November 7, 2012

Cost predictability guide for projects revamped

VINCE VERSACE

managing editor

Practical advice to improve construction project cost predictability is the main goal of a new guide developed by a joint federal government and industry taskforce which included the Canadian Construction Association.

The Guide to Cost Predictability in Construction: An Analysis of Issues Affecting the Accuracy of Construction Cost Estimates looked at how to best tackle the growing problem of large discrepancies between pre-tender estimates and actual bids.

The previously agreed degree of accuracy of +/- 5 per cent for Class A estimates should be expanded, explained the taskforce’s chairman.

“The more we looked at it, that +/- 5 per cent is too narrow,” said John Westeinde, taskforce chairman, Westeinde Construction Ltd. president and CCA member.

“Even contractors bidding on the exact project with the exact circumstances, their bids varied up to 10 per cent. How can you expect a cost consultant, no matter how tuned he is on a virtual basis, to reach a better variance than that? It is not realistic.”

The taskforce developed a cost estimate variance matrix which provides a range of estimate variance based on the level of construction documents completion in combination with an evaluation of the level of complexity of the project.

The original guiding principle of a +/- 5 per cent variance simply does not apply to the current construction landscape, noted Westeinde.

“Projects have become much more complex, individual and unique. For instance, there are projects in northern Canada in which weather conditions and logistics dictate costs,” he said.

“We want owners to recognize, even under the best of circumstances, it is not realistic that you should end up at +/- 5 per cent variance. This is not to say we should not strive for that but don’t get excited if it is at +/- 5, 6 or 7 per cent.”

The guide’s taskforce included Defence Construction Canada, Public Works and Government Services Canada, contractor, architect, engineer and costs consultant representatives.

“The report is based on their experience and a proper reflection on what is really required to do this,” said Westeinde.

“The report is directed to industry but primarily to owners and design consultants. Owners must recognize if they want to get accurate estimates beforehand, they have to have people that are qualified, but primarily, you have to allow enough time for the design consultants to complete their drawings within reasonable deadlines.”

The taskforce members found that there is no common statistical database on variances between pre-tender estimates and final bid results for Canada’s construction market.

However, the taskforce’s collective sharing of information reflected that “up to 40 per cent of tenders had low bids that varied, either up or down, by more than 30 per cent from the pre-tender estimate and fewer than 20 per cent of tenders had bids within 10 per cent of the estimate,” the guide noted. This may not be the case for all taskforce members but it agreed that cost predictability was an increasingly serious issue.

“It behooves everyone,” Westeinde said.

“From a contractor’s point of view, if there is big discrepancy, there are changes, addenda and project gets held or delayed. It is difficult for a contractor to deal with a tender that comes in way out of line.”

The taskforce delivered eight recommendations in the guide which would help with cost predictability. The following are highlights from those recommendations:

— Utilize qualified estimating personnel throughout the life of the project for times such as budget preparation, design, tendering, post-tender review and construction phases.

— Ensure all stakeholders have input early and often throughout the life of a project and that they continue to work together to identify and mitigate risk factors.

— Give designers sufficient time to finalize bid documents. Provide sufficient time for estimating professionals to review 100 per cent finished documents and prepare a final Class A Estimate.

— Ensure project budgets consider all essential factors and include or adjust for them when applicable. Among the essential factors to include are: the percentage variance between the project budget and potential project cost for the various classes of estimates; local influences such as shortage or abundance of skilled labour and the seasonal timing of construction.

— A widely usable database for the Canadian market, that can be properly interpreted and used by the estimating industry, is required, especially for publicly funded construction that has essentially no market-force comparison. To develop and maintain a usable database one should take into consideration the current and future construction economic outlook.

— Include sufficient contingency to address market volatility, timing of construction, and other exclusions in the estimate.

— During tender ensure tender ready documents are complete and coordinated; avoid single source specifications; revise estimates during the tender period to reflect all addenda; and keep the cost consultant involved during the tender period.

— After tender, analyze bid results against estimates to maintain a lessons learned database to avoid repeating mistakes in future projects.

The guide with its complete recommendations is available as a free download at www.cca-acc.com.

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