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3 Procedures Currently Used by Federal Agencies to Prepare Early Estimates :: As part of this study, the committee reviewed the procedures currently used by seven federal agencies to prepare early estimates, which in most agencies are roughly equivalent to the pre-program- ming, program, concept/schematic, and design development estimates discussed in Chapter 1. The seven agencies were: the Department of Energy (Real Property and Facilities Management Divi- sion), the U.S. Air Force (Directorate of Engineer- ing and Services), He U.S. Army (Corps of Engi- neers), the U.S. Navy (Naval Facilities Engineering Command), the U.S. General Services Administra- tion (Public Buildings Service), the U.S. Public Health Service Indian Health Service), and the Veterans Administration (Office of Facilities). The information presenter! is based in part on a recent Federal Construction Council report (Con- sulting Committee on Cost Engineering, 19X7) and in part on input from the agency liaison members of the committee. The general observations and conclusions of the committee are presented at the end of this chapter. In accordance with its charge, the committee's review of current procedures has concentrated on the policies and practices of federal agencies. However, as noted previously, many early estimates for federal projects are prepared by private A-E firms, and a significant percentage of agency budget- related problems undoubtedly are caused by A-E estimating errors (see Figure Act, Appendix A). Recommended actions to reduce such errors are discussed in Chapter 4. PRE-PROGRAMMING ESTIMATES In almost all agencies, pre-programming esti- mates are used for preliminary screening purposes. Such estimates are ordinarily prepared by the engi- neering office in a user installation and generally are of the single unit cost type. The most com- monly used unit for buildings is dollars per square foot; however, pre-programming estimates in the Veterans Administration are sometimes expressed in terms of dollars per hospital bed. The cost of elements other than buildings are usually shown as a lump sum or in terms of some other unit, such as dollars per linear foot for piping. In the Depart- ment of Energy (DoE), parametric estimating sys- tems are sometimes used to check the accuracy of pre-programming estimates; however, the actual estimates that are submitted to DoE headquarters are always traditional order-of-magnitude estimates based on dollars per square foot or some similar unit. In the Department of Defense (DoD), pre-pro- gramming estimates for commonly constructed military facilities are based on average unit prices published by DoD (see Tri-Service Committee on Cost Engineering, 1988~. The DoD pricing guide* covers twenty-seven broad categories of facilities (there are several subcategories under some of the *Each of the three military services actually publishes its own version of the DoD pricing guide; however, all of He versions are essentially identical. 15

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16 broad categories). The pricing guide shows the average size of each type of facility for two differ- ent fiscal years. The unit costs shown include the cost of built-in equipment, but not the cost of fur- nishings and loose or portable equipment. The cost of site improvements beyond the five foot line also are not included, nor are allowances included for contingencies or administration of Me project by the responsible agency. The pricing guide also includes a chart for adjusting the unit cost of a facility if it is larger or smaller than the average. Finally, the pricing guide gives area cost factors for over 600 locations in the United States and abroad, to permit the average unit cost values to be local- ized. When estimating the cost of facilities not listed in the DoD pricing guide, military users are expected to use whatever cost information is avail- able, such as commercially published pricing guides and local historical cost data. The Corps of Engineers has developed a com- puter system to help their local engineering offices prepare and submit requests for facilities and level one estimates. The system, called the 1391 proces- sor,* is available on a time-sharing basis Dough an Army-wide network. The DoD pricing guide is stored in the 1391 processor system and the system automatically calculates building costs adjusted for year of construction and location. Other military agencies have similar but less sophisticated pro- grams. In the General Services Administration (GSA), pre-prog~amming estimates are prepared in accor- dance with the General Construction Cost Review Guide for Federal Office Buildings, which shows ranges of unit costs in dollars per gross square foot for seven types of facilities: three categories of office buildings plus general storage space, base- ment parking space, conference and training space, and open-deck parking structures (see Public Bu~ld- ings Service, 1987~. The unit costs include allow- ances for construction change orders, normal site work and landscaping, and art work. The unit costs do not include the cost of design or construction management services, site acquisition or demoli- tion work, unusual site work, special functional spaces like laboratories, or special building fea- tures or systems. Indices are provided to permit unit costs to be adjusted to reflect differences in construction costs in different locations. Pre-programming estimates in GSA are used to EARLY COST ESTIAIATES FOR FEDERAL CONSTRUCTION PROJECTS make an economic assessment of space procure- ment options (e.g., whether to build a new building, purchase a building, or lease space). Such assess- ments are made in accordance with Office of Man- agement and Budget Circular A-104. It is interesting to note that in the early 1980s, GSA instituted a sophisticated procedure for estab- lishing construction budgets on the basis of the amount of `'rent" that GSA could charge the occu- pants of the building. The procedure was called the "Capitalized Income Approach to Project Budget- ing" (Public Buildings Service, 1981~. While the project budget established through the procedure was more detailed than a typical pre-programming estimate, it was used for preliminary screening proposes as well as for requesting congressional funding and project control. The use of the proce- dure was discontinued because the required analy- ses were complex and highly sensitive to certain economic assumptions. The Indian Health Service (IHS) also distributes an estimating manual to its centers which provides data and worksheets for estimating the cost of the two types of facilities commonly constructed by the IlIS: health care facilities and staff quarters (see Hanscomb Associates Inc., 1986~. The cost of health care facilities is estimated on the basis of dollars per gross square foot and the cost of staff quarters is estimated on the basis of dollars per dwelling unit. Data is provided on the basic cost of these facilities plus the cost of "special" items (such as playgrounds and garages) and average site work, for ten locations. Factors are provided to adjust estimates for escalation and for locations different from those given. The manual is used for preparing both pre-pro~nming and concept estimates. For pre-programming estimates, which- are used for preliminary screening purposes, average site condi- tions are ordinarily assumed. The Department of Energy and the Veterans Administration do not distribute pricing guides. Local users in these agencies are expected to use whatever pricing information is available to them. PROGRAM ESTIMATES Program estimates for military construction proj- ects are essentially refined versions of pre-program- ming estimates. The program estimates are mostly used to indicate to design organizations (usually private A-E firms) the approximate budget for a *The number 1391 refers to the 1)oD fonn that military needed facility, and to negotiatie the A-E's design agencies use to indicate a facilities need. fee. Program estimates for Army projects are ordi-

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PROCEDURES CURRENTLY USED BY FEDS AGENCIES narily prepared by district offices of the Corps of Engineers.Program estimates for Navy projects are prepared by engineering field divisions of the Na- val Facilities Engineering Command (NAVFAC). Most prog~n estimates for Air Force projects also are prepared by He Corps of Engineers district offices and NAVFAC division offices, since those two services manage most Air Force construction work. However, a limited number of program esti- mates for Air Force projects are prepared by major Air Force commands or Air Force Headquarters. Recently, some of these estimates have been pre- pared using a paramedic estimating system known as the Construction Cost Management Analysis System (COMAS). The COMAS includes a data base with detailed cost breakdowns for several types of facilities commonly constructed by the Air Force, including: administrative buildings, medical buildings, n~n- ways and ta'{iways, and supporting facilities. The COMAS will automatically generate a detailed cost breakdown for a proposed facility by modifying the appropriate prototype breakdown in the data base on the basis of certain modifiers, for which the specifier provides values. The system modifiers permit the estimator to (a) alter the types of sys- tems to be included in the proposed facility, (b) change the size of the facility, (c) reflect market andior bidding conditions, (d) reflect uncertainties about the site, and (e) indicate the anticipated dura- tion of the project. The COMAS evolved from a parametric estimating system developed for He Air Force by a private professional firm (see CRS Group, Inc., 1983). The Air Force has expressed confidence in the accuracy of parametric estimates based on the COMAS and has requested congressional permis- sion to use such estimates as the basis for funding requests when appropriate. Congress has author- ized limited use of paramedic estimates on a trial basis. If the trial is successful, Congress is ex- pected to begin accepting funding requests based on parametric estimates. For the present, most program estimates prepared by the Air Force using the COMAS are used like He concept estimates of other agencies. The Veterans Administration (VA) develops program estimates in approximately the same man- ner as the Army and Navy. Specifically, the pro- gram estimates in He VA are ordinanly developed by cost engineers at VA headquarters and are based to a large extent on VA historical data. In addition, like the military agencies, the VA uses these esti- ~7 maws as a basis for selecting and negotiating with private A-E firms for preliminary design work. Conversely, program estimates in the Depart- ment of Energy and the Indian Health Service are used as the basis for requests to Congress for fund- ing. These agencies are not required to have par- tially completed designs before preparing budget requests. Program estimates in the Indian Health Service are essentially refined versions of pre-prograrnming estimates. Such estimates are prepared by engi- neering offices at IHS centers using the IHS esti- mating manual (as discussed previously). The main differences between a program estimate and a pre- programming estimate lie in the extent to which user needs have been defined and in the amount of analysis included in the estimate's site-work por- tion. In the Department of Energy, program estimates for large projects are ordinarily prepared by private A-E firms, while program estimates for small proj- ects are ordinarily prepared by the staffs of the private firms that operate DoE facilities. The esti- mates are based on some conceptual design work and a limited amount of analysis of materials and equipment needs. DoE does not provide any cost data to the A-E firms or field offices Hat prepare these estimates. CONCEPT/SCHEMATIC AND DESIGN DEVELOPMENT ESTIMATES In the military agencies, the great majority of both conceptlschematic and design-development estimates are prepared by private A-E firms. However, a small percentage of projects are de- signed and estimated by government personnel. Bow concept/schematic and design development estimates for military projects are presented as de- tailed breakdowns, frequently in bow an elemental and trade format (see Appendix D for a more de- tailed discussion of estimating formats). The Corps of Engineers and the Naval Facilities Engineering Command both provide historical cost information to estimators preparing design devel- opment estimates. In addition, the Corps of Engi- neers makes available to estimators the Computer Assisted Cost Estimating System (CAGES), and the Navy provides a similar system called the Cost Estimating System (CES). Both systems include extensive unit-cost data bases; however, estimators preparing detailed estimates are expected to verify the accuracy of prices taken from the data bases.

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18 As noted previously, design development esti- mates are frequently used as the basis for funding requests to Congress; however, if a design is more fully developed when a budget request is being prepared, a more detailed estimate may be used. The Veterans Administration also usually bases its budget requests to Congress on a design devel- opment estimate. Such estimates usually are pre- pared by a private A-E firm, and they usually are presented on the basis of an elemental breakdown. A-E's are expected to use their own data in prepar- ing such estimates, but A-E estimates are ordinarily checked against VA historical cost data. The Department of Energy and the Indian Health Service both require A-E's to submit design devel- opment estimates, which are used primarily as a design check to ensure that the project is within budget. Both agencies generally require that de- sign development estimates be broken down on the basis of the CSI (trade) format, and both expect A- E's to use their own cost data in preparing such estimates. COMMITTEE OBSERVATIONS The procedures used by most federal agencies to prepare early estimates for construction are fairly traditional. While the computer estimating systems EARLY COST ELI IMATES FOR PEDER" CONSTRUCTION PROJECTS developed by the Corps of Engineers and the Naval Facilities Engineering Command are useful, the techniques built into the programs are based on traditional estimating concepts. One innovative estimating concept being used is the parametric estimating system developed by the Air Force. Most agencies keep historical cost data and use such information in the preparation of various early estimates. However, except for the three military services, federal agencies apparently do not rou- tinely exchange cost data. The sharing of historical cost data might be inhibited by the fact that the agencies have not adopted common cost estimating terminology and formats, and because the cost data of one agency is not always relevant to another agency. The procedures used by most of the federal agen- cies are not necessary poor or inadequate; in fact, similar procedures are used by many private or- ganizations. The results achieved, in terms of the extent of disparity between early estimates and contract awards, also are in line with the experi- ences of private companies. However, in view of the importance attached to controlling federal ex- penditures and the amount of critical attention esti- mates receive when budgets are exceeded, the committee had expected to see more emphasis on innovative approaches as well as more interagency cooperation.