PROJECT COST ESTIMATING A SYNTHESIS OF HIGHWAY PRACTICE

Requested by:

American Association of State Highway and Transportation Officials (AASHTO)

Standing Committee on Highways

Prepared by:

Cliff J. Schexnayder, Ph.D., P.E. Eminent Scholar

Arizona State University

Sandra L. Weber, Ph.D., P.E. Associate Professor

Arizona State University

Christine Fiori, Ph.D., P.E. Assistant Professor

Arizona State University

June 2003 The information contained in this report was prepared as part of NCHRP Project 20-7, Task 152,

National Cooperative Highway Research Program, Transportation Research Board.

PREFACE This report is the contractor’s report requested by the AASHTO Standing Committee Highways and conducted as part of NCHRP Project 20-07. It presents a summary of current project cost estimating practices. It includes detailed information concerning the estimating practices of Departments of Transportation with examples of existing agency processes. Special attention is devoted to conceptual estimates and to the unique challenges of estimating mega projects. The appendices have complete descriptions of unique processes used by some Departments.

ACKNOWLEDGEMENTS

This study was requested by the American Association of State Highway and Transportation Officials (AASHTO), and conducted as part of National Cooperative Highway Research Program (NCHRP) Project 20-07. The NCHRP is supported by annual voluntary contributions from the state Departments of Transportation. Project 20-07 is intended to fund quick response studies on behalf of the AASHTO Standing Committee on Highways.

Cliff J. Schexnayder, Ph.D., P.E., Eminent Scholar, Sandra L. Weber, Ph.D., P.E., Associate Professor, Christine Fiori, Ph.D., P.E., Assistant Professor, and Jonathon Eric Byrnes, graduate student, Arizona State University collected the data and prepared the report.

Valuable assistance in the preparation of this synthesis was provided by the Topic Panel of NCHRP Project 20-07/Task 152, consisting of George Bradfield, Assistant Department Head/Chief Estimator, Georgia Department of Transportation; Byron Coburn, Staunton District Construction Engineer, Virginia Department of Transportation; Shirley Daugherty, Trns*port Systems Manager, Nebraska Department of Roads; Bruce Green, Bidding and Contract Services Engineer, Missouri Department of Transportation; Wayne Kinder, Assistant Chief Road Design Engineer, Nevada Department of Transportation;

Daniel R. McDonald, Senator-48th Legislative District, Washington State Legislature; Don Nelson, Director of Environmental and Engineering Programs, Washington Department of Transportation; Ted Walschleger, Chief, Project Development & Implementation Section, Illinois Department of Transportation; Paul Nishimoto, Highway Engineer, Major Projects Team, Federal Highway Administration

Timothy G. Hess, Senior Program Officer, NCHRP, Transportation Research Board, worked with the consultant and the Project 20-07(152) panel in the development and review of the report.

Information on current practice was provided by all fifty State highway and transportation agencies. Their cooperation and assistance are appreciated.

The opinions and conclusions expressed or implied are those of the research agency that performed the research and are not necessarily those of the Transportation Research Board or its sponsors. This report has not been reviewed or accepted by the Transportation Research Board's Executive Committee or the Governing Board of the National Research Council.

Project Cost Estimating A Synthesis of Highway Practice

SUMMARY Departments of Transportation need a strategic approach to early cost

declarations. Departments must:

¢ Avoid false precision − a big problem is created by early optimism.

¢ Relate contingency to the layman’s everyday experiences with

uncertainty.

¢ Invest in continuous and transparent QA/QC of your estimating

processes.

To have estimate accuracy there needs to be institutional and management

maturity. Poor administration, including overly complex organizational

structures, convoluted contracting practices, and inexperienced personnel will

cause project cost problems stretching from the original estimate to completion

of construction.

Throughout a project’s development estimates are completed to ensure that

sufficient funds have been allocated to complete the proposed work. The

chronological development of a project estimate begins with the conceptual

estimate and evolves through project development until the final pre-bid

estimate is produced.

The actual cost of a project is subject to many variables, which can, and will

significantly influence the range of probable projected cost. Any one cost

number represents only one possible result of the multiple variables and

assumptions. These variables are not all directly controllable or absolutely

quantifiable. Therefore, cost estimating process must consider probabilities in

assessing cost, using a recognized, logical and tested process.

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At the conceptual stage of project development there is a very large

potential range for ultimate cost of the work. DOTs need to consider:

¢ How are estimates usually done?

¢ What do we need to do to get a valid estimate?

¢ How do we develop a reliable cost estimating and validation process?

¢ The estimating process must evaluate variability and risk using logical,

reasonable statistical (probability) methods.

The traditional approaches to early (conceptual) estimating match poorly

with the public’s intuitive understanding of “what engineers can tell us.” The

meaning of “contingency” in an estimate is not clearly defined in many DOTs

and our use of the term completely mystifies ordinary citizens. The public sees

“development” of an estimate as evidence of doubtful engineering competence

or worse − untrustworthy actions. Engineering skill and judgment invested in

project planning is obscure to the general public, legislators, community

opinion leaders, and the media. Cost busts are easy for the public to

understand. But who wants to appreciate the fine points of route alignment,

difficult geotechnical conditions, or wetlands mitigation analysis?

Many DOTs do not have a set of written estimating procedures to guide

those charged with preparing project estimates. The foundation of a good

estimate is the formats, procedures, and processes used to arrive at the cost.

Estimate documentation must be in a form that can be understood, checked,

verified, and corrected. How inflation is treated in the estimate must be clearly

stated. FHWA recommends the cost estimates be prepared in year-of-

expenditure dollars, inflated to the midpoint of construction, with some

allowance for schedule slippage taken into account. Reporting the costs in

year-of-expenditure dollars will greatly reduce the media and public perception

of “cost growth.” DOTs would benefit greatly by producing an estimating

manual of standard formats, procedures, and processes to be used by both DOT

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estimators and design consultants retained for estimating purposes.

Estimating takes time, which is expensive, and one should spend it only on

detail that is relevant to decisions. Most states that perform detailed estimates

do so only for major items of work. Major items are defined as those work

items that taken collectively account for 65 - 80% of a project’s cost. The

remaining work items are estimated using historic bid averages. States using

historic bid price estimating systems reported applying these cost factors to all

work items in a project to develop the estimate.

The project estimated early in project development is often not the project

actually built. Scope changes can be defined as any discretionary change in

the size or configuration of a project. Most changes in scope result from a

better understanding of the need for a project. The longer a project takes to get

to field construction, the more room there is for scope changes to be made, and

the more likely they will happen.

In order to ensure that designers are aware of how scope changes will affect

project cost, it is advantageous to require submittal of a cost estimate along

with each design submittal. When large differences between the conceptual

estimate and the design estimate are reported (>10%), approval should be

required from the supervisory level or higher before design proceeds in order

to ensure sufficient funds will be available for construction. If the funds will

not be available then changes will have to be made to reduce the overall

project cost, this may bring about a project scope reduction.

An estimate must be in a form that can be understood, checked, and

verified. After receipt of the bids, the estimator or estimators that estimated a

project should be involved in the bid analysis for that project prior to award.

This will give them an opportunity to spot bidding trends early and also ensure

that someone who is knowledgeable about the estimate is involved in the

decision to award

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Mega projects have characteristic traits besides cost and size that make

them extremely challenging to estimate and which estimators should always

consider when reviewing costs assumptions. These include:

¢ Mega projects stretch available resources to the limit - labor, material,

management skill, and information systems

¢ Mega projects have a high profile with political subdivisions and the

public

¢ Mega projects are very noticeable by regulators

¢ Mega projects are unusually long duration projects and there is less

likelihood of maintaining continuity of management

The most important predictor of cost growth and schedule slippage in mega

projects is the extent to which the project encounters regulatory constraints in

the following areas:

¢ Protection of the natural environment from the effects of the project

¢ Protection of the public health and safety from the effects of the

project

¢ Controls on the use of labor or procurement

¢ Other government standards or regulations

Unless government regulations are very well understood, the costs for a mega

project will not be well defined.

Virtually any form of technological innovation in a project is likely to result

in cost growth. Measures of innovation are:

¢ Whether or not the project embodied any first-of-a-kind technology.

Whether the project employed any new materials or methods of construction

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CHAPTER ONE

INTRODUCTION

BACKGROUND

Effective management of transportation projects is critical to this Nation’s economic vitality.

Recently, national publicity about large, high-visibility transportation projects has called into

question the ability of departments of transportation to forecast accurately and to control the final

cost of their projects. This fact is illustrated by the media coverage of bids for major projects

including the Wilson Bridge in Washington, D.C. (1) and the Bay Bridge replacement in San

Francisco, California (2), and the attention of federal and state legislators to transportation

project management because of changes in the announced cost of undertakings like the Central

Artery/Tunnel project in Boston (3 & 4), the Springfield Interchange project in Northern Virginia

(5 & 6), and the Hoover Dam Bypass (7). In most cases, the final cost (or cost projections during

construction) have been significantly higher than the cost estimates prepared and released during

initial planning, preliminary engineering, final design, or even at the start of construction (8).

The ramifications of differences between early project cost estimates and bid prices or the final

cost of a project can be significant. As a result of both higher bids and project cost growth,

estimating for projects over $10 million was recently a topic of review by the Federal House

Subcommittee on Transportation Appropriations.

Over the time span between project initiation (concept development) and the completion of

construction many factors may influence the final project costs. This time span is normally

several years in duration but for the highly complex and technologically challenging mega

projects it can easily exceed 10 years. Over that period major changes to the project scope and

its setting (the macro environment) can occur. Factors that often drive increases in a project’s

final cost include changes in project scope, unforeseen engineering complexities and

constructibility issues, changes in economic and market conditions, lack of organizational

capacity and/or capability, changes in regulatory requirements, local governmental pressures,

and a transformation of community expectations. Additionally when there is a disruption of

management and political continuity coherent strategies for control of scope, schedule, and cost

are often impacted adversely.

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Large transportation projects are extremely expensive, with costs of individual projects

reaching as high as $14 billion in recent years (4). These mega projects require that a significant

amount of money be obligated early in project development. Estimating the cost of a given

project is the responsibility of the individual state departments of transportation (DOT).

Estimates of a project’s cost are made throughout its development cycle (Figure 1). These

estimates shape allocation decisions, influence long-term spending plans, and serve as a

framework for accounting and control. The estimate is a baseline to measure project

management performance. At the start of a project a conceptual estimate is generated based on

limited information in order to screen projects and work the project into the DOT’s five (5) year

project plan. Once the project is set in the DOT planning cycle, design can begin.

Project Stage

Concept Development Design Advertisement Bid/ Award Construction

Time

Estimate Conceptual Estimate

Design Estimates

Prebid Estimates Bid Analysis Change Orders

FIGURE 1 Estimate Development in Relation to Project Development

Frequently the engineers performing conceptual estimates use only gross historical bidding

data to develop their estimates. As a project progresses from concept to final design more of the

unknown factors can be eliminated from the estimate and numbers that reflect the final design

requirements can be produced. Estimates at final design, prior to bid, are often referred to as the

state’s or engineer’s estimate, and are used to finalize project funding prior to bid solicitation and

construction. In the case of all these estimates the estimator must start with a set of assumptions

that certain factors affecting cost will remain constant or change in predicted ways. Key

assumptions are:

¢ Scope of the project will not change

¢ Inflation has been forecasted appropriately

¢ No unanticipated regulatory changes will occur

¢ The project will not encounter unusually bad luck in the form of strikes, especially

damaging weather, or other uncontrollable events.

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¢ The project will not be mismanaged.

Many studies of project cost estimation have found that the final total cost incurred in

designing and constructing projects of all types (rail, bridges, road, process plants, refinery,

power plants, mineral extraction) almost always exceeds the amounts estimated (8 & 9). In the

case of one study of process plant estimates it was found that the unreliability and uncertainty

surrounding the accuracy of the cost estimates vastly exceeded any normal range of expected

uncertainty associated with capital cost projections (9).

An estimate is accurate if it is close to the actual final cost of the project. Any single estimate

forms part of a probabilistic distribution that, ideally, clusters around an accurate average. A

“good” cost estimator is one whose estimates are “reasonably” close to the actual costs most of

the time. In statistical terms, this means that a good estimator’s distribution is modally peaked

around actual costs, with a reasonably small average deviation (9). The size of the deviation

depends on the type of estimate and when it is made. For early estimates, the typical average

deviation (confidence range) is larger than in the case of more definite estimates made when

design is complete and the project fully defined. However, because the estimator always lacks

complete information, estimates always incorporate some uncertainty about final project cost.

Uncertainty is greatest during the early project stages, and decreases, as the project is thoroughly

defined. Figure 2 illustrates the typically assumed relationship between estimate accuracy and

the amount of information available at different stages in a project’s development. As the

estimator acquires more definite information, the confidence ranges steadily narrow.

The percentages presented in Figure 2 are conventional estimating expectations and represent

no more than approximate ranges commonly used in the construction industry. They are

presented here only to illustrate the assumptions that estimating error is limited, declines during

project development, and tends on the whole to be unbiased. Very early estimates (conceptual)

exhibit the greatest amount of uncertainty. The plus or minus 40 percent confidence range

typically associated with these estimates reflects the lack of definite project information (9).

Subsequent estimates are made throughout project design as continuing checks on cost

expectations. The later estimates are necessarily assumed to be increasingly accurate cost

predictors and the confidence intervals decline to where the final definitive estimate is expected

to be very close (plus or minus 5 percent) to actual project costs.

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FIGURE 2 Typical Bounds of Estimate Accuracy vs. Project Development (10).

Some authors seem to imply that all estimates should be expected to fall within the confidence

interval. Others adopt a more probabilistic perspective and assume that the intervals represent a

range of two standard deviations, encompassing about 95 percent of the estimates (11). Still

others have suggested that 80 or 90 percent of the estimates fall within the depicted range (12).

The implied assumption of the figure is that the estimates are symmetrically distributed around

the actual costs.

A study of estimates for process plants revealed a pattern of estimation deviation in sharp

contrast to the usual expectation of actual cost falling symmetrically within established ranges of

estimated cost (9), Figure 3. The points on the figure are developed by dividing each estimated

project cost by the project’s total actual cost. A value of one indicates a perfectly estimated

project. When the estimate is low (estimate < actual cost) produces a ratio value of less than one,

or signifying cost overruns. Figure 3 contrasts the estimation experience of the studied plants

with the typically assumed ranges illustrated in Figure 2. The V-shaped funnel at the top of

Figure 3 approximates the typical assumption that estimates tend on average to equal actual

project cost with uncertainty declining monotonically over the period of project definition. It is

clear that, in the case of process plants, early estimates were much too low. The early estimates

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(conceptual) averaged less than one-half of actual cost. Based on more recent studies (8), it

appears that a similar tendency is true in the case of transportation projects.

FIGURE 3 Estimate experience of pioneer process plants (9).

Cost estimates are merely predictions and can therefore be wrong. Problems will arise when

contractors submit bid prices that are significantly higher than the estimate prepared by the DOT.

At this point either more money must be allocated or the project scope must be reduced in order

to lower project costs to within budget limits. This frequently necessitates a significant amount

of project reengineering, which adds additional cost to the project while reducing its overall

value.

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This research examines the estimating practices currently in use by state Departments of

Transportation. It presents a review of DOT estimating practices and discusses actions that can

help agencies produce estimates that are in line with the current challenges of large

transportation reconstruction projects in urban environments. The research involved all aspects

of estimating from the conceptual estimate, to the final engineer’s estimate (which is used for bid

analysis). Additionally, issues such as the decision process for determining whether to award a

project when bids are above the engineer’s estimate and collusion detection are examined.

Data was collected from all fifty DOTs and analyzed based on the size of the DOTs’

construction programs and estimating practices. The two major estimating techniques utilized by

DOTs, detailed estimating and historic bid price estimating, are examined and their performance

compared.

HISTORY – THE HOLLAND TUNNEL

Estimating and managing the cost of complex infrastructure projects has been a universal

challenge for decades. Looking for wisdom by studying the past is a very complicated matter, a

study of the builders who preceded us can provide an appreciation of the difficulties in

estimating and constructing a successful project. The lessons of the past must be heeded if one is

to succeed today. The Holland Tunnel was, when it opened in 1927, the longest underwater

tunnel ever constructed. Additionally, it was the first mechanically ventilated underwater tunnel.

A review of the Holland Tunnel project serves to highlight the critical issues associated with

estimating the costs of mega projects. Most importantly, however, such a review provides

concrete examples of the potential cost escalation factors that are faced even today by engineers.

The construction of the Holland Tunnel, which connects New York City to New Jersey, is a

very enlightening example of a transportation project experiencing cost growth as it moved from

initial conception to completion of construction. Many of the difficulties associated with

estimating the costs of large, long lead-time projects are illustrated by the events that plagued

this historical work.

New York City was in the mist of a severe coal shortage in early 1918. This shortage of coal

was not due to a strike, the lack of production, or even to a lack of supply. Plenty of coal was

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stockpiled in the storage yards of Jersey City just across the Hudson River from New York City.

In fact, from the upper floors of Manhattan’s buildings, mounds of coal could be seen across the

Hudson on the New Jersey shoreline, but the coal needed to be shipped across the Hudson River.

The only means available at the time to ship the coal was ferryboat, however during the winter of

1918 the Hudson froze over and boats could not cross.

A joint New York and New Jersey commission had been investigating a new means of

transportation across the Hudson since 1906 and the coal shortage of 1918 applied the pressure

necessary to motivate the commission to arrive at a solution for a more efficient and dependable

means of cross river transportation (13 & 14). A tunnel was found to be the most economical

solution. Rail tunnels under bodies of water had long been in use, but this was to be a new type

of tunnel. The automobile was emerging as an increasingly predominate means of transportation

and it was therefore decided that this tunnel should be for vehicular traffic. The tunnel would

have to employ new ventilation technologies in order to purge its air-supply of the deadly

exhaust gases produced as by products of the internal combustion engine. The design for this

tunnel would have to be different from anything built before.

Eleven designs were considered for the tunnel, most notably, one by the engineer responsible

for finishing the Panama Canal, George Washington Goethals. Goethals was a national hero for

having completed the canal and was assigned as a consulting engineer to the Holland project.

Because of his professional status his design received the most publicity. His design called for a

single, bi-level tunnel with each level for opposing directions of traffic. The tunnel was to be

24½ feet wide to allow for three lanes of traffic. His estimate, based on his conceptual design,

was $12 million dollars and three years to construct. World War I consumed much of the

nation’s steel and iron production, so in order to cut costs, Goethals’ design made use of cement

blocks instead of steel or iron to construct the tunnel. This type of design was entirely new and

would require a new construction technique. Goethals’ plan was presented in late February of

1919 and it again appeared to be the front-running plan (15). Goethals however, had

responsibilities elsewhere and as a result he was not named chief engineer for the project.

In June of 1919 Clifford M. Holland was named to head the project along with a board of five

other consulting engineers (16). Holland had vast experience in constructing subways and

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tunnels in New York. The total cost of engineering would be approximately six percent of the

total cost, which through 1919 was taken at Goethals’ estimate of around $12 million. Holland

produced a report in February of 1920 based on his analysis of the Goethals’ design of the

project as a whole. His findings were not what had been expected. Holland found:

¢ The capacity of the tunnel had been greatly overestimated; a width of 24½ ft would allow

for only two lanes of traffic.

¢ The lining of concrete blocks would neither withstand the external loads exerted on the

tunnel nor would they be dense enough to resist the buoyant forces of the semi-fluid soils

at the bottom of the Hudson River.

¢ The method of construction required for Goethals’ design would increase the difficulties

of construction as it remained undeveloped and was completely untried.

¢ The estimated cost of construction was grossly low.

¢ The time allowed for construction was also far short of what would be actually needed.

The panel of consulting engineers gave unanimous support for Holland’s analysis. Holland

presented a design of his own which was also supported unanimously by the board of consulting

engineers. His design called for twin cast-iron tubes, 29 ft in diameter, with each tunnel to be

used for opposing directions of traffic. Holland’s design would be built using established

methods of tunnel construction that had been implemented under the Thames River in London,

and used for rail tunnels under the East River and further up the Hudson. Holland estimated the

cost at $28,669,000 (17) and the time for construction at three and one-half years. Upon receipt

of Holland’s report and Goethals’ responses, the joint committee of the New York and New

Jersey Bridge and Tunnel Commissions had to decide how to proceed.

Debate about the tunnel design continued for more than a year creating disagreements

between the New York and New Jersey Commissions. The board of consulting engineers’

unanimous support of Holland’s design and analysis convinced the joint commissioners to direct

Holland to devote no more time to Goethals’ design and to proceed with work on the twin cast-

iron tube design. The two state’s commissioners squabbled for a time over recognition of new

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consulting board engineers appointed by New Jersey and there was a disagreement about

awarding a contract to a newly incorporated company headed by a New Jersey commissioner’s

relative. These delays cost the two states over half of a million dollars. However, in mid-

November of 1921 an agreement (18) was reached that allowed work to proceed. Construction

had started on the New York side in October of 1920 and in late December 1921 the New Jersey

portion of the tunnel was bid (19). The completion date mandated was December 31, 1926. The

construction schedule was now set at five years.

Estimated costs for the project were increased multiple times throughout the early years of

construction. In the same time period forecasted traffic had increased so as to necessitate larger

entrance/exit plazas. By mid 1923 the cost of acquiring new land for entrance and exit plazas

(20) and increases in material and labor expenses were estimated to add another six million

dollars to the project. By the beginning of 1924, the mid-1923 re-estimated costs had been

increased due to several factors. The total of the two increases amounted to $14,000,000 (21).

This was an increase of 49% from Holland’s original estimate. The issues that led to the

increases in price were both functional and aesthetic in nature. A tile lining was selected to cover

the entire interior surface to optimize lighting conditions. The estimated six million tiles added

$750,000 to the cost. More intricate designs for approach sections and the widening of approach

roadways increased the total costs $3,598,822 and $100,000, respectively. An architectural

treatment for the approach sections added $1,160,000. Increases in labor and material costs

came to a total of $3,194,178, and $500,000 in additional contingencies were also included in

these cost escalations. Redesign of the ventilation system was also required due to the findings of

tunnel-gas studies, which had not been completed by the time Holland had produced his original

estimate. The total for this redesign was $4,422,000 which included the following: $1,424,000

for equipment stations, substations for electrical power, ventilation equipment for shafts and

tunnels, buildings for housing emergency equipment, fire extinguishers, telephone systems, and

traffic signals; $1,248,000 for additional equipment; $750,000 to increase the tunnel diameters

by six inches to allow for larger ventilation ducts. Holland also decided to substitute cast-steel

for cast-iron to increase the strength and safety factors of the tunnel at a cost of $575,000.

Lastly, the New Jersey ventilation shafts had to be redesigned along with their corresponding

foundations at a cost of $700,000 due to unknown soil conditions. The preceeding costs, totaling

$14,000,000, increased the total estimate to over $42.5 million dollars.

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When the appropriations were made for the $14,000,000 in increases, it was believed that the

new funds would be sufficient to complete the project; this proved not to be the case. The

Commission was before the legislatures again, in February of 1926, seeking an additional

$3,200,000 (22). The commission explained that the newfound costs were due to heavy

increases in labor and material costs and to a tube diameter increase. These new costs were

incurred in the same period that Holland died of heart failure. Holland’s assistant, Milton H.

Freeman, took over as chief engineer only to die of pneumonia four months later. Ole Singstad,

the designer of the ventilation system became chief engineer after Freeman’s death and oversaw

the project until completion. In addition to the disorder created by having three different chief

engineers within five months, other factors could have contributed to the increases in expected

costs cited in February of 1926. In April of 1924, three months after the $14 million increase,

water rushed into one of the tunnels from a leak, forcing workers to make a hasty escape. Not

long after this incident there was a workers strike, which delayed the project and increased costs.

There was also growing concern about mounding of the river bottom as a result of tunneling

activities. The mounding was a hazard for large ocean-going vessels that frequented the harbor.

After the completion of the project the mounding would need to be dredged at an added cost. In

the meantime these large vessels had to be guided carefully through a narrow channel by the

revenue cutter service of the US Coast Guard, also at an added cost. Although costs continued to

grow toward the middle of 1926, the Holland Tunnel was nearing completion.

It was not until the end of 1926 that the final cost of the tunnel would be realized. By the time

the tunnel was nearly completed the $3,200,000 requested in February of 1926 had grown to a

total of $5,741,000 above the 1924 estimate (23). A final appropriation was requested in early

1927 bringing the total cost to $48,400,000. When the engineers were asked to explain these

new costs, they explained that the increases were due solely to the higher costs of labor and

materials. The upward adjustment of the estimate in mid-1926 would prove to be the final cost

increase. On November 13th of 1927 the tunnel officially opened (24).

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Causes of Holland Tunnel cost increases

1. Scope changes:

¢ From a single 24½ ft wide to a 29 ft diameter

¢ Larger entrance/exit plazas

¢ Tile lining to optimize lighting

¢ Approach roads

¢ Architectural treatment of approaches

¢ Further diameter increases to accommodate ventilation ducts

2. Inflation/escalation over the nine years between initial design and completion of

construction:

¢ Labor costs

¢ Material costs

¢ Labor strikes

3. New Technology:

¢ Lack of knowledge about ventilation systems for the exhaust gases produced by vehicles

with internal combustion engines

4. Technical challenges:

¢ Tunneling methods/risk

¢ Unknown soil conditions – redesign of New Jersey ventilation shaft foundation

¢ Major leak into the tunnel in 1924

¢ Mounding of the river bottom

5. Continuity of senior management:

¢ Goethals

¢ Holland

¢ Freeman

¢ Singstad

What lessons in design and construction can be taken away from the Holland Tunnel project?

The original cost estimate in early 1919 of $12 million dollars grew to $48.4 million when the

final cost was reported. The final cost of $48.4 million was for fully operational twin cast-steel

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tube tunnels. The work was built by conventional methods, but on a scale never before

attempted. Goethals’ original estimate was significantly beneath what was actually needed for a

project of this nature. Holland’s design was not complete when the first estimate was reported.

Further knowledge about ventilation systems caused additional cost to be incurred because of

necessary design changes. If these tests had been completed before the project design was

produced the estimate would have accurately reflected the necessary construction operations.

Improved forecasting of future traffic would have allowed a more accurate approximation of the

costs for entrance and exit plazas to be included in the initial estimate. It should have been

anticipated that a tunnel of such scale would encounter unexpected circumstances creating the

need for larger contingencies to mitigate the costs of construction problems. These

contingencies could have been used to cover the costs of labor strikes, increases in wages, and in

the prices of material. As with many mega projects the tunnel was a tremendous engineering

achievement that has contributed significantly to New York City’s transportation system even

though it cost four times the amount calculated in the first estimate. The challenges, faced by

Holland in designing and building the tunnel, are similar to those found in every mega project

undertaken today.

SOURCES OF INFORMATION

In order to determine the current state of estimating practice within state DOTs, all fifty DOTs

were contacted and interviewed. Points of contact were generated using an AASHTO committee

member list and by researching state DOT web sites. Once appropriate contacts were identified

they were electronically forwarded an advance copy of the survey and an interview was

scheduled.

The original survey generated by the research team was tested with the Arizona DOT

(ADOT). After discussions with ADOT the initial survey was refined and distributed to the

other 49 states (Appendix A). Most states were interviewed over the phone, however members

of the research team did visit some states at which time interviews were conducted with multiple

personnel. Conducting the interviews either over the phone or in person enabled the team to

expand on comments and ask further questions for clarification. The interviews were used to

collect data in four areas:

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1. Document estimating practices of state DOTs

2. Ascertain methods for the resolution of discrepancies between DOT estimates and bid

prices

3. Identify problems that remain largely unresolved across the country

4. Determine practices that produce estimates within a + 5% variability between the DOT

estimate and contractor bid.

Data Analysis

While data was requested from all fifty states on projects having engineer estimates of over $10

million, it was determined that to make the data more useful to the reader, project ranges would

have to be established, and some differentiation between DOTs would be required. After

discussions with ADOT, project value ranges were set to give a better idea of how DOTs are

doing business while at the same time capturing useful data from all of the state DOTs. The

number of projects used to determine program size was decided after the data was received from

the DOTs. The data was sorted based on total projects reported with program size breaks based

on clear gaps in the reported project numbers. Additionally, an effort was made to maintain a

sufficient number of DOTs in each category so as to support the validity of conclusions. The

response to the surveys provided practical information concerning specific experiences and

strategies.

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CHAPTER TWO

LITERATURE REVIEW

Over the last thirty years numerous books were published on the subject of construction

estimating. However, almost all of those books are directed to the building and homebuilding

segments of the construction industry. In the literature there can also be found various articles

on specific construction estimating issues.

BOOKS

The procedures for producing heavy construction estimates are the subject of a very limited

number of books (25 & 26). There are also a few general construction books that devote a

chapter or two to heavy estimating (10). Those books present the beginner with a general

understanding of where to commence with a set of plans in determining the amount of work to

be done and how to apply appropriate cost factors to that work in order to produce an estimate.

Parker (25) and Bartholomew (26) focus on heavy construction projects and the unique

challenges associated with these projects that would not be encountered in smaller scale

operations of the same type.

A list of the steps for estimating a heavy construction project is included in each book along

with some of the special conditions an estimator must consider while preparing an estimate for

heavy/civil projects. These books are written as primers to teach students the mechanics of

project estimating. They do not address the issue of estimating accuracy; they simply lay the

foundation for preparing an estimate. They do provide the base knowledge of where to look for

information and how to assemble it into a useful estimate format.

The Parker book, which was written jointly by Albert D. Parker, Donald S. Barrie and Robert

M. Snyder, primarily addresses estimating for dams, and tunnels. All three of the authors were

practicing construction engineers who had years of contractor experience when the book was

published in 1984. Although Bartholomew’s book was published more recently, it is based on

information from sources, like Parker’s book, that were originally published between ten and

thirty years ago. The Bartholomew book deals with assembling the estimate, quantity takeoff,

pricing labor, indirect costs, and the costs for typical excavation and mass concrete work.

20

There are other books (27, 28, & 29) available that address some of the issues of heavy

construction estimating such as selection of equipment, methods analysis, and calculating crew

productivity. None of these or the aforementioned books specifically address the situations

encountered in constructing a mega transportation project.

TECHNICAL ARTICLES

The problem of estimate accuracy affects all areas of construction and has been studied

repeatedly. Investigations of this sort can be divided into two broad categories of study:

¢ Policies and Procedures of Estimating Entities

¢ Technology for Estimating

The majority of the studies have investigated only a single estimating entity, such as one

highway department; particular estimating procedures; factors that impact project cost; or

technology for estimating. The studies include not only highway and infrastructure projects, but

also building and industrial construction.

Policies and Procedures of Estimating Entities

The process of estimating a construction project begins with the identification of a need and

development of a conceptual estimate, and progresses with the systematic design of the project

from concept to construction documents and development of the final engineer’s estimate. In

order to maintain both the scope and budget of the project it is necessary to manage the design to

insure that all decisions will produce the best value possible for the owner.

Young (30) suggests implementing a “Design to Cost” strategy. This idea involves constantly

managing the design to insure that the construction documents reflect a design that can be

constructed for the budgeted amount. Although this sounds like a simple concept, it often

happens that a design team will have a set of job requirements and a target cost, but then spends

its time and effort in meeting all of the design requirements while ignoring the escalating costs of

the proposed design. The easiest way to control changes to scope, and their tendency toward

cost increases, is through open and honest communication between the designer and owner. This

21

process insures that the owner is aware of any cost increase, beyond the original budget, and the

designer is producing a design that meets the owner’s prescribed needs.

Once design is complete the owner or designer must once again go through the project

carefully to produce the pre-bid or engineer’s estimate based upon the final plans and

specifications. This estimate can be produced by a quick check of the cost drivers that were

tracked throughout the design. However, if the project scope has changed and the resulting costs

were not previously identified, the estimate produced at this point can result in a tremendous

shock when the project cost is finally revealed. If the pre-bid engineer’s estimate is significantly

above the amount of funds budgeted for the project the owner must do one of three things:

¢ Make more funding available.

¢ Direct the designer to make design changes that reduce cost.

¢ Reduce the scope of the project to meet the budget constraints.

In order to increase the accuracy of estimates, De La Garza (31) suggests that the personnel

performing the estimate possess both a strong knowledge of costs as well as implicit design

knowledge. The design knowledge helps to insure all characteristics of a particular building

system are included in the estimate. Without the appropriate design knowledge it is possible that

an estimator may not understand that systems each have their own respective costs and a

particular system can make a significant bottom line difference.

Building construction estimates are commonly created using standardized formats for

delineating individual work items. The most widely used building work classification system is

the Construction Specifications Institute (CSI) Master Format. The sixteen categories (divisions)

of the Master Format allow for easy organization of all aspects of the contract and estimate (32).

By using a cost estimating methodology that follows this format the estimator can easily produce

a detailed accounting to determine exactly what was and was not included in the estimate, as

well as easily cross reference the contract specifications that determine what type and quality of

materials are required for each element in the structure. An additional benefit of using this

method is that contractors can use the same system to produce their estimate, and after bid

opening the owner can directly compare contractor bids to the pre-bid estimate, providing an

easy way to evaluate estimating practices and make changes as necessary.

22

The American Association of State Highway and Transportation Officials (33) has developed

a similar format for use in highway construction. This guide has eight divisions that cover all

aspects of highway construction, while eliminating or consolidating the other CSI categories that

are seldom used for highway work. The AASHTO format is used throughout the United States

as an outline for specification writing and payment monitoring by DOTs. State DOTs either use

the standard numbers supplied by AASHTO or modify them to suit their individual needs.

The methods discussed thus far pertain mainly to owners and designers, the responsible

parties up to the point where bids are solicited. Prior to bidding the project, contractors collect

the bid documents, arrange site visits, and estimate the cost plus mark-up required to complete

the project as designed. A contractor’s estimate is based on completing the work and making a

profit. There are several pitfalls that the contractor can experience during the estimating process

that can lead to financial hardship later if the contractor successfully bids a job on an incomplete

estimate (34). These include: 1) underestimating the time duration of construction, 2) a quantity

takeoff mistake, and/or 3) selecting a construction method that is not allowed by specification.

Even if the material quantities are correct, an underestimate of time (productivity) will lead to

large labor cost overruns, as well as increased overhead to run the project for an extended period

of time. To prevent this from happening the contractor’s estimator must take into account

regional differences in labor productivity and availability that may differ from normally

anticipated production.

Several studies have looked at methods for producing bid estimates. Stern (35) proposes a

methodology based on current market information while downplaying the role of historical data.

He suggests that market influences can alter prices and productivities enough to break an

estimate that is based solely on historical figures that may not reflect current conditions. Shash

and Al-Khaldi (36) agree with this theory, but they also advocate including an evaluation of the

economy as a whole, as a part of the estimate. This allows for adjustments to prices and

predictions as to where overall costs are likely to be throughout the duration of the project.

Market conditions can greatly impact the bids submitted to an owner. Pearl (37) found that

when the market is in decline, contractors would undercut their profit in order to become the low

bidder and secure as much work as possible. As a result, owner estimates done prior to bid in a

23

declining market will have a tendency to be higher than bid prices, while those done during

periods of growth have a greater likelihood of being low. In a growth market contractors

generally have a larger backlog of work available and are, therefore, able to apply their usual

mark-ups to their costs. Thus, owner estimators must increase their estimates during growth

markets, which can widen the gap between an owner’s estimate and the bid amount the next time

the market turns down.

Other market conditions that can effect estimates and bids are: 1) the availability of labor, 2)

location of the project, 3) equipment that requires specially certified sub-contractors to install,

and 4) the overall condition of the economy, such as changes in interest rates that can change the

amount of capitol required to fund a long term project (36).

Technology in Estimating

Since the advent of personal computers and their proliferation into the business environment,

estimators have developed new and innovative techniques to produce estimates faster and better.

Creating a computer program that can simplify the work of estimators requires a substantial

commitment of personnel and resources. This commitment, or investment, can quickly return

large dividends.

Hicks (38) outlines the specifications that an estimating program should adhere to in order to

produce viable estimates. These include: 1) clear definitions of all terms and actions, 2) ease of

use, and 3) some method for tracking each and every part of the estimate, as well as option lists

for each portion of the estimate, such as altering pavement type or thickness. Although there are

many estimating programs currently available from commercial sources Hicks found that no

single program has demonstrated that it is far superior to the others.

Regression Analysis

The Alabama Highway Department (AHD) developed and tested a conceptual estimating

program based on regression analysis. To populate the program model, bid data from a variety

of bridge widening projects were examined and individual line items were compared to

determine average prices that would be used in future estimates. These figures were then

tabulated and used to create the model. This model produced estimates consistently within +

24

20% of the low bid amount, which was the requirement set forth by AHD in creating the

program (39 & 40). This model has limited applicability, as it only addressed estimating bridge

widening projects. However, the methods used to create the model can be applied to other types

of work to create similar models.

Neural Networks

Artificial neural networks have the capacity to perform a large number of calculations and make

decisions with a minimal amount of user input. The estimating neural network is initially

developed by loading historical data, or in the case of highway estimating, line items, into the

network and allowing the network to learn cost relationships. Al-Tabtabai and Tantash (41)

developed such a network for preliminary highway construction estimation. Their network was

able to produce estimates accurate to within + 9% of estimates created by a panel of industry

experts. Use of such a program to perform detailed estimation would require much larger data

sets and longer training periods than were used in their study. However, once completed the

network would be able to produce estimates far more quickly than humans.

Monte Carlo Simulation

In order to address the variability involved with cost estimates Touran (42) developed a

probabilistic cost estimating system. By using Monte Carlo Simulation applied to RSMeans data

for low-rise buildings, he was able to develop an accurate model for predicting the cost of line

items that generally exhibit the greatest amount of variability. His model generated correlated

random numbers from the data, and then applied those numbers to user-defined quantities in

order to develop an estimate.

All of these methods use the power of computers to produce estimates faster, cheaper, and

better than previously thought possible. Technology will definitely play a large role in the future

of highway estimating, but a significant investment will be required to realize the full potential of

computerized estimating systems.

Conclusion

While all of these studies examined estimating and many have made recommendations for

improving the practice, none has made a comprehensive comparison of methods currently in use

25

or the difficulties faced in estimating mega projects. Other articles have made recommendations

for improving performance on individual tasks that are a part of the estimating process, but very

few researchers have actually tested their hypotheses, and therefore they do not have any

empirical data for comparison to other methods for completing the same estimating tasks. While

the experience base for construction cost estimating, both in industry and in government, is quite

large there is comparatively little published on the subject as compared to other areas of

engineering and construction practice. The competitive nature of the low-bid construction

market discourages the free and open exchange of ideas on estimating, as each and every

contractor closely guards any information that provides a competitive advantage when bidding.

As a result, researchers have little support from industry for research that will help other

contractors, even if the research also benefits the company that provides funding.

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CHAPTER THREE

HOW STATE DOTS ESTIMATE

Throughout a project’s development estimates are completed to ensure that sufficient funds have

been allocated to complete the proposed work. This study is primarily concerned with pre-bid

estimates or what is often termed the engineer’s estimate; however, conceptual estimating

procedures were also examined to determine the extent of estimating procedure standardization

within DOTs. The chronological development of a project estimate begins with the conceptual

estimate and evolves through project development until the final pre-bid estimate is produced.

CONCEPTUAL ESTIMATES

Depending on the policies of the individual DOT conceptual estimates are prepared by project

developers, designers, or estimators. To create a conceptual estimate, 31 DOTs use estimating

cost data that are based solely upon historic lane-mile cost averages for similar projects or for

bridges/structures, they use historical square-foot or square-meter cost data. Eighteen other

states go into greater detail and determine quantities based on the conceptual design and follow

the same procedures that are used for pre-bid estimates, which could be either historic average

unit price estimating or, as is the case in three states, they prepare detailed estimates based on

preliminary design information. One state reported allowing engineers to use whatever method

they thought best to generate conceptual estimates.

While Caltrans uses information derived from old bid numbers to develop average prices for

use in creating conceptual estimates more than simple averages are compiled. The Division of

Structure Design Services & Earthquake Engineering provides cost range analyses of bid data for

use in developing preliminary estimates. Such an analysis of bridge costs is shown in Figure 4.

Note in the Figure 4 that the text clearly states that: “These costs should be used just for

preliminary estimates… .” The Connecticut DOT also analyzes bid data in detail and produces

pricing information for preliminary estimates that can be structured for expected project

conditions, Figure 5.

28

FIGURE 4 Caltrans Comparative Bridge Costs for Preliminary Estimates.

29

FIGURE 5 Connecticut Preliminary Cost Estimating Guidelines.

30

The Connecticut DOT had been having problems with inaccurate construction cost estimates

so in 2002 the Department undertook a review of its preconstruction estimating procedures and

methodology (43). This review was a joint effort of the Department and the FHWA Connecticut

Division office. In the case of preliminary cost estimates the committee issued the following

recommendations.

1. All estimates should be written.

2. All estimates should be based on the “ConnDOT Preliminary Cost Estimating

Guidelines” or actual quantity take-offs.

3. Prime designers should obtain written estimates from all support units: Traffic

Engineering, Environmental Compliance, Bridge Design, etc.

4. Rights-of-way cost estimates should be prepared in consultation with the Office of Rights

of Way. “Place holder” estimates should not be used.

5. At the Project Initiation, the prime designer should confirm that the estimate is consistent

with the project scope. A site visit should be considered an essential part of this effort.

6. Estimates should be updated at each major design milestone: Preliminary Design, Semi-

Final Design, Final Design.

7. The Semi-Final design estimate should be based on actual quantity take-offs.

Preliminary estimating techniques would not be applicable.

8. The “Preliminary Estimating Guidelines” should be updated to include factors for

inflation, unassigned quantities, etc.

9. The “Preliminary Estimating Guidelines” should be updated annually.

10. Project estimates should be updated semi-annually, unless a major milestone has occurred

in the interim, using the techniques appropriate for the given design stage.

These recommendations address preliminary estimates at all stages in the project development

process but several points are particularly applicable to conceptual estimates. Points three and

four concerning interaction with support units are very important. Special emphasis was also

31

placed on point five. This was because a lack of site familiarity by the design team was

identified as a factor that often caused estimating problems. The committee’s report stated:

It is extremely important for all members of the design team to become familiar with the

project site. A formal or “Plans-in-Hand” site review will help refine the project scope early in

the design process and bring forward method and constructability issues often overlooked during

a paper plan review.

The intent of the Plans-in-Hand Review is to determine if other alternative approaches could be used during the design phase to eliminate future costly construction changes, and to analyze these various alternative construction procedures for methods of construction, time saved to complete the work, better customer satisfaction, cost savings, and ease of maintenance after construction (43).

In order to accommodate minor scope changes and account for engineering costs early in the

project, most DOTs add a contingency amount to the conceptual estimate. This is usually a

percentage of the total project cost. The reported range for contingency was 5 - 45% depending

on the type of project and amount of uncertainty prior to design. Overlay projects would

generally be at the low end of the contingency scale, while tunneling would be towards the top

due to the possible variation between subsurface conditions predicted by the geotechnical

investigation and those actually encountered. Table 1 shows the number of DOTs that reported

using set percentages for all projects, as well as how many use a graduated scale (Table 2) based

on estimated project cost, and how many require estimators to perform a cursory analysis of the

risk and unknowns for the project and apply an appropriate percentage to address these

uncertainties.

TABLE 1 ENGINEERING AND CONTINGENCY COSTS APPLIED TO CONCEPTUAL ESTIMATES

Conceptual Contingency

DOTs Practicing

Set Percentage 20

Graduated Scale 15

Engineering Judgment 15

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TABLE 2 ONE DOT’S GRADUATED CONTINGENCY SCALE

Project Value Conceptual Contingency

$0 - $1,000,000 11.0%

$1,000,000 - $5,000,000 9.5%

$5,000,000 - $25,000,000 7.0%

$25,000,000 + 6.0%

Life cycle

Life cycle cost is an important consideration in project development and if considered at all, it is

generally considered at the conceptual design phase. DOTs reported that life cycle cost analysis

was done in the conceptual stage to determine the materials to be used in the project, as well as

to perform initial value engineering studies. Twenty-seven DOTs consider only pavement type

during life cycle cost analysis and make a decision based upon their previous experience with

facilities in the same general area and construction funds availability. Nine other DOTs reported

they were unaware of any life cycle cost analysis being made during project development.

CRITICAL ISSUE REVIEW MEETINGS

These meetings are intended to focus extra attention on specific projects that are larger or more

complex than those normally undertaken by the DOT. Personnel from all major areas of the

DOT, such as planning, design, construction, traffic, and maintenance, are invited so as to gain

the benefit of having multiple perspectives examine the proposed project. These meetings are

normally held before the project is passed from planning to design. By bringing all of these

perspectives together early the designers are able to reduce conflicts and value engineer the

project upfront, instead of completing a substantial portion of the design before asking anyone to

review the design plan. This process can save time and money as well as provide the public with

a more useful facility. Eight DOTs that have these meetings require them for projects valued

over $25, $30, or $60 million. One of those DOTs also uses this type of meeting for all Design-

Build projects. Two DOTs hold these meetings for projects with extensive urban traffic control

33

requirements, and one DOT uses these meetings to address special environmental, social, or right

of way issues that exist.

DESIGN PHASE COST CONTROL

During the design phase of a project it can be useful to track the programmed (or budgeted) cost

of the project against the anticipated construction cost of the final design. This enables DOTs to

better manage their construction programs by giving supervisors and directors an accurate

overview of the costs associated with projects under design. As design progresses it may

become clear that insufficient funds have been allocated based upon an unknown site condition,

a change in project scope, or changes in the construction market. When this is discovered it must

be reported to managers and either a cost increase approved or design changes made to bring the

cost in line with the budget.

In nine DOTs, approval authority for small cost/scope changes is delegated to the district

engineer responsible for the project. In those same nine states it is required that the Director or

the budget committee approve large cost/scope changes. These reviews encourage designers to

find ways to stay within the project budget, and when that is not possible ensures that the

changes are necessary and make sense within the DOT’s overall construction program.

PRE-BID ESTIMATES

There are basically three approaches to estimating (44). The use of historical data from recently

awarded contracts is the most common approach. Under this approach, bid data are summarized

and adjusted for project conditions (i.e., project location, size, quantities, etc.) and the general

market conditions. This approach requires the least amount of time and personnel to develop and

produces a good estimate, as long as noncompetitive bid prices are excluded from the database

and then appropriately adjusted current data is used to build the estimate. However, this method

is the most susceptible to outside factors such as inflated bid prices from contracts with little or

no competition (44).

The detailed estimate approach based on specific crews, equipment, production rates, and

material costs. This is similar to the way a construction contractor would estimate a project.

This approach requires the estimator to have a good working knowledge of construction methods

34

and equipment. While adjustments for current market conditions may be required, this approach

typically produces an accurate estimate and is useful in estimating unique items of work where

there is insufficient bid history.

The third approach combines the use of historical bid data with actual cost development.

Most projects contain a small number of items that together comprise a significant portion of the

total cost. These major contract items may include Portland cement concrete pavement,

structural concrete, structural steel, asphalt concrete pavement, embankment, or other specialty

items. Prices for these items are estimated using the detailed approach and adjusted for specific

project conditions. The remaining items are estimated based on historical prices and adjusted as

appropriate for the specific project.

It was found that most DOTs that perform detailed estimates do so only for major items of

work. Major items are defined as those work items that account for 65 - 80% of a project’s cost.

The remaining work items are estimated using historic bid averages. States using historic bid

price estimating systems reported applying these cost factors to all work items in a project to

develop the estimate.

DETAILED ESTIMATING

Detailed estimating requires a great deal of knowledge about construction methods, supply

systems, labor markets, and method productivity specific to the area where the work is being

performed. It also requires more time to prepare a detailed estimate than that which is needed for

estimating methods that simply apply bid averages to work items. This is because the estimator

must conceptualize the construction process in order to prepare an accurate estimate. Nineteen

states perform detailed estimates for major work items, using historic databases to track costs

based on crews, equipment, and production, as well as to provide work item costs for minor

items in the estimate. Most state DOTs that do this kind of estimating have dedicated estimating

sections whose personnel have the necessary construction experience.

DOTs that do perform detailed estimates typically use computer software that supports

estimate development, but the software is not critical to the estimating process itself. The

software may be used to track cost trends or simply allow the estimator to report the estimate to

35

other sections of the DOT more efficiently. The basic information that is necessary to perform a

detailed estimate such as crew sizes, equipment types, production rates, and labor and material

costs can be derived from a variety of resources. It is important that the estimator be familiar

with available resources, how to find the resources, and most importantly has a competent

knowledge of construction processes. All of these elements are necessary in order to develop an

accurate cost estimate.

HISTORIC BID PRICE ESTIMATING

Creating cost estimates from historic bid prices is a relatively straightforward and quick process.

After determining the quantities from the project plans, the estimators simply matches those

quantities to the appropriate historical unit-bid prices or average historic unit-bid prices. To

generate unit price data departments systematically compile bid data from past project lettings.

This data is broken down by bid line item. Average prices can also be calculated for the

estimator’s use. DOTs reported several different methods for sorting the data collected from bid

documents.

The first decision is how many bids from each project should be included in the data. There is

significant variance as to how DOTs approach this issue. All 50 DOTs responded to this

question as even those DOTs that use a detailed estimating procedure track historical bid average

costs for minor work items.

¢ Low bid only - 20 DOTs

¢ Low and second bid - 1 DOT

¢ Three lowest bids - 15 DOTs

¢ All bids (but may exclude single bids that are very high or low) - 11 DOTs

¢ All bids except high and low - 2 DOTs

¢ Bid analysis to determine a reasonable bid amount for each line item - 1 DOT

Table 3 summarizes the estimating performance for each of the above practices and includes

data from both historic bid price estimating DOTs and detailed estimating states that track costs

for minor work items. The two DOTs that use all bids except high and low, and the one using a

36

reasonable price reported the best performance. However, there was insufficient data to compare

these two systems on a larger scale to other systems. The one DOT that used reasonable price to

create it’s estimates did not have any experience using the approach for projects valued at greater

than $100 million. The one state that uses the low and second low bids prices to create the

database does not provoke as much interest as the results are the worse of any DOT using

historic bid price estimating.

TABLE 3 NUMBER OF BIDS USED FOR HISTORIC BID PRICE ESTIMATING

Number of bids used Number of DOTs

Reported Projects

Number reported more than 5% over Estimate %

Low only 20 755 169 22.4

Low and Second 1 24 13 54.2

Three Lowest 15 497 88 17.7

All 11 260 74 28.5

All Except High and Low 2 64 3 4.7

Reasonable Price 1 24 1 4.2

A closer examination of the two DOTs using all bid prices except high and low to create the

estimating database did reveal that one DOT had very limited experience with the approach and

a very bad record. Specifically, only five projects had been estimated with the database and the

estimates for three of those five had a variance from the contractor bid price of more than five

percent. The other DOT which has a dedicated estimating section staffed with personnel having

on average 18 years of experience had extremely good results. That DOT’s except high and low

bid price database had been used, in the last five years, to estimate over 50 projects that had

initial contract prices of from $10 to $100 million. Additionally the database had been used to

estimate five projects that had initial contract prices greater than $200 million. In all cases the

estimate was within five percent of the low bid price for the work.

Of the remaining practices, using the three low bids for each item was found to produce the

best results, while using all bids produces the worst. This is most likely due to the fact that if a

37

single bidder uses greatly unbalanced prices it can skew up or down the individual item averages

in the database.

After it is decided which bid prices will be used to create the average price, a timetable must

be established that specifies the frequency of data updates. Databases can be refreshed and

updated after each letting, or on an annual or on some other recurring basis.

In addition to these two factors, how many bids to use and how often to make system updates,

the department must decide for what period of time data will be retained in the database and how

far back price data should be considered to determine average prices used in estimates. Typical

look back periods are 1 year, 18 months, or two years for use in averages. Nine DOTs retain

data for as long as records exist. Estimators can examine and use this data for items that are not

frequently encountered or items that have seasonal price swings. An averaging of data would

obscure seasonal pricing.

Estimators should know exactly how the prices they are using were created, as there are

multiple mathematical methods to arrive at an index value. Three common methods of deriving

an index value are

Index value (average) = n

Cn

1ii∑

=

Index value (inverse) =

∑=

n

1i iC1

n

Index value (root of the product) = ( ) n1

n321 C...CCC ××××

where

C = the individual costs elements

n = the numbers of cost elements

Such information should be part of the DOT’s estimating manual, Figure 6. Connecticut has

several different sets of bid data information that the estimator can use as the situation dictates.

38

A three low bid printout is created for each project bid. At the end of each calendar year average

prices are computed and every two years weighted unit prices are prepared.

FIGURE 6 Connecticut Price Cost Data Guidance.

COMPUTER USE

Computer software gives DOTs the ability to manage large data sets that cover all project types.

The most widely used DOT estimating software is Estimator™ by InfoTech. Estimator is a

module of TRNS*PORT. TRNS*PORT is owned by Info Tech, Inc. and fully licensed by

39

AASHTO under the name. Using this software DOTs can prepare parametric or item level

project cost estimates. Parametric estimates are based on project work types and their major cost

drivers. Item level estimates are derived from bid histories and cost-based estimating techniques.

Cost-based estimates use material, equipment and labor costs.

The TRNS*PORT Estimator module is used (8/7/02) by 22 DOTs. Historic bid price

databases can be created using the BAMS/DDS module of TRNS*PORT. BAMS/DDS is the

Decision Support System module of the construction contract information historical database.

Another commercially available system that is used by several DOTs is “Bid Tabs” by OMAN

systems. It is used either as a stand-alone or in conjunction with “TRNS*PORT” by seven

DOTs. Two other DOTs are in the process of testing this software. One DOT uses HCSS Heavy

Bid, which is a program, used by many contractors and was originally developed to facilitate

detailed estimating by a large contracting organization. One DOT uses AutoCAD to perform

quantity takeoff for project estimates, by combining plan views of the project area with elevation

information to get a three dimensional view of the project.

Eighteen DOTs are using programs that were developed within the DOT. These are not

commercially available and are used either as stand-alone systems or in conjunction with other

software. These programs generally have limited capabilities and were designed to run on

mainframe computer systems. Legacy programs like these are difficult to update or modify.

PERSONNEL

Estimating experience of DOT personnel charged with developing estimates ranged from less

than one year to more than 40 years across the fifty DOTs. Several DOTs that reported having

estimators with minimal experience stated that they had in recent years lost their most

experienced personnel to retirement and they had not retained mid-level personnel to ensure that

the overall experience level in estimating would remain high. Similarly, DOTs with high levels

of experience among estimating personnel acknowledged that they might have difficulty

replacing their highly experienced personnel with sufficiently skilled personnel when their

current estimators retire. A few states have recognized the benefit of having personnel at all

stages of professional development in their department and have recruited in such a way as to

ensure continuity as members retire over the next ten to twenty years.

40

Estimators come from many different specialties within the DOT including engineering,

construction, contracting, and occasionally from the operations and maintenance areas. In

twenty-six DOTs, estimating personnel are consolidated in a dedicated estimating section where

their primary responsibility is the production of estimates. In the other twenty-four DOTs

personnel prepare estimates as an ancillary duty while their primary responsibilities are likely to

be either design or contract preparation.

Design consultants are used by all DOTs to produce project documents. This situation is

caused either by a lack of DOT manpower or a need for specialized design knowledge. When

consultants are used to prepare project documents they are usually required to submit a project

estimate to the DOT for use in contract preparation. In sixteen states this estimate is then

reviewed by the DOT project manager who makes required changes before the official estimate

for bid evaluation purposes is created. In another twenty-six states, this estimate is not used

except to cross check the DOT estimate after the DOT estimate has been prepared. The

remaining eight states reported using consultant estimates without modification or substantial

checking.

Training

To ensure all estimators have current estimating knowledge, a training program is vital. This can

be either a formal set of classes for all estimators, mentoring among the estimators in the section,

or support for estimators to attend off-site conferences, seminars, or classes pertinent to their

work. Ten DOTs reported having formal estimator training programs in place or under

development. Mentoring and on the job training (OJT) are used extensively by all DOTs.

Additionally most DOTs reported that the personnel preparing estimates have had experience

either in design or construction prior to becoming estimators, and it is assumed that their

personnel will have gained the necessary estimating knowledge and understanding either in

school or in previous jobs. This previous experience, gained either from school or on the job

imparts a better understanding of the construction process, and helps the estimator develop

accurate estimates.

Whichever system is used, it is necessary for the personnel preparing estimates to understand

how and why the system works. This is done either by having an estimating manual, or through

41

OJT and familiarization with office policy. Currently sixteen DOTs have manuals, either a

separate estimating manual or a section within a design or other manual, that cover estimate

preparation. Two other DOTs are in the process of developing estimating manuals. The

remaining 32 DOTs do not have formal written guidance for estimate preparation that can be

referenced by the estimator. If the experience level of personnel preparing estimates is not

sufficient it will take extra OJT to bring them up to the appropriate level of understanding.

Without a manual of practice or formal training program it is difficult for any DOT to produce

consistent, accurate estimates, unless they are able to attract and retain personnel who have been

trained elsewhere.

TIME FRAMES

The time from completion of the DOT estimate to contract advertisement ranges from two days

to three months. The majority of DOTs have a six to eight week range to allow sufficient time

for internal estimate review. The reported DOT practice for completion of the final estimate is

tabulated in Table 4.

TABLE 4 TIME FROM COMPLETION OF ESTIMATE TO ADVERTISEMENT

DOTs Practicing Time Frame prior to

Advertisement Detailed Estimating

Historic Bid Average Total

Within one week 2 3 5 One week to one month 6 5 11

One to two months 9 15 24 Two to three months 1 4 5 Three to five months 0 3 3 More than six months 1 1 2

Total 19 31 50

Advertisement periods range from 10 days to three months depending on project complexity

and whether the project is being undertaken for emergency work. Thirty DOTs have three to

four week advertisement periods with provisions for longer periods at the discretion of the

contracting section. Five states were found to have three or four week firm advertisement

42

periods that are not exceeded for any project. This policy is based on the idea that if a contractor

cannot prepare a bid in the required time, chances are they do not have sufficient capacity to

complete the project.

ESTIMATE ITEMS

Overhead

Project overhead is estimated almost exclusively by assuming that historic bid prices include the

necessary mark up for overhead and profit. In DOTs that perform detailed estimates, unit prices

are adjusted to account for overhead. Ten DOTs reported estimating overhead and profit directly

based on individual line items, enabling them to more accurately account for special project

requirements that vary from job to job.

Contractor Mobilization

Twenty DOTs limit the mobilization pay item to a predetermined percentage of the contract

amount. In these states the percentage varied from a low of 3% in two DOTs to a high of 12% in

one DOT. In twenty-six other DOTs, mobilization cost is determined based on historic average

percentages after analyzing the project location, type of work, and schedule limitations. Other

methods used for estimating mobilization are a sliding percentage scale based upon project dollar

value where a set percentage is used for projects in different cost ranges, or a graduated amount

that adjusts as project value increases up to a maximum amount (Table 5). Graduated or sliding

percentage scales are used in four states.

Demolition Work

DOTs estimate demolition work either as an individual line item, or assume it will be included in

other pay items depending upon the specific type of demolition work. Ten DOTs prefer to have

a separate contract for major demolition work prior to the construction contract. The decision to

perform demolition under a separate contract is usually made based upon schedule constraints

for the alignment or right of way, and whether there is sufficient time to perform required

demolition before construction begins in an area.

43

TABLE 5 SAMPLE GRADUATED MOBILIZATION PAY ITEM

Project Value Mobilization

$0 - $500,000 8.0%

$500,000 - $2,500,000 $40,000 + 3% of amount over $500,000

$2,500,000 + $100,000 + 1% of amount over $2,500,000

Traffic Control

Traffic control is a difficult item to estimate, as it requires a great deal of effort to properly

conceptualize how the project work will be sequenced. Ten DOTs reported that they estimate

traffic control cost as a predetermined percentage of the project’s total cost. Several of those

DOTs allowed that the percentage applied was based on the project size and the type of work

involved. In searching the literature the researchers could fine no basis for assuming that there is

a relationship between total project cost and traffic control cost. There was a study in South

Carolina that explored the relationship between traffic control cost and the lane miles of a project

using regression analysis (45). That study reported that in the case of the South Carolina data

there was no correlation strong enough to be useful as a means of cost forecasting. Therefore, it

should be noted that using a percentage of project cost to estimate traffic control cost is not a

good practice.

The other predominant method for estimating traffic control is to analyze the project documents

in detail and calculate total signage, temporary striping, flagging personnel, police, barriers, and

other necessary items, each of which is multiplied by the appropriate number of project days to

complete the work. This method, which is used by thirty DOTs, may or may not include an

additional pay item for maintenance of traffic to cover other minor incidental expenses

associated with traffic control.

The remaining DOTs reported specialized techniques such as using historic bid data from

similar projects, five DOTs, and project schedule, one DOT, or they did not specifically respond.

DOT Supplied Materials

Twenty-three DOTs supply materials for contractor use. The most common material items

supplied are permanent signs, signalization, and light poles. These are usually supplied to reduce

44

the contract time, as these can be extremely long lead-time items for a contractor to procure.

Additionally, a DOT can often save money on these items by purchasing large quantities when

individual projects may only require a few of each. Other items sometimes supplied by DOTs

were aggregate from state owned quarries, excess fill retained from other projects, and reclaimed

asphalt material (RAP) or rubblized pavement from other projects. These are generally supplied

only if readily available and more economical than using contractor furnished material. DOT

owned traffic barriers are made available by some DOTs. When these are provided the

contractor is responsible to pick up and return the barriers to a central storage facility.

Unique and Specialty Items

Most DOTs estimate these items similarly by calling suppliers, contractors, or other DOTs that

are familiar with the work and asking for installed cost information. They then estimate the

expected cost by adjusting the information they receive based on project location and current

market conditions.

In some states talking to contractors about a specific job is prohibited. The concern is that

such conversations would give the contacted contractor an unfair bidding advantage over the

other bidders. Specifically it is though that the contacted contractor would have more time to

research the issue and find alternatives before bidding. Such rules limit the DOT’s ability to

gather information directly from contractors. This may force the estimator to create a detailed

estimate for that single item or rely on information from another agency that may not have the

same contract requirements and may have a lower cost than that DOT will realize at bid time.

OTHER ESTIMATING CONSIDERATIONS

There are several other project considerations that must be taken into account to prepare an

accurate cost estimate for any project. These factors are part of the overall project but are not

always captured by a single item of work, or may be in addition to standard specifications

normally used by DOTs. All of these items can have significant costs associated directly with

them or may significantly alter the costs of other items in the project.

45

Incentives

Incentives are used by many DOTs as a means to encourage contractors to perform above the

minimum contract requirements. Currently the most common type of incentive is for early

project or phase completion. An incentive notice is included in the advertisement and may

compel contractors to bid lower if they feel they can complete the project in less than the allotted

time. Early completion incentive clauses are often accompanied by disincentives for failure to

complete the project on time. A disincentive is more punitive than the liquidated damages that

would normally be assessed by the owner for late completion. Disincentives are structured in

such a way that the contractor would be far worse off to complete the project late than to pay

additional overtime or a premium for material in order to complete the project on time.

Incentives for pavement smoothness are also being used by some DOTs as a way to link

quality directly to profit. This incentive is based on the construction specifications with any

surface that exceeds the specified smoothness resulting in an incentive payment to the contractor.

This can also be coupled with a disincentive to help motivate the contractor to meet

specifications.

Funding of Incentives

The funds that are needed to make incentive payments must come from somewhere in the DOT

budget before they can be paid to a contractor. The following practices were reported by DOTs

using incentives:

¢ Incentive funds programmed in the construction estimate - 26 DOTs

This practice ensures adequate money is available to pay any incentive that is earned.

This is based on the assumption that the contractor intends to earn the incentive. If the

contractor fails to earn the incentive, or is subjected to a disincentive, the money that was

set aside can then be used to fund other projects.

¢ Incentive funds come from other projects that were below budget - 9 DOTs

These DOTs plan on having funds available from projects that under run their allocated

budgets. This can cause problems within the DOT when a contractor earns an incentive

but no other projects under ran sufficiently to provide the extra money. In order to

46

compensate for any resulting funding shortfalls, future projects will have to be reduced in

scope, delayed, or cancelled to provide the necessary incentive monies.

¢ Incentives paid out of project contingency fund- 10 DOTs

These DOTs feel that budgeted contingency funds are sufficient to make incentive

payments and do not budget any other funds solely for that purpose. In order for

incentive payment to be made in these states a change order must be processed and

approved for the incentive amount that was set forth in the original contract.

¢ No incentive program - 5 DOTs

Contingency

Contingency budgeting is done in order to provide funds for minor change orders, without

forcing the DOT to request additional funds or reallocate funds from other projects. A

contingency amount can be planned for and budgeted at project award. The reported range for

contingency set asides was 3 - 19%. These additional funds are reserved within the DOT budget

in a contingency fund to pay for minor project changes that arise during construction. These

changes can result in additional cost to the DOT in payment for contractor work or to others (e.g.

requirement to purchase additional right of way). This amount is not part of the estimate, and is

generally not publicized outside of the DOT. Twenty-three DOTs use some contingency amount

for project budgeting, while the remaining 27 states do not. DOTs that do not budget a

contingency amount propose to complete projects that overrun their budgets by drawing funds

available from other projects.

Schedule

Schedule can effect project cost and force modifications to estimates. This is generally driven by

the owner requiring the project to be delivered very quickly, limiting contractor work times due

to environmental or social goals, or requiring work during unusual times such as at night or only

on weekends. These requirements increase project cost by forcing a contractor to either pay

overtime to regular employees, or pay a premium to pull labor into the project area, or away

from other contractors already in the area. Thirty-three DOTs consider this factor and examine

47

project schedules when preparing estimates to ensure they adjust the estimate appropriately. The

Nebraska Department of Roads, Roadway Design Manual, Chapter Fifteen Cost Estimating,

states:

15.5.8.2 Construction Schedule

The construction schedule may also affect the cost of construction. Complicated work sequences can increase the cost of a project. Economies of scale may reduce the construction cost if projects in close proximity are combined. Wintering a project can also affect the cost.

DOTs that do not analyze the schedule when preparing the estimate, assume that sufficient time

has been allotted for the project based on previous experience in the project area.

Project Conditions

Project conditions such as restricted work areas, geographically separated staging areas, long

haul routes, and site drainage problems as well as any number of other problems that are realized

during design can significantly increase project costs above standard unit prices. When these

factors are considered in advance, appropriate adjustments can be made to the estimate to

eliminate surprises at the project letting. Thirty-eight states attempt to adjust estimate prices

when they believe that there will be unusual project conditions that will cause the contractor to

incur additional costs.

Project Location

Another major consideration for estimating is project location within the state. Thirty-eight

states reported wide variation of bid prices within their states and adjust their prices accordingly

for the geographic location of the project.

Table 6 is a summary of factors DOTs consider when preparing their estimates.

48

TABLE 6 ESTIMATING CONSIDERATIONS

Factor Considered Number of DOTs that Consider

Incentive Funds - Programmed in the construction estimate 26 - Come from other projects that are below budget 9 - Paid out of project contingency fund 10 - No incentives program in place 5

Contingency Budgeting - DOTs with contingency budgets 23 - DOTs without contingency budgets 27

Schedule - Estimate adjusted based on schedule 33 - Estimate not adjusted based on schedule 17

Project Conditions - Estimate adjusted based on special conditions 38 - Estimate not adjusted based on special conditions 12

Project Location - Estimate adjusted based on location within state 38 - Estimate not adjusted based on location within state 12

Project Award

After advertisement each DOT conducts a letting where all bids are received. After the letting,

all bids are compiled and an award decision is made. A decision must be made as to the

maximum difference between the DOT estimate and the low bid that is acceptable in terms of an

award decision. For bids that are below the DOT estimate, regardless of the percent difference,

twenty-six states require no action for award. Twelve DOTs require justification in order to

award the project if it is more than 10 - 30% below the DOT estimate depending on the

individual state’s laws. The most common requirement to justify is a review to determine cause

of difference and to ascertain that there is not a problem with unbalancing.

49

Bids that are above the DOT estimate by 5 - 25%, depending on the individual state’s laws,

must be reviewed and may be rejected or awarded based upon an estimate review and/or a

discussion with the contractor to determine why the difference occurred. Eight DOTs require all

projects be reviewed prior to award regardless of percent difference (Table 7).

TABLE 7 ACTION REQUIRED FOR PROJECT AWARD

Percent difference between DOT estimate and Low Bid

DOTs taking other action if percentage exceeded

No lower limit reported 26 Up to -30 1 Up to -25 2 Up to -20 2 Up to -15 2 Up to -10 5 Up to -5 2

All Projects Reviewed 8

Percentages Unknown/Unreported 2

Up to +5 3 Up to +10 31 Up to +15 2 Up to +20 2 Up to +25 2

The decision to award in some DOTs is left to the discretion of the contracting office, while

most states require approval from a director, senior manager, or award committee before any

project can be awarded, with special attention being paid to projects that are outside of the

acceptable range, either over or under the DOT estimate. Bids are rejected when a project is

outside of the acceptable range and there is no justification that the estimator or project manager

can find for the price difference. The project will then be re-advertised at a later date with or

without changes. If the award committee knows of other factors that are separate from

estimating that require the project be awarded, no matter what the cost, they can decide to award

at the higher price, or enter into negotiations with the low bidder to bring the project to an

acceptable budget amount.

50

Collusion

Collusion detection is the ability of the DOT to identify and track trends in bidding that would be

considered criminal. The 1981 AASHTO Suggested Guidelines for Strengthening Bidding and

Contract Procedures and the 1983 Justice/Transportation interdepartmental guidance,

Suggestions for the Detection and Prevention of Construction Contract Bid Rigging, are key

reference documents for bid rigging detection.

Bid collusion or rigging is a conspiracy to disrupt or circumvent the competitive bidding

environment by establishing a competitive advantage for certain bidders (Table 8).

TABLE 8 COMMON BID COLLUSION ACTIVITIES (46)

Name Description

Complementary Bids A pattern of consistently high bids, or non-response of bidders (e.g., unqualified bidders or incorrectly submitted bids) made to give the "appearance" of competition in order to influence the decision to award the project to a predetermined bidder.

Territorial Allocation A pattern of consistent wins by a bidder within a specific area (e.g., county or multi-county area).

Joint Ventures Submission of a "complementary bid" or other noncompetitive behavior by an eventual partner (i.e., subcontractors, suppliers, etc.) to the successful bidder.

Bid Rotation Coordinated patterns of win and lose bid responses to assure that a predetermined bidder submits the lowest bid.

In seven states little is done to actively detect/deter collusion based upon the idea that the

construction industry is sufficiently competitive, fragmented, and distrustful of one another that

contractors would not be willing to share the information that would be required for bid rigging.

Eleven other DOTs make contractors sign a form that is submitted with the bid. The form is a

certification that there is no collusion and it makes contractors aware of the consequences should

collusion be found. The most common method for performing collusion detection, which is used

by 34 DOTs, is to run a bid history for each project and for each contractor to see if there is a

pattern among winning contractors in a particular area. In DOTs that use TRNS*PORT, eight

51

reported using the BAMS/DSS module to aid in this task. Info Tech reports that 35 agencies

hold licensees for the BAMS/DSS module (8/7/02). BAMS/DSS provides a complete set of

analysis models, and the capability for ad hoc query and analysis. Other DOTs either

do this manually or use their own software.

One other method for collusion detection that was reported is bid analysis by either the state

Attorney General’s office or the DOT Inspector General. With this method estimators are not

involved in or have little knowledge of the exact procedures being used. This is done in seven

states.

Release of Information

The release of state estimate information to the general public and contractors varies from state

to state depending on the Freedom of Information Act (FOIA) provisions under state law.

Twenty DOTs were found to release, during project planning, only an anticipated project cost

range.

Ranging information gives contractors an idea of project size and lets them know which jobs

are within their bonding capacity. This is the only DOT information released in these states.

After an award has been made, the low-bidder or all bidder information, along with the total

project amount, can be found in the bid tabs that twenty-two DOTs post on their web pages

(Appendix B). Ten DOTs go one step further and after all bids have been read release the total

amount of the DOT estimate at the letting. This lets the contractors know right away whether the

job will be awarded immediately or if there will be justification required prior to award.

Nineteen DOTs also release a complete copy of the DOT’s estimate including quantities and

unit prices along with the contractor bid tabs either after the bid opening or following award.

One DOT announces the DOT’s total estimate amount at advertisement. Two DOTs were found

to have such extensive state FOIA requirements that all project documents, including the full

DOT estimate, must be made available to anyone requesting it at any stage of project

development. To help accommodate this one of these DOTs announces the DOT estimate in the

advertisement and contractors may request copies of the entire estimate to consult during their

own estimate preparation.

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PROJECT DATA

In order to compare the estimating performance of individual DOTs, data was gathered on all

projects bid having a value greater than $10 million over the last five years. Project data was

aggregated into four ranges: between $10 and $25, $25 and $100, $100 and $200, and in excess

of $200 million. Additionally, the number of these projects that exceeded the DOT estimate by

5% or more, at the time of the bid letting, was recorded to help determine the efficacy of DOT

estimating procedures.

It should be understood that comparing a DOT estimate to the low bid is not a measure of the

estimate’s accuracy in relation to absolute value of the work assuming a reasonable profit. The

magnitude of a contractor’s project bid represents the sum of both the contractor’s estimate of

the cost to actually perform the work and the impact of other factors. Two important factors that

impact a contractor’s bid price are:

Perceived risk – contract imposed risk and performance risk

Economic environment – competition (assumed number of bidders), need to employ assets,

and opportunity for future returns.

A DOT pre-bid estimate, the type of estimate reviewed in this section, should be a benchmark of

the fair and reasonable cost of a project. The issue of appropriate action by the DOT if the low

bid is significantly above the DOT estimate is discussed later in the “Project Award” section of

this chapter.

DOTs were separated into three groups for analysis based on the number of projects they

reported in response to the survey. DOTs that reported fewer than 20 projects greater then $10

million were classified as having small programs. Those that reported between 21 and 75

projects greater then $10 million were classified as having medium sized programs and those that

reported more than 75 projects greater then $10 million were classified as having large programs

(Table 9, Figure 7). Four DOTs were unable to provide historical project letting data.

53

TABLE 9 PROJECT ESTIMATE - BID COMPARISON DATA, ALL DOTS

Number % DOT 5 Year Construction Program Size

No. of DOTs

Total No. Reported Projects

No. of DOTs w/ complete

Data

No. Complete Data Proj.

more than 5% over Estimate

Small (< 20 projects) 14 109 13 107 29 27.1

Medium (21-75 projects) 20 893 16 686 138 20.1

Large (76+ projects) 12 1362 9 1021 193 18.9

States not providing data 4 0 0 0 0 0

Overall 50 2364 36 1814 360 19.8

29107

686

1021

193138

0

150

300

450

600

750

900

1050

Small Medium Large DOT 5 Year Construction Program Size

Nu

mb

er o

f P

roje

cts

Complete Data Reported Projects

Number more than 5% over Estimate

FIGURE 7 Project estimate - Bid comparison data, all DOTs

The two estimating methods exhibited about the same level of performance for projects

valued over $10 million. Detailed estimating DOTs reported that 19.6% of their estimates were

exceeded by 5% or more (Table 10, Figure 8) and historic bid price estimating DOTs reported

that 20.1% of their estimates were exceeded by 5% or more (Table 11, Figure 9).

54

TABLE 10 DOTS USING DETAILED ESTIMATING - BID COMPARISON

Number % DOT 5 Year Construction Program Size

Number of DOTs with

complete Data

Reported Projects more than 5% over

Estimate

Small (< 20 projects) 3 31 7 22.6

Medium (21-75 projects) 3 193 34 17.6

Large (76+ projects) 7 648 130 20.1

Overall 13 872 171 19.6

7

648

193

31

130

34

0

100

200

300

400

500

600

700

Small Medium Large

DOT 5 Year Construction Program Size

Nu

mb

er o

f P

roje

cts

Reported Projects

Number reported more than 5% over Estimate

FIGURE 8 DOTs using detailed estimating - bid comparison

55

TABLE 11 DOTS USING HISTORIC BID PRICE ESTIMATING - BID COMPARISON

Number % DOT 5 Year Construction Program

Size

Number of DOTs with complete

Data

Reported Projects more than 5% over Estimate

Small (< 20 projects) 10 76 22 28.9

Medium (21-75 projects) 13 493 104 21.1

Large (76+ projects) 3 373 63 16.9

Overall 26 942 189 20.1

22

76

493

373

63104

0

100

200

300

400

500

600

700

Small Medium Large

DOT 5 Year Construction Program Size

Nu

mb

er o

f P

roje

cts

Reported Projects

Number reported morethan 5% over Estimate

FIGURE 9 DOTs using historic bid price estimating - bid comparison

Estimate Comparison - $10 - $25 million projects

The data was broken down further, within each estimating type, to determine which size program

had the best performance in each project cost range. Table 11 and Figure 9 summarize the

project estimating performance for projects valued between $10,000,000 and $25,000,000.

56

Overall, DOT’s with large 5 year construction programs, using either detailed or historic bid

price estimating, and DOTs with medium sized construction programs using detailed estimating

were the top performers in this project value range, all within 2% of one another. These DOTs

have a great deal of experience estimating projects, and whether they prepare detailed or historic

bid price estimates, are able to accurately capture the costs of construction for this project cost

range. The worst reported performance (28.9%) was among small programs preparing historic

bid price estimates. It appears that these DOTs have little experience or data for effectively

estimating projects in this cost range. One possible reason for the lack of accuracy is that the

historic bid prices they are using are for much smaller projects that do not require the same

commitment of resources. As these DOTs complete more projects in this range their historic bid

prices should come in line and their estimating accuracy improve.

TABLE 12 BID COMPARISON, PROJECTS VALUED BETWEEN $10,000,000 AND $25,000,000

DOT 5 Year Estimating Number of Reported Projects Number %

Construction Program Size Method DOTs with

complete Data more than 5% over

Estimate

Small (< 20 projects) Detailed 3 30 30 7 23.3

Historic Bid Price 10 72 72 21 29.2

Medium (21-75 projects) Detailed 3 149 149 25 16.8

Historic Bid Price 12 327 327 66 20.2

Large (76+ projects) Detailed 7 491 491 81 16.5

Historic Bid Price 3 251 251 38 15.1

57

7 2581

327251

14972

30

491

3866

21

0

100

200

300

400

500

Detailed Historic BidPrice

Detailed Historic BidPrice

Detailed Historic BidPrice

Small Medium Large

DOT 5 Year Construction Program Size

Nu

mb

er o

f P

roje

cts Reported Projects

Number reported morethan 5% over Estimate

FIGURE 10 Bid comparison, projects valued between $10,000,000 and $25,000,000

Estimate Comparison - $25 - $100 million projects

Projects valued between $25,000,000 and $100,000,000 (Table 13, Figure 11) are less common

than those in the previous range. DOTs with small 5-year construction programs reported fewer

than ten projects in this category. This number was insufficient for analysis. In this project

range DOTs with medium sized construction programs performed similarly, no matter which

estimating approach was used, detailed or historic bid price. Large historic bid price estimating

DOTs in this category outperformed detailed estimating DOTs.

The two estimating systems are however much more closely aligned than the data would

suggest as Florida, a historic bid price estimating state, had the best performance in this category

with only 11.1% of their projects exceeding the DOT estimate by 5% or more. When Florida is

excluded from the analysis, the large historic bid price estimating DOTs percentage for estimates

over 5% above the DOT estimate rises to 26.8%.

58

TABLE 13 BID COMPARISON, PROJECTS VALUED BETWEEN $25,000,000 AND $100,000,000

DOT 5 Year Estimating Number of Reported Number %

Construction Program Size Method DOTs with

complete Data Projects more than 5% over

Estimate

Small (< 20 projects) Insufficient data for analysis (fewer than ten projects)

Medium (21-75 projects) Detailed 3 37 7 18.9

Historic Bid Price

12 107 20 18.7

Large (76+ projects) Detailed 7 149 43 28.9

Historic Bid Price

3 116 24 20.7

116

7

4337

107149

20 24

0

40

80

120

160

Detailed Historic Bid Price Detailed Historic Bid Price

Medium LargeDOT 5 Year Construction Program Size

Nu

mb

er o

f P

roje

cts

Reported Projects

Number reportedmore than 5% overEstimate

FIGURE 11 Bid comparison, projects valued between $25,000,000 and $100,000,000

One possible reason for the difference between the medium and large DOTs is that larger

program DOTs possibly have more projects at the high end of the range and it is much more

difficult to accurately estimating the larger projects as discussed in the next chapter.

Additionally, several states in this group reported great difficulty in estimating Design-Build

59

projects accurately prior to bid. One DOT reported eleven projects in this project range, five of

which were design build. Of the eleven, six were over the DOT estimate by 5% or more, and all

five of the design-build projects were among the six that were over. The reason these DOTs

cited for this estimating problem is estimators must create complete project estimates based upon

0 - 30% design documents. The contractors base their bids upon a complete study of all project

issues as outlined in their own proposals, which includes much more detailed and possibly

different design information. Depending on the project, the contractor may specify higher

quality or different type materials than the state design standards, particularly if a project

warranty is required. These changes can provide the state with a better facility and a usable

facility in less time, both of which are goals of design-build projects. However, these attributes

sometimes add significant costs. As a result, an estimate based on the early design documents

may only be as accurate as a conceptual estimate would be for another project.

Insufficient data was available for analysis on the two larger project categories by estimating

type and DOT construction program size. For projects valued between $100,000,000 and

$200,000,000 a total of 26 projects were reported with no more than eight in any single category.

Of these 26 reported projects, 10 were reported as being more than 5% over the DOT estimate,

or 38.5%. This extremely high percentage of projects is most likely a result of a lack of DOT

experience in estimating projects this large (Table 14).

TABLE 14: BID COMPARISON, PROJECTS VALUED BETWEEN $100,000,000 AND $200,000,000

Estimating Method No. of DOTs w/ complete Data

Reported Projects

Number %

more than 5% over Estimate

Detailed 4 12 7 58.3

Historic Bid Price 8 14 3 21.4

Overall 12 26 10 38.5

Only eleven projects were reported in the $200,000,000+ project category and data was

available for only eight of those. Of those eight, two or 25.0% were reported over the DOT

estimate by 5% or more (Table 15). While this is better than the percentage for the next lower

project range it is still a very high number when it is considered that these differences all

60

involved at least $10,000,000. Projects of this size are not likely to be typical to any DOT

anytime in the near future, however they are becoming more common across the country. DOTs

should gather as much data as possible when preparing estimates for a project of this size,

including talking to DOTs that have executed projects of this magnitude, particularly those that

received bids far above their estimates.

TABLE 15 BID COMPARISON, PROJECTS VALUED OVER $200,000,000

Estimating Method Number %

Number of DOTs with complete Data

Reported Projects more than 5% over Estimate

Detailed 3 3 1 33.3

Historic Bid Price 3 5 1 20.0

Overall 6 8 2 25.0

Anticipated Changes

Thirty-two DOTs currently have no near-term plans to make any changes to their estimating

practices. Eight DOTs are considering implementing TRNS*PORT, either by converting to the

system, or adding additional modules to their current system. Other DOTs are considering

upgrading current in-house programs to perform better on today’s computers, and the few DOTs

that do not currently use computers for estimating are considering adoption of some computer

system.

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CHAPTER 4

THE CHALLENGES OF MAJOR PROJECTS

There appears to be no universal definitions for terms such as mega, major, and large-dollar

projects. Yet all of these terms are found in the literature if reference to projects that because of

their physical magnitude require greater amounts of funding and attract rabid proponents and

opponents. The GAO stated in its report Federal-Aid Highways Cost and Oversight of Major

Highway and Bridge Projects – Issues and Options (47) that there is currently no standard

definition of what constitutes a “major project.” GAO has nevertheless applied the term “major

project” to those projects ranging from as little as $10 million to those estimated to cost $1

billion or more. A Senate subcommittee used the term “large-dollar projects” in reference to

projects with a total estimated cost of over $100 million (48). While the FHWA tracks projects

expected to cost more than $1 billion it does not maintain a national database of active federal-

aid projects with a total estimated cost of between $100 million and less than $1 billion (49).

The FHWA in its Resource Manual for Oversight Managers (50) states, “Major (or Mega)

projects are defined as projects with an estimated total cost greater than $1.0 billion or projects

approaching $1.0 billion with a high level of interest by the public.” Hence it is clear that

between government agencies there is not a consistent definition of the term “major project.”

Even researchers have not used the term “mega projects” with any consistency. Merrow applies

the term Megaprojects to those ranging in cost from $500 million to over $10 billion (51).

DOTs in responding to the survey that was conducted for this synthesis reported experience

with only a limited number of projects costing over $100 million so the data for evaluating their

ability to estimate such projects permits only very general conclusions. The data does suggest

that the quality of estimates, for projects costing over $100 million, could be substantially

improved. At the same time DOTs are expected to be challenged by a greater number of these

large projects in the future. At the end of 2002 the FHWA reported there were 14 active Mega

projects base on their $1 billion definition. The FHWA defines active as projects in which the

Record of Decision (ROD) has been issued and design or construction has begun. These projects

are being pursued by 11 different State DOTs. In the case of the new Mississippi River Bridge

between Illinois and Missouri, and the Wilson Bridge between Virginia and Maryland some of

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these projects are joint efforts. Additionally, the FHWA has identified 13 other mega projects

that should become active in the next three to four years. These projects will involve eight

additional DOTs.

GAO STUDIES OF PROJECT COST

GAO in 1997 examined 30 active highway and bridge projects that were estimated to cost

between $101 and $695 million. Twenty-three of those projects had experienced cost growth,

Figure 12, from their initial estimates. About half of the projects had cost growth of more than

25 percent. The cost of the other 7 projects had either decreased of remained the same.

FIGURE 12 GAO Analysis of DOT Projects Costing over $100 million, 1988-1993 (48)

The GAO report specifically stated:

Most of the cost growth that occurs on a project happens before construction begins. For example, costs on the nearly complete I-595 project in Maryland have increased by over $200 million from the initial cost estimate—from about $188 million to about $390 million. State officials provided data showing that about $160 million of that $200 million increase—around 80 percent—occurred before the construction stage (48).

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GAO found that there were many factors that caused costs to increase, but noted three specific

factors that worked together to increase costs beyond the initial project estimates (48).

1. Initial estimates are preliminary and not designed to be reliable predictors of a project’s

cost.

2. Initial estimates are modified to reflect more detailed plans and specifications as a project is

designed.

3. A project’s costs are affected by, among other things, inflation and changes in scope to

accommodate economic development that occurs over time as a project is designed and built.

Other researchers have found similar results. As one engineer stated, “To our despair

(megaprojects) often develop lives of their own and their lives sometimes defy control by us

mere mortals (52).” In the June 15, 2002 issue of ENR there was an article “Megaprojects Need

More Study Up Front to Avoid Cost Overruns (8).” The reporters, using information from a

study by Bent Flyvbjerg (53) a Danish professor, asserted that cost overruns were found in 90%

of the mega projects studied.

THE FLYVBJERG STUDY

Flyvbjerg sought to establish how common and how large are the differences between actual and

estimated costs in transportation infrastructure projects. This was a statistical study of 258

transportation infrastructure projects having a total value of $90 billion. Actual costs were

defined as real, accounted construction costs determined at the time of project completion.

Estimated costs were defined as budgeted or forecasted construction costs at the time of the

decision to build.

The researchers hypothesized that if inaccuracy of early cost estimates were simply a matter

of incomplete information and difficulties in predicting the distant future then the expected

inaccuracies should be close to random. The results of the study are summarized in Figure 13

and Table 16. If errors in estimating costs were small, the Figure 12 histogram would be

narrowly concentrated around zero. If errors in overestimating costs were of the same magnitude

and frequency as errors in underestimating costs, the histogram would be symmetrically

distributed around zero. Neither is the case.

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FIGURE 13 Inaccuracy of Cost Estimates in Transportation Infrastructure Projects (53)

TABLE 16 INACCURACY OF TRANSPORTATION PROJECT COST ESTIMATES BY TYPE OF PROJECT (53)

Project Type Number of Cases (N)

Average Cost Escalation (%)

Standard Deviation

Rail 58 44.7 38.4

Bridges/Tunnels 33 33.8 62.4

Road 167 20.4 29.9

All Projects 258 27.6 38.7 Flyvbjerg made the following observations regarding the distribution of inaccuracies of

construction cost estimates.

¢ Costs are underestimated in almost 9 out of 10 projects. For a randomly selected project,

the likelihood of actual costs being greater than estimated costs is 86%

¢ Actual costs are on average 28% higher than estimated costs.

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This study of transportation projects mirrors Merrow’s 1981 findings concerning process plant

estimates (9).

Considering projects by type, Table 16, road projects estimates exhibit “average cost

escalation” costs that are less than the aggregate average while bridge estimates are a little more

than 5% above the aggregate average.

Another disturbing fact demonstrated by the study was that cost predictions have not

improved as more sophisticated estimating methods have been developed and experience with

planning and implementing such projects has grown. “Underestimation today is in the same

order of magnitude as it was 10, 30, and 70 years ago. If techniques and skills for estimating and

forecasting costs of transportation infrastructure projects have improved over time, this does not

show in the data.” These comments by Flyvbjerg are illustrated in Figure 14.

FIGURE 14 Inaccuracy of Transportation Project Cost Estimates Over Time, 1910-1998 (53)

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Explanations of Underestimation

The researchers reviewed the literature for explanations why estimates tend to be low and offered

four broad classes of rationale: technical, economic, psychological, and political. The discussion

of technical explanations is the most interesting.

We may agree with proponents of technical explanations that it is, for example, impossible to predict for the individual project exactly which geological, environmental, or safety problems will appear and make costs soar. But we maintain that it is possible to predict the risk, based on experience from other projects, that some such problems will haunt a project and how this will affect costs. We also maintain that such risk can and should be accounted for in forecasts of costs, but typically is not (53).

This statement brings each DOT’s experience with mega project risk into sharp focus and

highlights needed efforts to predict their potential cost prior to estimating a mega project. It

explains why the Washington DOT has instituted its Cost Estimate Validation Process

(CEVP). With the CEVP process, WSDOT is specifically trying to capture project

uncertainties by critically examining the project estimate to identify risk items. The final CEVP

restructured estimate uses a Monte Carlo simulation technique to provide planners with a range

of costs and a probability for obtaining a specific cost number. A comprehensive discussion of

the WSDOT CEVP process is given in Appendix E.

Washington’s CEVP also drew the attention of the National Academies Committee for

Review of the Project Management Practices Employed on the Boston Central Artery/Tunnel

Project. The Committee stated:

The CA/T could have benefited from a CEVP-type process when it began in 1982, and although options are now limited such a process could still help the IPO (integrated project organization) to control cost and schedule for completing the project (54).

Big Decisions, Big Risk

Mega projects cannot be approached in the same manner as conventional projects. Bruzelius,

Flyvbjerg, and Rothergatter published a study in 1998 (55) that deals with some of the other

issues facing those charged with executing mega projects. In the case of most conventional

projects, engineers focus on technical solutions with little attention to community interest or

concerns. Though this has been changing in some cases where DOTs are experimenting with

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Context Sensitive design and construction (56 & 57). Their assumption is correct, technical

alternatives are generally discussed at the early stage before community outreach efforts are

undertaken. Concerns related to the external effects of projects are not addressed until later in

the project cycle. Such an approach in the case of a mega project can “… lead to project changes

at a stage when such changes are particularly costly (55).”

“Lack of public involvement also tends to generate a situation in which those groups who feel

concern about the project … are inclined to act destructively…(55).” The Bruzelius-Flyvbjerg

research team counsel that: “It is therefore important to develop a planning process which is less

concerned with technical solutions and information about these, and has more focus in the early

stages on requirements with respect to economic performance, environmental sustainability, and

safety performance of the project.”

COST OVERRUNS

“Large cost overruns on public projects make good newspaper copy. Journalists appear duly

horrified and the world seems to continue as before (58).” John E. Sawyer (59), in a survey of

historical cost experience, declared that if the true costs were known in advance many projects

would not have been commenced to the country’s economic detriment. The Hoosac tunnel

project (1851-1873) cost ten times what was originally projected. The Panama Canal (French

construction period 1881 to 1903, American construction period 1904 to 1914) cost twice its

original estimate and 1.7 times its first U. S. estimate.

Leonard Merewitz’s study (58), in the late 1960’s and early 1970’s, of the Bay Area Rapid

Transit (BART) project in San Francisco provide some very good insight into the problems that

are experienced when a mega project is attempted. The total cost of the original system was

projected at $996 million in 1962. It the time it was the largest single public works project ever

undertaken in the U.S. by the local citizenry. BART construction officially began on June 19,

1964. Delays and inflation sapped capital reserves, and pressures from public and governmental

groups resulted in the relocation of 15 miles of right-of-way and 15 stations, as well as a general

upgrading of station plans. Stations were also substantially altered during construction to include

elevators and other facilities for the handicapped and elderly at an added cost of $10 million.

The cost of the transbay tube rose to $180 million from an original estimate of $133 million.

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Eliminating design "bugs" from the newly designed train control equipment was a problem Rohr

Industries, Inc. could not deal with. Rohr had suffered a nine-week strike, which, added to

previous delays, had put the car builder one year behind in its car delivery schedules. Another

serious problem arose on June on 1972, when the state imposed a hiring freeze on the District

until 1,100 applicants from other local transportation lines were interviewed for BART jobs on a

priority basis. The first segment of the system opened in September 1972.

Merwitz found that cost overruns were positively related to:

¢ Size of the project

¢ Project scope enlargement

¢ Inflation

¢ Length of time to complete the project

¢ Incompleteness of preliminary engineering and quantity surveys

¢ Engineering uncertainty

¢ Exogenous delays (caused by outside influences)

¢ Complexity of administrative structure

¢ Inexperience of the administrative personnel

California Legislative Analysis

A letter to California State Senator McAteer in 1966 documented a California Legislative

Analyst’s of major factors driving the BART cost overrun. In addition to inflation the letter cited

the following:

¢ Delays

¢ Poor community cooperation

¢ Inadequate assessment of the bidding climate for contract size

¢ Misspecification

Researchers have continually confirmed the presence of such factors when studying the quality

of early project estimates. The builders of the Holland Tunnel experienced cost overruns related

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to these same factors. Merewitz’s study analyzed the causes of construction cost exceeding the

project authorization estimate.

UNCONTROLLABLE AND CONTROLLABLE REASONS

Estimators and managers should think of cost changes in terms of those that are uncontrollable

and those that are controllable.

Uncontrollable

In the case of BART and the Central Artery/Tunnel project (54), inflation was the critical factor

impacting cost overruns.

Inflation

While inflation is uncontrollable, it is usually a foreseeable factor. Inflation engendered by the

Vietnam War greatly affected the BART system’s cost. The original estimates provided for 3%

per annum inflation, but the actual rate was 6.5% (60). This was a little above the twenty major

American city’s average. There are many indexes available that can aid the estimator in

establishing inflation adjustments to an estimate. Construction costs indexes are published in

both the Architectural Record and Engineering News Record, and these publications include

geographical differentiation factors. Many times it is difficult to tell if an estimate is expressed

in terms of constant or current dollars. In the case of long duration mega projects it is important

to properly account for inflation.

A study of urban rail transit projects in 1990 found that planners have been doing better in

accounting for inflation (61). Planners of the Washington DC rail system substantially

underestimated the rate of construction cost inflation that would occur during completion of its

initial phases, while in the case of six other projects, where explicit forecast were reported,

planners overestimated the inflation percentage, Table 17.

Inflation’s effect must be accounted for both in terms of a rate and a time interval. The report

documented that although the rate predicted was less than that actually experienced, delays in

starting projects (Table 17) and the lengthening of their construction schedules actually caused

inflation to be a significant cost growth factor. The National Academy report (54) on the CA/T

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project stated; “… the CA/T project management team indicated that about half of the cost

growth was caused by inflation (the original estimates were in 1982 dollars, as required by

FHWA) and that a portion of this could be attributed to the extended schedule.” Exposing

capital outlays to a more prolonged period of inflation contributed to the cost overruns

experienced.

TABLE 17 ERRORS IN FINANCIAL PLANNING TRANSIT PROJECTS (61)

Washington, DC Atlanta Miami Buffalo Portland Sacramento Detroit

Annual Inflation Rate in construction Costs

Forecast 3.1% 6.2% 7.0% 7.8% 8.5% 6.0% 9.0%

Actual* 7.3% 6.1% 4.3% 6.0% 2.7% 2.8% 3.3%

Start of Construction

Forecast 1969 1972 1978 1978 1981 1982 1981

Actual 1971 1975 1979 1979 1982 1983 1983

Years to Reach Scope Studied

Forecast 8 6 6 5 5 3 3

Actual 15 12 7 8 6 5 5

* Actual measure is the average annual rate of increase in the McGraw-Hill Construction Cost index for urban area over the period extending from forecast start year through actual completion year.

Scope

The second cause for overruns was unforeseen scope changes after the authorization of the

project. In many cases scope changes were due to technical problems that had not been foreseen,

while others were in response to demands for the use of “state-of-the-art” technology. The

history of almost every project that pushed the frontier of engineering experience shows that cost

overruns and sometimes-even disaster resulted. Similar events are found in all mega projects.

Examples of technology caused cost overruns include the ventilation system for the Holland

Tunnel, a technical problem of greater impact than originally believed; and, more recently, the

cost effect of the cracks on Amtrak’s Acela Express trains, the use of state-of-the-art technology

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(62). While these may be uncontrollable analogous to inflation, they should be anticipated and

included for in the project estimate.

Controllable

Large projects are more difficult to manage than smaller ones. Poor administration of mega

projects, starting with incomplete engineering surveys, is often a major escalation cost driver.

Poor administration may also include overly complex organizational structures for planning and

construction, poor contracting practices, and simply inexperienced personnel. Merewitz stated,

“The most significant fact is that the longer the project continues the greater is there likely to be

cost overruns.” Project delays allow inflation to have a greater impact on project cost.

Additionally, delay creates greater time opportunity for increases in scope. Studies of the

estimates prepared by the Corps of Engineers, the Tennessee Valley Authority (TVA), and the

Bureau of Reclamation found that exogenous factors caused large cost increases (63). In the

case of the TVA 80% of the deviations could be characterized as exogenous.

The magnitude of estimation error will vary with project administration. Tighter engineering

and schedule control create better estimates. Some researchers (64) have flatly stated that to

have estimate accuracy there needs to be institutional and management maturity. In 1970

Hufschmidt and Gerin suggested presenting cost estimates in ranges when only preliminary

information available (63). This is how WSDOT is now handling their early cost estimates

(Appendix E).

A STATISTICAL STUDY

Mega projects have characteristic traits besides cost and size that make them extremely

challenging to estimate and which estimators should always consider when reviewing costs

assumptions. These will include:

¢ Mega projects stretch available resources to the limit - financial, labor, equipment,

material, management skill, and information systems

¢ Mega projects have a high profile garnering both political and public scrutiny

¢ Mega projects are very noticeable by regulators

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¢ Mega projects are unusually long duration projects and there is less likelihood of

maintaining continuity of management

Twenty years before Flyvbjerg’s accusations about agencies purposefully underestimating

project cost independent researchers at The Rand Corporation investigated some 52 projects

ranging in cost from $500 million to over $10 billion (1984 dollars). Their study specifically

sought to address the question of what steps could be taken to minimize cost and schedule risks

(51). Although only six of the projects were civil projects (11%), with similar construction

requirements to what DOTs traditionally build, the results are significant because the research

team was seeking to identify correlations to cost increases. In the Rand study over a third of the

projects took more than five years to go from the beginning of detailed engineering to

completion of construction, while the average total duration was approximately seven years. The

base estimate that the Rand researchers used for their analyses was the project estimate that was

prepared closest to the beginning of detailed engineering.

Faulty Estimates

In the absence of specific information, estimating methods usually fix a zero cost to requirements

that are not perceptible and while contingency allowances are common practice they are not

designed to adjust for major changes in project requirements. It is believed that the causes of

faulty estimates include:

¢ Poor project definition at the time an estimate is made

¢ Project complexity adds to the tendency to underestimate costs. It makes interactions

between different facets of a project more likely to go unnoticed and therefore

unestimated.

¢ Faulty economic assumptions for long duration projects involving mega cost have large

dollar effects

Faulty Execution

Project execution consists of the detailed engineering, construction, and cost/schedule/quality

control of a project. The Rand researchers investigated whether blunders in the execution of a

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project could lead to significant cost increases. Merrow reports (51), however, that no

systematic analysis of capital projects has ever concluded that blunders by project managers in

executing the project were an important source of cost growth. He cites his own studies in 1981

and 1986 (65 & 66) and studies by Meyers (67 & 68).

Merrow (51) suggests that the sub-management categories, such as labor productivity, have

sometimes caused problems. But he tempers even that allowance by stating: “While inept day-

to-day labor supervision might lead to poor labor productivity we strongly suspect that other

factors are underlying causes ? factors such as remote sites, failure to plan for adequate

manpower training programs, poor understanding of local labor practices, changing or unclear

labor regulations, and the like (51).” He admits that poor management will cause cost growth

but stresses that poor project execution caused by management deficiencies is usually not the

primary driver of project cost growth.

Project Scope Changes

The project estimated early in the project development process is often not the project actually

built. Scope changes can be defined as any discretionary change in the size or configuration of a

project. Most changes in scope result from an improved understanding of project need and

outcome requirements. The longer a project takes to get to field construction, the more likely

scope changes will occur. Here we are speaking strictly of discretionary scope changes that add

features to the project.

Technological innovation was grouped together with scope change in the Rand research. This

seems to be a result of considering that most scope changes were driven by a desire to use the

very latest technology. The Rand researchers used the terminology “high technology” – on the

cutting edge of the transition of science into practice. Technological innovation in construction

operations would be defined as the use of new equipment and/or methods that have had limited

prior application such that estimators have difficulty predicting costs, just as field personnel will

have difficulty in its use. Doing something in a different way reduces the amount of information

available to the estimator to use in predicting cost.

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Macroenvironment

Every project is executed in the context of a particular political, economic, and cultural

environment. The legal system, labor practices, attitudes and regulations concerning worker

health and safety, and environmental concerns and constraints are manifestations of the

macroenvironment of mega projects. The macroenvironment can affect cost growth in two

ways: 1) by being unknown to some degree to estimators and managers, and 2) by changes in the

environment. Unlike other aspects of project planning and estimating, understanding the

macroenvironment has never been standardized as a part of project estimating. Mega projects

are more likely to have problems stemming from the macroenvironment because they often spark

new regulations, political opposition, and the need for new technology to overcome engineering

challenges. Examples of cutting edge technology that were used to meet engineering challenges

on the Boston Central Artery/Tunnel mega project and which made successful execution of the

project possible include (54):

¢ Use of new and specialized equipment from Europe to construct the deep slurry walls.

This was the largest use of slurry wall construction in North America.

¢ Construction of the tunnel under active railroad tracks by the jack tunneling through

unstable solids with the use of extensive soil freezing.

¢ Erection of the widest cable-stayed bridge in the world.

Identified Correlations

Morrow’s study (59) found that cost growth was not correlated to project size. His statistical

approach found positive correlations between cost growth and:

1. Problems between the project and government ? regulatory disputes

2. Innovation in the project

Regulations

The most important predictor of cost growth and schedule slippage in mega projects is the extent

to which the project encounters regulatory constraints in the following areas (51):

¢ Protection of the natural environment from the effects of the project

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¢ Protection of the public health and safety from the effects of the project

¢ Controls on the use of labor or procurement

¢ Other government standards or regulations

In and of themselves, regulations should not cause either cost growth or schedule slippage. These things occurred in our database projects because the effects of regulations on cost and schedule were not factored into the cost and schedule estimates. In particular, regulatory cost effects associated with environmental problems and health and safety issues were not accounted for (51).

The GAO report Managing the Costs of Highway Projects (48) also called attention to the

impact efforts to protect the environment have on project cost. GAO noted that initial cost

estimates usually identify and include environmental mitigation costs, but the extent and

therefore the true cost of the mitigation work is typically not known until testing for the detailed

design has been completed.

On the reconstruction of I-880 in California, the state’s EIS had identified the need to clean up hazardous material sites along the highway’s alignment. However, drilling and testing for hazardous materials during the design stage revealed the presence of more contaminated soil and groundwater than had been expected. The costs of controlling and disposing of these contaminants increased the cost of this project by about $40 million. In Maryland, a noise study was performed for the EIS to estimate the need for and costs of soundwalls for the I-595 reconstruction project. However, more detailed noise readings taken during the design stage affected the size and length of the required soundwalls and added $2.6 million to the project’s costs (48).

From Merrow’s analysis it is clear that in order to properly ascertain the cost of a mega

project, estimators must have a very good understanding of how government regulations can

directly impact the cost of many individual work items and can add a significant number of work

items to the project.

Innovation

“Virtually any form of technological innovation in a project is likely to result in cost growth

(51).” Indicators of innovation are:

¢ Whether or not the project embodied any first-of-a-kind technology.

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¢ Whether the project employed any new materials or methods of construction.

¢ Whether the project was the largest project of its kind when constructed.

A positive correlation was found between cost growth and the first two indicators. No

correlation was found between being the largest project of its kind and cost growth.

Merrow’s Conclusions

The larger the project, the more important is the accuracy of early estimates. This is because the

absolute amount of money is so large that even minor percentage overruns involve large sums of

money. In the conclusion of his study, Merrow offers good advice, which is supported by other

researchers.

1. It is essential that all aspects of each and every government regulations be analyzed with

respect to every element of the project during estimate preparation.

2. Mega projects may foster regulatory rule changes because new information is generated,

problems become visible, or because political pressures dictate change. Estimators must

consider the likelihood and cost of regulatory changes.

3. Estimators must consider that political concerns and the desire of individual politicians to

be re-elected may over shadow and impede the progress and success of the project.

4. Estimators must understand that mega projects employing new technology have a far

higher risk of catastrophic problems during project execution and these can result in large

cost increases.

Estimating a mega project is not the usual procedure of summing the costs of accomplishing

items of work; it is also about appropriately accounting for the many non-performance of work

factors that add cost to the undertaking.

WOODROW WILSON BRIDGE SUPERSTRUCTURE CONTRACT

On December 13, 2001, the Maryland State Highway Administration opened bids for the

Woodrow Wilson Bridge superstructure contract. A single $860 million bid was received. That

amount was more than 75% higher than the engineer’s estimate for the contract (1). Maryland

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formally rejected the bid since it far exceeded the project’s budget. An independent review

committee was organized to identify and evaluate the reasons for the large discrepancy between

the engineer’s estimate and the bid submitted. Thomas Warne, former Executive Director for the

Utah Transportation department, chaired the committee made up of engineering and construction

consultants from across the country.

The committee interviewed contractors to determine the reasons they chose not to bid on the

contract and what might serve as an incentive to make them compete for the project in any re-bid

scenario (69). The committee concluded that an agency or owner’s hired consultant cannot

produce a good estimate unless it has an appreciation for how contractors perceive risk. In the

case of mega projects, the amount of risk that even the largest contracting organizations can

tolerate is exceeded. Therefore, contracting firms must develop strategies to minimize their

risks. Some of these strategies involve increased cost to the project owner. In the case of risks

that cannot be quantified, that cost increase can be significant. Additionally, if the contractor

perceives that an owner is seeking through the contract language to shift risk to the builder

sufficient additional cost will be included in the bid to cover that added financial exposure.

Points raised by contractors to the review committee concerning the Wilson Bridge

superstructure contract illustrate these concerns.

¢ Project schedule – Jointly the project duration constraints with associated cost impacts for

late delivery and the fact that there was no compensating incentive to deliver the project

on time or ahead of schedule were viewed as a disincentive. Incentives provide the funds

necessary to attempt extraordinary construction methods that can accelerate project

delivery.

¢ Constructability – The new Wilson Bridge is a unique design that created some unknown

factors that could impact the cost of the project. Additionally, several large cranes and

barges would be needed; some actually would need to be constructed specifically for the

project.

¢ Government oversight – The variety of government entities involved and the political

sensitivity of this unique project raised concerns as to who would be ultimately

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accountable and empowered to make quick decisions. Delays decision-making by an

owner causes a contractor to incur non-compensated additional costs.

¢ Other Major Projects – Bidding was underway for the $1.04 billion Oakland Bay Bridge

project at the same time. Even major contractors have limited estimating capability; to

estimate more than one mega projects during the same time frame is often not possible.

The independent review committee (IRC) determined that the owner estimate produced was

technically solid based on the tangible factors like the cost of steel, concrete, and other materials,

but certain significant factors, particularly for large construction projects, are difficult to quantify

in an estimate (70). The IRC went on to state that the estimate did not sufficiently take into

account the intangibles of market factors, specifically:

¢ Due to recent experiences on other mega projects and to associated project risks

contractors capable of bidding a project of that size are seeking larger margins to protect

themselves.

¢ Lack of competition as there were several other large bridge projects bidding in the same

time period.

¢ Equipment demands on projects of this size are substantial.

There are only a small number of contractors in the world who have the ability to take on

mega projects. The size of such projects necessitates that joint venture teams be formed in order

to generate adequate bonding capacity and reasonable risk. The consequence of fewer

competitors is higher bid prices. When material demands are great, producers may also have to

team, thus further reducing second tier competition. In the case of the Wilson Bridge the steel

demand was so significant that fabricators needed to team together to meet the requirements

(71).

Acting on these factors, which that the review committee noted, Maryland officials decided to

re-package the superstructure work into three contracts. Those contracts were bid in late 2002

and early 2003 (72, 73, & 74). The first package came in 11% above the DOT estimate, but the

second package came in 28% below, and the third 25% below. By packaging the work into three

smaller contracts, eliminating the union-only project labor agreement, and a design change

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substituting plate girders for box girders allowed the DOT to achieve a total price for the bridge

only slightly above the 2001 DOT estimate and about $360 million below the single mega

project bid of 2001.

Some would argue now, that all of the contracts have been bid, that the original estimate was

not the problem. That is not a valid conclusion if the estimate was suppose to represent the cost

of doing the work under the conditions of the offered contract. A contract that placed greater

risk on the bidders. The original contract and scope of work, and what was bid in the three

separate contract do not represent the same conditions. What can be argued and what this

synthesis strives to point out is that DOTs can receive better valued by carefully considering

upfront how best to package contracts, by utilizing constructability reviews, and by

understanding the impact of the macro-environment of the cost of projects.

Innovation

As reported by many other researchers (51, 58, & 62), innovation causes cost growth. The IRC

noted:

The bridge V-piers, which are the defining signature element of this project, represent a construction technique that has never previously been attempted on such a magnitude. As a result, it is very difficult to estimate the premium associated with the risk and complexity of these piers (70).

Innovation adds risk to the building process. Maybe the worse case was the Sydney Opera

House which was originally estimated to cost $7,000,000 Australian dollars. The original design

proved so bad that the structure could not be constructed as designed and the entire internal

design was changed. The final cost was $102,000,000 Australian dollars and the structure does

not even function as the major opera house that was its principle raison d’être (60).

Inflation

Inflation is a concern to both owner and contractors, and it influences bid prices. The long

construction duration of the Wilson Bridge superstructure contract (more than 5 years) was

appreciably greater than most projects. Therefore, contractors had to forecast economic

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conditions and calculate anticipated prices for materials, equipment, and labor far into the future.

Most contractors will approach this situation very conservatively and include generous

contingencies consistent with that uncertainty (70).

Macroenvironment

The work being preformed on the previous contract for the bridge demonstrated the difficulties

in dealing with the local jurisdictions and regulatory agencies (70). In addition uncertainty

surrounding the proposed project labor agreement (PLA) abounded. These added risk factors

were likely compensated for by the contractor inflating the bid price.

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CHAPTER 5

RECOMMENDATIONS

Significant differences exist among the estimating practices of individual DOTs. Although

consistency might have been expected among agencies based on program size or regional

location, none was found. Instead, it appears that the estimating practices of any DOT are

determined solely by the experience of the personnel in charge of estimating, usually the head of

the estimating section or the chief of design. Because DOTs do not share bidding and pricing

information with their neighboring state DOTs, some potentially valuable insights are lost. It

seems that the DOTs would benefit from collaborative discussions of bidding trends, habits of

bidders that are in common bidder pools, and potentially on estimating practices for mega

projects.

The following sections of this chapter discuss practices that could help DOTs improve their

project estimating capability. Many of these practices are being used by a limited number of

DOTs. Some of the practices are derived from studies of contractor estimating procedures.

ESTIMATING GUIDANCE

Estimate documentation must be in a form that can be understood, checked, verified, and

corrected (74). The foundation of a good estimate is the formats, procedures, and processes used

to arrive at the cost. Every DOT that does not currently have a published estimating manual

would benefit greatly by producing its own manual of standard formats, procedures, and

processes to be used by both DOT estimators and design consultants retained for estimating

purposes. This guidance document should be specifically written for those responsible for

preparing the State’s estimates. How inflation is treated in the estimate must be clearly stated.

FHWA recommends the cost estimates be prepared in year-of-expenditure dollars, inflated to the

midpoint of construction, with some allowance for schedule slippage taken into account.

Reporting the costs in year-of-expenditure dollars will greatly reduce the media and public

perception of “cost growth.”

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FHWA has distributed information on lessons learned from major (Mega) projects. Two

important points that should be considered in addition to inflation are contingencies and a

project’s economic impact on the local economy.

Reasonable contingencies should be built into the total project cost estimate. It is suggested

that the following contingencies be included: 1) a Construction contingency for cost growth

during construction; 2) a Design contingency based on different levels of design completion; 3)

an overall Management contingency for third-party and other unanticipated changes; and 4) other

contingencies for areas that may show a high potential for risk and change, i.e., environmental

mitigation, utilities, highly specialized designs, etc.

Cost estimates should consider the economic impact of major project on the local

geographical area. For example, material manufacturers that would normally compete with one

another may be “forced” to team together in order to meet the demand of a major project.

Extremely large construction packages also have the potential to reduce the amount of

contractors that have the capability of bidding on the project, and may need to be broken up into

smaller contracts to attract additional competition. Bid options (simultaneous procurements of

similar scopes with options to award) should also be considered for potential cost savings

resulting from economies of scale and reduced mobilization. A value analysis should be

performed on the project to determine the most economical and advantageous way of packaging

the contracts for advertisement.

In preparing an estimating manual, members of the States heavy/highway construction

industry should be asked to share with the Department their knowledge of production rates,

estimating techniques, and factors that increase project risk. Advice from local contractors

should specifically be sought in regard to factors that they consider to be important cost drivers.

Some considerations that are often made by contractors include (75):

¢ Is this a labor-intensive project (76)?

¢ Does the project depend heavily on certain pieces of equipment?

¢ Is there a danger of material price increases?

¢ What is the cash flow of the project?

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The availability of an easy to use guide, that prescribes the standard estimate format for the

DOT, will greatly assist estimators in preparing estimates in less time, as many of their questions

can be addressed simply by reading the manual and following standard procedures. The benefits

of standardized procedures clearly explained in a manual should outweigh the cost of initial

production and periodic updates. In order to reduce production costs and make changes less

expensively, the manual could be published and maintained electronically.

CONCEPTUAL ESTIMATES

A conceptual estimate should use the highest level of detail available for quantity takeoff and

project scoping combined with recent bid information to set the project cost. By incorporating

proper risk and contingency amounts into this estimate, the estimator can greatly improve the

accuracy of the estimate. The DOT must develop clear definitions of what constitutes a

contingency and how contingency amounts are determined.

Contingency means an event that may occur but is not likely or intended. It is a possibility,

condition of chance, for which there must be a plan of action (or additional money). Risk is a

possibility of suffering harm or loss. Think of contingency and risk in terms of quantifiable and

non-quantifiable outcomes, Table 18. Contractors will add cost to their bid to cover both

contingencies and risks.

TABLE 18 CONTINGENCY - RISK EVALUATION

Issue Cost Coverage in the Estimate

Identified issue Known Direct cost

Identified issue that will occur Unknown Contingency

Identified issue that may occur Unknown Risk

Issue that has not been identified Unknown Risk The use of historic bid prices is a relatively straightforward process and can yield good results

if properly applied. The use of historic bid averages however does not release the estimator from

personal responsibility to insure that the averages are representative of the conditions of the

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project being estimated. If a DOT is, by means of bid data, creating line item averages to be

used in preparing its estimates, the estimator must be trained to recognize the validity of such

unit prices. The use of data without knowledge of its similarity to the work being estimated

produces an inaccurate estimate. The analysis of historic bid data and the use of that data in the

creation of a unit price guide is valuable. Caltrans (see Appendix F) provides an annual guide

giving average cost data, cost range data, and average cost per unit of work data. Their guide

also includes indices for cost adjustments based on location, quantity, traffic conditions, and

other factors.

Conceptual estimates for mega projects are another matter and such estimates must account

for the macroenvironment of the project. Because these projects are of such long duration there

is a greater chance that the conditions affecting cost will change. The certainty of prevailing

conditions declines as the length of the forecast (estimate) period increases (77). In the case of

such situations estimators must identify not only the most likely course of events but also those

events that could possibly impact the project. Estimators should employ risk analysis techniques

such as the CEVP process that WSDOT is using (Appendix E).

DESIGN PHASE COST CONTROL

Many DOTs reported that during the design phase of project development they do have standard

procedures for identifying scope changes that cause project cost increases. In order to ensure

designers are aware of how design changes will affect project cost, it is advantageous to require

submittal of a cost estimate along with each design submittal. When large differences between

the conceptual estimate and the design estimate are reported (>10%), approval should be

required from the supervisory level or higher before design proceeds in order to ensure sufficient

funds will be available for construction. If the funds cannot be obtained, changes must be

required to reduce the overall project cost; this may cause a reduction in project scope.

PRE BID ESTIMATES

A dedicated estimating section with personnel knowledgeable in the areas of design,

construction, and estimating can best conceptualize and model all elements that are required for

an accurate estimate. These personnel should be trained to use available estimating software.

85

Preparing detailed estimates of major work items gives the DOT a strong footing for rejecting

bids that are over their internal estimate, while performing historic average cost estimates of

minor items reduces the overall workload of estimators and requires fewer personnel to complete

more estimates.

In DOTs that use historic bid price averages, the more information the estimators have about

both the project and pricing of items, the more likely they are to produce an accurate estimate. In

California cost sheets are generated for major work items detailed by item quantity ranges.

Additionally, adjustment factors based on project conditions that may be encountered on any

given project are provided. These factors are the result of extensive bid data analyses. Appendix

F is a Caltrans Unit Price Factor sheet for Structural Concrete for Bridges. While this sheet

cannot address all possible project conditions, nor can it tell the estimator exactly how much to

add for any specific condition, it is a quick and concise tool for developing costs based on project

conditions. In order for an estimator to determine how much to increase or decrease prices they

must examine the work closely and not rely on a simple quantity takeoff from the plan sheets.

Consideration of all project conditions that effect price, such as location within the state,

schedule constraints, and site issues is necessary to accurately estimate a project. The estimator

must also know if any incentives are in the contract, and anticipate that the contractor will

perform to the required standard, when creating the estimate.

AWARD

After receipt of the bids, the estimator or estimators that estimated a project should be involved

in the bid analysis for that project prior to award. This will give them an opportunity to spot

bidding trends early, and also ensure that someone that is knowledgeable about the estimate is

involved in the decision to award. Projects that exceed DOT estimate limits for automatic award

generally receive this additional inspection, but to maximize the benefit of this process the same

estimator that prepared the DOT estimate should be involved in both the bid analysis and award

decision.

An additional responsibility of estimators is the detection of bid rigging or collusion.

Enforcement of the Federal Sherman Act is the responsibility of the Antitrust Division of the

86

U.S. Department of Justice. However, those that are charged with review of project bids should

be the first to notice the signs of complementary bidding or bid rotation. With proper training

and adequate technological and legal support, estimators can include this step in normal bid

analysis without appreciably increasing their workload. Estimators are the personnel in the DOT

most familiar with pricing information from past projects and are most likely to notice when a

group of contractors have suddenly changed their bidding habits. Additionally, by making

estimators responsible for this portion of project development they will be forced to examine all

projects to determine how contractors are bidding, aiding the estimator in determining the best

unit price for any estimate item.

RELEASE OF ESTIMATE

The DOT’s estimate should be available after award as a project total amount. This gives both

the general public and contractors a chance to see the original projected project cost. However,

the release of detailed unit prices may compromise future DOT estimates. What is allowable is

usually defined by State statute and, in many cases, out of the DOT’s control.

DESIGN BUILD PROJECTS

In order to accommodate the cost difference between contractor proposals and the DOT's pre-bid

estimate for Design-Build projects, the DOT can make appropriate adjustments. Since the pre-

bid estimate is based on conceptual design information, the estimate can be treated like a

conceptual estimate and a proper contingency amount can be added. The contingency amount

can be determined by an estimator's review of the Request for Proposals and should attempt to

determine areas where the contractor may exceed the DOT standards for the purpose of making

the proposal more appealing to the award committee or for satisfying warranty requirements.

Bid items can be adjusted upward to reflect contingencies or incomplete design or a range of

values can be used for each item. As agencies have more experience and cost data for design-

build projects, separate price lists or estimating guides can be developed.

Additionally, the DOT should assign estimators to the award team for these projects. These

estimators would be responsible for examining the project cost proposal based on the

information in the technical proposal. Since the technical proposal is likely to differ from DOT

87

standard designs the estimator will have to ensure any costs they use in analyzing the cost

proposal are valid based on the proposal requirements for time and quality.

PROJECTS VALUED OVER $100 MILLION

From a risk perspective, mega projects are more than the simple ballooning of the size of

conventional projects. With increased size and complexity, and, many times, new technology

comes exponentially large risk (78). This is a lesson that many estimators have not yet learned.

Projects valued over $100 million require special consideration of project risk and complexity in

order to produce an accurate estimate. The most experienced estimating personnel should be

assigned to estimate these large projects. It may be necessary to retain a construction consultant

with the necessary experience to help the DOT estimators or even to prepare the estimate. This

will help the estimators account for all of the complexities of the large project while at the same

time giving them the necessary experience to prepare accurate estimates for mega projects in the

future.

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CHAPTER 6

CONCLUSIONS

The core assumptions underlying an estimate can be major determinants of forecast accuracy.

This has proved particularly true in the case of mega projects. It does not matter if the estimating

methodology is detail or historic bid price. In the case of projects valued at over $25 million,

approximately 20% of the time the bid price is greater than 5% over the DOT estimate. In the

case of projects costing over $100 million, approximately 40% of the time the bid price is greater

than 5% over the DOT estimate. When the core assumptions of the estimating process are wrong

it makes little difference what methodology is used to prepare the estimate (77).

Departments of Transportation must develop and implement strategic project and program

management systems to improve on − time, on − budget delivery of projects. To do so, DOTs

must develop and test cost estimating/validation processes to determine that cost estimates are

reasonable, defendable, and sustainable.

A COST ESTIMATE IS NOT A SINGLE NUMBER (79 & 80)

The actual cost of a project is subject to many variables, which can, and will significantly

influence the range of probable projected costs. Similarly, the Census Bureau does not present a

single forecast population growth; it offers projections based on different assumptions of

fertility, mortality, and migration rates (77). In the case of DOT estimates, any one cost number

represents only one possible result of the multiple variables and assumptions. These variables

are not all directly controllable or absolutely quantifiable. Therefore, cost estimating and the

validation process must consider probabilities in assessing cost, using a recognized, logical and

tested process.

In the beginning there is a very large potential range for a project’s ultimate cost. We need to

consider:

¢ How estimates are usually done?

¢ What we need to do to get a valid estimate?

¢ How we develop a reliable cost estimating and validation process?

90

¢ How the estimating process can accurately evaluate variability and risk using logical,

reasonable statistical (probability) methods.

The traditional approaches to early estimating match poorly with the public’s intuitive

understanding of “what engineers can tell us.” The meaning of “contingency” in an estimate is

not clearly defined in many DOTs and how DOTs use of the term completely mystifies ordinary

citizens. The public sees “development” of an estimate as evidence of doubtful engineering

competence or worse − untrustworthy actions.

GROWTH IN PROJECT COST

The Boston Central Artery/Tunnel Project has received scalding condemnation because of

supposed cost growth. The initial cost estimate for the project was $2.6 billion in 1982. That

was a preliminary concept developed by state officials. It covered only a small fraction of what

would eventually be built and excluded key factors such as inflation over the 20 plus year life of

the project, environmental permitting requirements, and many unforeseen community mitigation

measures (81). The same factors that caused the difference between the initial cost estimate and

actual cost are to be found on every mega project. Table 19 presents information from three

specific projects, and the results of Merewitz’s and Rand studies of multiple mega projects.

TABLE 19 FACTORS THAT INCREASE MEGA PROJECT COST

Factors Project Researcher

Holland Tunnel BART CA/T Merewitz (59) Rand (65)

Scope Changes Yes Yes Yes Yes Yes

Inflation Yes Yes Yes Yes Yes

New Technology

Yes Yes Yes Yes Yes

Technical challenges

Yes Yes Yes Yes Yes

Duration Yes Yes Yes Yes

Exogenous factors

Yes Yes Yes Yes

Management Yes Yes Yes

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In Boston 55% of the cost growth was attributable to inflation. The next major cost impact

factor was macroenvironment mitigation which added 15% to the cost. Public pressure forced a

one billion dollar redesign of the Charles River crossing. Changes in project scope added

another 13% to the cost. DOTs must be very conscious that estimating a mega projects is not the

simply about summing the costs of work items; it is very much about appropriately accounting

for the many external factors that add cost and risk to the undertaking. Stretching out a project

means that there is more time for land costs to increase, planned economic development to occur,

and the passage of environmental or other laws or regulations that could increase the project’s

costs (48).

KEYS TO SUCCESS

Engineering skill and judgment invested in project planning is obscure to the general public,

legislators, community opinion leaders, and the media. Cost busts are easy for the public to

understand. But who wants to appreciate the fine points of route alignment, difficult

geotechnical conditions, or wetlands mitigation analysis?

Departments need a strategic approach to early cost declarations.

¢ Avoid false precision − a big problem is created by early optimism.

¢ Relate contingency to the layman’s everyday experiences with uncertainty.

¢ Invest in continuous and transparent QA/QC of your estimating processes.

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101

APPENDIX A

BEST PRACTICES & GUIDELINES OF PROJECT COST ESTIMATING SURVEY Contact: J. B. Byrnes at Jonathon.Byrnes@asu.edu

The questions refer to estimates prepared immediately prior to bid letting unless otherwise stated.

1. Does your department have a dedicated estimating section or do personnel who also perform other duties prepare estimates? Are estimates prepared by design consultants?

2. What is the experience level of personnel performing estimates?

3. Is there a formal training program for new personnel in estimating?

4. Does the department, during the design phase of a project, impose a strict methodology to control the cost of construction? Yes ____ No ____.

If yes would you describe? If there is a written protocol would you provide a copy?

5. Are there standard operating procedures for all DOT estimating departments? If so, how are they distributed and used?

6. Is the same system or set of procedures used for conceptual estimates and pre-bid estimates? If not, how do they differ?

7. During project design (as the project is developed) is it a requirement that changes resulting in cost variances from the original conceptual estimate be reported and approved?

Yes ____ No ____ If yes at what level in the department is there approval authority?

8. Is there a formal review within the DOT of the estimate? Yes ____ No ____.

a. Are personnel outside of the estimating section involved in the review? Yes ___ No___.

b. Does the review include a discussion of schedule? Yes ____ No ____.

c. Does the review include a discussion of project conditions (night work, required/ necessary weekend work, etc.)? Yes ____ No ____.

d. Does the review include a discussion of site conditions affecting operations? Yes___ No___.

e. Does the review include a discussion of required sequencing of work/traffic control? Yes ____ No ____.

9. Does any project value trigger additional reviews, or a critical issues review meeting?

10. How many jobs in each of the following categories has your department executed in the last five years, and how many are planned in the next five years?

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a. $10,000,000 - $25M: Last five years:_________ Next five years _________

b. $25M - $100M Last five years:_________ Next five years _________

c. $100M - $200M Last five years:_________ Next five years _________

d. $200M+ Last five years:_________ Next five years _________

11. How many of those jobs actually bid in each category were over the DOT estimate by 5% or more?

12. Does your state use a computer-based system for estimating, other than a supporting project tracking database? If so, what is the program; is it commercially available; and how is it used?

13. What units of measure or items of work are typically used in performing conceptual estimates? For example, is total sf of pavement used or is a more detailed estimate completed?

14. Are prices in this system updated based on bid data to develop historical average prices?

15. Is the system based on historical low bid cost data? If not, what is the basis for pricing?

16. Are neighboring state DOTs consulted when setting prices? About what issues?

17. Are contractors ever consulted about cost before a project estimate is prepared?

18. Are factors such as market conditions, anticipated time before execution, or geographic area of the state considered when preparing conceptual estimates?

19. Do you attempt to make a detailed estimate of project costs? (Detailed – means calculating production based on specific crews, equipment, and methods.)

20. Do you attempt of make a detailed estimate of major work items?

21. Do you attempt to make an estimate of project overhead costs (those project related costs that cannot be attributed to specific work items – required safety staffing, quality control staffing, temporary facilities, etc.)

22. How are mobilization and traffic control costs estimated?

23. Does your DOT ever provide materials for contractors such as aggregate, concrete, or asphalt? If so, when and why?

24. How are unique/specialty items priced? Those items for which historic costs are not available. Is there a review of the additional costs required to meet social goals?

MBE/WBE/DBE Yes ____ No ____. Project agreements. Yes ____ No ____. Noise control Yes ____ No ____.

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Limited work times. Yes ____ No ____. Other ___________ Yes ____ No ____.

25. Is the cost of demolition identified separately? Yes ____ No ____.

26. Are the costs of detours identified separately or included with traffic control?

27. Are state estimates ever released to the general public? If so, when and at what level of detail?

28. Are all projects awarded to a single general contractor or will specialty portions, such as bridges, be awarded separately? And at what economic level?

29. Are alternative project delivery methods allowed for use by state law? If so, how are these projects estimated differently than traditional design-bid-build projects? Additionally, what methods are you using and for what size and type of projects?

30. Does your DOT use A + B bidding? If yes, how are the two values used to determine a low bidder?

31. Is life cycle cost considered at any stage of project development?

32. How much time typically lapses between the department’s estimate calculation and the bid opening?

33. What steps are taken when estimates are not close to bid prices? At what percent difference are these steps taken?

34. Is there a contingency amount incorporated into each project estimate? If so how is this amount determined?

35. For a conceptual estimate, what percentage (%) is used for engineering and contingency?

36. Are incentives used for early project completion, roadway smoothness or other items? If so, where does this money come from and is it set aside and planned for during estimating?

37. What is the time duration that contractors have for preparing their project estimates? Does this change based of the size ($) of the project?

38. How does your DOT prevent contractor bid collusion?

39. What system changes are you considering and why?

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105

APPENDIX B

STATES WITH WEB BASED BID TABS

State Bid Tab Web Sites

CA www.dot.ca.gov/hq/esc/oe/awards/bidsum/

CO www.dot.state.co.us/bidding

GA www.dot.state.ga.us/DOT/construction/contractsadm/

ID www2.state.id.us/itd/design/contractors/contrinfo.htm

IL www.dot.state.il.us/deserv/dearch.html

KS www.ink.org/public/kdot/business/hwycont.html

MD www.sha.state.md.us/doingbiz.htm

ME www.state.me.us/mdot/project/design/bidtabarchive.htm

MN www.dot.state.mn.us/bidlet

MO www.modot.state.mo.us/bids/bidtabs.asp

MT www.mdt.state.mt.us/cntrct/contract.htm

NA doroads.nol.org/letting/past-lettings.htm

NC www.doh.dot.state.nc.us/preconstruct/highway/dsn_srvc/contracts/bidaverages/

ND www.state.nd.us/dot/pacer/bidopenrtpindex.html

NV gis.nevadadot.com/contractor/business/contall.asp

OH www.dot.state.oh.us/contract/estimating/files%20&%20info/files_and_information.htm

OR www.odot.state.or.us/techserv/progsrv/costestm/

SC www.dot.state.sc.us/doing/default.html

TN www.tdot.state.tn.us/construction/

TX www.dot.state.tx.us/business/business.htm

VA virginiadot.org/business/const/resources-bidtabs.asp

WI www.dot.state.wi.us/dbm/business.html

WV www.wvdot.com/10_contractors/10a_lettings.htm

WY dot.state.wy.us/web/business/contractor.html

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107

APPENDIX C

UNIT PRICE FACTOR SAMPLE COST SHEET

STRUCTURAL CONCRETE, BRIDGE

UNIT PRICE FACTORS BASE PRICE = $270/CUBIC YARD CONCRETE IN PROJECT

20,000 CY+ 7,000 CY+ 2,500 CY + 600 CY+ 300 CY+

-15 0 +30 +80 +130

PROJECT LOCATION Urban Area Small Urban/City Rural/Town Distant Rural Isolated

0 +25 +50 +75 +150

TRAFFIC WATER Over Traveled Way Heavy Traffic/Congestion Over Water

+20 +10 to +80 +10 to +150 (depending on permit restrictions)

FALSEWORK HEIGHT

20’+ 40’+ 60’+ 80’+ 100’+ 120’+

0 +20 +45 +70 +100 +130

WIDENING/STAGED CONSTRUCTION 60’+ 40’+ 30’+ 20’+ 15’+ 10’+ 5’+

+10 +30 +75 +110 +150 +210 +300

OTHER FACTORS Work Schedule (permit restrictions/ limited night hours/night work/expedited schedule) Increase $20 to $400/CY

Restricted Access Increase $20 to $150/CY

Arch Construction/Variable superstructure Increase $20 to $60/CY

Rugged Terrain Increase $20 to $150/CY

Slab Construction Reduce $20 to $40/CY

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109

APPENDIX D

SURVEY DATA

1. Does your department have a dedicated estimating section or do personnel who also perform

other duties prepare estimates? Are estimates prepared by design consultants?

No. of DOTs Response

19 Dedicated section prepares all final estimates.

1 Dedicated section prepares all final estimates as well as bid analyses.

1 Dedicated section prepares all final estimates as well as bid analyses. 8 districts, each does own estimating, decentralizing estimating to the district level

1 Dedicated section prepares all final estimates as well as construction schedules.

1 Dedicated section prepares all final estimates as well as contract prep and letting

1 Dedicated section prepares all final estimates as well as the letting documents and bid analysis.

1 Dedicated section prepares all final estimates as well as programming estimates

1 Dedicated section prepares all final estimates. Each district has an in-house estimator to assist HQ section with field investigations

11 No, designers prepare estimates, consultant estimates reviewed by PM

8 No, designers or consultants prepare final estimates

1 No, Contracts & Estimates prepares all final estimates as well as other contracting responsibilities

1 No, Contracts & Specs prepares all final estimates as well as other contracting responsibilities

1 No, designers prepare estimates, then supervisor reviews

1 No, designers prepare estimates. One reviewer reviews all estimates as requested, this is his only duty

1 No, eliminated and merged with QA this year, now perform plan review and spec check as well, get involved at problem statement

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2. What is the experience level of personnel performing estimates?

No. of DOTs Response

2 Unknown 15 Less than 10 years 19 10-20 years 10 20-30 years 4 30+ years

3. Is there a formal training program for new personnel in estimating?

No. of DOTs Response

40 OJT only

1 NO, all DOT employees eligible to bid for estimating job with no training requirements prior to or once in job

1 Design engineer training program includes a class on estimating, and use of estimator software

1 Project estimating guide 1 Supervisor tailors training to prior experience of new personnel 1 2 manuals outline procedures and methods, one for conceptual, one for final

1 Cost estimating procedure not available outside department, provided to all engineers as guidance

1 Developed course and offered once but have not repeated in last two years 1 Developing plans review class

1 Estimating manual is under production but has not been approved yet, will outline policy and procedures for completing estimates

1 Individual one-on-one training 4. Does the department, during the design phase of a project, impose a strict methodology to

control the cost of construction? Yes ____ No ____.

If yes would you describe? If there is a written protocol would you provide a copy?

No. of DOTs Response

35 NO

1 NO, but overall construction program budget may not be exceeded

12 YES, Estimate reviewed throughout design submission process by multiple divisions

2 YES, engineer responsible to deliver design within programmed amount

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5. Are there standard operating procedures for all DOT estimating departments? If so, how

are they distributed and used?

No. of DOTs Response

20 YES, procedures are outlined in policy manual

4 YES, computer system users guide

26 NO

6. Is the same system or set of procedures used for conceptual estimates and pre-bid

estimates? If not, how do they differ?

No. of DOTs Response

11 YES

20 NO, Rough quantity takeoff done using lane miles or SF for structures

12 NO, Conceptual Estimates done in separate section

4 NO, use highest level of detail available

1 NO, Conceptual estimates have no standard procedures

1 NO, concept based on historic project data for similar size project, but not itemized

1 NO, concept focuses on big ticket items then add % to cover all other items

7. During project design (as the project is developed) is it a requirement that changes

resulting in cost variances from the original conceptual estimate be reported and

approved? Yes ____ No ____ If

yes at what level in the department is there approval authority?

No. of DOTs Response

16 NO

24 YES, Headquarters management must approve changes

10 YES, District management responsible for own changes

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8. Is there a formal review within the DOT of the estimate? Yes ____ No ____.

No. of DOTs Response

21 NO

16 YES

7 YES, each estimate is reviewed by a PM or supervisor

5 YES, within estimating section

1 YES, chief execs of 6 divisions w/in DOT make up an estimating committee which reviews all estimates

a. Are personnel outside of the estimating section involved in the review?

b. Does the review include a discussion of schedule?

c. Does the review include a discussion of project conditions (night work, required/

necessary weekend work, etc.)?

d. Does the review include a discussion of site conditions affecting operations?

e. Does the review include a discussion of required sequencing of work/traffic control?

Number of DOTs

a b c d e Response

31 14 12 15 15 NO

19 36 38 35 35 YES

9. Does any project value trigger additional reviews, or a critical issues review meeting?

No. of DOTs Response

37 NO

8 YES, Large complex projects over a preset $ amount

2 YES

2 Projects with extensive urban TC requirements

1 Special environmental, right of way, or social issues

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10. How many jobs in each of the following categories has your department executed in the

last five years, and how many are planned in the next five years?

The totals for the 47 states that reported data for this item.

a. $10,000,000 - $25M: Last five years: 1825 Next five years: 1217

b. $25M - $100M Last five years: 530 Next five years: 479

c. $100M - $200M Last five years: 26 Next five years: 60

d. $200M+ Last five years: 11 Next five years: 27

11. How many of those jobs actually bid in each category were over the DOT estimate by 5%

or more?

Number % DOT 5 Year Constr.

Program Size

No. of DOTs

Total Reported Projects

No. of DOTs with complete

Data

Complete Data

Reported Projects

more than 5% over Estimate

Small (< 20 projects) 14 109 13 107 29 27.1

Medium (21-75 projects) 20 893 16 686 138 20.1

Large (76+ projects) 12 1362 9 1021 193 18.9

States not providing data 4 0 0 0 0 0

Overall 50 2364 36 1814 360 19.8

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12. Does your state use a computer-based system for estimating, other than a supporting

project tracking database? If so, what is the program; is it commercially available; and

how is it used?

No. of DOTs Response

18 TRNS*PORT

7 TRNS*PORT and in-house software

1 TRNS*PORT and OMAN Bid-Tabs Professional

2 OMAN Bid Tabs Professional

2 OMAN Bid Tabs Professional and in-house software

1 OMAN light Estimating, in-house for asphalt resurfacing

9 In-house

1 HCSS Heavy-Bid

1 AutoCAD quantity takeoff

8 NO

13. What units of measure or items of work are typically used in performing conceptual

estimates? For example, is total sf of pavement used or is a more detailed estimate

completed?

No. of DOTs Response

31 Lane-mile/kM, SF/SM for bridges

18 Use as much detail is available

1 Engineers dicretion

14. Are prices in this system updated based on bid data to develop historical average prices?

No. of DOTs Response

5 NO

45 YES

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15. Is the system based on historical low bid cost data? If not, what is the basis for pricing?

No. of DOTs Response

20 Low only

1 Low and Second

15 Three Lowest

11 All

2 All Except High and Low

1 Reasonable Price

16. Are neighboring state DOTs consulted when setting prices? About what issues?

No. of DOTs Response

37 NO

13 YES

17. Are contractors ever consulted about cost before a project estimate is prepared?

No. of DOTs Response

17 NO

33 YES

18. Are factors such as market conditions, anticipated time before execution, or geographic

area of the state considered when preparing conceptual estimates?

No. of DOTs Response

12 NO

38 YES

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19. Do you attempt to make a detailed estimate of project costs? (Detailed – means

calculating production based on specific crews, equipment, and methods.)

No. of DOTs Response

36 NO

14 YES

20. Do you attempt of make a detailed estimate of major work items?

No. of DOTs Response

31 NO

19 YES

21. Do you attempt to make an estimate of project overhead costs (those project related costs

that cannot be attributed to specific work items – required safety staffing, quality control

staffing, temporary facilities, etc.)

No. of DOTs Response

39 NO

11 YES

22. How are mobilization and traffic control costs estimated?

No. of DOTs Response

20 Mobilization: Set % for all contracts

26 Mobilization: Historic average % based on project analysis

4 Mobilization: Graduated or sliding % scale

20 Traffic Control: Set %

30 Traffic Control: Individual line items

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23. Does your DOT ever provide materials for contractors such as aggregate, concrete, or

asphalt? If so, when and why?

No. of DOTs Response

27 NO

23 YES

24. How are unique/specialty items priced? Those items for which historic costs are not

available. Is there a review of the additional costs required to meet social goals?

a. MBE/WBE/DBE Yes ____ No ____.

b. Project agreements. Yes ____ No ____.

c. Noise control Yes ____ No ____.

d. Limited work times. Yes ____ No ____.

e. Other ___________ Yes ____ No ____.

Number of DOTs

a. b. c. d. e. Response

42 35 37 20 45 NO

8 15 13 30 5 YES

25. Is the cost of demolition identified separately? Yes ____ No ____.

No. of DOTs Response

4 NO

46 YES

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26. Are the costs of detours identified separately or included with traffic control?

No. of DOTs Response

21 Separate detour pay item

11 Included with traffic control

3 Depends on size of detour

13 Included in other estimate items

2 No response

27. Are state estimates ever released to the general public? If so, when and at what level of

detail?

No. of DOTs Response

20 Project ranging only

10 DOT estimate total announced at letting

19 Entire DOT estimate with bid tabs

1 Entire DOT estimate available at advertisement

28. Are all projects awarded to a single general contractor or will specialty portions, such as

bridges, be awarded separately? And at what economic level?

No. of DOTs Response

48 Single GC

1 Separate contracts for individual work types

1 No Response

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29. Are alternative project delivery methods allowed for use by state law? If so, how are

these projects estimated differently than traditional design-bid-build projects?

Additionally, what methods are you using and for what size and type of projects?

No. of DOTs Response

18 NO

30 YES

2 No Response

30. Does your DOT use A + B bidding? If yes, how are the two values used to determine a

low bidder?

Number of DOTs Response

12 NO

37 YES

1 No Response

31. Is life cycle cost considered at any stage of project development?

No. of DOTs Response

9 NO

37 YES

4 No Response/Unknown

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32. How much time typically lapses between the department’s estimate calculation and the

bid opening?

No. of DOTs Response

5 Within one week

11 One week to one month

24 One to two months

5 Two to three months

3 Three to five months

2 More than six months

33. What steps are taken when estimates are not close to bid prices? At what percent

difference are these steps taken?

Percent difference between DOT estimate and Low Bid

DOTs taking other action if percentage exceeded

No lower limit reported 26

Up to -30 1

Up to -25 2

Up to -20 2

Up to -15 2

Up to -10 5

Up to -5 2

All Projects Reviewed 8

Percentages Unknown/Unreported 2

Up to +5 3

Up to +10 31

Up to +15 2

Up to +20 2

Up to +25 2

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34. Is there a contingency amount incorporated into each project estimate? If so how is this

amount determined?

No. of DOTs Response

27 NO

23 YES

35. For a conceptual estimate, what percentage (%) is used for engineering and contingency?

No. of DOTs Conceptual Contingency

20 Set Percentage

15 Graduated Scale

15 Engineering Judgment

36. Are incentives used for early project completion, roadway smoothness or other items? If

so, where does this money come from and is it set aside and planned for during

estimating?

No. of DOTs Response

26 Programmed in the construction estimate

9 Come from other projects that are below budget

10 Paid out of project contingency fund

5 No incentive program in place

37. What is the time duration that contractors have for preparing their project estimates?

Does this change based of the size ($) of the project?

No. of DOTs Response

30 3 to 4 weeks may extend if needed

5 3 to 4 weeks no extensions

15 4 weeks to three months

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38. How does your DOT prevent contractor bid collusion?

No. of DOTs Response

7 No active program

11 Contractors must sign non-collusion form with bid

34 Run bid histories and perform bid analysis

7 Separate entity responsible for this

39. What system changes are you considering and why?

No. of DOTs Response

32 No planned changes

8 Implement TRNS*PORT to a greater degree

10 Other minor changes

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APPENDIX E

WSDOT COST ESTIMATING VALIDATION PROCESS (CEVP) Washington State Department of Transportation

The information presented in this appendix is taken for the Cost Estimating Validation Process

(CEVP) Initiation Report (July 2002). The initiators of the Washington State Department of

Transportation CEVP process were:

Direction: Doug MacDonald, Secretary of Transportation

Sponsor: David Dye, Urban Corridors Administrator

Concept: John Reilly, Michael McBride, David Dye, and Cliff Mansfield

Implementation: Cliff Mansfield

WSDOT Manager: Jennifer Brown

Key consultants to the effort were:

John Reilly, Core Team Advisor, John Reilly Assoc. Int’l.

Dwight Sangrey and Bill Roberds, Risk and Uncertainty Analysis, Golder Associates.

Keith Sabol, Cost Validation, Parsons Corporation.

Art Jones, Base Cost Information, KJM Associates.

National Constructors Group.

John Reilly, Michael McBride, David Dye, and Cliff Mansfield developed the specific CEVP

guidelines in January 2002. However, it should be noted that John Reilly had been making

international presentations and leading discussions on the idea and related topics since 1997.

The primary author of the Cost Estimating Validation Process (CEVP) Initiation Report is

Dr. Keith Molenaar of the University of Colorado, but many people contributed significantly to

the report’s development. Much of the documentation contained within was developed by

WSDOT employees and consultants involved in the CEVP process. Contributors to the report

include:

Adam Brown WSDOT Technical Writer Jennifer Brown WSDOT CEVP Facilitator Jeff Carpenter WSDOT Alternative Project Delivery Manager James Diekmann University of Colorado, Construction Engineering & Management

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David Dye WSDOT Deputy Regional Administrator Bill Elliott Engineering Manager, Urban Corridors, WSDOT Art Jones KJM Associates Keith Molenaar University of Colorado, Construction Engineering & Management Cliff Mansfield WSDOT Engineering Director, Urban Corridors Office Mike McBride McBride Consulting Travis McGrath Golder Associates, Decision and Risk Analysis Richard Rast Azimuth Group, Ltd John Reilly John Reilly Associates International William (Bill) Roberds Golder Associates, Decision and Risk Analysis Keith Sabol Parsons Corporation Dwight Sangrey Golder Associates Schaftlein, Shari WSDOT Environmental Affairs Office Greg Selstead WSDOT Programming George Xu WSDOT Environmental Affairs Office

WHAT IS CEVP?

The Cost Estimating Validation Procedure (CEVP) is a peer-level review or “due diligence”

analysis on the scope, schedule and cost estimate for transportation projects throughout the State

of Washington. The objective of the CEVP process is to evaluate the quality and completeness,

including anticipated uncertainty and variability, of the projected cost and schedule. The CVEP

process has been successfully implemented on the WSDOT Urban Corridors Mega Projects

during March through June of 2002 in a series of intensive one-week workshops. CEVP is a tool

to:

1. Evaluate the quality and completeness of the current project cost estimate;

2. Assist in developing a higher level of confidence in the estimate; and,

3. Identify major areas of variability and uncertainty in the defined project that significantly

influence the cost estimate.

The process cannot create a project estimate where none exists.

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HOW IS CEVP ACCOMPLISHED?

CEVP involves two primary tasks: 1) a due diligence review of the project “base” cost estimate,

and 2) a modeling of uncertainty to more accurately define contingencies and allowances as

ranges of cost that can be influenced by design development or major risk and opportunity

events.

The project development team, or “Project Team”, accomplishes these two tasks with the

assistance of a “CEVP Team” of specialists. After the Project Team compiles the project data,

the CEVP Team assists the Project Team in reviewing the current project estimate. Next, the

CEVP Team removes the contingencies from the base estimate, models their uncertainty, and

provides a project cost range for the Project Team to verify and utilize for planning and

engineering throughout the development of the project.

WHAT OUTCOMES CAN BE EXPECTED?

The outcomes of the CEVP process are directly tied to the objectives and performance measures

established at the beginning of each CEVP Workshop. Outcomes include:

1. An estimate validation statement in the form of a CEVP Project Summary Sheet that

more accurately represents the project cost ranges and the uncertainty involved.

2. Findings and recommendations that allow WSDOT Project Teams and Senior

Management to better understand the basis, content, and variability of cost estimates.

3. Identification and characterization of the high risk project elements, which will enable

Project Teams to address appropriate mitigation strategies.

4. Recommendations for WSDOT management to consider in regards to the group of

projects that have been subject to CEVP review.

WHAT DATA IS NEEDED TO CONDUCT A CEVP WORKSHOP?

The Spring 2002 CEVP Mega-Project Workshops involved projects at design levels of less than

1% and more than 30%. The outcomes of these workshops were quite different. The projects

with less than 1% design provided a clear identification of major risks but were not as useful in

the cost validation objective due to the lack of information. Those projects with greater than

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30% design development achieved excellent cost validation but many of the risks were already

being mitigated through the course of sound engineering. At a minimum the following items are

required to conduct the most rudimentary CEVP workshop:

1. Project plans and engineering documents that describe the scope, character and timeframe

of the project.

2. Project estimate that includes a summary, detailed backup of quantities and prices, and a

detailed identification of contingencies and allowances included in cost estimate.

3. Project schedule in a bar chart with precedence relationships and/or flow diagram.

4. List of major assumptions and constraints.

5. List of major risks and concerns.

The CEVP workshop appears to provide the most benefit in the range of 5% to 30% design or

somewhere between project scoping and detailed design. When the project is at less than 5%

design, there is typically not enough cost information to validate and there are often too many

alternatives to explore within the workshop time allotment. The CEVP process can be

performed at this conceptual design level, but the process should focus on risk identification and

scoping exercise rather than a cost validation exercise.

PROJECT AND CEVP TEAM MEMBER IDENTIFICATION

One of the primary strengths of the CEVP process revolves around a peer review by an

interdisciplinary team of recognized experts. There are three primary groups of individuals that

must be assembled for the CEVP workshop: the Project Team, the CEVP Team and the CEVP

Administrative Team. The importance of the CEVP Administrative Team must not be

underestimated for maximum benefit of the workshop.

Project Team

The Project Team assembles the project data, participates in the workshop, and is the ultimate

beneficiary of the CEVP workshop. Team makeup may vary greatly depending upon the nature

of the project. Table E -1 is divided into critical team members that should be present in every

CEVP exercise and other project dependent team members that can be added when the CEVP

workshops are of significant size and scope.

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TABLE E-1 SUGGESTED CEVP PROJECT TEAM MEMBERS

Critical Team Members Project Dependent Team Members CEVP Team Leader Assistant Project Engineer Project Manager Project Development Engineer Project Engineer Program Management Engineer Design Team Leader Designers Environmental Coordinator Construction Engineer Scheduler Bridge Design Supervisor Cost Estimator* Engineering Geologist Foundations Engineer Materials Engineer Biologist Other Project and Support Office Team Members

* The project cost estimate will most likely be done under a engineer’s job description. The project estimator’s participation is absolutely essential to the CEVP process. A majority of the CEVP workshop time will be spent reviewing, validating, and reorganizing

the most current project estimate. It is critical that the lead estimator is present to answer any

questions regarding the quantities, pricing, and assumptions that were developed for the estimate.

The Project Manager is a critical member because questions of project scope will arise and

management decisions will be made throughout the workshop. Lead designers and project

engineers are also essential because they typically have the most intimate knowledge of the

design.

CEVP Team

The CEVP Team (Table E-2) has the responsibility to perform a peer evaluation or due-diligence

on the project’s estimate and scope. The CEVP Team is a core group of experts that is not

involved in the day-to-day planning of the project. It can be made up of WSDOT employees,

standing order consultants, or national experts depending upon the size and scope of the project

being explored. The CEVP Team Leader is included in both the Project Team and the CEVP

Team because this individual must perform functions on both teams, and more importantly,

create a unified working group. The Project Team and the CEVP Team must function as one

group.

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TABLE E -2 SUGGESTED CEVP TEAM MEMBERS

Critical Team Members Project Dependent Team Members CEVP Team Leader Construction Manager Certified Cost Engineer General Contractor Decision and Risk Analyst Lead Designer Risk Modeler Environmental Economist Technical Writer Other Department Leaders

The CEVP Team has the dual functions of validating the project estimate and modeling the

risk and opportunities into a range estimate. The two most critical CEVP Team members are the

Certified Cost Engineer and the Decision and Risk Analyst. These two individuals typically lead

“cost” and “risk” breakout groups made up of both Project Team and CEVP project team

members.

Administrative Team

The Administrative Team is the final group of professionals that is essential to a successful

CEVP workshop. The administrative burden of this exercise cannot be underestimated. At a

minimum, the following roles must be accounted for:

u Facilitator,

u Technical Writer(s), and

u Logistics Planner.

Technical writers are employed to document and disseminate the workshop results in a

number of formats.

PROJECT TEAM DATA COMPILATION

Prior to the CEVP workshop, a summary of the project data must be compiled. There should be

project plans and project documents that generally describe the scope, character, and timeframe

of the project. Additionally, major internal and external factors that could influence the project

cost and scope should be identified.

Items required from the Project Team prior to the workshop for a major project:

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1. A team organizational chart. Contact information of workshop participants.

2. Project Informational Map.

3. Project Definition Documents including scope element descriptions.

4. Summary or overview plan(s) that indicate project elements at the type, size, location, and

configuration level. This may include, concept plans, cross-sections, illustrations, public

information documents, MOU, etc.

5. If multiple alternatives are active, description of status and relationships sufficient for the

Core Team to understand options and to plan workshop priorities.

6. The basis of cost estimate including estimating assumptions and qualifications.

7. A preliminary listing of the Project Team’s issues of concern (technical, political, etc.).

8. A preliminary listing of identified risks (unresolved issues),

9. A preliminary Project Flowchart showing key tasks and interrelationships, from the

current status through completion of construction and operation and, maintenance.

10. Design and Construction Schedule, including description of how durations were

determined.

11. Current Estimates and their Basis (unit prices, parametric estimates), including an overall

“Program rollup estimate.” Please note the base year of the estimate.

12. Identify Costs associated with developing PS&E and getting to bid, including:

12.1. Engineering.

12.2. Mapping and Surveys.

12.3. Geotechnical Investigation.

12.4. Environmental Mitigation Design/Administrative Cost.

12.5. Right of Way Acquisition Services (administrative, not including cost of the

property).

12.6. Hazmat Remediation Design.

13. Identify Cost to Construct including:

13.1. Direct cost items using unit pricing if available.

13.2. Utility Relocation Cost.

13.3. Hazmat Remediation Cost.

13.4. Right of Way Cost (cost of property).

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13.5. Environmental Mitigation cost to construct.

13.6. Construction Management.

13.7. Lump Sum Items (e.g. weigh station, maintenance facility/equipment, Park and

Ride lot).

13.8. Miscellaneous add-ons as a percent of construction (e.g. Lighting, Signing, striping,

SC&DI, etc.) with an explanation as to what items are covered and justification for

percent used.

Items required from the Project Team in the workshop for a major project:

1. Engineering drawings, models, cross-sections, and aerial maps, etc.

2. Definition/justification for construction segmenting/phasing.

3. Data used to develop designs in summary format (e.g. general descriptions of soil

conditions, not soil borings).

4. Communication related to discussion of risk issues, development of alternatives, and

stakeholder input.

5. Environmental Reports that cover contentious or risk issues.

6. Complete Cost Estimate Assessment Questionnaire.

7. Complete Cost Estimate Risk Questionnaire.

8. A description of the design criteria used for the current estimate, including a listing of

anticipated variances to design criteria and discussion of how they were accounted for in

their estimate, and any level of participation with approving agencies.

9. The schedule for construction - that was assumed in the estimate.

10. The methodology of the schedule (listing of constraints and qualifications).

11. The basis of any percentage line elements and, what is included in each.

12. The rational for contingencies used in the estimate, including, but not limited to:

12.1. Design.

12.2. Construction.

12.3. Scope elements.

13. A copy of the escalation/inflation analysis including:

13.1. Yearly cash flow schedule with tabulate annualized costs, if available.

13.2. Basis of factor used including the schedule that was assumed.

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14. Additional materials that the Project Team feels are relevant.

The Project Team preparation is extremely comprehensive. On large and complex projects all

of the data requested should be sought. However, for smaller projects or CEVP workshops with

limited objectives, the following items can be used as a minimum:

1. Project Description

u One paragraph project description

u One-two page project description with project map

2. Project Estimate

u Summary level project estimate

u Detailed estimate backup describing unit quantities and cost basis

u Detailed identification of contingencies and allowances included in cost estimate

u Completed Estimate Basis Questionnaire

3. Project Schedule in a Bar Chart and/or Flowchart

4. List of Major Assumptions and Constraints

5. List of Major Risks and Concerns (risk questionnaire)

Depending upon the level of project development, the minimum project data described above

should be readily accessible. The CEVP workshop should not be conducted if this minimum

data is not available.

There are three items listed in the minimum requirements that the Project Team will be

required to generate prior to the CEVP workshop: the cost estimate basis questionnaire, the risk

questionnaire, and the project flowchart. The estimate basis questionnaire is essential for the

cost validation or due diligence portion of the CEVP. A project flowchart and a risk

questionnaire or list of risks and concerns are essential to risk modeling portion of the CEVP.

Cost Estimate Basis Questionnaire

The results of this Project Estimate Basis Questionnaire (Table E-3) are used by the CEVP Team

to ascertain the level of project estimate development. It gives the CEVP Team a “level of

confidence” with the project team estimate and it helps in identifying missing items in the most

current estimate.

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TABLE E-3 ESTIMATE BASIS QUESTIONNAIRE

Questions Inclusion Comments

Has the project begun the NEPA/SEPA process? __ Yes __ No __N/A Has a preferred alternative been selected? __ Yes __ No __N/A Have any environmental mitigation measures been defined and included in the estimate?

__ Yes __ No __N/A

Has an alignment been established? __ Yes __ No __N/A Has a grade been established? __ Yes __ No __N/A Have right of way requirements been researched and priced?

__ Yes __ No __N/A

Has a typical section been established? __ Yes __ No __N/A Have the geotechnical site conditions been researched?

__ Yes __ No __N/A

Have potential geotechnical cost issues been factored into the estimate?

__ Yes __ No __N/A

Has a drainage report and concept plan been prepared? __ Yes __ No __N/A Has a noise analysis been performed? __ Yes __ No __N/A Are sound walls included in the estimate? __ Yes __ No __N/A Have retaining wall types been defined? __ Yes __ No __N/A Has a traffic analysis (modeling, HCM, LOS, etc,) been performed?

__ Yes __ No __N/A

Have pavement design reports been reviewed? __ Yes __ No __N/A Has a pavement life cycle cost analysis been performed?

__ Yes __ No __N/A

Has a preliminary construction phasing strategy been developed to help estimate traffic control, detours, temporary structures, temporary construction easements, lanes, etc.?

__ Yes __ No __N/A

Were potential detours evaluated for traffic volumes and vehicle classifications?

__ Yes __ No __N/A

Have any investigations been done in regards to potential major utility impacts?

__ Yes __ No __N/A

Has a conceptual landscaping and aesthetics plan been developed?

__ Yes __ No __N/A

Are there any design deviations that are or expected to be of concern?

__ Yes __ No __N/A

Were other projects used as metrics of comparison for the estimate? If so, please list projects.

__ Yes __ No __N/A

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Project Flowchart

The project flowchart (Figure E-1) graphically depicts the project scope and schedule at a

summary level. The flowchart should contain the major activities, milestones, and decision

points for the project. It forms the basis for the risk model. The format of the project flowchart

can be a graphical flowchart or critical path method schedule depending upon the risk analyst’s

and team’s preference, but either format must describe the precedence relationships between

milestones and activities.

FIGURE E-1 EXAMPLE PROJECT FLOWCHART Risk Questionnaire/Issues and Concerns

The Project Team begins the CEVP risk identification and analysis through the generation of

issues and concerns. The issues and concerns are quantified in terms of their probability of

occurrence and their magnitude, but the Project Team should complete the initial identification

of the issues prior to the commencement of the CEVP workshop. In its simplest form, this can

be a bulleted list of major issues that the project team generates through a brainstorming session.

A portion of the issues generated for one project is shown in Table E-4.

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TABLE E-4 PROJECT ISSUES AND CONCERNS

u Recent Changes on the City of Des Moines City Council

u Port of Seattle/City of SeaTac Land Trade

u South Access Road Commitment

u Part 150 Funds and Right-of-Way Acquisition

u Local Agency Funding Requirements

u Designation of Project of Statewide Significance

u Environmental Documentation

u East Marginal Way Connection

u The Clean Water Act and Stormwater Treatment Requirements

u Endangered Species Act (ESA)

u Business Relocations

u Environmental Mitigation Credit

u Magnitude of Relocations and R/W

u Local (Sensitive Area) Permit Requirements

u Noise Mitigation

u Maintenance of Traffic on I-5 During Construction

u Inflation of Real Estate Cost

u HOV Staging

u South 272 and Street Interchange

u Midway Landfill As seen in Table E-4, project the issues and concerns include political, environmental,

engineering, construction, and others.

WORKSHOP GOALS

The outcomes of the CEVP workshop can range from a simple estimate validation statement in

the form of a CEVP project summary sheet to a voluminous engineering report that documents

risk and mitigation plans for multiple project scenarios. The CEVP process can deteriorate into a

value engineering exercise or a simple design review if the CEVP Team is not consistently

reminded of the workshop objectives.

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Possible workshop objectives may include:

u Perform a cost validation of the existing cost estimate;

u Identify major risks or opportunities which could effect the project cost; or

u Perform a cost-benefit analysis for various risk mitigation strategies and alternative

project designs.

After the CEVP Team Leader has set the goals for the workshop, the Project Team takes the

lead in the workshop and presents their project. As the Project Team presents the project, the

CEVP team should be asking questions that relate to major cost items and major risks. The

project presentation should not be rushed. The project team should focus on delivering:

u The project scope constraints stemming from political, environmental, or technical issues.

u The project opportunities and benefits that could result in cost or time savings.

PRESENTATION OF COST ESTIMATE

After the CEVP team has an adequate understanding of the project scope, the Project Team

presents the details of the estimate. The goal of the Project Team is to present the project

estimate thoroughly, starting from a summary level and ending with a detailed description of

their basis of quantities and pricing.

The estimating peer reviewers should be looking for overlaps and gaps in the estimate and use

their expert judgment to ask questions about the reasonableness of quantity and pricing

assumptions. The team should use the estimate basis questionnaire as a checklist for asking

questions during this presentation. The risk experts on the CEVP team should be looking for

design contingencies and allowances in the project cost estimate that will later be modeled as

ranges in the final CEVP workshop estimate.

The project cost estimate presentation should focus on:

u The basis of major cost item quantities and prices.

u The identification and explanation of contingencies and design allowances.

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The outcome of the cost estimate presentation should be:

u A clear understanding of the basis for the cost estimate.

u An appropriate level of confidence for the CEVP cost validation team.

u A list of tasks and objectives for the Cost Team Breakout.

PRESENTATION OF ISSUES AND CONCERNS

The presentation of major project issues and concerns forms the basis for the CEVP risk team

breakout tasks and also serves as the primer for the uncertainty modeling.

COST VALIDATION AND RISK IDENTIFICATION

The CEVP team breaks the estimate into two major categories:

1. Base Cost Estimate: The sum of base costs excluding contingencies and risk events.

2. Risk-based Estimate: The base estimate plus contingencies and the probable cost of risk

events.

At this point in the workshop the CEVP team typically breaks into at least two teams – a Cost

Team and a Risk Team.

The primary goals are to 1) validate the project cost through peer review of the existing

estimate and 2) perform an uncertainty analysis on major project events. To accomplish these

goals, four main tasks must be accomplished:

1. The existing Project Team estimate must be validated

2. The environmental issues must be identified and assigned costs

3. The risks and opportunities must be identified and quantified

4. The uncertainty model must be designed

Identification of Contingencies and Allowances

Even when there is a firm policy on the percentage to include for allowances and contingency

(i.e. 15% for Engineering and Contingencies), the individual project teams make differing

assumptions on what line items are included in these percentages. It is essential that the all

teams have common definitions of contingencies and allowances as discussed throughout the

remainder of the workshop.

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The contingencies must be identified and accounted for as either a “base cost” item or as a

“risk cost” item early in the cost validation and risk identification process. In general,

contingencies (undefined and as-yet unknown requirements) are included in the risk costs and

allowances (known but undefined requirements) are included in the base costs. Environmental

costs are a subset of both base and risk costs.

The Risk Team will identify risk and opportunity events at this stage of the workshop. These

risk and opportunity events must be quantified in terms of their probability of occurrence and

their magnitude.

COST TEAM BREAKOUT

The CEVP and Project Teams break out into a minimum of two groups: the Cost Team and Risk

Team. Depending upon the size and scope of the CEVP workshop, the Environmental Costing

Team may be contained in the Cost Team, or they may be a separate team. In either case, the

Cost Team’s primary objectives are to validated the existing project team estimate and organize

the CEVP estimate to support the range modeling function without overlaps or gaps between

base costs and risk or opportunity events.

Estimate Quality - Control/Validation of Unit Costs

The Cost Team begins the estimate validation process through a systematic examination of the

estimate. The initial focus of the process will be determined by the response to the Estimate

Basis Questionnaire. Primarily this is a validation of unit costs used in the project estimate. The

conceptual nature of project estimates at the scoping and environmental stages requires that the

estimates employ large parametric quantities and unit costs.

A CEVP estimate segmented into elements that support the Risk Team’s range estimate

model is now created. The CEVP process quantifies estimate contingency through a

probabilistic analysis of risk and opportunity events. Current WSDOT estimating processes

quantify contingency through a series of fixed percentages. The Cost Team must remove the

contingencies from the existing project estimate/base costs and communicate the contingencies

to Risk Team for modeling in the range estimate. For example, a 10-15% line item labeled

“contingency” may be included at the end of the existing project estimate for undefined and as-

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yet unknown requirements at time of the estimate. The CEVP process includes contingencies in

risk cost – not in the base costs. The Cost Team focuses on the base costs.

The CEVP process includes the majority of design allowances (known but undefined

requirements) in the base costs. Design allowances involve items that the project team is certain

will be in the final project scope, but has not designed to a point that they can be quantified. The

cost for these allowances is typically based on a percentage of historical costs. An example of a

design allowance is a lump sum amount that is included for landscaping, which has not been

designed but will be required in the final scope. The Cost Team should identify these allowances

and validate the reasonableness of their costs.

The final major task of the Cost Team is to validate the amounts and proper application of the

markups added to the end of the estimate. Common estimate markups or add-ons include tax,

engineering and construction allowance, escalation, and bonds.

ENVIRONMENTAL COST TEAM BREAKOUT

The task of the Environmental Cost Team is to define and quantify the environmental mitigation

costs that are associated with the project cost. This information may not be required in all CEVP

workshops. The motivation for detailing these costs is to assess the impact that environmental

mitigation issues and resource agency requests have on project cost. The information is

extremely useful for negotiating with resource agencies because the costs of their requirements

can now be identified easily through the CEVP process.

RISK TEAM BREAKOUT

The Risk Team’s goal is to model the uncertainty in the project cost and schedule. The

objectives of the breakout session are 1) to assess the project uncertainties and 2) to evaluate the

related consequences. This information will be the data for a structured model of project

uncertainty used to develop a range cost estimate.

Uncertainties are often difficult to identify and even harder to quantify. This step requires a

multi-disciplinary team for accurate results. The identification and quantification of

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uncertainties requires a balance of project knowledge, program knowledge, risk analysis

expertise, cost estimating expertise, and objectivity.

Project cost and schedule uncertainty can be divided into two categories: risk events and

opportunity events. Risk events are defined as potentially adverse events that negatively affect

the defined project. Opportunity events are potentially beneficial events that positively affect the

project. After the uncertainties are identified, they must be quantified. The Risk Team

quantifies uncertainty in terms of both likelihood and magnitude of occurrence. An event’s

likelihood and magnitude constitute the data required to generate the cost range model.

Risks and Opportunities

The Risk Team should start its analysis with the Project Team’s list of issues and concerns. Two

key issues must be kept in mind during the risk identification step are: 1) all risks and

opportunities should be considered and 2) all risks and opportunities must be independent. Once

identified, the consequences or “impact” of the uncertainties must be quantified. Quantification

involves an assessment of the likelihood and magnitude of occurrence. Likelihood can be

expressed directly (0-100%) or initially adjectivally as:

Category Very likely Likely Unlikely Very unlikely

range in probability 50-100% 10-50% 1-10% <1%

An example risk summary is shown in Table E-5.

Before a detailed quantification is made, an initial quantification should be done to filter out

minor or inconsequential risks using an order-of-magnitude assessment of conditional expected

consequences. The filtering is accomplished by creating baseline criteria for the assessment and

inclusion of risks and opportunities. Different values (for example, > 1% and > $ 1 million or 1

month) based on the cost of the project and the sensitivity of the risk models will be used to

accomplish the filtering. The inconsequential risks need not be neglected. They can be grouped

into a category of “other” and treated as one risk event. If workshop time and budget allows, an

attempt at capturing possible risk mitigation plans should be made.

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TABLE E-5 EXAMPLE RISK SUMMARY TABLE FROM SR 509 CEVP

Potential Problem Likelihood Additional Cost ($M)

Delay (months)

T1. Storm water collection and treatment 40% 27 (50%) -- T2. Temp. Water Pollution Control/Compliance 50% 1.5 1 T3. ESA 10% 1 3 T4. Marine View Drive Bridge 25% -- 3 T5. Permitting 30% -- 6 T6. ROD 25% -- 6 T7. FAA Approvals 25% 5 6 T8. I-509 ROW 15% -- 6 T9. I-5 ROW 15% -- 6 T10. Utility and Drainage Easements NA <1 <1 T11. Property Development 15% 8 -- T12. Land Transfer NA <1 <1 T13. Utilities 50% 3 12 T14. Relinquishment 25% 5 -- T15. Seismic Criteria 50% 9 1 T16. 516 Structure 10% 6.2 12 T17. Water Tank Wall 10% 7 3 T18. Traffic Control / Staging 25% 10 --

MODELING TEAM BREAKOUT

The Modeling Team breakout process will vary significantly on the basis of CEVP workshop

objectives. The goal of the Modeling Team is to generate a range cost estimate that includes the

base cost estimate and the probable cost of risk and opportunity events. The objectives are to 1)

allocate the base costs accurately into the risk-based model and 2) model the risk and opportunity

events in a probabilistic fashion.

The first task for the Modeling Team is to build a spreadsheet model that represents the

elements of the flowchart and coincides with the cost groupings from the Cost Team. WSDOT

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was use @Risk software. @Risk is one of a number of commercially available Monte Carlo

simulation software packages.

Construct Range Cost Model

The modeling team constructs the range cost model. WSDOT has always used a consultant to

handle the modeling, as the WSDOT CEVP program grows, the modeling may be done with

WSDOT staff. The tools to the build the models are commercially available, but the skills of

probabilistic modeling are developed over years of training and experience.

WSDOT conducted a first order analysis was using Monte Carlo simulation software to

generate the range cost models. A first order analysis is defined as a risk assessment technique

that incorporates contingency and risk but does not model variability and correlation of base

costs. In other words, the individual line items in the base cost estimate are dealt with

deterministically and independently. Only the risk and opportunity events are modeled

stochastically. If an individual line item in the estimate contains a large variation in quantity or

unit cost, the modeler may choose to include it as a risk or opportunity event rather than a base

costs. Monte Carlo simulation is a risk analysis technique that incorporates multiple simulations

of outcomes with the variability of individual elements to produce a range of potential results.

The results can be presented in a number of fashions. Table E-6 is a sample tabular

presentation of the simulation results formatted as a summary reference. Figure E-2 is a

graphical presentation of the information that was commonly used in the executive summary of

the CEVP Workshop reports.

SUMMARY OF COST ELEMENTS

Concurrently with the range model construction and the preparation of risk element summary,

the Cost Team should develop a cost summary table and document all of their assumptions and

clarifications.

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TABLE E-6 TABULAR PRESENTATION OF RESULTS FROM SR 90 CEVP

Risk Profile – Partial Funding Scenario

Statistics – The percentages below indicate the probability that the Project will cost less than the Estimate amount shown and the probability that it can be completed in less time than the Overall Project Duration shown - for each percentage.

Estimate in 2002 Dollars

($M)

Estimate in “year of

expenditure” dollars ($M)

Overall Project

Duration

(months)

CEVP Base Cost estimate $645 $755 125 50% $668 $791 136 80% $683 $821 143 90% $693 $837 148 For example, “…there is a 90% probability that the Cost will be less than $693 million.”

FIGURE E-2 GRAPHICAL PRESENTATION OF SIMULATION RESULTS SHOWING RANGE OF PROBABLE COSTS Presentation of CEVP Results

An oral presentation of the CEVP results at the workshop allows for immediate feedback from

the Project and CEVP Teams. The oral presentation objective is to provide an overview of the

results for the Project Team and WSDOT upper management.

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CEVP Workshop Report

The CEVP Workshop Report is the archival document that presents the findings of the

workshop. Two primary CEVP report formats are generated by WSDOT. The first is a one-

page summary format for WSDOT executive and public use, Figure E-3. The second is the full

CEVP Workshop Report intended for Project Team and public use. The one-page Summary

format is generated as a tool to communicate the overall results to WSDOT management, State

Legislators, and the general public. The purpose of the One-Page Summary is to provide a single

resource for programming and public communication.

The critical information for the CEVP One-Page Summary Report is:

u Brief Project Description

u Design and Construction Schedule

u CEVP Results in Graphical Format (Probability Density Function)

u CEVP Results in Projected Cost Range (10th., 50th.,and 90th. percentile confidence levels)

u Benefits of the Project

u Risk Issues that Could Impact Project Cost or Schedule

u Level of Project Design

The full CEVP workshop final report represents a “snapshot” of the project scope and results.

It is likely that many alternatives will be generated after the initial workshop but the integrity of

the original workshop results must be preserved as a baseline for generating these alternatives.

The CEVP workshop generates a review of the existing project estimate, produces a new range

cost estimate, and provides suggestions for mitigating potential risks or capitalizing on

substantial opportunities. The project team must validate the results generated in the workshop.

The Project Team should begin to create a plan to mitigate risks that have been identified in the

CEVP workshop.

GENERATION OF ALTERNATIVES

In addition to providing a cost estimate validation statement, the CEVP workshop provides a

wealth of baseline data that can be explored to generate engineering and project scooping

alternatives. If used correctly, the baseline data produced in the initial CEVP workshop will

provide better information for engineering and political decisions.

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FIGURE E-3 GRAPHICAL PRESENTATION OF SIMULATION RESULTS SHOWING RANGE OF PROBABLE COSTS

The SR 99 Alaskan Way Viaduct CEVP workshop provides an excellent example of how the

data from the initial workshop can be used to model alternatives for engineering decision-making

purposes. Due to the low level of design development and workshop time constraints, the initial

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SR 99 Alaskan Way Viaduct CEVP Team modeled the project as one fully funded project using

a hybrid of construction methods (tunnels, bridges, and seawalls). The workshop served to

validate the existing estimate on the project and even created unit quantities and cost where none

previously existed. However, the final estimate did not reflect one optimal solution. After the

initial CEVP Workshop Report was complete (in draft form), the CEVP and Project Teams met

again to generate a series of alternative project estimates based on a number of designs and

funding scenarios. In the end, the CEVP process generated nine alternative range cost estimates

with separate associated lists of risks and concerns to be considered in design development. The

generation of alternatives can prove to be very beneficial.

The CEVP process is still being developed by WSDOT. It is recognized that CEVP

summaries are not a warranty that estimates are perfect, as you only know the final cost when a

project is finally completed. But risk areas that could significantly increase project costs can be

communicated fairly to the public. Additionally, early identification of a risk area creates

management opportunities to minimize the potential of projects costs associated with some of the

risk issues.

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APPENDIX F

CALTRANS CONSTRUCTION STATISTICS California Department of Transportation

The California Department of Transportation, Division of Engineering Services publishes

Construction Statistics Based on Bid Openings each year, Figures E-1 through E-4.

FIGURE F-1 CONTENTS PAGE, CALTRANS CONSTRUCTION STATISTICS FOR 2001

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FIGURE F-2 BRIDGE SQUARE FOOT COST SUMMARY CALTRANS CONSTRUCTION STATISTICS 2001

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FIGURE F-3 WEIGHTED AVG UNIT PRICES CALTRANS CONSTRUCTION STATISTICS 2001

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FIGURE F-4 DECK AREA, CALTRANS CONSTRUCTION STATISTICS 2001

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Caltrans then analyses their bid data and prepares guidance sheets to help estimators properly

apply units prices when creating estimates, Figures F-5 through F-8.

FIGURE F-5 CALTRAN’S BRIDGE ITEM PRICE GUIDANCE SHEET, PAGE 1

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FIGURE F-6 CALTRAN’S BRIDGE ITEM PRICE GUIDANCE SHEET, PAGE 2

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FIGURE F-7 CALTRAN’S BRIDGE ITEM PRICES

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FIGURE F-8 CALTRAN’S DETAILED ANALYSIS OF STRUCTURAL CONCRETE, BRIDGE