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Guide to Cost PrediCtability
in ConstruCtion:
an analysis of
issues affeCtinG the aCCuraCy
of ConstruCtion Cost estimates
Prepared by the
Joint Federal Government / Industry Cost Predictability Taskforce
november 2012
Guide to Cost Predictability in Construction: An Analysis of Issues Affecting the Accuracy of Construction Cost Estimates
November 202
Table of Contents
Note from the asforce Chairman
Eecutive ummary 2
asforce Partici ation
Introduction to the Cost Predictability Issue
Issues and Considerations in Cost Predictability
Cost Estimate ariance atri
ecommendations for Im roved Cost Predictability 0
Postscri t
A endi – Classes of Estimates 2
A endi 2 – ocuments ecommended for Estimates
A endi – ualifications for Estimators and Cost Consultants 2
A endi – ources of Information and eferences 2
Enquiries should be directed to:
Canadian Construction Association
www.cca-acc.com
This guide is the product of the individual taskforce members’ collective input and does not purport to epress or represent
the position of their respective organiations or associations. t reflects recommended industr practices. eaders are
cautioned that this guide does not deal with an specific fact situation or circumstance. This guide does not constitute
legal or other professional advice. The taskforce and their respective organiations or associations do not accept an
responsibilit or liabilit for loss or damage which ma be suffered as a result of its use or interpretation.
Copyright 2012
ust not be copied in whole or in part without the written permission of the oint ederal overnment
ndustr Cost
redictabilit Taskforce.
Guide to Cost Predictability in Construction: An Analysis of Issues Affecting the Accuracy of Construction Cost Estimates
November 202
Note from the Taskforce Chairman associated degree of accurac of the estimate can be
epected to var accordingl.
hat at first appeared to be a relativel simple task to
review the various and mostl obvious causes of poor or this reason the taskforce concluded that the previousl
cost predictabilit increasingl grew in each taskforce accepted degree of accurac for Class A estimates should
meeting as more and more variables were raised and be epanded from
- to a range of
- to to
reviewed. As the topics for consideration ranged from accommodate the range of such non-standard proects
first bid comparison whether low median or average to with a similar variation applied to the other classes of
cost growth during construction to final proect cost and estimates. As well for proects involving significant
even whether to review various “soft costs” to the etent renovations or challenging geographic environmental or
that the ma have an effect on cost predictabilit etc. other unique circumstances a further allowance should be
it soon became apparent that a clear and rigid definition analed and included.
of the scope of the taskforce had to be established. n addition whereas the previous cost predictabilit
This would limit the discussions to achieve definable guidelines were related primaril to the degree of design
recommendations relating to the original rationale for development completion it became obvious that with the
the taskforce which was to anale the increasingl large increasing variet and compleit of various proects the
variances being eperienced b C CC and others potential accurac of estimates must equall recognie
between their “pre-tender estimate” and the subsequent the relationship to the level of compleit of an particular
contractors’ bids. proect or its level of estimating difficult. or this reason a
The basic question whether such increasing variances Cost Estimate ariance atri was developed to recognie
are the result of the construction industr’s “pricing the combination of both these dimensions in arriving at a
strategies” or of an inaccurate or insufficient estimating reasonable estimate variance.
process was soon concluded to be the latter since with inall since estimating and bidding is not an eact
few eceptions under a normal and competitive bidding science the epectation for estimate accurac must be
process actual bid prices are generall the best indicator of realistic in relation to the particular tpe of proect and in
the prevailing competitive market conditions for a specific proportion to the qualit and time epended to produce
proect at that time. pon further review it was also found a specific level of estimate accurac. ut at an level
that the owners’ estimating process was seldom properl adherence to the recommendations of this guide should
completed up to a reasonable Class A level and in most definitel improve cost predictabilit.
cases onl up to Class or even a brought forward Class C
Also it must be recognied that each proect is unique n this respect it bears repeating the obvious that to
and different from the previous one in varing degrees. achieve a realistic Class A estimate requires the following
Although man proects ma be relativel repetitive and ingredients:
“similar” such as “standard” office buildings or schools . Class A professional and eperienced estimating
man others are non-standard and individuall comple qualifications
unique one-of-a-kind remotel located etc. or an
combination thereof such as leading edge lab facilities . Class A completed proect design documentation and
historic building renovations environmentall challenged . Class A time sufficient to produce the required estimate
locations and increasingl green sustainable and more analsis with accurac.
innovative structures and sstems.
astl the taskforce was fortunate to have the benefit of
urther since the preparation of proect estimates has senior eperienced informed articulate and independent
tpicall been based on historical information such cross-sector representatives sincerel want to thank each
information ma be outdated or perhaps not even eist of them for their effective and dedicated participation in
for certain individual tpes of proects therefore the the production of this guide.
Guide to Cost Predictability in Construction: An Analysis of Issues Affecting the Accuracy of Construction Cost Estimates
November 202
Executive Summary • recognie the degree of accurac of the estimate being
used.
arge discrepancies between pre-tender estimates and
actual bids for construction have a serious impact on A large number of factors contribute to variances in
the viabilit of a proect. ¡wners architects engineers estimate to bid prices. This guide will provide practical
cost consultants contractors and subcontractors all advice and discuss the primar was to improve the cost
have a vested interest in ensuring a high degree of cost predictabilit of proects. The consequence of a failure is
predictabilit. This issue raised at the ederal overnment often a cancelled proect.
ndustr eal ropert Advisor Council resulted in the The Cost Estimate ariance atrix
formation of a Cost redictabilit Taskforce to research and As shown in the Cost Estimate ariance atri the
recommend solutions to this increasing problem. accurac of estimates varies throughout the proect design
Defining Cost reictability ccle and according to the compleit of the specific
or the purpose of this guide “cost predictabilit” is proect and several other factors that ma be unique to
defined as “the prediction of a construction cost estimate a proect. epending on the class of estimate and the
as compared to the median of competitive bids” where compleit of the proect variances can range from to
“prediction” is defined as “an assertion on the basis of data . f additional unique aspects or risks appl to a proect
theor or eperience but in advance of proof”. these variances should be analed and increased b an
appropriate amount.
As such this guide will appl onl to procurement
processes that tpicall require the submission of a total mproving Cost reictability
proect bid such as a design-bid-build or design-build Earl in the proect life ccle i.e. before the requirements
process and although not directl applicable to the are well-defined and before accurate estimates are
construction management process it could also be applied available owners will need to set budgets. The challenge
to the sequential trade contractors’ bids. for all stakeholders is to ensure that the appropriate scope
and cost management framework is adopted to ensure
imilarl man of the same underling principles could the desired or required degree of cost predictabilit. The
also be applied to the further development of cost following recommendations should be considered to
predictabilit guides for the increasing range of and improve the cost predictabilit between the final pre-
lease
purchase procurement process variations. tender estimate and actual bid prices:
Taskforce nalysis efore Tender
There is no common statistical database on variances • include sufficient contingenc to address market
between pre-tender estimates and final bid results for volatilit timing of construction and other eclusions in
the Canadian construction market. ¢owever members the estimate
of the task force shared internal data that showed up • consider possible scope variations in the tender as a
to £ of tenders had low bids that varied either up or contingenc to adust to the owner’s budget
down b more than from the pre-tender estimate
and fewer than of tenders had bids within of • give designers sufficient time to finalie bid
the estimate. hile this was not the case with all of the documents for the pre-tender estimate and
taskforce members all agreed that cost predictabilit was • allow cost consultants or estimators sufficient time to
an increasingl serious issue facing the industr. prepare and finalie pre-tender estimates.
t was agreed that the following ke actions are required to uring Tender
ensure better cost predictabilit: • keep the cost consultant involved during the tender
• engage qualified professionals to prepare estimates period
• use appropriate economic models in the estimating • monitor addenda changes and bidding environment
process and
• ensure that the proect approval process recognies • revise estimates to reflect scope changes and addenda.
cost predictabilit issues After Tender
• include scope revision mechanisms in the proect • involve the cost consultant in the post tender review
approval process and
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