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l7estimationsp04 - Award Methods and Project Estimation I...

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Unformatted text preview: Award Methods and Project Estimation I Nathaniel Osgood 3/1/2004 Talk Announcement I Joachim Eble (Title TBA) Major figure in green building design March 16, 2004, 4 6 PM Talk Announcement II "Contour Crafting Construction: Houses Straight from the Printer" Behrokh "Berok" Khoshnevis, Professor (USC) Monday, March 22, 2004 2:00 p.m. - 4:00 p.m Themes from Granli Talk Key megaproject issues Management of uncertainty Need for lead indicators to spot problems early Whole lifecycle management Dealing with entire project ecosystem Procurement Partner issues Governance Political support Community concerns Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Award Methods: Contractor Selection Extremes Payment method: Reimburseable Fixed Price Commodity Bidding Product Type: Award method Service Solicit based on Reputation and agree via Negotiation Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Bidding Variants Low bid Multi-parameter bidding Low bid plus arithmetic combination of other factors Low bid divided by ranking of other factors To allow for fast-tracking may bid early (30%) Fixed price low bid is win-lose Typically associated with lump-sum contract Prequalifications critical Bidding Advantages Can get good price Transparency Well-understood method Approved by regulatory structures For owner: Contract terms can be set by owner Bidding Disadvantages Can set up win-lose situation Insufficient consideration of design before pricing Low bidders can be unreliable -- Prequalify aggressively! Can be very bad for design (design-build, CM at risk) Pressure for lowest bid can eliminate profit from bid Cutting corners Placement of low-quality personnel Bad feelings Bidding Tradeoffs Time provided to bidders to review documents Too long: Construction delayed Too short: Bids low-quality because too little time to review contract docs (incorporate high risk premium or unrealistically low) Few bidders willing to participate Bid count Too many bidders: Scare away best contractors Too few bidders: Bid not competitive Bidding Metrics Most common: Price alone Bidding "cap": Bid on how far can go with set amount of money Multi-parameter bidding (increasingly popular) Consider non-price items (time, quality, qualification) A+B Additive measures Price+($/day)*days (common for retail), Price+qualification+design rank, price+design rank,... A/B (e.g. B scoring along some metric: Design, etc.) Bidding Process A/E or CM oversight typical Publicity (specifies qualification requirements) Provide bid documents E.g. fair cost estimate, sample contract, general & specific conditions, specifications & drawings, supplemental provisions Answer RFIs Pre-bid conference Explain scope, working conditions, answer questions, documented in writing) Qualifications Common items for qualifications Bonds/Insurance (bid, performance, payment) Safety record Reputation Financial strength Total/Spare capacity Licensing Background in type of work Experience in local area/labor market Management system (QA, planning, estimation, control) Interest, adaptability shown Public vs. Private Bidding Public Bidding Must be publicly advertised (posting in newspapers, public building, etc.) Qualification occurs after submission of bids Typically 60 day period in which can submit bids Private Bidding May be by invitation only Qualification occurs before submission of bids Dealing with Way-Out Low Bids Forcing collection from unrealistically low bids is dangerous Construction highly contentious, poor morale Risk of extreme corner cutting Default is possible Disruption Insurance companies fulfilling performance bonds very difficult to work with Subcontracting Bid Issues GCs solicit bids from subcontractors GCs push subs for lowest possible price before GC bids GC not obligated to use quoted subcontractor Can lead to serious predatory behavior Bid shopping (before and after GC wins bid) Bid peddling (unsolicited calls from subs to GCs after GC wins bid) Some owners/states require listing of chosen subs at bid time or assign based on sub-bidding Bonding Bid Public ~20% or as low as 5% of Bid Private 5% to 10% of Bid Miller Act 1935 Performance 100% Complete Job at Bid Price Payment Cover Unpaid Bills by Contractor 50% for > $1M 40% for $1M < X < $5M 2.5M for > $5M Cost 1% per $1K up to $200K Lower for > $200K Calculation No Track Record: 5 or 6 Net Quick Assets Old Reliable Record: 40+ Net Quick Assets Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Negotiation Typically selected based on reputation, qualifications Typically used in pure form for two cases Very simple Use trusted, familiar party Very complex/big Get contractor involved in design, start work early Requires relatively savvy owner Evaluate proposals, monitor performance Important even for DBB for post-bid changes Negotiation Considerations Can get win-win because of differences in Risk preferences Relative preferences for different attributes Goal is to find a pareto optimal agreement Key skill in negotiation: Ability to find win-win options Negotiation Tips Try to maintain clear sense of reservation price Price or conditions under which will accept offer Want to adopt some objective basis for position Without this impersonal criteria, other party can take disagreements personally as arbitrarily demands Discuss multiple issues at once Permits trading off issues flexibly Formal exposure goodbut experience gives edge Negotiation Tips 2: Major Sins of Negotiation (Thomson, 2001) Leaving money on the table: Failing to identify and use win-win opportunities Settling for too little: Unnecessarily large concessions Walking away from the table: Rejecting terms that are favorable, often due to pride Settling for terms worse than existing alternative: Pressure to reach some deal leads to opportunity less attractive than opportunity cost Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Life-Cycle Costing Stages Conceptual Design Phase Detailed Design Phase Production Phase Operation and Maintenance Phase Divestment Phase Effect of Decisions on Life-Cycle Cost of a System Cost Estimate Errors Over Time Items where LCC Important Focus on non-static portions of structure Portions that move, undergo a lot of use/wear, require maintenance or replacement Examples Carpets, HVAC, electrical system, finishings, parking, roofing,... Interdependencies critical E.g. HVAC and insulation considered together Cost Classification by Life-Cycle Phase Total Life-Cycle Cost of the System Life-Cycle Cost by Phase Cost Breakdown by Labor and Material Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Estimation Levels - Introduction Different types of estimates are required as a project evolves Conceptual and Preliminary Estimates Prior to engineering design completion Definitive Estimates forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards Detailed Estimates (Engineer's and bidding) Prepared from completed plans and specifications Elements of Estimation Further Estimate Details I Further Estimate Details II Class Estimate Prepared by Contingency and Escalation Estimated by Engr. & Mgt. Fee Order of Magnitude Owner Single % % of constructed cost Engineer's or Preliminary Owner's Control Owner, Consultant, Owner, Consultant, Owner, Consultant, Owner, Consultant, CM or Turnkey CM or Turnkey CM or Turnkey CM or Turnkey Contractor Contractor Contractor Contractor Conceptual Definitive Broad evaluation % of constructed cost % of direct cost Broad evaluation Detailed evaluation Detailed estimate Bid Level Construction Contractor Detailed estimate Risk simulation Broad estimate Broad estimate Detailed estimate Detailed estimate Contractor's Overhead & Profit Implicitly included % of direct cost % of direct cost % of direct cost Detailed estimate Const. Plan None Not required Desirable Desirable Highly Desirable Required Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Conceptual/Preliminary Estimates Help decide feasibility Very useful for rapid iteration of design plans Great variability according to type Categories: Time-referenced cost indices Cost-capacity factors Component ratios Parameter costs complexity Accuracy Cost Indices Show changes of costs over time Changes in: Technology Methods Productivity Inflation Both input and output cost indices available Published periodically by Engineering NewsRecord and other publications Input Cost Indices Reflect price changes for a certain "basket" of goods Like Consumer price index Very general Problems May not reflect particular inputs of project Ignore productivity changes Ignore technology changes Competiveness of contractors (lowered overhead) Cost Indices Component Calculations ENR's Building Cost Index is computed as follows: Components: 1,088 board feet of lumber (2x4, 20-city average) 2500 pounds of structural-steel shapes (20-city average, base mill price before 1996, fabricated after 1996 1.128 tons of Portland cement (bulk, 20 city average) 66.38 hours of skilled labor (20-city average of Bricklayers, Carpenters, and Structural Ironworkers) http://www.enr.com/cost/costbci.asp Cost Indices Time Conversion We convert from one base period to another "current cost" = 3802 (February 2004) Base cost (1913) = 100 Index on 1913 base = 3802% Example 1: Warehouse estimate: Assume you have an estimate to a similar warehouse completed in 1978 for a cost of $4,200.000. We are planning to build the new one in 2002. The ENR index for 1978, relative to the base date of 1913, was 1654% 3802%/1654% x 4,200,000 = $9,654,413.54 ~ $ 9,650,000 Output Cost Indices Look at historical costs for similar projects Tend to be rather narrow in definition May not find close match for facility in question Cost Indices Use and Accuracy 20% to 30% Accuracy Negligible time and effort Valuable for Preliminary Planning Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Cost-Capacity Factor Apply to changes in size, scope, or capacity of projects of similar types Reflect the nonlinear increase in cost with size (economies of scale, learning curves) C2 = C1 (Q2/Q1) x Where C2 = estimated cost of the new facility with capacity Q2 C1 = known cost of facility of capacity Q1 x = the cost-capacity factor for this type of work Cost-Capacity Factor II X is empirically derived factors based on well-documented historical records for different kinds of projects Q are parameters that reasonably reflects the size of the facility (barrels per day produced by a refinery, tons of steel per day produced by a steel mill, gross floor area for a warehouse, etc) Cost-Capacity Factor Example Consider the cost-capacity factor x = 0.8 for a warehouse. We have available an estimate for a similar warehouse located nearby with a usable area of 120,000 square feet (from Example 1), cost $4.2E6 in 1978. The prospective owner for the new warehouse wants a structure with a usable area of 150,000 square feet Pena-Mora, 2003 Cost-Capacity Factor Calculations Solution: C2 = 4,200,000 x (3802/1654) x (150,000/120,000) 0.8 = $11,541,278 Cost-capacity factor can be accurate to within 15 to 20% of actual costs Pena-Mora, 2003 Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Component Ratios Focus on Major Equipment Compressors Pumps Furnaces Refrigeration Units Belt Conveyors Turbine Generators "Equipment-Installation-Cost-Ratios" "Plant-Cost-Ratios" Component Ratios: Installation Cost Multiply the Purchase Cost by Installation Cost Factor +/- 10 to 20% Accuracy Component Ratios Factors Typical Equipment Installation Factors* ITEM Belt conveyors Bucket elevators Centrifugals, disk or bowl Top suspended Continuous Crystallizers Dryers, continuous drum Vacuum rotary Rotary Dust collectors, wet Dry Electrostatic precipitators Electric motors plus controls Filters Gas producers Instruments Ion exchangers Towers Turbine generators INSTALLATION COST, % 20 - 25 25 - 40 5 -6 30 - 40 10 - 25 30 - 50 100 150 - 200 50 - 100 220 - 450 10 - 200 33 - 100 60 25 - 45 45 - 250 6 - 300 30 - 275 25 - 50 10 - 30 * Adapted from F. C. Jelen (ed.), Cost and Optimization Engineering, McGraw-Hill Book Company, New York, 1970, p. 316. Includes accessories. Component Ratios Plant Cost Plant-cost-ratios use equipment-vendorprice-quotations ITEM Blowers and Fans Compressors Furnaces Heat Exchangers Instruments Motors, Electric Pumps Tanks Towers Total COST $ 10,000 50,000 100,000 80,000 50,000 60,000 20,000 125,000 200,000 $ 685,000 FACTOR 2.5 2.3 2.0 4.8 4.1 8.5 7.0 2.4 4.0 PLANT COST $ 25,000 115,000 200,000 384,000 205,000 510,000 140,000 260,000 800,000 $ 2,639,000 Component Ratios Factors Process-plant Cost Ratio from Individual Equipment* EQUIPMENT Blender Blowers and fans (including motor) Centrifuges (process) Compressors: Centrifugals, motor-driven (less motor) Steam turbine (including turbine) Reciprocating, steam and gas Motor-driven (less motor) Ejectors (vacuum units) Furnaces (package units) Heat exchangers Instruments Motors, electric Pumps: Centrifugal, motor-driven (less motor) Steam turbine (including turbine) Positive displacement (less motor) Reactors-factor as approximate equivalent type of equipment Refrigeration (package unit) Tanks: Process Storage Fabricated and field-erected (50,000 + gal) Towers (columns) FACTOR 2.0 2.5 2.0 2.0 2.0 2.3 2.3 2.5 2.0 4.8 4.1 8.5 7.0 6.5 5.0 2.5 4.1 3.5 2.0 4.0 * From W. F. Wroth, "Factors in Cost Estimation," Chem. Eng., vol. 67, October, 1960, p. 204; and F. C. Jelen (ed.), Cost and Optimization Engineering, McGraw-Hill Book company, New York, 1970, p. 316. Multiply purchase cost by factor to obtain installed cost including cost of site development, buildings, electrical installations, carpentry, painting, contractor's fee and rentals, foundations, structures, piping, installation, engineering, overhead, and supervision. Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods Parameter Costs Source Data Commonly used in building construction ENR "Quarterly Cost Roundup" R.S.Means "Means Square Foot Costs" NB: Different from RS Means Building Construction Cost Data! Parameter Costs Characteristics Relates all costs of a project to jut a few physical measures, or "parameters", that reflect the size or scope of the project Warehouse - the "parameter" would be "gross enclosed floor area" With good historical records on comparable structures, parameter costing can give reasonable levels of accuracy for preliminary estimates Project Organization Award Methods General points Bidding Negotiation Lifecycle Costing Estimation Introduction Conceptual Estimation Cost indices Cost-capacity factors Component ratios Parameter costs Detailed Estimation Quantity Takeoff Labor Cost Estimation Probabilistic methods ...
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This note was uploaded on 10/29/2008 for the course PM 1040 taught by Professor Dr.nathanielosgood during the Spring '04 term at MIT.

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