Construction estimating involves predicting the total cost of a construction project by accounting for all possible expenses, such as materials, labor, equipment, permits, overhead, and anticipated profit. This essential step in pre-construction planning helps assess project feasibility, define scope, and establish an accurate budget. If you bid too high, you may not get the job, and if it’s too low, you won’t make any money or worse, you may lose money!
An accurate estimate also prepares the owner for what’s ahead and helps them decide whether they have the funds necessary to move forward with the project. If you’re submitting a bid as part of an RFP process, a thorough estimate can set you apart from competitors, even if your bid is higher.
Here is your step-by-step guide to construction estimating to win over clients while building a profitable construction business.
What Does a Construction Estimator Do?
Large construction companies often hire construction estimators. Cost estimators are big-picture people. They can evaluate a project from multiple perspectives, anticipate possible challenges, and mitigate against potential change orders. Estimators analyze project plans based on project specifications and contract documents to prepare cost estimates for direct and indirect costs while building in contingencies and profit.
In addition to being skilled with numbers and having in-depth knowledge of building supply and labor costs, they are excellent communicators. Construction estimators collaborate with the construction team, including architects, engineers, and project managers.
5 Steps in the Construction Estimating Process
While a lot goes into each step, there are essentially five steps: identifying the project scope and conducting a site visit, preparing a cost analysis including direct and indirect costs, planning for contingencies, building in a profit margin, and submitting a bid.
Let’s take a closer look at each step.
Project Scope and Site Visit.
The bid package contains the information you need to get an overview of the project. It contains owner-contractor agreements, insurance bond forms, conditions, and construction specifications.
During this phase, you want to get a really good idea of the project scope and any specialty contractors you might need, including mechanical, electrical, and plumbing (MEP) requirements. Pay close attention to any non-standard items that might affect costs.
Use the site visit to verify access, site conditions, and utilities and to determine whether there are issues that need to be addressed that affect costs, such as drainage issues, location of utilities, and inadequate access.
Cost Analysis.
There are two components to the cost analysis: direct costs and indirect costs. Together these costs include all potential expenses such as materials, labor, subcontractors, equipment, and overhead. Cost estimators use construction estimating software to simplify this process.
Direct Costs.
Direct costs include materials, labor, and equipment. Labor costs include employees and subcontractors and should have a cushion for potential overtime pay. Equipment costs include purchases and rentals.
Materials are calculated using what is called a material takeoff or quantity takeoff. A quantity takeoff counts every item required for the project listed the way they are measured: quantity (e.g., doors, windows), area (e.g., drywall, flooring, insulation), volume (e.g., concrete), and length (e.g., wire, piping).
Indirect Costs.
Indirect costs include indirect field costs and overhead expenses. These are expenses necessary for project completion but not directly tied to the construction work, such as permits, insurance, bonding, temporary facilities, and management salaries.
Contingencies.
Estimators factor in extra costs for unforeseen circumstances, potential overruns, and waste. This amount varies significantly but generally is calculated between 5 and 10% of the total contract price.
Profit Margin.
A project only makes sense if it makes a profit. Construction companies determine their own minimum profit margin based on their goals, market conditions, and other factors.
Finalize and Submit the Bid.
Once the process is complete, the bid is submitted. In an RFP process, all bids are sealed until the deadline to keep the process competitive.
5 Types of Estimates
The American Society of Professional Estimators developed five levels to construction costs estimating, each building on the other. The premise is to determine early on whether the project is feasible before getting into the details of how much it will cost.
Here are the five tiers:
- Order of Magnitude. This is a very rough idea of how much the project will cost based on similar past projects to determine if the project is feasible and worth pursuing.
- Schematic Design. Once a project is considered feasible, square foot calculations are used of similar projects to estimate overall costs of the new project.
- Design Development. The next level uses a tentative project design to adequately determine materials and quantities to establish a rough estimate for the specific project.
- Construction Document Estimate. This estimate is based on a completed design document with comprehensive drawings and specifications for the project. Estimators can establish a fairly realistic budget for a project here.
- Bid Estimate. This is the most detailed estimate based on the bid package.
Do Contractors Get Paid for Estimates?
Typically, contractors are not paid for estimates. However, their cost is often included in the bid as an indirect cost or built into the overall profit of the project. Estimator salaries are an overhead expense for a construction company—their role is vital for securing business.
Why Accurate Estimating Is Crucial for Contractors
The construction cost estimator’s job is pivotal to the success of the company. An accurate cost estimate minimizes cost overruns and budget issues and ensures profitability for the project. Accurately estimating total costs also builds trust and credibility as a company.
How Contractors Can Improve Their Estimating Skills
Contractors can improve their estimating skills with practice and continuing education. Professional construction estimating courses in Florida build a solid foundation to accurately prepare different types of estimates used to bid on construction projects. Courses often include how to use estimating software and automation tools and shortcuts estimators can take to speed up the process without sacrificing the detail needed for accurate costs estimate.
Construction estimating requires the know-how learned through continuing education and practice gained through experience. You’ll also need to stay keenly aware of labor and material costs and trends. Over time, you’ll refine the process.
Conclusion
Construction cost estimating is a multi-step process that begins with determining whether the project is feasible from a cost perspective and ends with a detailed bid of all the costs, contingencies, and profits built in. The role of the construction cost estimator is vital to project success and the overall profitability of the company.
The best way to learn how to perform a construction cost estimate is to learn the tricks and tips from professionals. Gold Coast Schools’ Introduction to Construction Estimating and Bidding Essentials course teaches contractors how to submit competitive bids to win the job! The comprehensive course helps contractors hone their skills to accurately prepare different types of estimates to bid—and win—construction projects.
Explore Florida contractor licensing courses and Gold Coast Schools to uplevel your skills and grow your business.