Project Cost Estimating A Synthesis of Highway Practices

1. Project Cost Estimating A Synthesis of Highway Practices Presented by: Christine M. Fiori, Ph.D., P.E. Arizona State University

2. Arizona State UniversityResearch Team • Clifford J. Schexnayder, Ph.D., P.E. • Eminent Scholar • Sandra L. Weber, Ph.D., P.E. • Associate Professor • Christine M. Fiori, Ph.D., P.E. • Assistant Professor • Jonathon E. Burns • Graduate Student

3. Overview • Introduction • Methodology • Data Analysis • Results • Recommendations • Conclusions

4. Why Estimate? • Estimates influence: • allocation decisions • influence long-term spending plans • serve as a framework for accounting and control • Serves as a baseline to measure project management performance • Estimate also works the project into the DOTs five (5) year project plan

5. Research Focus • Review of DOT estimating practices • Primarily concerned with pre-bid estimates • Conceptual estimating procedures were also examined • Current challenges of large transportation reconstruction projects in urban environments.

6. Methodology • All fifty DOTs were contacted and interviewed • Points of contact were generated using an AASHTO committee member list and by researching state DOT web sites. • Each DOT was electronically forwarded an advance copy of the survey and an interview was scheduled.

7. Interview Goals • Document estimating practices of state DOTs • Ascertain methods for the resolution of discrepancies between DOT estimates and bid prices • Identify problems that remain largely unresolved across the country • Determine practices that produce estimates within a + 5% variability between the DOT estimate and contractor bid.

8. Data Analysis • Project ranges were established, allowing differentiation between DOTs • Determined program size • Efforts were made to maintain a sufficient number of DOTs in each category to support the validity of conclusions

9. Project Data • Four Ranges of Project Cost • $10 to $25 Million • $25 to $100 Million • $100 to $200 Million • Greater than $200 Million

10. DOT Program Classification • Projects Greater than $10 Million • Small DOTs < 20 projects • Medium DOTs - 21-75 projects • Large DOTs - 76+ projects

11. How are DOTs Estimating? • Conceptual Estimates • Contingencies • Life Cycle Cost • Pre-Bid Estimates • Computer Use • Personnel • Training

12. Conceptual Estimates • 31 DOTs use estimating cost data that are based solely upon historic cost averages for similar projects • 18 other states determine quantities based on the conceptual design and follow the same procedures that are used for pre-bid estimates • 3 of these states prepare detailed estimates based on preliminary design information. • One state reported allowing engineers to use whatever method they thought best to generate conceptual estimates.

13. Contingencies?

14. Life Cycle Cost Analysis • 27 DOTs complete on pavement materials only • 14 DOTs perform during the conceptual phase • 9 DOTs were unaware of any analysis performed during project development

15. Pre-Bid Estimates • Three methods • Historical Data • Detailed Estimate • Combining historical data with actual cost development

16. Historical Bid Price Estimating

17. Detailed Estimating • Requires a great deal of knowledge • Construction methods • Supply systems • Labor markets • Method productivity • Requires more time to prepare a detailed estimate • 19 states perform detailed estimates for major work items, using historic databases to track costs • Dedicated estimating sections whose personnel have the necessary construction experience. • Use computer software that supports estimate development.

18. Computer Use • Most widely used estimating software is the TRNS*PORT Estimator module • 23 were using the software • 7 using Bid Tabs • 1 uses HCSS Heavy Bid • 1 uses AutoCAD – quantity takeoff • 18 use their own in house program

19. Personnel • Experience <1 year to >40 years • Some DOTs facing a shortage of qualified estimators due to retiring of experienced personnel • 26 DOTs have separate dedicated estimating sections • 24 DOTs personnel prepare estimates as an ancillary duty

20. Training • 10 DOTs have formal estimator training programs in place or under development • Mentoring and on the job training (OJT) are used extensively by all DOTs • 16 DOTs have manuals that cover estimate preparation • 2 DOTs are in the process of developing estimating manuals • 32 DOTs do not have formal written guidance for estimate preparation that can be referenced by the estimator

21. Estimate Items • Overhead • Contractor Mobilization • Demolition Work • Traffic Control • DOT supplied materials • Unique and Specialty Items

22. Incentive Funds • 26 DOTs have incentive funds programmed in the construction estimate • 9 DOTs have incentive funds that come from other projects that are below budget • 10 DOTs have incentive funds that are paid out of project contingency funds • 5 DOTs currently have no incentives program in place

23. Other Estimating Considerations • 23 DOTs operate with contingency budgets, 27 DOTs without • 33 DOTs adjust their estimate based on schedule, 17 do not • 38 DOTs adjust their estimates based on special conditions, 12 DOTs do not • 38 DOTs adjust their estimates based upon the location within the state, 12 DOTs do not

24. Project Award • 26 states require no action for award on bids below DOT estimate • 12 DOTs require justification if it is more than 10-30% below DOT estimate • Bids 5-25% above DOT estimate must be reviewed depending on the state laws • 8 DOTs require all projects be reviewed prior to award

25. Collusion Detection • 7 DOTs do not actively attempt to detect • 11 DOTs require contractors to sign a form that is submitted with the bid • 34 DOTs run a bid history for each project and contractor to see if there is a pattern in project awards

26. Releasing Information • 20 DOTs release during project planning an anticipated project cost range • 22 DOTs release after award all bidder information and total project amount • 10 DOTs release the information at the bid letting • 19 DOTs release a copy of the DOTs estimate including quantities and unit costs

27. Bid Comparison Data for all DOTs

28. DOTs using Detailed Estimating

29. DOTs using Historic Bid Price Estimating

30. Projects valued between $10-$25M

31. Projects valued between $25-$100M

32. Challenges of Major Projects • Stretch available resources to the limit ─ labor, material, management skill, and information systems • Have a high profile with political subdivisions and the public • Are very noticeable by regulators • Are unusually long duration projects and there is less likelihood of maintaining continuity of management

33. Reasons for Cost Overruns • Protection of the natural environment from the effects of the project • Protection of the public health and safety from the effects of the project • Controls on the use of labor or procurement • Other government standards or regulations • Whether or not the project embodied any first-of-a-kind technology.

34. Recommendations • Estimating Guidance • Conceptual Estimates • Design Phase Cost Control • Pre-Bid Estimates • Award • Release of Estimate • Design Build Projects • Projects Valued Over $100 Million

35. DOT’s must consider: • How are estimates usually done? • What do we need to do to get a valid estimate? • How do we develop a reliable cost estimating and validation process? • The estimating process must evaluate variability and risk using logical, reasonable statistical (probability) methods

36. To ensure future success DOT’s must . . . • Avoid false precision • Relate contingency to the layman’s everyday experiences with uncertainty • Invest in continuous and transparent QA/QC of your estimating processes