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1 INTRODUCTION In broad terms, a construction project involves three stages:* preliminary planning, during which the need for a proposed facility is established and the general nature of the facility to be constructed to meet that need is determined; design, during which the detailed plans and specifications for the facility are developed; and construction, during which the facility is built. In terms of expenditure, the construction stage is by far the most important stage; approximately 90 percent of total project funding** is spent during construction whereas only about 8 percent is spent during the design stage and only about 2 percent during the preliminary planning stage. With respect to the critical decisions that affect the design and cost of a facility, however, the preliminary planning stage is by far the most important stage. The preliminary planning stage (also referred to as the programming stage) is so important in the decision- making process because it is during this stage that the initial decision to proceed with the project is made, the size, function, general character, and location of the proposed facility are determined, and the preliminary budget is set. Once even preliminary decisions are made on these matters, the nature and cost of the facility are virtually predetermined. *A construction project may involve either new construction or major rehabilitation work. **The expenditures on a project are assumed to include both contract costs and in-house agency expenditures that are directly attributable to a project.
Various agencies carry out the preliminary planning stage differently; however, in most agencies it involves several steps beginning with identification of a facility need by an operational activity and ends with the development of a preliminary cost estimate, which is used to prepare a funding request to Congress. In between these two points, various analyses are made to determine, for example, if the requested facility is really needed, whether the need might be met in a more cost-effective manner by some means other than a construction project, the relative importance of the project compared to other proposed projects, the best location for the proposed facility, the relative merits of various design concepts, and the projected cost of the selected concept. While the nature and purpose of the preliminary planning process vary from project to project and from agency to agency, all preliminary planning efforts have one thing in common: they involve the development and use of cost estimates. Cost estimates are of vital importance in the preliminary planning stage because almost every major decision made during that stage--including the basic decision to undertake a proposed project--is based at least in part on economic considerations. And, of course, one of the end products of the preliminary planning effort is an estimate of costs that is used to prepare a request to Congress for an appropriation and authorization. In most agencies, several estimates are prepared during the preliminary planning stage. For the purpose of this report all of these estimates are considered budget estimates, because they are based on incomplete information about the facility to be constructed. In reality, the amount of information available to estimators about a proposed project increases in the course of the preliminary planning process; consequently, budget estimates prepared at the end of the preliminary planning stage should be considerably more accurate than estimates prepared earlier. However, regardless of when budget estimates are prepared, they are inevitably based on incomplete information, and ensuring their accuracy is a challenging task. In spite of the importance of budget estimates and the difficulties associated with developing them, agencies have seldom exchanged information about the data and techniques used in their preparation. To correct this situation, the Program Committee of the Federal Construction Council asked the FCC Consulting Committee
on Cost Engineering to undertake the study reported here. Specifically, the committee was asked to summarize the practices and procedures used by various agencies to prepare budget estimates (e.g., how costs are determined, at what point in the design process budget estimates are prepared, and how estimates are documented and evaluated), and to report on the results of any studies that have been made of the relative accuracy of estimates prepared using different procedures. To carry out its assignment, the committee held a symposium at which seven of the agencies represented on the committee presented papers describing their policies and procedures regarding the preparation of budget estimates. Because different agencies have different definitions of budget estimates, the committee asked the agencies to put special emphasis on the earliest estimates prepared during the preliminary planning (programming) stage of a project that serves as a constraint on the ultimate design and cost of a facility. Synopses of the papers presented by the agencies are included as Chapters 2 through 8 of this report. A summary of the information provided by the various agencies is presented in Chapter 9.
