1
Organization of the estimating function
Team roles and organization The role of the contractor’s estimator is vital to the success of the organization. The estimator is responsible for predicting the most economic costs for construction in a way that is both clear and consistent. Although an estimator will have a feel for the 1
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Estimating and Tendering for Construction Work
prices in the marketplace, it is the responsibility of management to add an amount for general overheads, assess the risks and turn the estimate into a tender. The management structure for the estimating function tends to follow a common form with variations for the size of the company. In a small firm, the estimator might be expected to carry out some quantity surveying duties and will be involved in procuring materials and services. For large projects, the estimator may be part of a multi-disciplinary team led by a project manager. The estimating section in a medium-sized construction organization (Fig. 1.1) will often comprise a chief estimator, senior estimators and estimators at various stages of training. Larger estimating departments may have administrative and estimating assistants who can check calculations, photocopy extracts form the tender documents, prepare letters and enter data in a computer-assisted estimating system. The estimating team for a proposed project has the estimator as its coordinator and is usually made up of a contracts manager, buyer, planning engineer and quantity surveyor. The involvement of other people will vary from company to company. A project quantity surveyor is often consulted to examine amendments to conditions of contract, prepare a bill of quantities, assess commercial risks, set up design agreements and identify possible difficulties which have been experienced on previous contracts. Clients sometimes like to negotiate agreements with quantity surveyors where a good working relationship has been established and follow-on work is to be based on pricing levels agreed for previous work. A planning engineer might be asked to prepare a preliminary programme so that the proposed contract duration can be checked for possible savings. He can also prepare method statements, temporary works designs,
Managing Director
Administration
Commercial
Pre-contract
Operations
Business
Estimating
Purchasing
development
Chief estimator
Finance
Senior estimators
Computer assistants
Junior estimators
Enquiry assistants
Fig. 1.1 Estimating staff structure for a medium-sized organization 2
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Organization of the estimating function
organizational charts and site layout drawings. Some or all of this material can be used to demonstrate to a client that satisfactory systems have been developed for the project. The purchasing office will provide valuable information leading to the most economic sources for the supply of materials and plant. In many organizations today, the buyer is responsible for getting quotations from suppliers and sub-contractors. At the very least, the buyer (sometimes called ‘procurement manager’ or ‘supply chain manager’) helps prepare lists of suitable suppliers, keeps a library of product literature and advises on likely price trends and changes. A buyer can provide an invaluable service in managing enquiries and chasing quotations. His knowledge of local suppliers and current discounts is essential at the final review meeting when decisions need to be taken about the availability and future costs of materials and services. The role of the site manager is to report on the technical and financial progress of their projects so that the estimator can learn from the company’s experience on site. On completion of contracts, site staff will usually contribute to tenders for larger and more complex schemes – particularly for civil engineering and large-scale building work – where alternative construction methods have a significant affect on tender price. A site project manager is often used to lead the bid team and manage all aspects of the tender. The department dealing with business development and presentations can contribute in two ways: by maintaining close contacts with clients to ensure their needs are met, and by producing submission documents often using desktop publishing software. The aim of the team is to gain an understanding of the technical, financial and contractual requirements of the scheme in order to produce a professional technical document with a realistic prediction of the cost of construction. The construction manager or director will then use the net cost estimate to produce the lowest commercial bid at which the company is prepared to tender. Figures 1.2 and 1.3 show the various stages in preparing a tender and the action needed with successful tenders. Figure 1.3 has additional tasks for a design and build contract. The work flow in an estimating department is never constant; the ideal situation is to have people available who are multi-disciplinary and can deal with administrative tasks. The cost of tendering for work in the construction industry is high and is included in the general overhead which is added to each successful tender. For one-off large projects, such as PFI contracts, bidding costs can be several millions of pounds. These costs are recovered when schemes are successful but written off against annual profits when contractors fail to win. The chief estimator needs to be sure there is a reasonable chance of winning the contract if the organization is in competition with others. The decision to proceed with a tender is based on many factors including: the estimating resources available; extent of competition; tender period; quality of tender documents; type of work; location; current construction workload and conditions of contract. With all these points to consider, a chief estimator could be forgiven for declining a high number of invitations to tender to maintain a high success rate and avoid uncompetitive bids which can lead to exclusion from approved lists. 3
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Site visit
Programmes & Temporary works design
O
Add overheads and profit
Fig. 1.2 Estimating and tendering flowchart (traditional contract)
TENDER SUBMISSION
O
O
Submit tender
Examine preliminaries
Complete net site cost estimate
O
O
Prepare tender documents
TENDER ADJUDICATION
Establish rates for labour & plant
Select material & s/c quotations
Price preliminaries
Build up rates Prepare estimator’s report
ACTION WITH SUCCESSFUL TENDER
Monitor methods and costs on site
Check contract documents
Pre-contract meeting
Prepare handover information
Check conditions of award
RESOURCES & PREPARATION OF THE ESTIMATE
Examine methods and programme
Establish outputs for labour & plant
Complete bills of quantity
PROJECT APPRECIATION & ENQUIRIES
Examine documents
Method statements and schedules
Send out material and s/c enquiries
Examine resource costs
INITIAL ACTIONS & APPRAISAL
Estimate timetable
Decision to tender
Prepare tender enquiry form
Receive documents
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TENDER SUBMISSION
Submit technical, financial and commercial bid documents
Prepare written submissions
Complete pricing pro-formas usually elemental cost schedules
PROJECT APPRECIATION & ENQUIRIES
Fig. 1.3 Estimating and tendering flowchart (design and build contract)
TENDER ADJUDICATION
Consider commercial issues
Add overheads and profit
Agree the cost estimate
Examine preliminaries
Examine methods and programme
Present technical content
INITIAL ACTIONS & APPRAISAL
Understand abnormals Engage with supply chain for advice on market rates
Attend design meetings Issue documents to subs
Programmes & Temporary works design
Prepare target cost plan using historical data
Agree schedule of accom with Client
Start-up meeting
Write the 'design-to-cost' statements
Gain understanding of the affordability target
Check and refine the schedule of accom'n
Appoint preferred subs
Appoint design team
Estimate timetable
Decision to tender
Prepare tender enquiry form
Receive + read documents
Obtain advice and Price ICT and FF+E
Agree and issue target cost plan
O
ACTION WITH SUCCESSFUL TENDER
Monitor methods and costs on site
Check contract documents
Pre-commencement meeting
O O
Prepare handover information
Check conditions of award
O
O
Prepare estimate cost plan
PREPARATION OF THE ESTIMATE
Analyse responses from subcontractors
Prepare prelims workbook
Monitor design against target CP
Measure net + gross floor areas
Prepare estimator’s report
Estimating and Tendering for Construction Work
On the other hand, he must recognize the goodwill which often flows from submitting competitive prices and the need to carry out work which might lead to suitable and profitable contracts. There are several forms that can be used to plan, control and monitor estimating workload. The first is a chart to show the opportunities to tender when they have been confirmed. The information for this programme usually comes from marketing personnel, who are responsible for bringing in invitations to tender for projects that are in line with company strategy. The chief estimator will prepare a bar chart (Fig. 1.4) to show how the estimators will be assigned to present and future tenders, showing the expected dates for receipt of documents and submission of tenders. Copies are sent to heads of other departments so they can plan their input; they may also wish to attend the final review meetings. A tender register is also needed (Fig. 1.5) to record the main details of each tender such as reference number, client, price, tender date and an analysis of performance in relation to the competition. The success ratio for a construction firm is often quoted at about 1 in 4 although it can be as bad at 1 in 6 and as good as 1 in 2 where competition is limited. Since the directors of a company are more concerned with turnover and profit, then success is better measured in terms of value, and the estimating department may be given annual targets to meet. Clearly, negotiated work and two-stage tendering can save a great deal of abortive work. Estimators are drawn from two sources: direct from school with some good grades in GCSE subjects which suggest a potential to study to a higher technician or professional level, or from experienced staff where management has identified an aptitude and willingness for the job. In both cases a reasonable time must be spent on site to gain experience in construction methods, materials identification, use and practice. The skills that are needed are the ability to read and interpret technical documentation, the ability to communicate with clients, specialists and other members of the team, and the faculty to make accurate calculations. Technically an estimator must have a working knowledge of all the major trades, to identify packages of work to be carried out by sub-contractors, and the direct workforce, to foresee the time and resources that will be needed. It is also necessary to have the skills needed to take off quantities from drawings, where there are no bills of quantities. When bills of quantities are provided, the estimator will need to check the principal quantities to understand how corrections to the quantities during the contract will affect the profitability of the scheme. An estimator needs to refer to many information sources either in book form or through more modern means such as microfiche, CD-ROM and on-line databases. The following list shows some of the basic material required:
• • •
Code of Estimating Practice (COEP) … pro-formas for estimators. Code of Procedure for the Selection of Main Contractors … tendering procedures. Standard Method of Measurement (SMM) … explanation of item coverage.
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7
1.7.08
30.7.08 19.8.08
3.7.08 20.6.08 10.7.08 30.7.08 22.8.08
date due 4.8.08
336 Lifeboat station
338 Access road
341 Treatment works
342 Superstore
346 Fast transport office
future tenders
Stansford College
7.7.08
Fig. 1.4 Estimating programme
Totals
16.6.08
335 St James School extensio 19.6.08
17.6.07
review date
current tenders
tender date
no.
CB CONSTRUCTION LIMITED
estimator GT
JS
JE
JS
GT
JE
PM CB
planner FD
FD
BT
BT
FD
FD
QS SS GB
GB
GB
GB
GB
21, 700, 000
8100 000
1350 000
5500 000
7
6
7
5
3
900 000
3 5
1250 000
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July 30 7
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21
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28
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August 4 11
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25
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September 1 8 15
Date
22
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30.5.08
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period June wks 2 9
2100 000
2500 000
value £m
ESTIMATING PROGRAMME
buyer
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Tender title
Fig. 1.5 Tender register
021
020
019
018
017
016
015
014
013
012
011
010
009
008
007
006
005
004
003
002
001
Tender no.
CB CONSTRUCTION LIMITED
Date Location received
Client
QS Architect Engineer
TENDER REGISTER
Date
Price
Tender details No. of tenderers Rank
% over lowest
Tender evaluation
page
% over mean
Organization of the estimating function
• • • • • • • •
Standard forms of contract … contractual obligations. Standard specifications for highways and water industries … specifications for pricing. National Working Rule Agreement … labour rates. Definition of prime cost of daywork … pricing daywork percentages. Daywork plant schedules … pricing daywork percentages. Trade literature: (a) standard price lists (b) technical product information. Trade directory of suppliers and sub-contractors … lists of suppliers to receive enquiries Reference data for weights of materials … unit rate pricing.
Quality management A company’s quality management system must include procedures for estimating and tendering. The decisions made at tender stage will often determine the way in which the project is carried out. It is therefore important when preparing a tender to ensure that the client’s requirements are understood, information is robust, and directors have approved the contractor’s proposals. Many organizations have adopted a standard approach to the process of estimating. Documented procedures are used that detail the preparation, review and submission of a tender. This is particularly useful for newly appointed staff as it provides a standard framework for the preparation of an estimate and ensures consistent records and reports for others. The preparation of documented procedures has come with the introduction of a British Standard, which provides a model for quality assurance. Now known as the BS EN ISO 9000 series, this standard was first introduced to the construction industry as BS 5750 in 1979. The objective of a quality assurance system is to provide confidence that a product, in this instance the tender submission, is correct, is provided on time and produces the right price. This price might be defined as that which the client can afford and deems reasonable, and is sufficient for the contractor to meet his business objectives. However, it is acknowledged that tenders are always submitted on time, but owing to time and information constraints, the price may not always be the ‘right price’. The benefits of implementing quality assurance in the estimating function are: 1. 2. 3. 4. 5. 6.
Profitability – an improvement to the profitability of the organization. Accuracy – a reduction of errors. Competence – better trained staff. Efficiency – work properly planned and systematically carried out. Job satisfaction – for the whole estimating team. Client satisfaction – leading to likelihood of repeat business. 9
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Estimating and Tendering for Construction Work
Health, safety and welfare Safety is high on the agenda of construction organizations. Estimators must understand the implications of current legislation for the design and procurement stages and include sufficient costs to carry out the work safely. A client’s professional team contributes to the writing of a health and safety file, by assessing hazards which might be inherent in the design. These hazards include possible dangers to construction operatives, staff and the public – during construction, for occupants and in carrying out repairs over the life of the building. The health and safety file tells the estimator about the project, setting out hazards associated with the design, and dangers known about the existing site. The Construction (Design and Management) regulations demand greater responsibilities on design-and-build contractors. Their tasks will often be extended by clients to include: 1. The role of CDM Co-ordinator. 2. Vetting of designers for competence in designing safely. 3. Producing the pre-tender stage health and safety file. Good health and safety systems ensure significant long-term business benefit, as follows:
• • • • • • •
less staff absence less staff turnover improved productivity and efficiency less down time improved quality of work lower insurance premiums best in class.
There are some clients who remain sceptical about why they are paying for health and safety and see little benefit to their business. They are forgetting that they have a moral and legal obligation to manage the safety of the overall project, and a safety culture will affect the attractiveness of the finished product. In addition, legal action following a failure in health and safety can damage a company’s reputation. Many incidents are not covered by insurance. Also the policy excess may be greater than the individual amounts concerned. All other costs will have to be met by the contractor. Many costs are not covered by insurance. They can include:
• •
investigations lost time and production delays
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Organization of the estimating function
Heading
Description
£
Staff
CDM co-ordinator Safety manager – visiting site Safety manager – on site Temporary works design checks Logistics planning
35 000 15 000 85 000 30 000 25 000
Equipment
Signage external Signage internal Safety clothing – client team Safety clothing – visitors Safety clothing – staff Personal protective equipment Fire equipment extinguishers etc First aid equipment First aid accommodation
4 000 9 500 8 000 2 500 11 000 Above 15 000 1 800 10 000
Safety lighting Barriers for segregated walkways Safety netting (priced with scaffolding)
5 000 6 000
Training
Safety induction CSCS cards
Processes
Considerate Contractors Scheme
3 500 25 500 750
Fig. 1.6 Example of the additional costs for Health and Safety for a £50 m project
• • • • • • • •
sick pay damage or loss of product and raw materials repairs to plant and equipment extra wages, overtime working and temporary labour fines loss of contracts legal costs loss of business reputation.
The Construction (Design and Management) Regulations impose certain requirements at tender stage. The following should be checked by the tender team: 1. A CDM co-ordinator has been appointed and attends team meetings. The CDM co-ordinator’s role is ‘to advise the client on health and safety issues during the design and planning phases of construction work’ (HSE). In most design and build projects, the CDM co-ordinator will attend design meetings to encourage others to fulfil their responsibilities. 11
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Estimating and Tendering for Construction Work
2. Sub-contractors have been vetted for their H&S procedures and performance. 3. Designers have been checked for the H&S procedures and performance. 4. Site accommodation, in the estimate, is of an appropriate standard to provide a safe environment for site staff and ensure a high standard of welfare. 5. Site phasing and logistics are designed to reduce the risk of accidents. 6. Designs produced are, from the start, safe to build and maintain. 7. Construction work is notified to the HSE by the CDM co-ordinator. 8. Data for the information file will be provided. 9. Planning and management of risks is improved from the start. Health and safety is priced in various parts of the estimate but is most obvious in the preliminaries. Figure 1.6 shows part of a preliminaries spreadsheet which deals with identifiable items. Other issues are included in temporary works and plant sheets together with trade packages.
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