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Executive Summary Cost is a major factor in most decisions regard- ing construction, and cost estimates are prepared throughout the planning, design, and construction phases of a construction project. All of these esti- mates are important because they invariably influ- ence the expenditure of major sums. However, estimates made in the early phases of a project are particularly important because they affect the most basic decisions about a project: whether it will be undertaken at all; how large it will be; how elabo- rate, sophisticated and durable it will be; and how much it will cost (i.e., what the budget will be and, in the case of federal agencies, what the congres- sional appropriation will be). Federal agencies, like most organizations win large continuing construction programs, have long recognized the importance of these early estimates, and they have instituted various policies and proce- dures to help ensure that such estimates are pre- pared carefully and properly. Yet problems associ- ated with inaccurate early estimates have persisted and manifest themselves in various ways, includ- ing: (1) failure to award a construction contract because of excessively high bids, (2) receipt of embarrassingly low bids, (3) design problems, (4) project delays, and (5) facilities with marginal or . . . Impaired . operations. Because Congress maintains fairly tight control on federal expenditures, agencies have limited lee- way to deal with problems caused by erroneous early estimates. Consequently, agencies periodi- cally look for ways to improve their early esti- mates. In 1988 the agencies that sponsor the Fed- 1 eral Construction Council asked the Building Re- search Board (BRB) to review their current prac- tices and, if possible, recommend ways of improv- ing those practices. The study was conducted by the BRB Committee on Budget Estimating Tech- n~ques. PUTTING THE PROBLEM IN PERSPECTIVE As part of its study the committee investigated the extent, nature, and root causes of the budget- rela~1 problem experienced by federal agencies on their construction projects. The committee found that agencies do in fact encounter budget-related problems on a significant percentage of their con- struction projects (approximately 35 percent on average). However, the committee also concluded that, contrary to widespread belief, such problems are not primarily the result of faulty estimating techniques. Although there is room for improvement in the policies and practices of many agencies regarding the preparation of early estimates, agencies need to recognize that other factors besides estimates con- ~ibute to budget-related problems. The committee believes that the keys to a successful project, other than accurate estimates, are (1) accurate definition of user needs, (2) effective management of the design process, (3) well-prepared construction documents, and (4) effective management of the construction phase. The committee urges agencies to seek ways to
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2 improve their practices and procedures in these areas as they continue to work to improve their estimat- ing procedures. COMMITTEE RECOMMENDATIONS The procedures used by most of the federal agen- cies to prepare early estimates are not necessarily poor or inadequate; in fact, similar procedures are used by many private organizations. The results achieved, in terms of the extent of disparity be- tween early estimates and contract awards, also are in line with the experiences of private companies. However, in view of the importance attached to controlling federal expenditures and the amount of critical attention estimates receive when budgets are exceeded, the committee had expected to see more evidence of emphasis on interagency coop- eration and innovative approaches. On the basis of its review of a variety of ideas for improving the estimating procedures of federal agencies, the committee recommends that agen- cies: 1. Make a concerted effort to cooperate in the following ways: by developing standard terminol- ogy and formats for their budgets and estimates; by cosponsoring cost engineering research and shar- ing research results, especially research on auto- mated estimating systems; and by pooling and shar- ing cost data, especially on commonly constructed facilities. 2. Take steps to ensure that the estimators used EARLY COST ESTIMATES FOR FEDERAL CONSlRUCrlONPROJEcrs by private architect-engineer (A-E) firms, as well as the agencies' own estimators, are properly quali- fied for conceptual estimating. 3. Expand the use of parametric and probabilis- tic estimating during the early stages of a project. In view of the fact that a majority of problems associated with budget estimates can be traced to problems other than estimating techniques, the com- mittee urges agencies to seek ways to improve their practices and procedures in the following areas: 1. Ensure that accurate definitions of user needs are prepared and signed off by the responsible par- ties prior to the development of budget estimates. 2. Place more emphasis on estimating and cost management capability in the selection of A-E's and ensure that sufficient fee allocations are in- cluded and sufficient time is provided for adequately performing the required estimating services. 3. Provide effective agency management of the design process to ensure that the A-E's design is within budget. Agencies should employ value en- gineenng and other cost containment techniques and ensure that a well-coordinated and comprehen- sive set of construction documents are prepared. 4. Provide effective management of the con- struction phase to maintain time and quality objec- tives and cost limits. 5. Sponsor conceptual estimating training pro- grams to improve estimating skills. Agencies should ensure adequate salary levels to hire and retain qualified staff.