Estimating Practices: Part 4

September 27, 2017Estimating

This is the final piece in our series on estimating practices. Our article today looks at estimating elements that define labor, material, and the overall cost of construction.

In previous blogs form this series, we learned that estimating is the most difficult and certainly most important process for any construction project to be successful and for any property claims settlement to be credible.

With that said, let’s look at some estimate elements that you should be familiar with. Again I am referencing the National Institute of Building Sciences (NIBS), for this material on estimate elements.

The foundation for a successful estimate relies upon reliable identification (takeoff) of the quantities of the various materials involved in the project.

Labor hour amounts can be developed by crew analysis or applied on a unit man-hour basis. The use of a labor dollar per unit of work is only applicable when the cost history supports the data being used. The estimator must make allowance for the varying production capability that will occur based upon the complexity of a project.

The labor rate is the cost per hour for the craftsmen on the project.

Material prices, especially in today’s current market, fluctuate up and down. The estimator must understand and anticipate the frequency and extent of the price variations and the timing of the buying cycle. Material prices may be affected by purchase at a peak or slack time of the year for the manufacturer; material availability; the size of the order; the delivery timeframe requirement; physical requirements for delivery, such as distance, road size, or site access; and payment terms and history on previous purchases…

Equipment rates depend on the project conditions to determine the correct size or capacity of equipment required to perform the work. When interfacing with other equipment, cycle times and equipment capacity control the costs on the project. Costs will also differ if the equipment is owned by the contractor as opposed to rent.

A subcontractor quote, like the general estimate, contains labor, material, equipment, indirect costs, and profit. It is dependent upon having the quantities, labor hours, hourly rate, etc., prepared in a reliable manner just like any other part of an estimate.

Indirect costs consist of labor, material, and equipment items required to support the overall project. For the owner design fees, permits, land acquisition costs, legal fees, administration costs, etc. For the contractor and subcontractor: mobilization, staffing, on-site job office, temporary construction, temporary heat/cooling, and temporary utilities, equipment, small tools and consumables, etc.

Apply appropriate or contracted profit rate uniformly to all contractors and to original bid and change orders.

So what is the take away from understanding estimate elements? If you think about it, every contractor should estimate a prospective project for two main reasons: 1) to cover their construction costs and 2) to make a fair and reasonable profit.

The purpose of understanding the elements of estimating is to understand that even when unit cost numbers are provided, a unit cost number may not capture every element that would affect a contractor’s cost and furthermore a unit cost may not have adjusted to the current construction environment in a timely manner.

Finally, understanding estimating elements will help you negotiate a repair or replacement cost(s) value with a contractor who may or may not use an “insurance” estimating platform.

From experience, I can tell you that when one is able to speak in contractor language such as estimating elements, you will be able to ask appropriate and direct questions of the contractor with authority and credibility.

The end result will be a mutual understanding of costs associated with the project and how best to address cost variances.


Paul Nilles is GC3’s Executive Vice President and is responsible for GC3’s business development and marketing. Paul’s background includes more than 30 years in the insurance and construction industries. You may contact Paul at 515-267-2490 (o) or 515-556-4906 (c) or by emailing him.