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CHAPTER 3 Soft Cost Estimation: State of the Practice Industry practices for developing soft cost budgets were assessed using a questionnaire com- pleted by construction cost estimators at a variety of transit agencies, and in-depth interviews were conducted with experienced professional cost estimators in public transportation. 3.1. In-Depth Interviews with Professional Cost Estimators To develop an initial picture of how the transit industry estimates soft costs, in-depth inter- views were conducted with professional cost estimators. The following sections describe the find- ings of these interviews. 3.1.1. General Approach From the interviews, it is clear that sponsors of major new transit projects approach estimat- ing soft costs differently depending on how far along the project is in the planning process. Over time, as a project becomes better defined, the soft-cost estimate process increases in sophistica- tion from a proportionate approximation to a more detailed or "bottom-up" estimation for each functional aspect of soft costs. 3.1.2. Soft Cost Estimation during Early Planning Phases Early in the project development phase, such as during alternatives analysis or preliminary engineering, a transit project is only conceptually defined, as are the soft costs. At these early stages, transportation planners may 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. At this stage, capital cost estimates are very important, especially because they are a crucial input to the project's cost effectiveness, which can help determine eligibility for federal funding. However, despite the early importance of capital cost estimates, soft cost estimates are approxi- mations at best in such early phases. Soft costs are generally approached as a percentage add-on to capital costs during alternatives analysis and are an approximation only. As a result, most atten- tion focuses on hard costs, not soft costs, at this stage. Because of the conceptual nature of the project and the emphasis on hard costs at this stage, soft costs are usually treated as percentage add-ons to estimates of hard construction costs. Estimators begin by estimating each soft cost component as a percentage of construction costs, choosing a percentage for each component within a range depending on a variety of factors. For instance, 18
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Soft Cost Estimation: State of the Practice 19 during conceptual design a sponsor might begin by estimating final design costs as 9% of con- struction costs, but then increase that estimate to 11% if they know the project is likely to require a more complex design due to special circumstances. Cost estimators interviewed for this study identified the following project characteristics as cost drivers: · Mode (generally, soft cost percentages for highway projects are lower than for transit projects, which tend to be more complex with more unknowns); · Vertical alignment (underground segments usually add to soft cost percentages); · Traffic impacts and relocations around the construction site; · Level of public support and acceptance of the project; and · Local and regional politics that can complicate the project development process, including alignments, delays, local funding share and methods, and other concerns. The project characteristics that were identified in the interviews as cost drivers, listed above, are very similar to those identified in the questionnaire (as shown in Table 8). 3.1.3. Soft Cost Estimation during Later Design and Construction Phases If a project proceeds into preliminary engineering and final design and becomes better defined, the soft-cost estimation approach changes, and percentages are rarely used. Instead, percentage estimates are replaced with more closely tailored, bottom-up estimates relying on a more detailed understanding of the project than was available in earlier stages and relying on past experience with similar projects. For example, an estimator might forecast design costs using a standard number of drawings per station and drawings per linear foot of guideway and apply a standard per-drawing cost. Agency administration and management costs might be based on headcount, staff salaries, and project duration, in combination with the project's operational requirements. Third-party reimbursement and other costs in SCC 80.06 might be estimated based on construc- tion duration per station as well as headcount. Right-of-way soft costs might apply assessed actual property values rather than a gross estimate of acquisition and real estate costs. Importantly, the project faces external pressure to adhere to whatever soft cost estimate is assigned to the project during final design. The public, agency staff, FTA, and other oversight bodies tend to expect that the SCC budget line items as defined at final design will not change. In particular, FTA wants to avoid major budget revisions after final design and highly scrutinizes soft cost esti- mates at this stage. As a result, the cost estimator will typically approach each soft cost compo- nent with a conservative estimate. During the construction phase, project management has little influence on the incurrence of soft costs. Due to the prior attention to the major SCC budget, the project sponsor might be reluctant to change the major SCC line items at the category level, although budget revisions within components are less difficult. To a great degree, the sponsor may be "stuck with the number" once construction begins. Some redesign may be necessary for differing or unexpected site conditions. Once construction is underway, the management interface between agency and contractor is the most important determinant of soft cost expenditures; other potential factors have relatively little influence on soft costs at this point. The FTA's oversight, local regulations and building codes, and other potential complexities will have only minimal effect on soft cost expenditures. The effect of project delay (for whatever reason) can be mixed: some soft costs, such as manager salaries, are calendar-based and will continue regardless of progress, while other soft costs can be slowed or halted altogether as the project demands, such as when the design contractor tem- porarily reduces ongoing work on a project.