 1.0% 80.07 Surveys, Testing, Investigation, Inspection 1.0% 80.08 Start Up 0.4% 80.00 Total Professional Services 24.5%* *Total slightly off due to rounding. Exhibit 24. Hypothetical Shelbyville Light Rail soft cost estimate. on their technical expertise throughout the project, saving some professional service costs. The new total is 23.5%. Adds 1.0% to PE to account for environmental mitigation. The project manager is uncertain about what the state's Department of Environmental Protection will require to mitigate any impacts on the Pockomock Swamp and expects the planning process will take time and money. The MTA's new total is now 24.5%. Finally, the five component estimates need to be split between SCC 80 components. The estimate of 9.1% for PM/CA is split 9.1% 6.0% = 5.5% to SCC 80.03, and 9.1% 4.0% = 3.6% to SCC 80.04. MTA splits the base estimate of 2.4% for Other as follows: 1.0% to SCC 80.06, 1.0% to SCC 80.07, and 0.4% to SCC 80.08. MTA's final estimate is shown in Exhibit 24. West County Light Rail Project The XYZ Transit Agency (XTA) is planning a light rail transit project to serve communities in parts of West County. The project, known as the West County Light Rail Transit (WCLRT) project, is a 10.4-mile extension of the existing XTA Light Rail Transit North/South Line, including seven new stations. Planning initially began in 1998 when XTA envisioned the project as a busway along an arterial roadway, but the original design met with some public opposition and controversy. XTA has since refined its plans and is now advancing the project. The design is at the conceptual level. After XTA circulated the draft environmental impact statement (EIS) and held public hearings, the light rail build alternative was selected as the Locally Preferred Alternative in October 2003. Since then, XTA designers and planners have revisited and refined the build alternative, have begun detailing stations, and have decided on two-track operations. The project will extend from the 3400 South/Main Station, follow the lead track to the Central Maintenance Facility, proceed along XTA right-of-way through several cities, and then turn south for the final two stations, as shown on Exhibit 25. The project will include 18 additional Exhibit 25. Schematic light rail vehicles and additional storage tracks at the Central Maintenance Facility. This configu- map of XTA's West ration requires the light rail system to share tracks with freight trains in several areas, necessitating County Light Rail a temporal separation of passenger and freight operations. transit project. XTA plans to complete preliminary engineering and final design under a traditional design bidbuild delivery method. XTA hopes to complete design by October 2004, sign a full funding grant

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30 Estimating Soft Costs for Major Public Transportation Fixed Guideway Projects agreement with the FTA in June 2005, and complete construction by June 2008. Most of the guide- way is at the street level, with only a very short tunnel (about 400 feet) near one of the stations. In March 2004, at the end of the conceptual design phase, XTA prepared a cost estimate that established a target budget of $302 million for SCC 1070 (expressed as year-of-expenditure dollars escalated at 3.75% per year). Now, XTA wants to apply the methodology described in this Guidebook to estimate the WCLRT project's soft costs as a percentage of the construction costs: Step 1: Begin with Default Averages As a first step in As a first step in estimating soft costs for the project, XTA begins with the default soft cost percentages as defined in Exhibit 12, totaling 29.5% of construction costs. These numbers are estimating soft based on average actual historical as-built costs. costs for the proj- ect, XTA begins Step 2: Adjust Based on Mathematical Relationships with the default Guideway alignment length: The project is 10.4 miles long, or approximately 54,900 linear feet. soft cost percent- This will require an upward adjustment of 5.49 1.3% = 7.1% to the soft-cost percentage ages as defined in estimate. Construction costs: Construction costs for the project (the sum of SCC 1070) are estimated at Exhibit 12, totaling $302 million; however, SCC 70 accounts for $55 million to purchase 18 new vehicles, and no costs 29.5% of construc- are estimated for real estate in SCC 60. Therefore, the construction cost estimate (SCC 1050) tion costs. These totals $302 - $55 = $247 million. Since the Guidebook calls for subtracting 6.0% for every $1 billion in construction costs, XTA decreases the soft cost estimate by 0.247 6.0% = 1.5%. numbers are based Mode: This is a light rail project, so no adjustment is necessary. on average actual Installation conditions: Since this project will share a freight right-of-way in some areas and historical as-built will connect with existing light rail service on the North/South line, no adjustment is made. Delivery method: The project is using a traditional designbidbuild delivery method, so no costs. adjustment is made. Economic conditions: The economy in West County is in relatively good shape, and construc- tion companies have steady business. GDP has grown 3% over the past year, so XTA deducts 3 1.5% = 4.5%, suspecting that construction bids may be somewhat high. Step 3: Adjust Based on Categorical Relationships In this step, XTA adjusts soft cost percentages based on certain characteristics of the project that may be more difficult to measure. Unusually long project development phase: Given the past delays and controversy, XTA does not know if the project will progress as quickly as it would hope. Therefore, XTA decides to add 2.0% to the soft cost estimate for final design. Unusual political influence: No extraordinary political influence is expected, so no adjustment to soft cost is necessary. Agency tendency to minimize capital charges: The XTA has constructed light rail projects before and supports a fairly large construction staff through its operating budget. (These costs are not charged to specific capital projects.) Because of this, a -3.0% adjustment is applied.

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How to Estimate Soft Costs for a New Project 31 SOFT COST ESTIMATE AS PERCENTAGE OF SCC COMPONENT CONSTRUCTION COST 80.01 Preliminary Engineering 2.0% 80.02 Final Design 11.0% 80.03 Project Management for Design and Construction 8.0% 80.04 Construction Administration and Management 5.3% 80.05 Professional Liability and Other Non-Construction Insurance 1.3% 80.06 Legal; Permits; Review Fees by Other Agencies, Cities, etc. 0.7% 80.07 Surveys, Testing, Investigation, Inspection 0.7% 80.08 Start Up 0.0% 80.00 Total Professional Services 29.0% Exhibit 26. Hypothetical XTA West County Light Rail soft cost estimate. Step 4: Apply Judgment XTA refers to Exhibit 16 and judges that the WCLRT project has several attributes that could increase or decrease soft costs as a proportion of construction costs. On the one hand, the West County area is fairly dense and growing rapidly, and the short tunnel section near one of the stations is under a historic district. These characteristics could increase soft costs. On the other hand, no environmental mitigation is required, the alignment is fairly straight- forward, and differing subsurface conditions present only a moderate risk. Therefore, XTA uses its judgment and does not consider any adjustment to its soft cost estimate at this step. Finally, XTA converts the resulting estimate for Other into the SCC components 80.06, 80.07, and 80.08. Because XTA does not normally capitalize startup and operations testing, SCC component 80.08, Start Up, is reduced to zero. Based on its analysis so far, XTA estimates soft costs for the WCLRT project at 29.6% of construction costs, as shown in Exhibit 26.