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What is a Basis of Estimate Construction Cost Estimate?

A Basis of Estimate (BOE) is a required component of a construction cost estimate as defined by AACE International’s Total Cost Management (TCM) Framework.

A BOE is used to define the time, resources, and money required to successfully complete a construction project on-schedule and on-budget. If developed properly by an independent

construction cost expert like PCS anyone will be able to clearly and concisely understand:

  • The purpose of the estimate being prepared (i.e. cost study, project options, funding, etc.)

  • Project scope

  • Pricing basis

  • Allowances

  • Assumptions

  • Exclusions

  • Cost risks and opportunities

  • Any deviations from standard practices

Depending on the scope and scale of your construction project, you should have your own independent BOE. It’s crucial that you, the project stakeholder have your own BOE in order to validate the opinions of contractors bidding for your project.

Remember, your goal is a successful construction project. This means preventing cost overruns, scope creep, limiting change orders, and staying on-time and budget. And this is why a construction cost estimate is critical to your project.

Too many companies, governments, and decision-makers bypass the expense of having their own independent BOE skipping right to the construction phase. It’s key that before you start digging you’ve done the work in advance to ensure your construction project is feasible and will meet your goals.

It is very important to have an independent construction cost expert involved right from the start of the project to ensure that the project budget reflects the decisions made by the rest of the project team throughout the integrated design process. (Whole Building Design Guide – National Institute of Building Sciences)

Working with an independent review team like PCS means you can be confident that the important steps of analysis, review, cost estimating, and planning are done before construction starts.

Rushing the start of your project and skipping key cost estimating steps only results in stress, delays, cost overruns, mistakes, and potentially a failed construction project.

Who Uses the Basis of Estimate?

The BOE is used by the key decision-makers and leadership team involved with the construction project:

  • Construction project owners: use the BOE to validate the project scope and feasibility. The BOE is critical in determining and allocating budgets and schedules, and in approving contractor bids.

  • Contractors: experienced contractors rely on their construction cost estimate when preparing bids. The contractors construction cost estimate informs contractors about the design, environmental impacts, engineering notes, schedules, resource requirements, budgets, and project goals.

  • Governments: depending on the construction project, various levels of government from municipal through to federal may be involved in the funding and authorization of the project. The BOE provides a detailed account of the project informing government decision-makers and community citizens on what to expect from the project, including the total cost, construction schedule, completion date, and design plans.

As well, an independent company such as PCS uses the BOE to hold all parties involved in the construction project accountable.

The BOE is considered the go-to document through-out the project. Think of the BOE as FAQ for the project – any questions about the project can and should be answered by this document.

What are the Phases of a Basis of Estimate?

There are 5 key phases to the BOE. These phases are defined and detailed by the Whole Building Design Guide (WBDG), a program of the National Institute of Building Sciences.

The 5 phases of the construction cost estimate are considered to be construction industry standards.

Order of Magnitude

At this level, the estimate includes high-level plans for the project. This first level of estimate should include details such as a functional project description, location details, planned size, the intended use for the project, and the tertiary factors required such as seating, parking, people space, etc.

At this phase, the construction cost estimate is used to develop budget and feasibility requirements.

Conceptual/Schematic Design

At this phase, a more detailed scope of work is included – allowing the cost estimator to develop a more involved and comprehensive budget and feasibility plan. At the end of this phase, the goal is to have a design, schedule, and estimate that can be used to determine the budget.

To develop the schematic design, it’s critical that all parties involved have analyzed key criteria including the building program, schematic drawings, sketches, renderings, diagrams, conceptual plans, elevations, sections, and preliminary specifications.

At this phase, the construction cost estimate should include environmental assessments, utility requirements/changes, foundation requirements, construction type, and any additional information that might influence the estimated cost of construction.

Design Development

The design development phase requires that no less than 25% of the design be included. At this phase, the cost estimate should include floor plan drawings, elevations, sections, design details, schedules for items such as finishes, partitions, doors, hardware, etc., engineering design criteria, equipment layout, system single line diagrams, and outline specifications.

The level 3 cost estimate is expected to have an enhanced level of accuracy, making it possible to use the document for value engineering decisions. At this point, the cost estimate should be reliable enough to verify budgets and to finalize scope, design, and material requirements.

Construction Documents

At this phase, the expectation is that the construction cost estimate can be used to confirm budgetary allocations, verify the construction cost, assess any value engineering opportunities before the bid process begins, and to identify any potential areas for design or scope creep.

Do not rush this phase of the construction cost estimate process. It’s critical that all aspects of the project have been reviewed and analyzed. Mistakes made in this phase can have severe consequences for the overall viability of the project. The construction documents used in this phase must be at a minimum 90% complete.

Bid Phase

The goal at the bid phase is to have a document that can be used by contractors to submit bids. This means that as I highlighted above, all aspects of the construction project should have been considered.

The construction project owner should have confidence in this phase of the construction cost estimate, since all bids are based on the information available at this phase.

Contractors and government decision-makers are trusting that the construction cost estimate at this phase has been fully vetted and reviewed. There are no do-overs at this phase of the cost estimate process – all contractor bids and government approvals are based on this phase.

Key Questions to Ask About Your Construction Cost Estimate

If you don’t have you own BOE make sure you ask the following key questions about your construction cost estimate:

  • Are all supporting documents included in the construction cost estimate? Make sure you have reviewed and approved the drawings, environmental assessments, architecture designs, design scope, utility requirements, materials, schedules, and budgets.

  • What cost model was used to develop the estimate? It’s important that you understand the logic behind the budgets, costs, schedules, and resource requirements.

  • Is this a realistic budget and schedule? Make sure that both the budget and schedule take account into variables such as inflation, environmental considerations, other projects that could impact the feasibility of this project, availability of skilled and experienced workers, material and equipment availability, etc.

  • Does the agreed upon design meet the goals of the project? It’s important that the agreed-on design and plans do achieve the initial goals of the project. Remember that people are relying on this construction project, for example a new airport or light-rail system to improve their day-to-day. Does the project still achieve this?

  • What are the contingency plans for the construction project? What happens if there is a lack of materials, rapid inflation, a contractor goes out of business, or the funding approvals change?

How to Have Confidence in Your Construction Cost Estimate

The best way to have confidence in your construction cost estimate is to work with an independent party who has no vested interest in your project.

This means your construction cost estimate is reviewed, analyzed, and approved by a company who is not connected in any way to the project.

Know that the company you’re working with has no connection to the contractors making the bids, the companies providing the materials, government officials who want the project to happen, or to any other parties with a vested interest in the project.

When you work with an independent company such as PCS, you can be confident that the hard questions have been asked (and answered), the schedule is realistic, the budget is correct, the logic behind the schedule is right, the scope of the project is achievable, and that your project has been validated.

Contact PCS today to talk about your construction project so you can get started the right way.

About the authorLee Thomas, MBA is the chairman and CEO of Project Cost Solutions. Lee has over 20 years of hands-on operational process experience under his belt. He is deeply committed to seeing your construction project succeed.

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