Daniel Portillo Assistant Director of Small Business Programs

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Mission and Installation Contracting Command

Daniel Portillo

Assistant Director of Small Business Programs

[email protected]

April 27, 2010

7th Annual Procurement & Contracting Symposium

Principles of Construction Estimating

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Agenda

• Solicitation Requirements• The Construction Estimate• Negotiation Process, Award, Notice to Proceed

• Pre-Construction Conference• Construction Management

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Solicitation Requirements (Examples)• Solicitation Number: • W9126G-10-R-0037 • Notice Type: • Presolicitation • Synopsis: • Added: Dec 18, 2009 11:06 am • FOR INFORMATION ONLY: This project will be solicited

under an existing Multiple Award Task Order Contract, (MATOC) within the Corps of Engineers. Each contractor is being given a fair opportunity for this project. The Government will make award based on the lowest priced, technically acceptable proposal.

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FOR INFORMATION ONLY: This project will be solicited under an existing Multiple Award Task Order Contract, (MATOC) within the Corps of Engineers. Each contractor is being given a fair opportunity for this project. The Government will make award based on the lowest priced, technically acceptable proposal. 2009-12-1

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Solicitation Requirements (Example)• Solicitation Number: • GS-07P-10-UK-M-0012 • Notice Type: • Combined Synopsis/Solicitation • Synopsis: • Added: Nov 09, 2009 10:20 am • The General Services Administration seeks to contract for the replacement of a 35-

ton compressor for chiller #1 inside the central plant at Los Indios Border Station, 100 Los Indios Blvd, Los Indios, Texas. The Contractor shall furnish all of the necessary supplies, materials, labor, equipment, and supervision to accomplish the work within the project timeframe and in accordance with all regulations and specifications. The work shall include, but not be limited to, remove and recapture all R-22 refrigerants in the refrigerant circuit, remove a 35-ton Trane compressor (Model# CRHR350K2HA0, SERIAL # A2B35N4431, Electrical Characteristics 460/60/3) from chiller #1, install a new 35-ton compressor equivalent to the existing Trane model, remove and replace existing drier core twice and add R-22 refrigerant, as necessary, to ensure proper operation of the chiller system.

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Solicitation Requirements (Example continues)• The contractor shall provide a base bid with a detailed cost breakout. Cost breakout shall be formatted

per the Construction Specification Institute (CSI) divisions of work breakdown. The solicitation issuance date will be Tuesday, November 10, 2009.

The contractor shall be required to complete the entire work ready for use no later than 90 calendar days after Notice to Proceed. Work shall be performed during normal working hours (8:00 am - 5:00 pm) Monday through Friday.. If the contractor fails to complete the work within the time specified in the contract, the contractor shall pay liquidated damages to the Government in the amount of $200.00 for each calendar day of delay until the work is completed or accepted.

•All contract employees working on premises at GSA owned and operated buildings are required to pass a security background check conducted by the Department of Homeland Security. The successful offeror shall provide the employees background information within 10 calendar days after contract award.

•This project will be awarded based on "Best Value to the Government" considering price, past performance and schedule delivery.1.

A Pre-Proposal Conference is schedule for Tuesday, November 24, 2009 at 10:00 am at the Administration Building Conference Room, Los Indios Border Station, 100 Los Indios Blvd, Los Indios, Texas.

Proposals are due by 5:00 pm on Thursday, December 10, 2009. Proposals may be fax to 956-618-8149 or e-mail to [email protected] or mail to the address below.

•Submit your proposal to:

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The Construction Estimate• An estimate is a calculation of the quantities of various items

of work, and the expenses likely to be incurred there on. The total of these probable expenses to be incurred on the work is known as estimated cost of the work. The estimated cost of a work is a close approximation of its actual cost. The agreement of the estimated cost with the actual cost will depend on accurate use of estimating methods and correct visualization of the work, as it will be done. Importance of correct estimating is obvious. Under-estimating may result in the federal government client getting an unpleasant shock when tenders are opened and drastically modifying or abandoning the work at that stage. Over-estimating may lose the engineer or estimator his client or his job, or in any case his confidence.

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Detailed Construction Estimate

• A detailed estimate of the cost of a project is prepared by determining the quantities and costs of every thing that a contractor is required to provide and do for the satisfactory completion of the work. It is the best and most reliable form of estimate. A detailed estimate may be prepared in the following two ways

(a). Unit quantity method(b). Total quantity method.

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The Construction Estimate – Unit Quantity Method• In the unit quantity method, the work is divided into as many

operations or items as are required. A unit of measurement is decided. The total quantity of work under each item is taken out in the proper unit of measurement. The total cost per unit quantity of each item is analyzed and worked out. Then the total cost for the item is found by multiplying the cost per unit quantity by the number of units. For example, while estimating the cost of a building work, the quantity of brickwork in the building would be measured in cubic meters. The total cost (which includes cost of materials. labor, plant, overheads and profit) per cubic meter of brickwork would be found and then this unit cost multiplied by the number of cubic meters of brickwork in the building would give the estimated cost of brickwork. This method has the advantage that the unit costs on various jobs can be readily compared and that the total estimate can easily be corrected for variations in quantities.

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The Construction Estimate – Total Quantity Method• In the total quantity method, an item of work is divided into

the following five subdivisions: (a) Materials(b) Labor(c) Plant – Types and quantities of equipment(d) Overheads – General and Administrative Cost, labor overhead(e) Profit. (f) BondingThe total quantities of each kind or class of material or labor are found and multiplied by their individual unit cost. Similarly, the cost of plant, overhead expenses and profit are determined. The costs of all the five sub-divisions are summed up to give the estimated cost of the item of work. The bonding cost is added at the end of the total estimated cost.

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The Construction Estimate – Things to consider• Suggested or mandated site visits – attend them. If not

attending a mandated one, can disqualify you. • Labor – Use the Wage Decision rates provided in the

solicitation, if not provided, search for the wage decision on http://www.wdol.gov/dba.aspx#0 for the state and place of work where work will be performed. Look for the right State, county and construction type (building, heavy, highway, and residential). Pay attention to the right labor category and corresponding rates. Pay at least the minimum rate and fringe benefit per the wage decision.

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The Construction Estimate – Things to consider• Overheads

Fringe Benefits are comprised of such as: Paid Leave (Holiday, S/L, Vacation, Other) Health & Welfare employer contributions 401(k) contributions, stock options, allowances Payroll Burden comprised of employer taxes: FICA (Social Security + Medicaid) Federal Unemployment Tax Act (FUTA) State Unemployment Tax Act (SUTA) Workmen's’ Compensation Act Insurance General and Administrative – any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole.

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The Construction Estimate – Things to consider• Direct Material • Types and Quantities

Raw material, parts, supplies, components Cost realism – understanding of the Scope of Work Cost analysis – in compliance with drawings and specifications Aspect of technical evaluation (resources) Adjustments must be specified by evaluators

• Unit Prices Check against benchmark prices for same or similar items May be 100% or random sampling plan (e.g., stratified) Many on-line sources of info, e.g.

• Grainger Industrial Supply, McMaster-Carr, Ace, GlobalSpec• Office Depot, Office Max, etc. – office supplies• Tires – various brands and tire distribution centers (NTW)• Auto Parts – NAPA, Advance, J C Whitney, Carquest, AutoZone, Auto Parts

Warehouse• Building materials – ebuild.com, buildingforhealth.com, arcat.com

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The Construction Estimate – Things to consider• Equipment• Types and Quantities

Cost realism – understanding of scope Cost analysis – understanding of scope Aspect of technical evaluation (resources) Adjustments must be specified by evaluators

• Rent, Lease or Purchase Contractor may furnish equipment through purchase, rent or operating

lease – must analyze lease or rental terms for reasonableness* compliance with “color of money” rules and FAS-13 for operating leases

Purchase – must comply with FAR, GAAP, CAS regarding depreciation or usage charges (cannot charge full price unless equipment will be consumed within contract)

• Determination of appropriate lease or rental premiums must be based on complete info as to lease methodology, interest rate charge, purchase price (lease basis or depreciation charge as part of lease payment)

*If provided through operating lease, interest is not unallowable as component of periodic lease payment

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The Construction Estimate – Things to consider• Profit – The government likes to use Firm Fixed Price type contracts where the risk is passed 100% to the contractor, but it is evaluated based on the duration and complexity of the construction work. The higher the risk, the higher the profit. In a competitive environment, strong consideration for lower profit margins is the norm.

• Bonding – performance and payment bonds. Both are normally required for projects that exceed $100,000. The bonding is for 100% of the project price. Most bonding costs fluctuate between 2 to 5 percent of the project estimated cost.

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Negotiation Process, Award, and Notice to Proceed• In a competitive environment, there is basically no negotiations,

except subject to discussions (bargaining and negotiations) held by the government from all the contractors in the competitive range. The award price is the lowest price technically acceptable proposal or the best value to the government as determined by the evaluation criteria and the contractor’s evaluated proposal.

• In a sole source basis such as an award under the small disadvantaged business procedures of the 8(a) Program, there will be most likely negotiations. In this case, the government utilizes the independent government estimate as a basis for negotiations. If the contractor’s price is found to be not fair and reasonable, the government does not have to negotiate with the contractor and will request another 8(a) contractor from the local Small Business Administration 8(a) portfolio of construction companies.

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Negotiation Process, Award and Notice to Proceed• Do not proceed to do anything until you are given a notice to proceed. Expenditures are not reimbursable before the notice to proceed is given. This notice can take days and sometimes weeks.

• Once notice to proceed is given in writing by the Contracting Officer, go ahead and order all long-lead material items so that you can meet the construction schedule as required by the solicitation or negotiated before contract award.

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Pre-construction Conference

• The government has a meeting with the awardees and discusses the construction project, scope, drawings, specifications, special contracting provisions, safety, security, permits, material submittals, inspections, changes, unauthorized commitments, liquidated damages, etc. This is a meeting to introduce all of the parties that will be involved in the administration and performance of this contract. Make sure you ask all pertinent questions on areas not completely understood.

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Construction Management

• Keep the construction schedule on schedule. Any changes due to weather, excusable delays, government work stoppages must be noted and the schedule revised. Otherwise, liquidated damages will apply for delays to include termination for default for failure to perform in a timely manner in accordance with the construction schedule.

• Avoid safety violations, pay the prescribed wages, do not accelerate the schedule without authorization, otherwise it is at your expense.

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Reference Material

• RS Means Building Construction Cost Data• Standard Estimating Practices• Construction Estimating Software• Project Management Software

• ANY QUESTIONS? THE END

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Daniel Portillo Assistant Director of Small Business Programs

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