Adrian J. Smith

Estimating and Planning

This chapter considers the relationship between the estimating and planning functions within a contractor’s organisation during the estimating and tendering stages of a project. It does not attempt to provide detailed descriptions of the operation and use of alternative planning techniques, merely to explore the relationship between overall project time, cost and tender price from the estimator’s point of view, and to highlight some of the more important project planning issues which need to be considered in the preparation of a tender bid.

Risk and Uncertainty in Estimating and Tendering

This chapter begins the examination of risk and uncertainty in the preparation of estimates and tenders for construction projects. There are two major problems involved: 1. Will the contractor’s tender be low enough to be accepted by the client? 2. If accepted, will the eventual financial position of the project on completion be acceptably close to the forecasts made in the tender?

The Estimating Process

The traditional methods of construction procurement in most parts of the world all generally involve some form of competition between a number of contractors, with price usually playing a major part in the selection of the contractor eventually chosen to carry out the work. Contractors therefore need some reliable method of forecasting prices, and therefore likely costs, for future construction work.

Consortium and Joint Venture Bidding

The terms ‘consortium’ and ‘joint venture’ are often used in connection with construction work, particularly for large and/or complex projects, many of which are located in the less developed areas of the world. Involvement in such projects may pose particular problems for construction contractors because: 1. The projects themselves areoften both large and complex, and may pose special risks in terms of their cultural, geographical and political environment. 2. Most tenders for construction work are usually prepared by one company acting alone and in competition with other similar firms, and most construction contractors are therefore not accustomed to tendering as part of a team 3. A substantial number, perhaps most, consortia and joint venture organisations are set up to handle specific one-off projects, and it is therefore usually necessary to re-establish the necessary management and administrative organisations afresh for each new project. 4. An increasing number of consortium and joint venture projects also require the joint venture sponsor to arrange the necessaryfinance to carry out the work.

Computers in Estimating

The main purpose of this chapter is to discuss the various ways in which computer systems can be used by contractors in estimating, tendering and associated functions. It is not intended to provide an introductory course in computing, and it is therefore assumed that the reader will already be familiar with the basic components of a small desktop computer, and be competent to use, for example a simple word processor.

Unit Rate Estimating

The estimating and cost forecasting techniques previously considered have relied mainly on the use of historical cost data to attempt to predict likely costs at an early stage of design. As the design develops, however, contractors will usually try, as far as possible, to use analytical estimating methods using current cost data as a base.

Plan and Specification Projects

Previous chapters have dealt primarily with the pricing of work let on the basis of bills of quantities provided by the client, but a considerable number of projects are let without bills, and in this case the contractor is required to calculate the price solely on the basis of drawings and a specification.

Estimating and Tendering — Some Contextual Factors

Most construction works are let on the basis of some form of competition, in which the quoted price for the work usually plays a large part. It is therefore obvious that, for a construction company to thrive, it must have the ability to forecast the likely cost of proposed construction work, and thus at least be able to establish a baseline figure from which a price can be quoted to the client.

Adjudication and Bid Submission

It has already been shown that the process of compiling a tender for construction work is conventionally divided into two separate stages: first, calculation of the anticipated cost to the contractor of completing the work, and second, the setting of a price which the contractor will then quote to the client, usually in competition with others. The process of converting the contractor’s estimate into a tender bid is called adjudication. Adjudication is a management activity which, particularly in a competitive tendering situation, usually involves the exercise of subtle and subjective commercial judgement in arriving at the bid figure.

Overheads, Profit and Project Financing

In order to be able to formulate a tender bid, a contractor needs to include a number of other factors in addition to the costs of the direct inputs to the project. Specifically it needs to know about its indirect costs; the costs of operating the business and providing the necessary finance to remain solvent, and also about the costs of any supplementary finance required for the particular project.