Number Shock…

The total dollar amount for a construction project can be a hard number to swallow by owners.  When preparing budgets for owners, the first thing they look at typically is the bottom line and then there is a moment of silence followed by some remark about the project can’t possibly cost that much.

Detail is very important when presenting a client an estimate.  This allows anyone else looking at your estimate the ability to see what the dollars represent.  It’s much easier to justify your numbers for each individual item compared to just seeing the total dollar amount.

Politicians Rig the Cost Estimates – So What Is New?

Politicians will try about anything to remain in office and to get marginal projects approved so they can proceed.  Chicago or New York style is not just a pizza and it is not limited to these two cities.  One of the favorite ploys of the politician is to understate the costs on proposed projects.  Another ploy is to overstate the income expected from the project.  As soon as they state an amount they are tarnishing the reputation of estimating professionals and setting them up for the blame when costs differ!

Entertainment venues are a favorite of this method of funding. It includes professional sports facilities in the major leagues, minor league ball parks, arenas, convention centers and a host of other projects.

It happens for roads, bridges and highways too.  Light rail transit systems are currently in vogue.  City after city has proposals to spend taxpayer money for systems that are not financially viable.  Completed costs are known for several cities yet the politicians continue to quote costs lower than what have been incurred.   They quote ridership levels and fees that cannot be met.  All of this will burden taxpayers with future liabilities to make up the income difference.

Intentionally understating costs and overstating revenue is nothing new.  It happens at the federal, state, county and city levels of government. The next time a project or a budget is proposed, ask the politicians who was responsible for the cost estimates.  Was it a firm with true estimating credentials or a consulting firm with a vested interest? Was it the politicians stating the revenues or an independent firm?

Oh, By the Way… Once the project is approved and the project costs roll in, the politicians then act surprised that the costs are exceeding the budget.  Imagine that, it is like hearing a 4 year old say “I didn’t do it.”, when asked about a broken toy.

The Coming Construction Boom!

Electric cars and trucks are the signature of the green movement.  They will be the savior of the construction industry!  These dandy vehicles are the culmination in the transformation from gasoline only to hybrid gas/electric to full electric transportation.  No more noxious fumes from exhaust pipes!  These vehicles will fulfill all of our transportation needs – until they need to be recharged.  And this is the salvation of the construction industry!

It was recently reported in the Wall Street Journal that the electric cars being tested are not meeting the EPA generated mileage statements (go figure that one!).  The actual miles being driven before a recharge are about one-third less that stated by the EPA.  In the tests the electric cars were supposed to go 156 miles before needing a recharge.  They only went 100 miles in the “real world” driving conditions.  Some reports indicate that at highway speeds the range of the electric car is only 60 to 70 miles.  Even without this reduction can you imagine the need for the infrastructure to support our new found green?

Imagine just one part of our interstate highway system.  Interstate 80, from New York to San Francisco, via Omaha of course, is about 2,900 miles.  There would need to be a minimum of 290 recharging stations on this highway. There will be more than this but that is another discussion.

These recharging stations could not be like our modern rest stops with short term parking for cars and trucks and, which by the way, are being closed due to budget constraints.   These rest stops will need to become miniature cities.  Why?  It is because of the recharging needs and the recharge rates on the electric cars.

The electric power required to recharge the cars will require new power plants.  If they are to be green they should be nuclear.  The new power plants will require a distribution system.  This means there will be new transmission lines, substations and recharging stations.  These facilities will be a boon to power companies, contractors, subcontractors and suppliers.

The recharging stations must be sized to accommodate the demand from car and truck traffic.  In high traffic areas it is not uncommon to have 10,000+ vehicles per hour.  In lower traffic areas of this highway 2,000 vehicles per hour would be more reasonable.

If the vehicles use battery packs that can be swapped out, there must be a high number of work bays for cars, trucks and the other vehicles that use the interstate system just to keep the waiting time to a minimum. If a battery swap takes 15 minutes per vehicle then one bay can only accommodate 4 per hour.  On the low traffic portions of the interstate this means there must be 500 bays for the minimal turn around time.  If a recharge takes 60 minutes per vehicle there will be more than 2,000 bays or recharging stations.  Imagine how many will be required on the high traffic areas!

These counts are for each of the 290 recharging stations on the 2,900 miles from New York to San Francisco, not the entire interstate system of 46,900 miles.  This will require a large number of employees, tooling and buildings for all weather operations. It is likely this will not be a self service operation because of the electrical shock hazard.  This will benefit the unemployed and firms that will specialize in providing these services.  As a bare minimum the economy will need more vocational and technical schools to train the large number of people required just for battery changing or charging at each station.  This will require more instructors too. Just this part of the interstate system would create 435,000 battery changing/charging jobs (290 stations x 500 bays x 1 person per bay x 3 shifts = 435,000).  Think about their support staff too! It could easily be double to triple this number for the total staff at each recharging station.  This is a win, win for educational institutions and the entire construction supply chain.

There will be a need for infrastructure development and maintenance of each site.  There will be new buildings constructed employee and traveler housing and relaxation.  There must be storage and disposal facilities constructed for new and old batteries.  The smaller recharging stations could easily require 300 to 500 acres of land just to handle the traffic flows. This will keep attorneys busy for years in eminent domain proceedings!  Home builders can benefit with all of the new housing required in close proximity to each recharging station.  This will benefit several segments of the construction industry for the balance of the facilities.

So far this only takes into account the service side of being green.  What about the user side?  Take a typical family of four on the trip from New York to California.  Every 100 miles they get to stop, rest, and get refreshed.  No more long hours between gas stations with fidgeting kids needing to use the bathroom.  They can now stop once an hour with a guaranteed stop time of 15 to 60 minutes, not the 10 minutes every 3 to 4 hours with a gas or diesel engine.

While the vehicle is being serviced the family is not likely to be staying in it, just for safety reasons alone.  In the summer it would be too hot and the winter too cold.  No more eating of fast food in the car as they drive along.  They can relax at the roadside recharging stations restaurant or have a picnic!  They can play the license plate game at every station as vehicles are being recharged.  Stress levels will go down.  Trips will no longer be a marathon to get across the country in 4 or 5 days.  It will be a leisurely 10 to 12 day jaunt.

By some accounts travel on the interstate highway system is about one-third of the travel in the USA.  Extrapolate the 2,900 miles here (6% of the system) to all of the roads and highways.  It is staggering to calculate the resources required to develop and support the electric vehicle.  Why not fuel cells?  Why not remain with hydro-carbon based power for vehicles and convert all fossil fired power plants to nuclear?

Oh, By the Way… You can make more evaluations and comparison on costs between gas and electric powered vehicles.  The information is out there.  All you have to do is look. Then you decide if you are being sold a bill of goods or not on electric powered cars and trucks.

“A” Team

Some owners are seeing a benefit to the economic times. Projects get few and far between and the backlog shrinks.  The contractors want to keep their best people busy and not lay them off.  This can mean that the cream of the crop for the construction of the next project may be available.  The days of getting “green” project managers and craft could be temporally over.  I have even heard that on a power plant that is under construction right now there have been no letters sent about delay or coordination problems and the project has been underway for about a year.  Right now the prices are right and the contractors are using their best people.  Let the building begin!

Contractors Entering the Death Spiral?

Contractors, both primes and subcontractors, are slashing prices in a desperate attempt at staying in business.  They will take work at practically any price to get just another dollar of revenue.  Never mind that this attitude is hastening them into oblivion.

The market today is rife with contractors taking work at pricing that is too low!  They are bidding work that is 30% to 40% below their cost.  What does this mean?  The immediate effect is that some suppliers, subcontractors or employees are not going to get paid in full for their supplies or services.  The state or federal government may not get their taxes.

These contractors are ignoring a basic business fact – a profit is needed to stay in business, not just to grow a business! Sure they can cut costs.

  • They can hire staff and craft for lower costs but what happens?  Contractors hiring lesser qualified people because of the low wages.  Higher wages attract better qualified people. What person is likely to go to work for a firm that is not making money?  I would again say it is not the higher qualified people.  They would like the ability to continue with a firm that is going to be in business.
  • They can cut expenses by purchasing used construction equipment rather than new.  But this equipment tends to have higher operating expenses than new equipment.  Equipment can be rented but it takes cash.  These cuts in the expenses can deplete the resources at a higher rate that not cutting costs.  What about if the equipment that may not be the right piece for the task at hand?  Productivity will be lost.

Lower revenues, lower qualified personnel, poor equipment is not a recipe for success in the future.  Contractors that find themselves in this death spiral would best serve themselves and the industry by closing their doors – now.  Don’t prolong the agony or try to postpone the inevitable.

Happy Memorial Day

On this Memorial Day weekend I would like to join with you in remembering the heroic deeds of those who fought for our country and to share with you the pride of being an American on Memorial Day and Always!

Spreadsheets, Canned Software or Paper and Pencil?

In the dark ages before micro-computers estimators had pencils, paper and erasers.  Sometimes they were very big erasers!  We had techniques for minimizing mistakes on a given takeoff sheet, detail sheet, summary sheet and the final bid sheet.  One of these was the primary estimator on each of these sheets was responsible for checking their own work.  Another estimator then had to verify each sheet and the number carry forwards to summary sheets.

Then came Visi-Calc, Lotus 1-2-3, Excel and preprogrammed or “canned” or “packaged” software for estimating!  I tried my hand at programming an estimating package.  Over a couple years of time, I learned I was an estimator not a programmer.  I also found out that computerized aided estimating reduced some errors but new ones developed in their place.

I have studied the use and application of spreadsheets, canned software and custom developed software for estimating and some related applications in project controls.  They all have some advantages and disadvantages.  All are superior to the pencil and paper for many reasons.  With all of the electronic advantages one would think that paper would be a thing of the past in estimating.  This is not the case for some good reasons.

When it comes to estimating there are two distinct areas. One is the takeoff and the other is the pricing of the estimate. With a couple of exceptions in the civil area for excavation and backfill, I am a proponent of a hand takeoff process.  In the excavation and backfill areas the takeoff software and digitizer packages are far superior in accuracy and speed to the manual methods.  Focusing on the action of digitizer increases takeoff speed but it introduces errors such as skimming the information, not studying it.  It leads to overlooked items.  In performing the takeoff, speed kills.

I prefer working with blueprints over the on screen option.  I prefer full size over half size.  I like coloring blueprints because they show at a glance the counted items.  It is easy to spot items that have been missed.  They provide a valuable record of the project at bid time.  Several drawings can be compared at one time so problems can be identified.  I like them for a host of other reasons too.  On screen takeoffs with digitizers are no blessing for estimators.  Rolling scales, mechanical or electrical with counters, are.

For flexibility and ease of use, a spreadsheet can be superior to canned software.  The major shortcoming of spreadsheets is their formulas and operations can be relatively easy to corrupt.  Working with/without a database can be a problem.  While the basic operations of a spreadsheet require minimal training, very little training is provided on the advanced features that can benefit the estimating process.

Purchasing and using canned estimating software has its own set of advantages and disadvantages.  Their databases capabilities are a big advantage.  This is also their disadvantage in that the standard information must be customized to meet the purchaser’s operations and procedures in estimating.  This is a process that can take six months to a year with several people involved in the process.  I know some purchasers of prepackaged software that have never implemented their estimating software because of this level of commitment.

Overall I prefer a spreadsheet to packaged software.  A spreadsheet can be made to duplicate current estimating practices and be changed over time as the practices change.  Spreadsheets are a very common and easy to use method for the importing and exporting of estimate information for other uses.

Oh, By the Way… Leave the dark ages of estimating behind as history!  I use a combination that includes paper & pencil, scales & digitizers, spreadsheets, packaged and custom software for estimating.  This has the flexibility of handling all types of situations that will be encountered.

What do you use?

Do You Have A Good or A Bad Estimate?

How can someone without extensive estimating credentials tell if they have a good or a bad estimate?  If they don’t have the estimating experience yet know the scope of the project, it can be a relatively straight forward evaluation.  While it definitely helps to have estimating experience, a lot of problems can be eliminated without having estimating experience.

One of my favorite, and best, methods in determining a good or bad estimate is asking questions about the scope.  Try starting the questions on the total cost of the project.  How does the total compare to other similar projects?  What makes this project cost different or the same as the other projects?  What is the overall scope of the project?  Are there any exclusions?  If so, why?

Then go down a level to find out what scope is included on a major division basis.  Are all the CSI divisions listed?  Even if there are no costs in a given division, they should be since this shows someone considered there might be costs.  A missing division can be a mistake waiting to rear its ugly head.  Ask similar questions on the division evaluation as the overall project scope.  If there are missing sub-divisions within a given division ask why.

Next is evaluating the details of each sub-division.  In conjunction with this questioning process use the project documentation as a part of the process.  Whether it is a program statement or plans and specifications, many questions can be developed to determine if the scope is represented in the estimate.  Use the documents for preparing the estimate.  Look to see how well the drawings are colored to represent the takeoff of the items.  If there are areas not colored, and there will be some, ask about them.  Try to determine through the questions if there are any apparent duplications or omissions in scope.  Interface points between the different subcontract trades are areas this will likely occur.

Evaluating the numbers is a bit more difficult but still doable.  Find out how the wage rates were developed and ask for supporting documentation.  Likewise find out how the material prices were developed.  If from quotes, ask for the quote sheets identifying the vendors and the scopes being quoted.  Find out what sources were used for the bulk material prices used in the estimates.  Ask what multipliers were used to arrive at the prices used in the estimate.  If unit prices containing labor and materials are being used through out the estimate, this is a big warning flag of a potentially bad estimate.  Labor hours should be used.  Find out how they were developed and how they compare to other projects.

As a last tip on finding out whether you have a good estimate or not, try the BS indicator.  If the answers stink, you likely have a bad estimate.

Oh, By The Way… When someone answers a question regarding a missing item with “That cost is included with…” I know I am dealing with a bad estimate.  If the cost is not shown, it is not included.  This is one of the major “rules” in estimating.

Free Budget Estimates…

Expecting a contractor to spend time and resources to produce a free budget estimate is wrong!  Just recently, I helped a client rebid a project that originally bid the end of January.  In January the plans were only 60% complete and the bid form forced the contractors to honor their quote for 180 days by stating that any alterations to the bid form (which would include the 180 days) would cause the bid to be rejected.

Now, the project is back out for bid with 95% complete plans even though 180 days has not expired yet according to my math calculations.  No major changes were made to plans except the normal modifications you would expect to see as a design progresses.

My question is why did they bid it back in January?

I believe the answer to my question is to have a free estimate performed to ensure the project was staying within budget.  Another possible answer is they are trying to receive a cheaper price.  Either way, it is wrong for owners and/or construction managers to mislead/trick contractors into spending their own money for budgeting purposes.

Another question that I don’t know is whether or not they ever formally cancelled the first bid?  It is possible they could be holding two different yet valid bids from each contractor.  Could they then pick and choose which bid they are going to hold the contractor to by threatening to enforce their bid bond?  The bid bond was not a standard percentage of the bid either, but for the cost difference to use a different contractor and all expenses related to obtaining the other contractor.

What are your thoughts on this?

Abdicating Responsibility – This Costs Owners Money

Nothing new in this headline either.  When an owner contracts for design services on a construction project, I would like to think they are paying for design services required on the project.  The architects and engineers, along with their specialty consulting engineers, should be able to design the facility.  Sadly, the design fees being paid to architects and engineers will not necessarily mean the facility will have a complete design depicted on the plans and in the specifications.

On a recent project the engineering firm of record on the project put some rather self serving notes on the Structural Framing Details drawings.  The first note on many of the details stated, “Submit alternate connection details for review prior to issuing drawings.”  This note was followed by a statement that indicated the fabricator must, “…design for a 12 KIP reaction…”  They are shifting the structural connection design to the steel fabricator.  My first thought is why didn’t the engineer design the connections?  After all, they are structural engineers and they are being paid to do the project design.  My second thought was the fabricator and their engineer could design it better anyway.  So why bother hiring an engineer for the project design in the first place?

The lack of design on the project means the steel fabricator will be required to retain the services of a structural engineer.  The design fees are an added expense to the project that will be included in the steel fabrication bid and cost the owner extra on bid day.  The requirement for the fabricator to do the engineering will take extra time in the steel fabrication portion of the project.  This will lengthen the time required for the fabrication.  This can delay the steel erection portion of the project.  Both of these actions will ultimately be paid for by the owner on the project.  And the supervising/coordinating architect on the project let the engineer get away with it!

Oh, By the Way… It is likely the owner is not even aware of these statements will require them to pay extra for something that should have been included in the design fees.