How To Estimate Direct Construction Costs

Before a company undertakes a construction project, it needs to know how much it will cost so that it can decide the budget and fund allocation for it. So it directs its construction project estimation team to first estimate the construction costs for the project. Estimating the direct construction cost is one of the prime tasks in project construction estimating.

This is done through the use of various construction estimation methods, construction calculators, and construction estimating software.

Some general steps are given below to develop the direct construction costs that are part of a detailed estimate.

Material takeoff: Labor, equipment, and material takeoff is developed from the specification and drawing review. The more detailed the design, the more detailed takeoff will be available. A planning estimate generally has much less detail than a Title II estimate. The takeoffs are divided into accounts or categories. Every account will have subaccounts and every category will have subcategories.

An established code of accounts must be established for every construction project. Listing of an account provides details of the potential activities and items that would form part of it. The development of each account in detail is an important activity under material takeoff so as to avoid any oversights or omissions.

As far as lump sum contracts or fixed price ones are concerned, the cost of material is that which a contractor will pay. This excludes the markup or handling costs incurred by the contractor. The material cost includes the freight up to the project job site. The cost of equipment and material sourced from government agencies must be separately categorized from the cost of material supplied by contractors.

After the completion of the material quantity take off, the next task is to price each of the items. The basis for this may be verbal or written quotation from vendors or priced catalogs of vendors. The basis may alternatively use historical data or estimation manuals. Price escalation beyond the date of estimation is separately earmarked under a head.

Construction equipment: These are equipment used at the construction site to erect or install the materials. Per hour rental costs of the construction equipment can be used as the basis to price them. For some equipment lump sum pricing for the duration of the project may be used. Price basis will again use written or verbal quotations or historical data.

Some fixed price based projects require certain special tools such as a large crane. Its cost would be considered under direct cost. However, the use of pickup trucks would be covered under indirect costs. All such equipment would be categorized under direct costs in the case of costs-plus-fixed-percentage projects.

Labor: Labor man hours required for specific tasks are available from published figures. However, these figures need to be adjusted when calculating construction costs towards labor based on the productivity factors applicable in specific project areas. The labor cost must take into consideration all relevant indirect costs.

Construction Estimating