Facilities Institute
July 9 - 12, 2012
www.NAEPnet.org
Houston, Texas
A Primer on Standard
Costing Methods for
Construction Projects
Presented by
Tom Vaughn, CEO
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Agenda
• Defining Terms
• Construction Cost Components
• Four Common Contract Types
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‒
‒
‒
Definition/What’s Included
Delivery Methods Associated with Each
Pros/Cons
Best/Least suited projects
• Market Forecasting
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Defining Terms
Management Options
Selection
Criteria
Delivery
Methods
Contract Types
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Defining Terms
• Delivery Methods
1.
2.
3.
4.
5.
Traditional (Design-Bid-Build)
Competitive Sealed Proposal (CSP)
Construction Manager at Risk (CM at R)
Design/Build
Job Order Contract (JOC)
• Selection Criteria
1. Low bid
2. Best value
3. Qualification based
Price
Only
• Contract Types
1.
2.
3.
4.
Lump Sum
Cost + Fee
Cost + Fee with GMP
JOC (unit price)
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Qualifications
Only
Construction Cost Components
• Four Basic Components
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‒
‒
‒
Preconstruction Phase Fee
Construction Fee
General Conditions
Contingency
• Type of Contract dictates which of these
components are included
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Preconstruction Phase Fee
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•
•
•
•
•
Preliminary Budget & Schedule
Constructability Reviews
Ongoing Scheduling – Design & Construction
Ongoing Budget/Cost Consultation
Coordination of Construction Documents
Bid Package Strategy
Obtaining Bids
Compensation: Lump Sum/Cost Plus or GMP
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Construction Fee
• Profit
• Home Office Overhead
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‒
‒
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Estimating
Accounting
Human Resources
Legal
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‒
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Corporate Safety
Executives
Interest Cost
Income Tax
General Conditions (Everyone’s Definition is Different)
On-Site Project Management
• Safety Coordinator/
Assistant
• Project Executive
• Office Engineer(s)
• Project Expeditor(s)
• Asst.
Superintendent(s)
•
•
•
•
CPM Scheduler
Superintendent(s)
Project Manager(s)
Project Support
Staff
• Out-of-State
Project Specific
Travel
Temporary Project Utilities
• Dumpsters
• Project Electricity
• Monthly Phone/
Internet
• Phone/Internet
Install.
• Street Rental &
Barricades
• Fencing
• Covered Walkways
Bonds &
Insurance
• Builder’s Risk
Insurance
• General Liability
Insurance (unless
ROCIP)
• Payment &
Performance Bonds
• Other Project
Insurance as
required
• Temp. Water
Distrib. & Meters
• Temp Electrical
Distrib. & Meters
• Site Erosion Control
& Project Entrances
• Project Water
• Temp Toilets
• Temp Fire
Protection
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Field Offices &
Office Supplies
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Partnering Costs
Job Photos/Videos
Project Specific Signage
Postage/Special Shipping
Project/As-Built Drawings
Project Milestone Events
Move-In/Out, Office Set-up
Employee ID Systems
Small Tools, Storage Trailers
Monthly Trailer Rental
Mobilization/Demobilization
First Aid Supplies
Reprographic Services
Monthly Office Supplies
Remote Parking Expense
Project Reference Manuals
Security Systems/Watchman
Safety Material & Equipment
Contractor’s Contingency
•
•
•
•
•
•
•
Bidding
Cost Escalation
Ooops
Scope
Unforseen Conditions
Design
Owner
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Lump Sum Contract
Contract Type
Lump Sum
(Fixed price, Stipulated
sum)
Selection Criteria
Delivery Method (s)
100% on Total
Construction Cost
Traditional (Hard Bid)
0-100% on Total
Construction Cost
& Other Factors
Competitive Sealed Proposal
(CSP)
Qualifications
& Cost
Design/Build,
Construction Manager at Risk
Definition – Build X project for Y dollars. Bid is based
on Contractor’s interpretation of the major items of
work and quantity/scope of each item. Contractor paid
only the lump sum dollar amount.
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Lump Sum Contract
What is Included?
Preconstruction Phase Fee
NO*
Construction Fee
• Home office overhead
• Profit
General Conditions
YES
Contingency
NO*
*Only what’s clearly on the plans & specs
Facilities Institute
July 9 - 12, 2012
Houston, Texas
YES
Lump Sum Contract
• Traditional (Design-Bid-Build)
‒ Owner selects the Architect/Engineer to
design the project.
‒ Once Construction Documents (CDs) are
fully complete, the Owner requests lump
sum prices from general contractors to
perform the work.
‒ Selection of the General Contractor is
based on the lowest price submittal and
award is made to a single contractor.
Owner
A/E
General
Contractor
• Characteristics
Subcontractors
‒ Delivery is in three linear phases resulting
in the longest time duration.
Design
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Bid
Construct
Lump Sum Contract
• Competitive Sealed Proposal
‒ Similar to Traditional, the Owner selects an A/E
to design the project.
‒ Once CDs are completed, the Owner solicits
proposals from contractors to perform the work.
‒ Selection is based on a combination of price
and other factors that the Owner deems in its
best interest, such as project team personnel,
schedule, contractor’s past experience, etc.
‒ Doesn’t always result in lowest price.
Owner
A/E
General
Contractor
Subcontractors
• Delivery Schedule is in three linear phases:
Design
Bid
Construct
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Lump Sum Contract
Possible Selection Criteria
•
•
•
•
•
•
•
•
•
Price
Safety Record
Quality Control Program
Past Similar Projects
References
Management Team
Sub Contractors
Financial Strength (bonds)
Value Added Services
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Lump Sum Contract
PROS
CONS
• Easy – no cost accounting or
confusion
• Open, aggressive bidding
• Single point of responsibility for
construction
•
•
•
•
BEST SUITED
LEAST SUITED
• Smaller projects
• Simple projects
• Completely designed
• Multi-phase or complex jobs
No design phase assistance
Longer project duration
Lack of flexibility
Price not known until done
• Adversarial relationships
• Time sensitive
• New projects
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Cost Plus Fee/GMP Contracts
Contract Type
Selection
Criteria
Delivery Method
or
Qualifications
& Cost
Design/Build*
Cost Plus Fee with GMP
(Guaranteed Maximum Price)
Qualifications
& Cost
Construction Manager at Risk*
(CMR)
Cost Plus Fee
Cost Plus Fee – Contractor is reimbursed for actual cost of labor and
materials, plus charges a fee (typically an agreed-upon lump or % of total
labor & material costs) for home office overhead & profit.
Guaranteed Maximum Price (GMP) – The CMR or Design/Builder agrees
beforehand that the cost of the work will not exceed a specific figure, known
as the GMP. The CM is allocated some contingency to pay for construction
changes within the design intent. Changes beyond design intent require
approval of all stakeholders.
*Can also be lump sum.
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Cost Plus Fee/GMP Contracts
What is Included?
Preconstruction Phase Fee
YES
Construction Fee
• Home office overhead
• Profit
General Conditions
YES
Contingency
YES
Facilities Institute
July 9 - 12, 2012
Houston, Texas
YES
Cost Plus Fee/GMP Contracts
Owner
• Used with CM at Risk
o Owner selects A/E separate from CM.
o CM is selected based on fees, general
conditions costs and qualifications.
o CM provides preconstruction phase
services and works in a cooperative
relationship with A/E.
o CM guarantees construction price at
some point during design.
o Pricing/costs are open book.
Sub
• Delivery Schedule is three phase non-linear:
Select
Design
Construct
Facilities Institute
July 9 - 12, 2012
Houston, Texas
A/E
CM Agent
Sub
Sub
Sub
Cost Plus Fee: CM at Risk
PROS
CONS
•
•
•
•
•
•
•
Builder Selection Flexibility
CM provides preconstruction
services and works in team
concept with A/E & Owner
Opportunity phase/fast track job
Team concept
Better opportunity to maximize MWBE
subcontractor participation through bid
package initiatives
Change flexibility
•
•
Price is not guaranteed at time of
selection
Owner must have more
involvement in the process
Selection is more difficult
BEST SUITED
LEAST SUITED
•
•
Larger new or renovation projects that
are schedule sensitive, difficult to
define, or subject to change
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Smaller projects
Example Cost Plus Fee (CM at Risk) Project
Emerging Technology Center, Texas A&M University
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Example Cost Plus Fee (CM at Risk) Project
Emerging Technology Center, Texas A&M University
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Why it Worked Well at Texas A&M University
• Complex Project
• High End Design
• Fixed Budget
• Early Packages
‒ Utility Re-Route
‒ Earth Work
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Cost Plus Fee/GMP Contracts
• Design/Build Delivery Method
‒ Design and Construction are
accomplished through a single entity.
The Design/Build entity includes a
builder, architect and engineer.
‒ Selection is based on best value
determination.
Sub
‒ Pricing at selection may be fee and
general conditions based or lump sum.
Owner
Design/Builder
Sub
• Delivery Schedule is two non-linear phases:
Select
Design
Construct
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Sub
Self-Perform
Cost Plus Fee: Design/Build
PROS
CONS
•
•
•
•
• Speed
• No check and balance between A/E
and Contractor
• More difficult for Owners to manage
• Potential adversarial relation-ship
between Design/Builder and Owner
(if lump sum)
Speed
Selection flexibility
Single point of responsibility
Team concept
BEST SUITED
LEAST SUITED
• Projects that are schedule
sensitive
• Projects that are difficult to define
• Projects that are less schedule
sensitive
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Example Cost Plus Fee (Design/Build) Project
MD Anderson Cancer Center
Mid Campus Building 1 and
Parking Garage
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Example Cost Plus Fee (Design/Build) Project
MD Anderson Cancer Center, Mid Campus Building 1
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Why it Worked at MD Anderson Cancer Center
• Accelerated Schedule
• Known and Trusted
Builder and A/E Team
• Known Owners
Expectations
o Not just what was in writing
• Proactive, Daily Owner
Involvement
Facilities Institute
July 9 - 12, 2012
Houston, Texas
What is GUARANTEED about a GMP?
YES
NO
•
•
•
•
•
•
•
•
•
•
•
Estimate errors
Market fluctuations
Normal weather delays
Construction mistakes
Quantity errors
Subcontractor performance
Design changes
Added scope
Design errors
Unforeseen conditions
Natural or man-made
disasters
“A Guaranteed Maximum Price on a
particular scope of work”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Unit Price Contract
Contract Type
Unit Price
Selection Criteria
Qualifications
& Cost
Delivery Method
Job Order Contract
(JOC)
• Predetermined price for major items of work. The
Contractor’s price per unit multiplied by the total quantity
to create the total cost for each major item of work.
• Based on the Contractor’s interpretation of the major
items of work and the quantity of each item.
• Contractor is paid based on the actual quantity
constructed of each major item of work.
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Unit Price Contract
What is Included?
Preconstruction Phase Fee
NO*
Construction Fee
• Home atlive overhead
• Profit
General Conditions
YES
Contingency
NO*
*Only what’s clearly on the plans & specs
Facilities Institute
July 9 - 12, 2012
Houston, Texas
YES
Unit Price Contract
• Job Order Contracts
‒ A process for contracting for the minor construction,
repair, rehabilitation, or alteration of facilities when
the work is of a recurring nature but the delivery
times, type, and quantities of work required are
indefinite.
‒ Orders are priced based substantially upon pre
described and pre-priced tasks contained in an
Owner’s specified Unit Price Book.
‒ The prime contractor bids a “coefficient” or multiplier
which is applied to these unit prices to determine the
actual rates.
‒ Selection is based upon the combination of
experience, qualifications, past performance,
technical ability, financial stability, reputation, and
price which provides the overall “best value.”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Owner
A/E or
Consultant
JOC
Contractor
Subcontractors or
Employee Crews
Unit Price Contract
PROS
CONS
• Flexible
• Fast
• Difficult to manage
• Difficult to compare
proposals
BEST SUITED
LEAST SUITED
• Small projects
• Repeat work
• Schedule sensitive
• Large projects
• Poorly defined scope
Facilities Institute
July 9 - 12, 2012
Houston, Texas
SUMMARY: Comparison of Different Contract Types
Contract Type Selection Criteria Cost Components
Delivery Method (s)
Lump Sum
100% on Total
Construction Cost
Construction Fee
General Conditions
Traditional
(Design-Bid-Build)
Lump Sum
0 -100% on Total
Construction Cost &
Other Factors
Construction Fee
General Conditions
Competitive Sealed
Proposal (CSP)
Qualifications
& Cost
Preconstruction Fee
Construction Fee
General Conditions
Contingency
Design/Build,
CM at Risk
Qualifications
& Cost
Preconstruction Fee
Construction Fee
General Conditions
Contingency
Design/Build,
CM at Risk
Cost Plus Fee
with GMP
Qualifications
& Cost
Preconstruction Fee
Construction Fee
General Conditions
Contingency
Design/Build,
CM at Risk
Unit Price
Qualifications
& Cost
Lump Sum
Cost Plus Fee
Construction
Fee
Facilities
Institute
July 9 General
- 12, 2012 Conditions
Houston, Texas
Job Order Contract
Market Factors: What Contractors Consider
• Perceived Risk
• Perceived Quality of Owner & A/E
o Quality of plans
o Paid on time
o Prompt resolution of changes
•
•
•
•
•
Difficulty/Complexity of the Project
Time
Retainage & Payment Terms
Location – Availability of Manpower & Materials
Cost of Materials & Labor
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Materials Costs* (Last 10 Years)
•
•
•
•
•
•
•
Diesel
246%
Asphalt
124%
Iron Ore / Steel Scrap
164%
Lumber
4-9%
Copper Ore
309%
Gypsum
28%
CPI 24.5% vs. PPI for Construction 52.1%
*Source: AGC, Bureau of Labor
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Labor Costs
Industry Facts
• The average craft worker is 47
• The average entry age into the
industry is 29
• Craft training is at an all-time low
• Construction productivity was at an
all-time low
• 20% of the workforce is expected
to retire within 3 years
• Future building growth is projected
to exceed anything seen in previous
generations
The Bottom Line
While the construction workforce is aging and less productive due to lack of training, the
demands on our industry increase and become more technical every year.
We must do more to recruit, train and retain craft workers to meet the demands of our industry.
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Pick the Right Contract Type & Delivery Method
• Before starting the selection process, determine
which contract type and delivery method will provide
“best value”
• Factors to consider:
−
−
−
−
−
Project size and complexity
Time allocated for the construction
Competitiveness of the current/local construction market
Desired flexibility
Availability of contractors and subcontractors in the local market
• After deciding on key factors, evaluate the various
delivery methods and formally adopt the method you
deem “best value.”
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Resources / Credits
• Dorsey, Robert W., Project Delivery Systems for
Building Construction, AGC of America, 1997
• AGC National, Project Delivery Methods
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Thank You
Tom Vaughn
713.243.8300
tvaughn@vaughnconstruction.com
Facilities Institute
July 9 - 12, 2012
Houston, Texas