Guidelines for Construction Cost Estimating for Dam Engineers


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United States Society on Dams
Guidelines for Construction Cost Estimating for
Dam Engineers and Owners
May 2012

United States Society on Dams
Guidelines for Construction Cost Estimating for
Dam Engineers and Owners
May 2012

U.S. Society on Dams
Vision To be the nation's leading organization of professionals dedicated to advancing the role of dams for the benefit of society. Mission — USSD is dedicated to:
· Advancing the knowledge of dam engineering, construction, planning, operation, performance, rehabilitation, decommissioning, maintenance, security and safety;
· Fostering dam technology for socially, environmentally and financially sustainable water resources systems;
· Providing public awareness of the role of dams in the management of the nation's water resources;
· Enhancing practices to meet current and future challenges on dams; and · Representing the United States as an active member of the International
Commission on Large Dams (ICOLD).
The information contained in this report regarding commercial products or firms may not be used for advertising or promotional purposes and may not be construed as an endorsement of any product or firm by the United States Society on Dams. USSD accepts no responsibility for the statements made or the opinions
expressed in this publication.
Copyright © 2012 U. S. Society on Dams Printed in the United States of America ISBN 978-1-884575-
Library of Congress Control Number 2012
U.S. Society on Dams 1616 Seventeenth Street, #483
Denver, CO 80202 Telephone: 303-628-5430
Fax: 303-628-5431 E-mail: [email protected]
Internet: www.ussdams.org

FOREWORD

Guidelines for Construction Cost Estimating for Dam Engineers and Owners was prepared by the USSD Committee on Construction and Rehabilitation. The White Paper provides support for responsible cost estimating for new dams and dam rehabilitation projects. It has been written for engineers and owners engaged in the planning, design and construction of dam-related engineering projects anticipated to cost up to $100 million. This represents the collaborative effort of representatives from federal agencies, public utilities, private engineering companies and construction contractors. Stages of project design and associated estimates, the development of a work breakdown structure, direct and indirect project costs, overhead, contingency, profit, and other owner costs are addressed as they relate to responsible cost estimating. Examples of Work Breakdown Structures for various sized projects are also presented.

USSD Committee on Construction and Rehabilitation

Daniel L. Johnson, Chair Samuel M. Planck, Vice Chair

Horst Aschenbroich Randall P. Bass Thomas A. Brown Woodrow W. Crouch Timothy P. Dolen Frederick Ehat William R. Fiedler

Kenneth D. Hansen Sara J. Heinlien Daniel J. Hertel Paul Krumm Michael J. Miller James Ray Obermeyer David B. Paul

Warren J. Paul Dietmar Scheel Paul G. Schweiger Del A. Shannon John D. Smart Steven D. Summy Daniel L. Wade

White Paper Sub-Committee

David B. Paul, Chairman

Kenneth D. Hansen Daniel J. Hertel Daniel L. Johnson

Michael J. Miller Warren J. Paul Samuel M. Planck

Del A. Shannon

The Committee on Construction and Rehabilitation would like to acknowledge and thank the following individuals, agencies and corporations for their invaluable contributions to this paper:
Susan Penner, Kim Callum Paula Boren, Dan Maag, Bob Baumgarten, Ed O’Connor, Robert Resch, Luis Castañeda, Matthew Wigle, U.S. Army Corps of Engineers, Bureau of Reclamation, Denver Water, Barnard Construction Company, Inc., URS Corporation, HDR Engineering, Inc., ASI Constructors, Inc., Tetra Tech, Inc. and HeavyCivilEstimate.com.

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TABLE OF CONTENTS
1.0 SCOPE AND PURPOSE .........................................................................................1
2.0 STAGES OF PROJECT DESIGN AND ASSOCIATED ESTIMATES ................3 2.1 Introduction..................................................................................................3 2.2 Association for the Advancement of Cost Engineering (AACE) International .................................................................................................4 2.3 The United States Bureau of Reclamation...................................................5 2.4 The United States Army Corps of Engineers...............................................6 2.5 Other Organizations .....................................................................................9 2.6 USSD Committee on Construction and Rehabilitation .............................10 2.7 Summary ....................................................................................................10
3.0 DEVELOPMENT OF WORK BREAKDOWN STRUCTURE ...........................12 3.1 Introduction................................................................................................12 3.2 Work Breakdown Structure .......................................................................12 3.3 Developing the Cost Estimate....................................................................13 3.4 Pay Items / Bid Schedule ...........................................................................14 3.5 Summary ....................................................................................................15
4.0 DIRECT PROJECT COSTS..................................................................................16 4.1 Introduction................................................................................................16 4.2 Labor Costs ................................................................................................16 4.3 Equipment Costs ........................................................................................17 4.4 Material Costs ............................................................................................20 4.5 Subcontractor Costs ...................................................................................22 4.6 Production Rates ........................................................................................23 4.7 Summary ....................................................................................................23
5.0 INDIRECT PROJECT COSTS..............................................................................24 5.1 Introduction................................................................................................24 5.2 Bonds .........................................................................................................24 5.3 Safety Program...........................................................................................26 5.4 Quality Control Program............................................................................26 5.5 Contractor and Resident Engineer Job Staff ..............................................26 5.6 Mobilization and Demobilization ..............................................................27 5.7 Job Offices and Facilities...........................................................................28 5.8 Indirect Equipment Costs...........................................................................29 5.9 General and Miscellaneous ........................................................................29 5.10 Environmental Program .............................................................................29 5.11 Construction Surveying and Staking .........................................................30 5.12 Insurance and Warranty Costs ...................................................................30 5.13 Taxes ..........................................................................................................31 5.14 Summary ....................................................................................................32
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6.0 CORPORATE OVERHEAD.................................................................................34 6.1 Introduction................................................................................................34 6.2 Home Office / G&A Cost Items ................................................................34 6.3 Cost Types .................................................................................................35 6.4 Suggested Corporate Overhead Cost .........................................................35 6.5 Summary ....................................................................................................35
7.0 CONTINGENCY...................................................................................................36 7.1 Introduction................................................................................................36 7.2 Building an Engineer’s Estimate with Contingency ..................................37 7.3 Major Sources of Uncertainty Contingency Cost ......................................39 7.4 Reducing Risk to Reduce Contingency .....................................................42 7.5 Contingency at Each Level of Project Development .................................42 7.6 Summary ....................................................................................................45
8.0 PROFIT..................................................................................................................46 8.1 Introduction................................................................................................46 8.2 Market Conditions / Bidding Climate........................................................46 8.3 Number of Qualified Bidders.....................................................................48 8.4 Prequalification of Contractors ..................................................................48 8.5 Profit ..........................................................................................................48 8.6 Summary ....................................................................................................49
9.0 OTHER OWNER COSTS .....................................................................................50 9.1 Introduction................................................................................................50 9.2 Project Financing .......................................................................................50 9.3 Revenue Loss Due to Service Interruption ................................................52 9.4 Owner’s Project Management....................................................................53 9.5 Legal Costs.................................................................................................53 9.6 Environmental Permits...............................................................................53 9.7 Rights-of-Way / Land Acquisition.............................................................53 9.8 Engineering ................................................................................................53 9.9 Public Outreach..........................................................................................54 9.10 Construction Management .........................................................................54 9.11 Operation and Maintenance .......................................................................54 9.12 Operator Training.......................................................................................55 9.13 Summary ....................................................................................................55
APPENDIX A. Cost Estimating Templates.......................................................................56
Embankment Dam Master Template .....................................................................57 RCC Dam Master Template...................................................................................61 Concrete Cutoff Wall in an Embankment Dam WBS Template ...........................65
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1.0 SCOPE AND PURPOSE
These guidelines have been developed to encourage and support responsible cost estimating for new dams and dam rehabilitation projects. This guidance is not intended to serve as a “how-to manual” for cost estimators or others. Rather, the information provided offers a structured reminder of the items that Engineers, Owners, and cost estimating professionals must address when preparing an estimate of expected project costs. Preparation of the various types and levels of cost estimates requires professional experience and sound engineering judgment. More detailed data, such as cost curves, computer programs, contract terms and conditions, etc., that estimators use in the development of cost estimates are not included because of their variable nature and proprietary considerations.
A major factor in Project go/no go decisions is the economic benefit of the project compared to the overall project cost. Market volatility, particularly between 2000 and 2010, highlights the importance of reliable construction cost estimates during design and project development. USSD decided to address this topic in a paper after noting that in recent years several dam projects have experienced contractor bids that greatly exceeded budgets based on Engineers’ Estimates, causing delay and/or cancellation of these muchneeded projects after significant up-front costs had been expended.
This document reflects the collaborative effort of representatives from throughout the industry, including input from federal agencies, public utilities, private engineering companies and construction contractors.
To begin, a cost estimate is a prediction of the probable costs of a project or program within a documented scope, to be completed at a defined location and specific future time. An “estimate” refers to the development of a judgment or opinion regarding the approximate project cost at the time of completion. Therefore, an estimate has an inherent uncertainty or expected level of error. The actual cost of the project at completion will differ from the predicted cost due to this inherent uncertainty and other unknown considerations or errors. The objective of the estimator is to be comprehensive in approach to the estimate and thorough in its development. All parties involved in a project must be keenly aware of this when referencing and discussing cost estimates.
Because of the inherent uncertainty associated with cost estimating, adequate risk management and quality control of the estimating process can improve the likelihood of an adequately funded and successfully completed project. Therefore, consideration should be given by the estimator-in-charge to performing some type of risk analysis on the cost estimate, and including the cost of this in the budget for preparing the estimate. Project risks are uncertain events or conditions that, if they occur, will have an impact on the objective, either positive or negative. History has proven that a greater probability exists that costs will increase rather decrease. Risk analysis can provide management with an understanding of the probability of over-running (or under-running) a cost estimate.
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In addition to all the items discussed in this report that need to be considered in preparation of a responsible cost estimate, general economic conditions can have a major effect on the accuracy of a cost estimate. The industry has seen, for example, wide variations in the bidding climate in the decade from 2001 to 2011. Shortly after Hurricane Katrina in 2003, sharp increases in most building materials and labor, together with fewer bidders on projects, led to low bids that invariably exceeded the Engineer’s Estimate. Then economic conditions declined, which led to more competition and, thus, lower markups by contractors, vendors, and specialty subcontractors for overhead and profit. This, together with some reductions in raw material prices, led to low bid that were considerably below otherwise well prepared cost estimates. This document has been written for engineers and owners engaged in the planning, design, and construction of dam-related engineering projects anticipated to cost under $100 million. It has been written to discuss projects that will be delivered by the traditional design-bid-build process; however, most of the topics are relevant to alternative project delivery approaches. It covers the factors involved in the preparation of a cost estimate and is not intended to support bid evaluations.
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2.0 STAGES OF PROJECT DESIGN AND ASSOCIATED ESTIMATES
2.1 INTRODUCTION
Effective cost estimating involves the use of data derived from the most current pricing for materials, appropriate wages and salaries, accepted productivity standards, and customary construction practices, procurement methods, equipment needs, and site conditions. Cost estimates are by definition prepared with less than complete information and have inherent levels of risk and uncertainties.
Typically, each new cost estimate for a specific project or feature is based on increasing levels of project refinement and more detailed levels of design data. Cost estimates, which are developed based on the best available information at the time, are expected to reflect reasonable and defensible expectations of costs for a specific level of estimate. As more refined cost estimates are developed, the confidence in and accuracy of the estimate is expected to be higher.
The simplest example might be developing a design to a “Draft” level and then stopping the design process to perform a cost estimate to see if the cost is in line with the owner’s budget. This allows a project owner to change course in a minor fashion (or dramatically) if the design is not compatible with the expected or available budget. The “Final” design would then proceed to completion with a final cost estimate reflecting those mid-course changes.
In both the public and private sectors, many levels or types of classifications of cost estimates exist, typically reflecting an agency’s or company’s naming convention for each successive level of design. No matter the organization, the levels of engineer cost estimating begin at initial planning or design and end with a 100 percent design that is biddable and constructable. With each increasing level of design and cost estimate, the likelihood that the cost estimate reflects the actual project costs increases. This leads to increased confidence in both the design and the estimated project cost resulting expected project cost.
It should be noted that as the level of estimate detail increases, the cost and value to the owner of the cost estimating effort increases. As noted in this section, the cost of preparing an AACE (Association for the Advancement of Cost Engineering) Class 2 or Class 1 estimate could approach 0.1 percent to 0.5 percent of project cost, representing a significant effort. The value of such detail is likely recovered many-fold in the related value of engineering and design decisions made as a result of this detail. Increased detail results from increased effort, which does mean increased cost for estimating. However, overall project cost reductions that result from the more expensive estimate will typically more than justify the expense.
The contradiction always remains, however, that “estimate accuracy” is an oxymoron and that no matter what level of accuracy an agency/owner requires, there is no means of
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determining whether the accuracy requirements were met until a project is complete and the actual costs are known.

The following sections illustrate how various agencies and organizations define levels of cost estimating and the level of accuracy associated with those levels. It should be noted that the various approaches are similar and result in increased accuracy as project understanding develops and a higher level of estimating effort is expended.
2.2 ASSOCIATION FOR THE ADVANCEMENT OF COST ENGINEERING (AACE) INTERNATIONAL
AACE International is an international non-profit professional educational association that provides services related to cost estimating, cost/schedule control, and project management to a wide range of professions and industries. AACE defines five levels of cost estimates for a project.

The following matrix presents the level of project definition, typical end use, methodology, expected accuracy, and preparation effort associated with the AACE classifications of cost estimate (reference AACE International Recommended Practice No. 18R-97).

Primary Characteristic

Secondary Characteristic

ESTIMATE CLASS

LEVEL OF PROJECT DEFINITION Expressed as % of complete definition

END USE Typical purpose
of estimate

METHODOLOGY Typical estimating
method

EXPECTED
ACCURACY RANGE
Typical variation in low and high ranges

PREPARATION EFFORT
Typical degree of effort relative to least cost index of 1

Class 5

0% to 2%

Concept

Capacity Factored, Parametric Models,

L: -20% to -50%

1

Screening

Judgment or Analogy H: +30% to +100%

Class 4

1% to 15%

Study or Feasibility

Equipment Factored or Parametric Models

L: -15% to -30% H: +20% to +50%

2 to 4

Class 3

10% to 40%

Budget Authorization,
or Control

Semi-Detailed Unit Costs with Assembly Level Line
Items

L: -10% to -20% H: +10% to +30%

3 to 10

Class 2

30% to 70%

Control or Bid/ Tender

Detailed Unit Cost with L: -5% to -15% Forced Detailed Take-Off H: +5% to +20%

4 to 20

Class 1

50% to 100%

Check Estimate or Bid/Tender

Detailed Unit Cost with Detailed Take-Off

L: -3% to -10% H: +3% to +15%

5 to 100

Figure 1. AACE Accuracy Matrix for Estimating Classes

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Guidelines for Construction Cost Estimating for Dam Engineers