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Estimating and the Construction Industry - Coggle Diagram
Estimating and the Construction Industry
Industry Structure
Owners and developers
Owner is commissioning the construction project. Can be multiple things.
Developer organizes it as a business venture
Architects and engineers
These guys design the building
They produce construction documents
General contractors
deliver the construction work under its contract
Often times, they just hire out all the stuff underneath
Coordinates, manages schedules, supervises, ensures contractual requirements are met
Subcontractors and specialty trades
Often contracts directly with general contractor
They have their own estimators as well
Suppliers and manufacturers
Sell to all different parties involved
Not a single "Amazon" for construction materials
Product directories (manufacturers and technical specifications)
ARCAT, Sweets
Industrial distributors (tools, fasteners, supplies)
Grainger, Fastenal
Trade wholesalers (specialized materials)
Ferguson, Graybar
Building-material suppliers (lumber, roofing, insulation, etc.)
Builders FirstSource, White Cap
Consumer retailers (common building materials)
Home Depot, Lowe's
Finding and buying a product are two different activities
Architect might user ARCAT to find specific type of commercial door.
Subcontractor might purchase door through local commercial door supplier, possibly one with authorized relationship with manufacturer.
Where do materials come from?
Manufactured
Given to importer/National distributor
international shipping, customers, logistics when applicable
Regional or local distributor
May hold inventory and sell directly to contractors
Research Ferguson
Needed for quick access
They're selling availability, logistics and reliability
Subcontractor / Jobsite
Where are materials stored?
Stocked inventory
Readily available for pickup or delivery
Refreshed from manufacturers and larger warehouses
Locally produced materials
Usually like concrete, stone, gravel
Transport costs, weight, perishability impact this
Made-to-order produces
Might not exist when contractor places an order
Needs to be configured by manufacturer - can take months
Drop shipping
Direct from manufacturer to jobsite while supplier manages the sale
Domestic vs imported
Concrete - usually local, though cement ingredients may be imported
Gravel and crushed stone - primarily local or regional
Lumber - domestic plus significant Canadian imports
Structural steel - substantial domestic production plus imports
Electrical fixtures - mixed
Plumbing fixtures - mixed
HVAC - Domestic, Mexican and international
Customer architectural products - depends on product
Statistics
25% of lumber is Canadian
18% imported finished steel
Who buys the materials?
Furnish vs install?
Purchasing process often begins before contractor has won the project?
Micromanaging vs delegation
Theory
Transaction cost economics
Theory of Firm
Make-or-buy decision
it is called "risk-adjusted price"
Considerations beyond price
Past performance
Experience
Financial stability
Available manpower
Understanding of work
Existing workload
Cost is more than price - transaction costs
Finding suppliers
negotiating agreements
Verifying products and quantities
coordinating deliveries
monitoring performance
resolving disputes
Estimators, project managers and superintendents
Additional Notes
Construction is a very fragmented industry relying on many local entities
All these parties have different incentives
Like, owner might want cheapest, but GC might not want that, they might prioritize reliability
Why might subcontractor prices be so different?
What are the biggest factors that impact price of a job? Labor or materials or other?
Project lifecycle
Feasibility and financing
Design and engineering
Preconstruction and estimating
Bidding and contract awards
Procurement and Construction
Closeout and turnover
design-bid-build, design-build and construction management risk
Plans and specifications
Architectural, structural, civil, mechanical, electrical drawings
Drawing sheets, legends, notes, schedules
Written specifications
Construction documents and revisions
RFIs and addenda
The Estimating Process
Types of Estimates
Conceptual - owner considering building something without detailed design. Looking for feasibility
Detailed estimate - designed for actual contract price
There are like difference AACE classes or something
Can be organized by UniFormat or MasterFormat or some other
Quantity takeoffs
Measuring or counting physical quantities of work required by a project
You need to put labor in - often requires experience
Sometimes quantity takeoffs is given to the subcontractor
GC can do control estimate
Labor, material, and equipment pricing
Subcontractor pricing
Needs to build a list of companies to work with
Needs to prepare invitations to bid including all the project information
Track bidder interest
Follow up and communication changes - like additional addendum
Taking in and evaluating proposals
Indirect costs, contingencies, and profit
Decision to bid
We don't want to waste resources
Bid/no-bid decision
Questions
Why is the bidding the commercial format for this work?
Do bidders specialize in parts of the bid packages or no?
What is a work package?
How often does owner look at the subcontractors? Do they care or are they only looking at price and reputation of GC?
How many estimators typically work on a team? Are there jobs specialized?
The think the estimator gets is called a bid package
They need to understand quickly all the parts in the bid package
Is there a formal way bid packages are organized?
Estimator needs to identify all the scopes
Is this experiential knowledge that you just have to know?
Is everything explicit in the specs?
There can be scope gaps
There can also be scope overlap when contractors price the same work
They use a scope matrix, scope sheet or work breakdown structure
Bid Coverage - having sufficient credible proposals for project's scopes of work
How is this managed?
Prices and participation
Reviewing and leveling
It's like they evaluate that matrix
There's got to be established software for this
They sometimes use a "bid tab" on a spreadsheet to deal with this
Subcontractor's proposal
inclusion/exclusion - work covered or not
Allowance - budgeted amount for something not fully defined
Alternate - separate price for a different design or scope option
Unit price - price for each unit of defined work
Clarification - statement explaining how the bidder interpreted requirements
Some terms
Direct costs - costs attributed to the job. Like raw cost without buffer or profit?
General conditions - expenses required to administer and support the project itself
superintendent
project office
temporary utilities
fencing
dumpsters
site security
Overhead
costs associated with operating the business beyond one particular job
office rent
accounting
executive salaries
general administration
Contingency - buffer money
Buyout - you get awarded and then you need to turn the estimated costs into actual purchasing commitments and subcontracts
The estimator's day
Information gathering
Collecting plans
specs
addenda
project requirements
requires completeness and document organization
Technical interpretation
understanding drawings and identifying required work
requires construction expertise
Cost analysis
Takeoffs
unit prices
labor productivity
cost modeling
requires accuracy and assumptions
Market coordination
Finding subcontractors
inviting bids
managing responses
requires time, relationships and coverage
Judgment and decision-making
Comparing bids, assessing risks, recommending prices
You have to judge ambiguity and consequences
Difference types of estimating jobs emphasize different categories
Their time
Difference between GC estimator and subcontractor estimator
Subcontractor is probably more interested in calculating quantities and stuff
So do they look deeper at the plans or the GC?
Can we calculate their time breakdown?
bid intake
scope and document review
takeoffs and cost calculations
Subcontractor outreach and follow-up
Proposal review and bid leveling
Final pricing and bid preparation
Meetings, coordination, administration
Their resources
Time
Bid platforms
historical data
Contact databases
Information vs Judgement
The Bid Package
Fairly well established
AIA's standard A701
National CAD standard
All sorts of missing information...
Unclear wall construction
Unknown soil conditions
Conflicting electrical requirements
Site access restrictions
Materials pricing
Subcontractor availability
Required labor rates
Ambiguous scope responsibility
Types of Requirements
Technical
Specified materials
Specified equipment
Performance standards
Finishes
Schedule
Completion date
phasing
milestones
restricted work windows
Site and logistics
Limited access
staging areas
occupied buildings
parking restrictions
Administrative
Submittals
inspections
documentation
quality control
Contractual and financial
insurance
bonding
warranties
payment terms
delay damages
regulatory
building codes
accessibility
permits
labor requirements
environmental rules
Overall Estimating and Project Flow
The owner or entity post the job
Different construction companies see the job
How frequently do they get jobs that don't apply?
Where do offers to bid show up? Just like an email address? Word of mouth? A letter in the mail? Instant?
The company does some preprocessing and decides if to bid
Is spam a problem?
How much does it cost to evaluate a job?
Are there a set of steps followed? Is this formal or informal?
Are there perhaps legal restrictions on who can bid the job?
Do you need a license to bid a job?
How much time does this take?
Who at the company does this preprocessing?
Are there any broad filters used?
Are there any documents more important for this decision?
How many people at the company does it take to make this decision?
Does deciding to bid eat valuable time that could be spent bidding a job?
Could this be done by an automatic process that uses past experience and heuristics?
The company bids the project
Who is notified? Just the estimators or are other actors activated?
How many estimators does it take to bid a project?
Do we ever need to contact 3rd parties to do a bid for us? Like is there a specialty we have to ask for assistance with?
Can the bid be automatically generated?
How similar are all the bids a company does? Like what is the conceptual variability of different projects?
What are the differences in companies? Why can they submit different bids? I imagine that they each hold some niche or leverage individual to them that gets them work.
The estimator goes through the documents
How long does it take to go through the documents?
Which documents are the most important?
How many times do they go through the documents or review things?
Do they ever assign like an intern or lower level person to look for specific details or anything?
What are they looking for in the documents? Are these things explicitly stated? Do they require judgement?
Can explicitly stated things be pulled by an AI?
Things that require judgement, do they perhaps have a primary signal that is explicite and can be pulled for evaluation?
The estimator extracts scopes from the documents
Can this be automatic?
How long does this take?
Are the scopes explicitly defined or must they be inferred?
How often do inexperienced/experienced estimators miss things?
How often does a new communication or question create new scopes that were not clear before?
How often do scopes overlap?
Are mistakes here covered in contingency?
Estimator sends out solicitations
How often do companies look at new jobs or get new invites?
Could we send job directly to the sub-contractors?
Do companies ever feel like they wish they'd see more jobs? Is there a listing problem?
Is there a public forum where all jobs are posted?
Do public vs private jobs impact where jobs are listed?
Are jobs "invite only" or can you ask?
Do you need to be like registered to bid on jobs?
Why post a job?
Why not just order a job from a statistical cost menu?
What if we know what they want to build before they build it?
Could we break down or separate the processes of estimating a job and administering and managing the construction of the job?
Trades and Scopes
Major construction trades
What constitutes a scope of work
CSI MasterFormat and division numbers
How scopes overlap between trades
Specialty subcontractors versus generalists
Trade-specific qualifications
Bidding and Procurement
Invitations to bid
Finding and qualifying subcontractors
Bid packages and plan distribution
Bid deadlines and communications
Bid coverage and subcontractor follow-up
Bid leveling and subcontractor selection
Money, contracts and risk
Gross profit versus markup versus margin
Fixed-price, cost-plus, and GMP contracts
Change orders
Insurance, bonds, and retainage
Cash flow and payment cycles
Bid mistakes, scope gaps, and cost overruns
Software and Opportunity
Estimating and takeoff software
Bid-management platforms
Construction and management software
Subcontractor databases and qualification tools
Integration with existing workflows
Opportunity for AI and automation