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1
Tntrocluction
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 influence the
expenditure of large sums of money. 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 con-
gressional appropriation will be).
If an estimate made early in the process is seri-
ously in error on the high side, it can result either in
a needed and worthwhile project being rejected or
in the allocation of excessive money to a project,
which takes money away from other deserving
projects and invites waste and extravagance. Con-
versely, if an early estimate is seriously in error on
the low side, it can result either in the construction
of an inadequate facility or in money being wasted
on a fruitless design effort.
*In this report the budget is the amount of money author-
ized by an official fending authority (e.g., Congress, a
board of directors, or top management) to be spent on a
project. A budget estimate is a prediction by a profes-
sional estimator of what a proposed project will cost.
The budget for a project may be significantly different
from the corresponding budget estimate.
3
Federal agencies, like most organizations with
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 the accuracy and validity of early esti-
mates have persisted; such problems may result in
a failure to award a construction contact because
of excessively high bids, receipt of embarrassingly
low bids, design problems, project delays, and fa-
cilities 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-
eral Construction Council asked the Building Re-
search Board (BRB) to review their current prac-
tices and, if possible, to recommend ways of im-
proving those practices. The BRB formed the
Committee on Budget Estimating Techniques to
conduct the study.
The committee met six times in the course of the
project. The first two meetings were devoted to
reviewing literature on preparing early estimates
and discussing the estimating procedures and prac-
tices of federal agencies. Subsequent meetings were
devoted to developing a consensus among commit-
tee members on the principal issues and reviewing
and refining committee and staff-prepared draft
material.
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4
STUDY SCOPE AND EMPHASIS
Early in the study the committee requested sta-
tistics from federal agencies on their experiences
with early estimates in order to get a clear under-
standing of the nature and magnitude of the prob-
lem being addressed. However, the agencies re-
ported that they could not provide such information
without a costly analysis of records. To fill this
statistical gap, a special meeting of the agency liai-
son members of the committee was held at which
information on the experiences of federal agencies
with budget estimates was assembled through a
modified "Delphi" exercise. The results of this
meeting are presented in Appendix A.
In brief, Hose participating in the exercise esti-
mated that budget-related problems have been ex-
penenced on approximately 35 percent of federal
projects and that among the factors contributing to
such problems were:
· poor definition of user needs, which was esti-
mated to have been a factor almost 60 percent of
the time;
.
poor design work and/or poor agency man-
agement of design, which were estimated to have
been factors almost 40 percent of the time;
~ poor A-E and/or agency estimators, which
were estimated to have contributed to problems
more than 25 percent of the time; and
.
inadequate estimating procedures and/or data
which were estimated to have contributed to prob-
lems almost 20 percent of the time.
These data verified that indeed federal agencies
do have serious budget-related problems; however,
the data also suggested that the problems are caused
by a number of factors besides poor estimating
techniques and procedures. Consequently, the
committee has included in its report a discussion of
various additional factors that contribute to budget-
related problems. This discussion is presented in
Chapter 2.
In accordance with its original charge, the com-
mittee has focused primarily on budget estimating
techniques and data. Thus, Chapter 3 of the report
describes the current procedures, techniques, and
data sources used by federal agencies to prepare
early estimates, and Chapter 4 presents the
committee's recommendations on steps that agen-
cies can take to improve the accuracy of such esti-
mates.
Descriptions of venous budget estimating pro-
EARLY COST ESTIMATES FOR FEDERAL CONSlRUCIIONPROJECIS
cedures are presented in Appendix D. The report
does not discuss techniques for preparing detailed
estimates that are developed in the later stages of a
project.
CONSTRUCTION COST ESTIMATING
TERMINOLOGY
Different owners use different procedures and
processes to administer their construction programs,
as illustrated by Appendixes B and C, which de-
scribe, respectively, the construction budgeting
processes of the Naval Facilities Engineering
Command and the IBM Corporation. However,
regardless of the owner, most construction projects
require the preparation of a number of increasingly
detailed cost estimates in the course of the plan-
ning, design, and construction phases of a project.
One or more of these estimates may be used to
establish the budget for a project.
The construction industry and related profes-
sions use a variety of terms to indicate different
types of estimates. In order to maintain consis-
tency for the purposes of this document, the follow-
ing terminology will apply. The estimates are listed
in He chronological order of Heir preparation, which
means that they are also in ascending order of de-
tai1.
Pre-program~rung estimate. An estimate of the
probable magnitude of total construction cost, usu-
ally based on single unit costs (such as dollars per
gross floor area), for use in the earliest planning
phases of a project.
Program* estimate. An expression of probable
total construction cost, usually based on a combina-
tion of single unit costs and theoretical costs as
related to the functional program requirements of
He facility and the general design concepts to which
the budget and the program of requirements relate.
Conceptlschemaac estimate. A construction cost
estimate based on a proposed scheme and a quanii-
tative analysis of proposed- facility components and
*The term "program" may have two different meanings
in connection with federal construction activities. It may
refer to the totality of construction projects of an agency
for a given time period or to the list of requirements for a
particular project. (Lists of requirements are sometimes
referred to as owner criteria, user needs, or architectural
programs.) To minimize confusion, the committee has
avoided using the term "program" without a descriptive
modifier.
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PRODUCTION
subcomponents using both historical and analyti-
cally derived unit costs. Design criteria and scope,
including alternates, may be established in relation-
ship to the funding limitations of the program of
requirements.
Design development estimate. A construction
cost estimate based on quantities derived from a
preliminary but definitive set of drawings (frequently
about 35 percent complete) and current in-place
costs. The design and estimate may be used as the
basis for a budget request and/or to verify that
established criteria are being followed, that the scope
of tile protect is not being expanded, and that changes
in scope are being documented. Some assumptions
are made where design documentation is not com-
plete.
Construction document estimate. A cons~uc-
lion cost estimate based on a quantitative material
take-off using well-developed construction docu-
ments. The estimate and the design are used to
verify that the authorized budget and scope of the
project have not been exceeded. This estimate is
normally updated several times until the design is
complete.
Pre-bid estimate. A cost estimate based on a
final review of the completed construction bid docu-
ments.
Federal agencies do not use a consistent and
uniform terminology for budgets and estimates, as
indicated by the glossary of federal estimating terms
presented in Appendix E. However, the committee
believes that most agencies would understand the
terms defined above, and this terminology is used
throughout the report, unless otherwise indicated.
FOCUS OF THE REPORT
This report focusses on early estimates, which
include He pre-programming, program, concept/
schematic, and design development estimates. Such
estimates are important because they are used in
making some of the most basic and important deci-
sions regarding a project. Specifically:
· Pre-prograwrung estimates are ordinarily
made by an operating element of an agency as part
of a request for funding for a new facility or the
modification of an existing facility. In most agen-
cies there are many operating elements (commonly
called users), and each year each of these elements
submits multiple funding requests to agency head-
quarters. Since funding for construction is always
5
limited, agency headquarters must review these
requests and screen out projects that are less critical
to or are not in accord with the agency's long-range
plans.
· Program estimates are ordinarily prepared by
the central or regional office of the responsible
agency, or by a private A-E firm, based on an
analysis of the needs of the user organization and
the development of a program of requirements.
Some agencies base their funding requests to Con-
gress on a program type estimate.* However, many
agencies do not proceed in this manner because
they are required by Congress to complete at least
35 percent of the design of a facility before request-
ing funding for it.t In these agencies, program
estimates are mostly used to indicate to the organi-
zation designing the facility (almost always a pri-
vate A-E firm) the approximate cost of the desired
facility and to help set the design fee. In theory the
program estimate that is given to the design organi-
zation is not the final estimate that will be given to
Congress. However, in practice design organiza-
tions are expected to fry to stay within program
estimates because agencies usually make prelimi-
nary allocations of money to various projects based
on program estimates. A major increase in the
estimated cost of a project can cause the project to
be dropped or adversely affect funding for other
projects.
· Concept/schematic estimates are prepared by
the design organization (usually a private A-E) using
the initial design documents as a basis. This esti-
mate is not often submitted to Congress, but instead
is used by the design organization to verify the
project budgets and to compare alternate schemes.
· Design development estimates are prepared
by the design organization after analysis of the
user's needs, evaluation of alternative designs, and
preparation of initial design documents (which fre-
quently corresponds to the 35 percent design point).
The design development estimate is used by certain
agencies as He basis for funding requests to Con-
gress. Other agencies that base their funding re-
quests to Congress on concept/schematic estimates,
use design development estimates as a check to
ensure that projects are within budget.
*Some private companies, as discussed in Appendix C,
also base funding requests to their top managers or boards
of directors on program estimates.
fAgencies follow different policies because their budget
requests are reviewed by different congressional com-
mittees.
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Representative terms from entire chapter:
construction cost
