November 2010
Addenda #35 American Society of Professional Estimators Great Plains Chapter #35
VOLUME 1, ISSUE 5
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MEMBER COMPANIES
Ahern Fire Protection
Kiewit Building Group, Inc.
Bldg Cost Consultants, Inc.
L & L Builders Co.
Davis Erection Co., Inc.
MCM Services
Drake-Williams Steel Inc.
New Steel Inc.
Essex Corporation
Omaha Electric Service Inc.
Heartland Scenic Studio, Inc.
Sampson Construction Co., Inc.
Interstates Const. Srvcs. Inc.
Tempest Company
Kidwell Inc. UPCOMING EVENTS
Social Activities and Chapter Meetings December 8, 2010—Panel Discussion on Estimating Errors Join us for a panel discussion regarding estimating errors.
Member
Panel members to include:
Benefits
Ben Huck, Sampson Construction
Rod Gygax, Ray Martin Company
Ron Boyce, RW Boyce Construction Estimating Consulting Tim Wurtele, HDR Inc
Rick Geiler, Altus Architectural Studios
Moderated by Jason Prebyl, Keiwit Building Group January 12, 2011—Radio Personality Tom Becka February 9, 2011—Legal Issues in Constructino DECEMBER MEETING DET AILS Lunch Meeting Date: December 8, 2010, January 12, 2011, & February 9, 2011 Time: 11:30 am Location: Grisanti’s Italian Restaurant 10875 W Dodge Road, Omaha Lunch Fee: $25 PLEASE RSVP for at least one day in advance RSVP by email to ahrenholtz@gmail.com online at sites.google.com/site/aspe35 or by SMS or telephone to 402-522-6016
include Industry Recognition and Career Enhancement
November 2010
American Society of Professional Estimators
ARTICLES
Great Plains Chapter #35 CONSTRUCTION ESTIMATING ERRORS FROM MASONRYWORKTOOLS.COM
ARE CONSTRUCTION BID ERRORS UP IN A DOWN ECONOMY? BRIAN M. FALCON & DEAN R. BRACKENRIDGE
FROM THE TEMPEST COMPANY BLOG BY MARK MENTELE AND DON SHORT
MESSAGE FROM THE PRESIDENT
F E AT U R E S
REVIEW OF LAST MEETING BOARD MEETING MINUTES & HIGHLIGHTS COMMITTEE REPORTS MEMBER BENEFITS MEMBER COMPANIES ASPE CANONS
CRITICAL CALENDAR ITEMS SPONSORS UPCOMING MEETINGS
The cover art is a ground shot of the First National Bank Tower from flickr.com user jthj. http://en.wikipedia.org/wiki/ File:New_York_Land_Ventilation_Buildin g_south_side_119149pv.jpg
THE GREAT PLAINS ADDENDA #35
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FROM THE TEMPEST COMPANY BLOG ASPE CHAPTER 35 OFFICERS President Chris Ahrenholtz ahrenholtz@gmail.com First Vice President Mark Mentele markms@tempestcompany.com Second Vice President David Hansen drh67gal@cox.net Third Vice President Jonathan Hatcher jhatcher@ahernfire.com Secretary Jerry Onik jonik@heartlandscenic.com Treasurer Steve Rice srice@omahaelectric.com Directors Isaac Davidson idavidson@omahaelectric.com Jason Prebyl Jason.prebyl@kiewit.com Justin Short justins@tempestcompany.com
FIND US ON:
SEARCH FOR ASPE CHAPTER 35 IN THE GROUPS SECTION
BY MARK MENTELE ORIGINAL ARTICLE POSTED AT:
I recently came across an interesting school project. Only half of the project was DavisBacon.
BLOG.TEMPESTCOM PANY.COM
For those of you that don’t know what Davis Bacon is, it’s officially the Davis-Bacon Act which requires paying prevailing wages on all federal government construction contracts and most contracts for federally assisted construction. The act includes provisions for paying the construction workers the prevailing wages and benefits for the area. My first thought when told about this partial Davis-Bacon was that the project actually had more than one building. After seeing the plans, this was not the case. On the drawings, there is a demarcation line that zigzags through the building. The line even goes down a hallway at one point. The project is actually split into two different bids, but I will address that in my next blog. Assuming the same contractor is awarded the entire building, they are going to have a mess on their hands. Depending on where the worker is standing will depend on what rate they will be paid. Two crews could be literally two feet away from each other making two different wages. I see all sorts of problems that this situation could cause with the labor force – from trying to keep busy on the Davis-Bacon portion to tension between crews at two different rates on the same project. The accounting can also be messy. Even if two different job numbers are issued, I’m sure there will be overlap throughout the day for some of the field workers. How do you try to keep their time separate? If I was a betting man, I would bet the Davis-Bacon portion will always be further along and have a lower productivity based on the hours submitted to payroll. The only thing they are accomplishing with all of this garbage is more headaches for the Owner in the long run and higher overall cost. In the advertisement to bid it states, ―The Owner prefers to award all work in each category for both Projects to a single bidder.‖ What does this sentence really mean? Nothing! Since each area has its own bid form, the Owner is able to select the cheapest possible combination. Even in the Instructions to Bidders section under Consideration of Bids it reads ―It is the intent of the Owner to award a contract to the lowest responsible bidder…‖ talking about each individual bid, not a summation of both bids for each work category. If they really wanted one contractor, there would have
been one bid form with breakouts for each area, not two bid forms. These ―two‖ bids should either be one bid or split into two real separate projects. As it stands now, this is truly one project. This is one building without phased construction, one specification and one set of drawings. As with most blueprints, the floor plan did not fit on just one drawing so the A/E split the floor plan onto multiple sheets. It would make sense to me to have the drawing breaks match the demarcation line between the two (Continued on page 5)
VOLUME 1, ISSUE 5
Page 5
F R OM T H E T EMPES T COMPNA BL OG
BY DON SHORT
[Mark discusses] a project that split one building into two bids even BLOG.TEMPESTCOM though there was only PANY.COM one set of plans and specifications. I decided to go into more detail [on the] last statement of ―The only thing they are accomplishing with all of this garbage is more headaches for the Owner in the long run and higher overall cost‖. ORIGINAL ARTICLE POSTED AT:
It appears to me that the Owner or the architect is not satisfied with the already dirt cheap prices and is trying to beat the contractors down a little more. Unfortunately, they will achieve beating down the contractors but it will not save the Owner any money. Splitting this project into two contracts will actually cost more in the long run. First off, there is no clear demarcation point, just a line drawn on the drawings between rooms and down hallways. I’m predicting change orders because neither contractor included in their bid the tie-ins for the two projects. Chances are both contractors will be reluctant to tiein to the other contractor’s work since this can affect the warranty so the Owner is going to pay a premium for these change orders. Another cost increase will be on the material. The project lost the quantity discount on vendor quotes since it’s now two contractors purchasing the construction material. Also with the material, there is a good chance that the project will not have continuity of construction material used in the project. Sinks, water closets, lights, door hardware for (Continued from page 4)
bids, but the A/E for one reason or another didn’t follow this logic. Instead, they chose to have random breaks independent of the demarcation line. I find this is completely absurd! To me, it looks like they are concerned that the project will be over budget but they are tackling the problem completely wrong. If they need to ensure the project will be within their budget, then they need to do a better job of estimating the costs during the design period and designing a project within the budget.
a few examples will probably be by two different manufactures and will be a maintenance nightmare after the job is complete. I suppose the A/E could sole source all vendor quoted items and really send the prices through the roof! Another headache after the project is complete will be warranty issues. Who does the Owner call for a warranty issue? The Owner will have a heck of a time figuring out who they need to call and I’m sure there will be finger pointing between contractors when a warranty issue arises. I have seen Owner’s on similar issues get fed up with the games and decide to bite the bullet and just pay for someone to fix the problems which should have been covered under the warranty. Another cost increase is overhead on the projects. There will be duplications in the indirect costs that have to be included in each bid. There will be double the project managers for each division and each company has to pay someone in their accounting department to cut the checks and pay the invoices on the project for a couple of examples. End result – higher costs! In the long run, who really wins? The construction manager and the A/E that have based their price on the total construction cost. They are the only ones who win with this junk. The contractors and the Owner both end up with the short end of the stick.
NEWSLETTER TITLE
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CONSTRUCTION ESTIMATING ERRORS FROM MASONRYWORKTOOLS.COM www.masonryworkstools.com/constructionestimatingerrors.html
Construction Estimating Errors can be very expensive and embarrassing. The worst type of error in construction cost estimating is leaving out an item of work. On a lump sum bid and contract, the contractor is obligated to do all of the work, even if costs for part of the project are omitted in the estimate bid and contract to build. Ensuring that all items have been included in the takeoff portion of the estimate is perhaps the most difficult part of the estimate thus it requires careful attention. Any items that may be difficult or unusual in any way should be underlined, checked or circled. Planswift has many tools that help eliminate errors. But most people still do it the old fashion way. Here are some common Construction Estimating Errors. 1. Mistakes in arithmetic are one of the most common Construction Estimating Errors: Estimates made on construction projects that require arithmetical calculations of quantities and cost of materials and labor costs to install materials or perform various operations. In order to avoid errors in arithmetic, the estimator should use an electronic calculator with a recording tape, have the calculations checked by another person, and attach the tape to the estimate sheet for backup with plenty of notes and dates of those notes. Construction Estimating Software can eliminate this problem. 2. Wrong Measurements from Plans and Specs: Construction Estimating Errors in measurements and dimensions taken from plans, drawings, and specs result in corresponding mistakes in the cost of construction items based on those measurements. 3. Using the Wrong Wage Rates for Labor: Hourly labor wages for construction workers vary countrywide. You should
consistently verify current wage rates and fringe benefits for the building trades involved through local union offices, other contractors, supply yards, and other reliable sources. Overtime rates are generally 1-1/2 to 2 times regular rates depending on labor agreements and or union rules. If a job has a high labor demand, higher wages may have to be calculated in order to quickly find enough employees to complete the job on schedule. 4. Insufficient or Excessive Allowances for Labor: Frequent Construction Estimating Errors are allowing too much or too little for labor to do the job. Thus loosing the job, or accidentally getting the job.
8. Failure to Visit the Project Site: This error might well be number one on the list because of its importance in the early stages of cost estimating. Visiting the proposed site of the project enables the cost estimator to inspect topography, check for overhead power lines, inaccessible areas etc. If existing structures have to be demolished or removed from the premises, the estimator is able to properly determine the probable cost, if needing to work around these kinds of other trades such as demolition etc.
9. Overlooking or Miscalculating Transporting Costs: The cost of hauling materials, supplies, machinery, and equipment to a project can be a very expensive item in an estimate. Access to the job site may be difficult because of poor roads or 5. Materials Improperly Priced: Always be no roads, heavy traffic to and from supsure that building materials and supplies ply sources, or the requirement to obtain are correctly described as to kind, qual- permits, and so forth. ity, size, and dimensions. Also confirm that they are priced competitively. Split 10. Failure to Review Building Codes, corner block can easily be miscalculated Permits, and Inspections: Cost estimates as the usually come with a special setup and bids on construction projects are subject to local, state and federal buildfee. ing codes, permits, and inspections. 6. Using Incorrect Units of Measure: Using a wrong unit of measure can result in 11. Failure to Consider Quality of Worksubstantial cost increases or decreases. manship Required: A contractor who is For example, be careful not to record accustomed to working on projects that lineal feet for lineal yards, square feet for require high quality workmanship may square yards or cubic feet for cubic not be set up to bid or estimate projects of mediocre, low grade workmanship. yards, and so forth. Conversely, a contractor who usually works on cheap structures is frequently 7. Including Poorly Maintained Machinat a disadvantage when it comes to bidery or Equipment: Machinery or equipding on the construction of upscale resiment to be used in construction, and dences or commercial buildings where included in the estimate or bid, must only the finest quality of workmanship is always be checked for efficient serviceacceptable. Failure to give proper considability. Preparing an estimate on a construction project and contemplating the eration to the quality of workmanship a project warrants can lead to overestimatuse of poorly maintained machinery or equipment is unwise. Forklifts are prone ing or underestimating. for leaking oil on concrete floors or slabs. Breakdown, repairs, and idle time can be 12. Omitting Items the Cost Estimator costly, delayed completion of the project Considers to be Minor: Sometimes items can invite penalties, or liquidated damsuch as scaffolding, ramps, and guardages. (Continued on page 8)
VOLUME 1, ISSUE 5
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ARE CONSTRUCTION BID ERRORS UP IN A DOWN ECONOMY? BRIAN M. FALCON AND DEAN R. BRACKENRIDGE ATTORNEYS AT LAW - FROST BROWN TODD LLC offer, which the owner may accept or reject. Once accepted, a contract has been formed. Therefore, if the contractor www.reedconstructiondata.com/ discovers its error prior to acceptance by news/2010/08/are-construction-biderrors-up-in-a-down-economy/?nid=2816 the owner, it is entitled to revoke its bid. However, under the more common scenario discussed above, the contractor's USA - July 31, 2010 - Difficult economic discovery does not occur until after actimes obviously can place tremendous ceptance and contract formation. Relief pressure on contractors to obtain work. from a bid error is then possible only if Adding the pressing need for a contracthe error can be attributed to a mathetor to get something in the door when matical or clerical error. The contractor work is scarce to fast approaching bid will be hard-pressed to obtain relief if the deadlines for an increased number of error is caused by a misinterpretation of bids, and the routine pressure of compethe specifications by the contractor or a tition for contracts, may result in inmistake in judgment. creased mistakes in the preparation of construction bids. Mistakes of Fact August 10, 2010, from
But if an error occurs, when can an Indiana contractor obtain relief once the error is discovered? The answer will depend upon when the error is discovered and whether the error arose from a mathematical or clerical error by the contractor, or from the contractor's error in judgment. A contractor may one day find itself in the following situation: After spending weeks carefully reviewing and analyzing the plans and specifications, preparing take-offs and estimates, gathering anticipated labor and material costs, seeking information and bids from prospective subcontractors, and putting its bid in writing, a bid is submitted. When the bids are opened, the contractor’s excitement in learning that the $5,000,000 bid it so carefully prepared is accepted is quickly tempered by discovering that the next closest bid was $7,000,000.
Indiana's courts long ago recognized that a contractor who makes a clerical or mathematical error may be entitled to relief. In Board of School Commissioners v. Bender, 72 N.E. 154 (Ind. Ct. App. 1904), the contractor was required to submit his bid by 4:00 p.m.; however, it did not receive bids from two of its subcontractors until 3:30 that same afternoon. The contractor hastily finalized its bid and in doing so miscalculated the total bid by approximately $4,000 (which was 25 percent of the total bid). The Bender court held that the error was an excusable, computational mistake and allowed the contractor to rescind its bid. See also Schindler Elevator Corp. v. Metropolitan Development Commission, 641 N.E.2d 653 (Ind. Ct. App. 1994) (no material variance in bid where numerical amount on bid form provided that bid was for $2,399,000, but bid was written out as "Two Million Three Hundred Ninety Nine Dollars" as deletion of the word "Thousand" was merely a typographical error).
A contractor which suspects a bid error has occurred obviously is well advised to determine what in fact happened as quickly as possible. General contract formation principles of offer, acceptance Mistakes of Judgment and consideration apply to the bid process. The contractor's bid constitutes an However, an Indiana court is unlikely to
grant a contractor relief where it has made a mistake of judgment rather than a mistake of fact. Mistakes of judgment include instances where a contractor misinterprets the plans and specifications provided by the owner, or where a contractor understands the scope of the project, but incorrectly estimates the labor, materials or other costs necessary for completion of the project. An unsuccessful attempt by a contractor to obtain relief from a mistake of judgment was the subject of Mid-States General & Mech. Contracting Corp. v. Town of Goodland, 811 N.E.2d 425 (Ind. Ct. App. 2004). In Mid-States, the bid documents required all bidders to "break down their bid into one lump sum for the majority of the work and four smaller optional alternate projects that could be completed if funding was available." All component parts of the work and stated alternates and allowances were clearly required to be included in the stipulated sum amount. Mid-States' $822,000 bid was the low bid and was accepted by the owner; however, Mid-States advised the architect that its total contract price including the stated allowances was actually $933,020. The owner ultimately awarded the contract to the second lowest bidder and sued Mid-States for the difference between Mid-States’ bid and the second lowest bid. Determining that the "bid documents were unambiguous" in requiring Mid-States to include the alternates and allowances as part of the stipulated sum amount, the court found in favor of the owner. The Mid-States decision serves notice that a contractor's failure to understand unambiguous contract provisions in preparing its bid likely will not support relief from a bid mistake. In such a case the contractor's best and perhaps only hope is that it realizes its mistake prior to bid opening and acceptance by the owner so that it may revoke the bid. (Continued on page 8)
THE GREAT PLAINS ADDENDA #35
ESTIMATING ERRORS (Continued from page 6)
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time or because of a heavy backlog of work. Shortcuts take the form of guesstimating, using square feet or cubic foot costs in place of details, and using lump sum figures picked out of the air, all of which have great risks. This is generally when the estimator says, "we got that job? What did I miss?"
rails, are left out of an estimate on the assumption that their cost is relatively minor and can be absorbed in the overall bid. On small projects a contractor may gamble on his workers 15. Not Allowing for Realistic Contingencies: Some construchandling such items routinely. This can be a costly error. tion projects may have inherent and unusual problems that should be recognized when the cost estimate is being pre13. Construction Estimating Errors Include Overlooking Items: pared. Failure to make the allowances or contingencies may The typical causes of overlooking items when preparing an result in not getting the contract or losing money if awarded estimate or bid. the contract. These contingencies include severe winter 1. Lack of attention to details. weather conditions, or extremely hot and humid climates. The 2. In too great of a hurry to complete the cost estimate. project may be located in an area of the country subject to 3. Too heavy a workload. heavy rainfall. Justifications for a realistic contingency include 4. Basic lack of experience. anticipated labor troubles, material shortages, or political 5. Delegating part of the estimate to others. problems. Although it is poor policy to make flat allowances for contingencies without good reasons, particularly when 6. Failure to use a reliable checklist. competition is high. Keep it realistic. An important safeguard against overlooking items is to have another person independently review and double check the 16. Inadequate or Excessive Overhead Charges are common cost estimate before sending it out to the owner or general Construction Estimating Errors: contractor. This one job may not be sufficient to take care of the whole 14. Construction Estimating Errors in taking short cuts: Taking company and its overhead. A good way to eliminate this probshortcuts when making an estimate can be risky. Sometimes lem is to simply look at the job you are dealing with and comthere is a temptation to take shortcuts when under the prespare what the overhead would be to other contractors bidding sure of time-limit in which to complete the cost estimate on on the job big or small.
DOWN ECONOMY (Continued from page 7)
Conclusion Given today's economic climate, where contractors may find themselves hurriedly reviewing plans and specifications and preparing an increased number of bids in advance of bidding deadlines to secure much-needed work, bids may be more susceptible to human error. While mathematical or typographical errors may provide grounds for a contractor to withdraw a flawed bid, a contractor's failure to carefully review and follow unambiguous contract documents or its failure to properly estimate manpower, equipment or materials necessary for completion may leave it with little chance to walk away from an erroneous bid. Prudent contractors will take great care to try to avoid potentially costly bid errors, particularly unforced errors which could be avoided by rereading bidding standards and plans and specifications before submitting a bid.
VOLUME 1, ISSUE 5
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ASPE CANONS Canon #1
Canon #6
Professional estimator shall perform services in areas of their discipline and competence.
Professional estimator shall utilize their education, years of experience and acquired skills in the preparation of each estimate or assignment with full commitment to make each estimate or assignment as detailed and accurate as their talents and abilities allow.
Canon #2 Professional estimator shall continue to expand their professional capabilities through continuing education programs to better enable them to serve clients, employers and the industry.
Canon #3 Professional estimator shall conduct themselves in a manner which will promote cooperation and good relations among members of our profession and those directly related to our profession.
Canon #4 Professional estimator shall safeguard and keep in confidence all knowledge of the business affairs and technical procedures of an employer or client.
Canon #5 Professional estimator shall conduct themselves with integrity at all times and not knowingly or willingly enter into agreements that violate the laws of the United States of America or of the states in which they practice. They shall establish guidelines for setting forth prices and receiving quotations that are fair and equitable to all parties.
Canon #7 Professional estimator shall not engage in the practice of ―bid peddling‖ as defined by this code. This is a breach of moral and ethical standards, and this practice shall not be entered into by a member of this society.
Canon #8 Professional estimator and those in training to be estimator shall not enter into any agreement that may be considered acts of collusion or conspiracy (bid rigging) with the implied or express purpose of defrauding clients. Acts of this type are in direct violation of the Code of Ethics of the American Society of Professional Estimators.
Canon #9 Professional estimator and those in training to be estimator shall not participate in acts, such as the giving or receiving of gifts, that are intended to be or may be construed as being unlawful acts of bribery.
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BOARD MEETING MINUTES & COMMITTEE REPORTS Meeting Date: October 27, 2010 Time: 11:45 AM Location: Granite City Food and Brewery Attendance: Chris Ahrenholtz, Mark Mentele, Justin Short, Steve Rice Discussion topics: October Meeting Review—Rob Maglinger November meeting preview—Andy Greenberg November fundraiser—Texas Hold’em Poker Committee reports No reports Old Business SBO is reminding chapters to provide Federal ID numbers and Articles of Incorporation
Www.sites.google.com/site/aspe35
AMERICAN SOCIETY OF PROFESSIONAL ESTIMAT ORS GREAT PLAINS CHAPTER 35
Upcoming Chapter Meetings December 8 - Estimating Errors January 12, 2011 - Tom Becka February 9, 2011 - Legal Issues in Construction March 9, 2011 - Site Visit April 13, 2011 - Federal Issues in Construction May 11, 2011 - Educational Seminar, Elections, and Awards Upcoming Board Meeting:
MISSION STATEMENT
The American Society of Professional Estimators serves construction Estimators by providing education, fellowship, and opportunity for professional development.
December 1 - January 5, 2011 - January 26, 2011 February 23, 2011 - March 23, 2011 - April 27, 2011 - May 18, 2011
CRITICAL CALENDAR ITEMS
PRESIDENTS MESSAGE
December 15, 2010 Last Day to submit Proposed Amendments to Bylaws Committee January 1, 2011 Last Day to Submit Certification Applications
There are many activities planned for the coming year. If you have program suggestions, newsletter topics, or other ideas to share, we would love to hear from you