There are generally two methods available for estimating prices. In one method previous bid prices are considered as a fundament for constituting prices on the suggested project. In other method one has to formulate a total analysis of production rates, labor costs and material costs.
These methods can be applied independently or in combination.
Previous Bid Prices Method
This method is extensively used in the construction industries and the following factors should be kept in mind while applying this method.
Apply this method for similar size projects and quantities must be interchangeable for individual items.
Give careful consideration for using the average of the 3 low bidders, or the second low bidder, or probably implementing an increase factor to the low bid.
Previous bid prices will be amended as per the proposed modification in the Construction Cost Index among the date of the old bid and the date of the expected new bid.
The reference bid price has to be fine-tuned to meditate diverse conditions among the reference project and the project for which the cost estimate is being developed. This may contains conditions of divergences in type of terrain, geographical location, soil, traffic and specifications.
Lump sum bid prices or unit prices for items of work (e.g. culverts) that contains diverging amounts of other concerned work should not be used.
Cost estimators will utilize the recent bid prices from related projects undergoing competitive bidding while coming to an estimated price for the individual contract items of work.
Complete Analysis Method
This method may be applied occasionally for earthwork items where rock or unusual material hauling is involved or for lump sum items for example signals and lighting. The operation is examined, production rates are adopted and material lists are ascertained with this method. The cost of materials is established by means of existing price lists. In order to find out the costs labor and equipment hours are established with production rates multiplied by the individual labor rates and equipment rental rates.
The final estimate of cost will be ascertained by adding overhead costs and profit. Here probable premium pay for overtime on night work and subsistence should also be taken into consideration. On larger projects with long time limits, it is essential to decide if the majority of a work item will be performed early or late in the project. To provide for work which is not completed early in the project, it may be necessary to project wage scales, rental rates.
Posted by Rajib Dey
Business Development
Global Associates
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