DEPARTMENT OF THE ARMY ETL 1110-2-573

U.S. Army Corps of Engineers

CECW-EC Washington, DC 20314-1000

Technical Letter 30 September 08

No. 1110-2-573

EXPIRES 30 SEPTEMBER 2013

Engineering and Design
CONSTRUCTION COST ESTIMATING GUIDE
FOR CIVIL WORKS

TABLE OF CONTENTS
Paragraph Page

Chapter 1. Introduction

Purpose 1.1 1-1

Applicability 1.2 1-1
Distribution Statement 1.3 1-1
References 1.4 1-1
Scope 1.5 1-1
Program Specific Requirements 1.6 1-1
Document Organization 1.7 1-2
Background 1.8 1-2
Project Delivery Team 1.9 1-3
Responsibilities 1.10 1-3
Technical Reviews 1.11 1-5

Chapter 2. Types of Construction Cost Estimates

General 2.1 2-1

Estimate Structure 2.2 2-1
Estimates for Reconnaissance Phase 2.3 2-4
Estimates for Feasibility Phase 2.4 2-5
Estimates During Engineering and Design Phase 2.5 2-8
Independent Government Estimates for Contract Award 2.6 2-9
Estimates for Contract Modifications and Other
Negotiated Procurement 2.7 2-10
Dredging Estimates 2.8 2-10
Life Cycle Cost Study Support 2.9 2-11
Estimates for Operation, Maintenance, Repair,
Rehabilitation, and Replacement 2.10 2-11
Estimates to Support Other Programs 2.11 2-12

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Chapter 3. Preparing Construction Cost Estimates

General 3.1 3-1

Planning the Estimate 3.2 3-1
Quantity Development 3.3 3-3
Construction Unit Costs 3.4 3-5
Safeguarding Cost Estimates 3.5 3-6

Chapter 4. Direct Cost Development

General 4.1 4-1

Crews 4.2 4-1
Labor 4.3 4-1
Labor Productivity 4.4 4-6
Construction Equipment and Plant 4.5 4-8
Materials and Supplies 4.6 4-11
Subcontracted Work 4.7 4-14

Chapter 5. Indirect Costs

General 5.1 5-1

Overhead Costs 5.2 5-1
Profit 5.3 5-5
Surety Bonds 5.4 5-11
Taxes 5.5 5-17

Chapter 6. Risk, Contingency, and Escalation

General 6.1 6-1

Risk Analysis 6.2 6-1
Contingency 6.3 6-7
Cost Escalation 6.4 6-8

Chapter 7. Independent Government Estimates

General 7.1 7-1

Contract Cost 7.2 7-2
Details and Analysis of Construction Contract Costs 7.3 7-2
Support to the Estimate 7.4 7-4
Miscellaneous Support Data 7.5 7-5
Estimate and Schedule Quality Review 7.6 7-5
Revision to Independent Government Estimate 7.7 7-6

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Chapter 8. Independent Government Estimates for Contract Modifications

General 8.1 8-1

Reviewing Documents 8.2 8-1
Determine Status of Construction 8.3 8-1
Contractor's Existing Methods 8.4 8-1
Current Labor and Equipment Rates 8.5 8-1
Scope of Work Coordination 8.6 8-1
Preparation of Cost Estimates and Negotiation 8.7 8-2
Detail of Estimate 8.8 8-2
Basis of Estimate 8.9 8-3
Estimate Preparation 8.10 8-3
Impact Cost and Schedule 8.11 8-3
Cost Engineering Support 8.12 8-5
Estimate Revisions 8.13 8-5

Chapter 9. Quality Reviews

General 9.1 9-1

District Quality Control Review 9.2 9-1
Independent Technical Review 9.3 9-2
External Independent Technical Review 9.4 9-3

LIST OF APPENDIXES

Appendix A References
Appendix B Total Project Cost Summary
Appendix C Tri-Service Automated Cost Engineering Systems
Appendix D Preparation of Dredge Cost Estimates
Appendix E Sample Estimate Sheets and Forms
Appendix F Sample Quality Review Checklist
Appendix G Cost and Schedule Risk Analysis
Appendix H Sample Checklist for Cost Estimate Preparation or Reviewer Checklist
Appendix I Protests or Litigation Concerning the Independent Government Estimate
Appendix J Job Office Overhead Template
Glossary

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LIST OF TABLES

Table 2-1. Civil Works Work Breakdown Structure ..................................................... 2-2

Table 4-1. Overtime and Shift Differential ................................................................... 4-3
Table 5-1. Job Office Overhead Costs ........................................................................ 5-2
Table 5-2. Factors for Profit Determination ................................................................. 5-9
Table 5-3. Classes of Bonds ..................................................................................... 5-12
Table 5-4. Performance and Payment Bond (completion time not over 12
months) with Non-Deviating Rates ....................................................... 5-16
Table 5-5. Performance and Payment Bond (completion time not to exceed 12
months) with Deviating Rates ............................................................... 5-17
Table 5-6. Performance and Payment Bond (not to exceed 24 months) with Non-
Deviating Rates .................................................................................... 5-17

LIST OF FIGURES

Figure 4-1. Effects on Worker Productivity from Long Periods of Overtime ................ 4-8
Figure 5-1. Weighted Guidelines Profit Sheet ............................................................. 5-8
Figure 6-1. Recommended Risk Analysis Process ..................................................... 6-3
Figure 6-2. Sample Risk Register ............................................................................... 6-5
Figure 7-1. Example Composition of an Independent Government Estimate.............. 7-1

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CHAPTER 1

Introduction

1.1 Purpose. This engineer technical letter (ETL) establishes uniform guidance to
describe methods, procedures, and formats for the preparation of construction cost
estimates, Independent Government Estimates (IGEs), construction contract
modification estimates and the Total Project Cost (TPC). The definitions and
appropriate policies applicable to the wide variety of projects encompassed in the Civil
Works Program are described in Engineer Regulation (ER) 1110-2-1302, Civil Works
Cost Engineering, and ER 1110-2-1150, Engineering and Design for Civil Works
Projects. The technical details for preparing cost estimates are provided in this ETL to
accomplish the requirements of ER 1110-2-1302.

1.2 Applicability. This ETL applies to U.S. Army Corps of Engineers (USACE)
commands having design and/or construction responsibilities for civil works projects.

1.3 Distribution Statement. Approved for public release, distribution is unlimited.

1.4 References. Required and related references are at appendix A.

1.5 Scope.

1.5.1 This ETL provides technical guidance and addresses all phases of
construction cost estimating from planning phases through modification estimates
during construction through to project completion for all civil works projects. The term
“construction” includes remedial action environmental projects, dredging, and other
construction and fabrication-related work often implemented within all types of
contracts.

1.5.2 This ETL includes guidance for preparing and reporting the TPC and
computing maximum project cost legislated by Section 902 of the Water Resources
Development Act of 1986. The basis for computing maximum total project cost is in
appendix G of ER 1105-2-100, Planning Guidance Notebook.

1.5.3 For the purposes of this document, the term cost engineer applies to all
individuals, whether employed by the Government or under contract to the Government,
who are engaged in the preparation or review of cost estimates.

1.6 Program Specific Requirements. To support the civil works missions addressed
in ER 1105-2-100, guidance for civil works estimates is provided in ER 1110-2-1302
and ER 1110-2-1150. Appendix A contains other pertinent references. Other

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regulations govern military estimates and hazardous, toxic, and radioactive waste and
will not be discussed in this ETL.

1.7 Document Organization. The ETL consists of 9 chapters, 10 appendixes, and a

glossary.

1.7.1 Chapter 1 provides the scope, civil works project requirements,

background, and responsibilities of construction cost estimating.

1.7.2 Chapter 2 discusses the types of cost estimates employed during

construction cost estimating. Virtually every study, project, or activity funded under the
civil works project requires a project cost estimate. The cost estimate is an essential
tool that serves as a foundation in accomplishing management objectives, budgetary
submissions, and economic analysis.

1.7.3 Chapter 3 applies to construction estimates and describes the basic

principles and responsibilities for developing any cost estimate.

1.7.4 Chapters 4 and 5 provide direct and indirect cost development

guidelines.

1.7.5 Chapter 6 provides guidance on identifying other costs that must be

included in the cost estimate, i.e., risk, contingency, and escalation.

1.7.6 Chapters 7 and 8 discuss IGEs and IGEs for contract modifications.

1.7.7 Chapter 9 discusses various levels of review. Certain reviews are

mandatory and directed by headquarters (HQ).

1.7.8 The following appendixes contain supportive material to the main text in
this ETL: Appendix A, References; Appendix B, Total Project Cost Summary;
Appendix C, Tri-Service Automated Cost Engineering Systems; Appendix D,
Preparation of Dredge Cost Estimates; Appendix E, Sample Estimate Sheets and
Forms; Appendix F, Sample Quality Review Checklist; Appendix G, Cost and Schedule
Risk Analysis; Appendix H, Sample Checklist for Cost Estimate Preparation or Reviewer
Checklist; Appendix I, Protests or Litigation Concerning the Independent Government
Estimate; and Appendix J, Job Office Overhead Template.

1.8 Background. Project cost estimates shall be prepared as though the Government
were a prudent and well-equipped contractor estimating the project. Therefore, all
costs, which a prudent, experienced contractor would expect to incur, should be
included in the cost estimate. This philosophy prevails throughout the entire project
cycle--from planning through completion of the project. Without an accurate estimate or
schedule, successful project management can be compromised. Each estimate shall
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be developed as accurately as funding and time constraints allow, in as much detail as

can be assumed, and based upon the best information available. The objective through
all phases of project planning, design, and construction is to develop cost estimates to
serve as a project management tool as well as establish a “fair and reasonable” cost to
the Government.

1.9 Project Delivery Team.

1.9.1 USACE is committed to effective management of the scope, quality,

cost, and schedule of each project by using project delivery teams (PDT). ER 5-1-11,
USACE Business Process, presents the requirements for establishing a PDT for
all projects. Each PDT is led by a project manager (PM) and composed of everyone
necessary for successful development and execution of all phases of the project. The
PDT may be drawn from more than one USACE district and may include specialists,
consultants/contractors, stakeholders, or representatives from other Federal and
state agencies. Team members are chosen for their skills and abilities to successfully
execute a quality project. The project cost estimate shall be recognized as a major
management tool for establishing, monitoring, and managing costs from the study
phase through project completion.

1.9.2 Civil works projects are planned and approved following ER 1105-2-100
and are designed following ER 1110-2-1150.

1.9.3 The efforts of all PDT members shall be coordinated to ensure that
sufficient project information is provided for all cost estimates.

1.9.4 Cost engineers are an important member of the PDT. The cost engineer
is expected to have a clear understanding of those responsibilities and areas where he
or she can contribute. It is imperative that the team concept be enhanced and
supported by each PDT member. As such, the cost engineer is encouraged to lead in
cost issues and provide ideas for cost control and sharing measures.

1.10 Responsibilities.

1.10.1 Division Cost Engineer

• Act as Major Subordinate Command (MSC) point of contact in communicating

with HQUSACE cost engineering offices.
• Receive, interpret, disseminate, and implement cost engineering guidance,
direction, and correspondence from higher authority in a timely manner.
• Conduct field reviews of district commands execution of cost quality
management and recommends necessary corrective actions when warranted.
• Support PM in the certification for project cost estimates and cost changes and
provide Project Review Board technical support on project costs as required.
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• Review proposed awards of negotiated contracts and modifications requiring

award approval above the authority delegated to district commanders.
• Review bid results, protests, and mistakes in bids. Evaluate and make
recommendations on district actions for bid protests and mistakes in bid.
Provide analysis and recommendations and take necessary actions as
required.
• Participate in HQUSACE Cost Engineering Steering Committee and lead in
subcommittee efforts.
• Provide technical assistance to districts and MSC elements on cost
engineering issues. Consolidate and disseminate MSC-wide historical cost
data.
• Provide technical support to HQUSACE on development, upgrade,
maintenance, and implementation of Microcomputer Aided Cost Estimating
System (MCACES).

1.10.2 Chief, Cost Engineering

1.10.2.1 The chief of each district cost engineering office is responsible for
providing cost engineers to support the PDT. The chief shall ensure that all appropriate
estimating activities, including site visits prior to construction and during construction,
have been adequately funded and scheduled in the Project Management Plan (PMP)
for the estimate development. When cost engineering products are to be obtained by
architect-engineers (A-E) contracting, the chief shall ensure that the A-E contract
statement of work requires the A-E to comply with USACE estimating policies of ER
1110-2-1150, ER 1110-2-1302, and this ETL.

1.10.2.2 The cost engineer should serve in an advisory capacity to the PDT,
contracting office, and office of counsel related to contract acquisition strategy, bid
schedules and biddability, TPC, value engineering, disputes, and claims.

1.10.2.3 Preparation and review of construction cost estimates from design start
through project completion is the responsibility of the district cost engineering office. In
concert with this responsibility, the cost engineer must be accountable for the
completeness, quality, accuracy, and reasonableness of the cost estimate. This relates
to all respective estimates, whether developed by the cost engineering office, other
governmental offices, or by contracted estimating firms.

1.10.3 Estimating by Non-USACE or Engineering Firms. Preparation of

Government estimate products are always inherently the responsibility of the
Government. When it is necessary to contract services for estimate products, such
services will be provided by competent firms or agencies experienced in cost and
schedule engineering. The key responsibilities of any contracted estimate by other firm
or agency include:
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• Adherence to ER 1110-2-1150, ER 1110-2-1302, and this ETL.

• Providing an experienced cost engineer as lead for the product(s).
• Coordination with Corps cost engineering office during product development.
• Developing construction estimates at feasibility and beyond in the latest
approved MCACES software.
• Developing construction schedules at feasibility and beyond utilizing industry
accepted software programs.
• Receiving and adhering to Government approval of the Civil Works Work
Breakdown Structure (CWWBS) in the early stage of estimate development.
• Maintaining and conducting an internal quality control/quality assurance
(QC/QA) program addressing cost, schedule, and risk as contractually
applicable.
• Preparing cost reports addressing contract scope, product development
processes, assumptions, methodologies, concerns, and results.

1.10.4 Project Delivery Team

1.10.4.1 Members of the PDT shall provide the cost engineer estimates for the
CWWBS feature codes 01 (Lands and Damages), 30 (Planning, Engineering, and
Design), and 31 (Construction Management) for incorporation into the Total Project
Cost estimate. All costs for these activities will be developed by the appropriate office
and coordinated with the PM to ensure all schedules and commitments for the project
are fulfilled.

1.10.4.2 Each PDT member is responsible for defining confidence/risk levels

associated with their office products. The PDT shall assist the cost engineer in
identifying cost-related project items including but not limited to:

• Project risks.
• Project contingencies.
• Project schedule.
• Construction schedules.
• Contract phasing.
• Bid schedule.
• Contract completion dates.

1.11 Technical Reviews. In accordance with ER 1110-2-1150, technical reviews are

required and/or recommended during various phases of project development through
the life of the project. These review requirements are more thoroughly discussed within
ER 1110-2-1302. Technical reviews are to be coordinated by the PM and supported by
the PDT. The reviews are instrumental in ensuring adequate product quality for the
project phase under development. There are various cost quality processes that are

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utilized for this purpose and are discussed more thoroughly in chapter 9. They include
a district quality control review or DQC (also known as a peer review), an independent
agency technical review (ATR), and an independent external peer review (IEPR).

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CHAPTER 2

Types of Civil Works Cost Estimates

2.1 General.

2.1.1 Virtually every study, project, or activity funded under the Civil Works
Program requires a cost estimate. The cost estimate is an essential tool that serves as
a foundation in accomplishing management objectives, budgetary submissions, and
economic analysis. In a typical project life, cost estimates may be divided into two
types: budget estimates or Independent Government Estimates. The types of estimates
and civil works phases are identified below:

2.1.1.1 Budget estimates for reconnaissance phase reports.

2.1.1.2 Budget estimates for feasibility phase reports.

2.1.1.3 Budget estimates during planning, engineering, and design phase.

2.1.1.4 IGEs for contract award and for contract modifications during the
construction phase.

2.1.2 Budget estimates reflect the early stages of design. As designs evolve
and improve in scope and detail, so shall the estimates in detail and quality. The IGE is
the most detailed estimate and must be a stand-alone document reflecting scope and
basis of estimate.

2.1.3 Regardless of the type of estimate, detailed estimating methods are to

be employed as much as possible in relationship to the known and assumed design
scoping information. Details can be reasonably assumed for many projects from
experience gained in past designs and estimates. When details cannot be reasonably
assumed, then historical bid unit prices shall be used, but updated to current market
costs. While cost quotes can be used, caution should be exercised to establish those
costs as reliable, fair, and reasonable. Verification of reasonable quotes can be
achieved by receiving several quotes, making parametric comparisons, or developing a
rough estimate for comparison.

2.2 Estimate Structure.

2.2.1 The estimate structure is strongly related to feature levels and

accounting, contracts, and acquisition; construction costs and unit pricing; project
schedules and escalation; and risk and contingency development in the endeavor to
establish the TPC (paragraph 2.3.4) that becomes the baseline cost estimate (BCE)

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upon approval (higher authority or Congress). It is important that the structure of all
estimates be as consistent as possible. The purpose for a consistent estimate structure
is to: (1) serve as the basis for establishing the TPC; (2) provide an organized manner
of collecting project cost data for cost reporting and cost tracking; (3) provide a checklist
for categorizing costs; (4) provide a basis to maintain historical cost data; and
(5) portray logical sequence of work to support work preparation of a construction
schedule.

2.2.2 The CWWBS is a standard product oriented structure that identifies all
civil works related project requirements that include construction costs and the non-
construction activity costs for Planning, Engineering, and Design and Construction. The
CWWBS groups the products by feature (table 2-1) and requires further expansion to
the appropriate title and detail level necessary to ensure all product specific work tasks
are included for preparation of the TPC estimate.

Table 2-1. Civil Works Work Breakdown Structure

(Feature and Subfeature Levels)

CWWBS
Number Description of Item
01 -- LANDS AND DAMAGES
01 18 GENERAL REVALUATION REPORT (GRR)
01 19 LIMITED REVALUATION REPORT (LRR)
01 20 PROJECT DESIGN MEMORANDUM
01 21 FEATURE DESIGN MEMORANDUM
01 23 CONSTRUCTION CONTRACT(S) DOCUMENTS
02 -- RELOCATIONS
02 01 ROADS, Construction Activities
02 02 RAILROADS, Construction Activities
02 03 CEMETERIES, UTILITIES, AND STRUCTURES, Construction Activities
03 -- RESERVOIRS
04 -- DAMS
04 01 MAIN DAM
04 02 SPILLWAY
04 03 OUTLET WORKS
04 04 POWER INTAKE WORKS
04 05 AUXILIARY DAMS
04 06 MUNICIPAL AND INDUSTRIAL WATER DELIVERY FACILITIES
05 -- LOCKS
06 --- FISH AND WILDLIFE FACILITIES
06 01 FISH FACILITIES AT DAMS
06 02 FISH HATCHERY, (Including Trapping and Release Facilities)
06 03 WILDLIFE FACILITIES AND SANCTUARIES
07 -- POWER PLANT
07 01 POWERHOUSE
07 02 TURBINES AND GENERATORS
07 03 ACCESSORY ELECTRICAL EQUIPMENT
07 04 MISCELLANEOUS POWER PLANT EQUIPMENT
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(Feature and Subfeature Levels)

07 05 TAILRACE
07 06 SWITCHYARD
08 -- ROADS, RAILROADS, AND BRIDGES
08 01 ROADS
08 02 RAILROADS
09 -- CHANNELS AND CANALS (Except Navigation Ports and Harbors)
09 01 CHANNELS
09 02 CANALS
10 -- BREAKWATERS AND SEAWALLS
11 -- LEVEES AND FLOODWALLS
11 01 LEVEES
11 02 FLOODWALLS
12 -- NAVIGATION, PORTS AND HARBORS
12 01 PORTS
12 02 HARBORS
13 -- PUMPING PLANT
14 -- RECREATION FACILITIES
15 -- FLOODWAY CONTROL AND DIVERSION STRUCTURES
16 -- BANK STABILIZATION
17 -- BEACH REPLENISHMENT
18 -- CULTURAL RESOURCE PRESERVATION
19 -- BUILDINGS, GROUNDS, AND UTILITIES
20 -- PERMANENT OPERATING EQUIPMENT
30 -- PLANNING, ENGINEERING, AND DESIGN
30 11 PROJECT COOPERATION AGREEMENT
30 12 PROJECT MANAGEMENT PLAN
30 18 GENERAL REEVALUATION REPORT (GRR)
30 19 LIMITED REEVALUATION REPORT (LRR)
30 20 PROJECT DESIGN MEMORANDUM
30 21 FEATURE DESIGN MEMORANDUM
30 23 CONSTRUCTION CONTRACT(S) DOCUMENTS
30 24 VALUE ENGINEERING ANALYSIS DOCUMENTS
30 25 PROJECT OR FUNCTIONAL ELEMENT CLOSEOUT
30 26 PROGRAMS AND PROJECT MANAGEMENT DOCUMENTS
31 -- CONSTRUCTION MANAGEMENT
31 12 PROJECT MANAGEMENT PLAN
31 23 CONSTRUCTION CONTRACT(S) DOCUMENTS
31 26 PROGRAMS AND PROJECT MANAGEMENT DOCUMENTS
32 -- HAZARDOUS AND TOXIC WASTE
32 01 MOB, DEMOB & PREPARATORY WORK
32 02 SYSTEMS STARTUP/OPERATIONS/MAINTENANCE
32 03 INSTITUTIONAL ACTIONS
32 04 SURFACE WATER CONTROL
32 05 COLLECTION & INJECTION OF GROUND WATER
32 06 COLLECTION & DISPOSAL OF WASTES
32 07 CONTAIN & RESTORE CONTAMINATED GROUND WATER
32 08 CONTAINMENT FOR WASTES
32 10 TREAT-WASTES/CONTAMINATED SOIL & WATER
32 11 AIR POLLUTION AND LANDFILL GAS CONTROL

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(Feature and Subfeature Levels)

32 12 INNOVATIVE TECHNOLOGIES
32 13 SUPPORTING FACILITIES
32 14 PRIME CONTRACTOR'S INDIRECT COST

2.3 Estimates for Reconnaissance Phase.

2.3.1 Preliminary Cost Estimates

2.3.1.1 During the reconnaissance study phase of various alternatives, the cost
engineer shall prepare the preliminary construction cost estimates of those alternatives.
The estimates shall be in constant dollars and based on the probable type and size of
the project. They will include the following construction features: Lands and Damages;
Relocations; environmental compliance and required mitigation; Planning, Engineering,
and Design; Construction Management; and contingencies. Refer to the CWWBS.

2.3.1.2 The assignment of contingencies is very important at the

reconnaissance stage of project study. Contingencies are necessary to assure that
unforeseen items of work or level of detail discovered later will not jeopardize the project
recommended in the reconnaissance study report as one worthy of progressing to the
feasibility phase. Contingency values may vary between various alternatives and
should be considered if the various alternatives technically differ and carry significant
risk differences.

2.3.1.3 While not required, escalation may be considered if the project

alternatives differ significantly in duration or if they carry forward into multiple years.

2.3.1.4 For cost estimates prepared manually, rounding of costs is desirable to

avoid using decimals.

2.3.2 Design Detail. Design detail will be limited at this stage of project
development. The cost estimating method used must establish reasonable costs
sufficient to support a planning evaluation process for determining whether a study
should continue into the feasibility phase. Alternative plans may need to be considered
before an acceptable plan is selected. Good judgment and experience of the estimating
team is needed and required for preparing estimates in a method and format suitable for
comparing the various alternatives studied.

2.3.3 Preparation and Content

2.3.3.1 Once it has been determined that a Federal interest is appropriate, a

method of development and format must be determined. A cost estimate for the
selected plan may be prepared using the latest HQUSACE approved MCACES

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software in the CWWBS format to a level of detail necessary to support the preliminary
scope.

2.3.3.2 The reconnaissance report will contain the cost estimate and will
include:

• Title page.
• Table of contents.
• Narrative.

2.3.4 Basis of Reconnaissance Estimates

2.3.4.1 Construction cost estimates for the reconnaissance phase may be

developed using quotes, calculations, unit prices, or historical data as backup

2.3.4.2 As an alternate method to detailed task-by-task estimate preparation,

especially in the early phases of project and budget development when details are not
available, the use of parametric estimating may be incorporated. Parametric estimating
is the process of using various factors to develop an estimate. The factors are based
on engineering parameters, developed from historical databases, construction
practices, and engineering/construction technology. Parameters include physical
properties that describe project definition characteristics (e.g., building size, building
type, foundation type, exterior closure material, roof type and material, number of floors,
functional space requirements, interior utility system requirements, etc.). The
appropriateness of selecting the parametric method depends upon the extent of project
definition available, the similarity between the project and other historical data models,
the ability to calculate details, and known parameters or factors for the project.
Appendix C provides additional information on automated parametric systems.

2.4 Estimates for Feasibility Phase.

2.4.1 Comparative Cost Estimates

2.4.1.1 Comparative cost estimates of the viable alternatives used in selecting

the National Economic Development (NED) plan must be prepared in the CWWBS
structure to at least the subfeature level. A screening process may be used in the
feasibility phase to review all the initial alternatives. Different levels of cost estimating
detail may be appropriate at each level of screening. Typically, this screening process
will narrow the number of alternatives to a final list, i.e., two to five viable alternatives for
a more detailed assessment.

2.4.1.2 Historical bid cost data, experience, and/or unit prices adjusted to
expected project conditions are acceptable methods of developing project costs for
these alternatives. The cost estimate for each viable alternative will include appropriate
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comments describing the method of construction, assumptions used in developing the

estimate, and the technical/design data available. For the recommended plan (normally
the NED plan), sufficient engineering and design are performed to refine the project
features.

2.4.2 Recommended Plan Cost Estimate and Schedule

2.4.2.1 The cost estimate supporting the NED plan will be prepared using the
latest HQ approved MCACES software and the established CWWBS to at least the
subfeature level of detail. In general, the unit costs for the construction features will be
computed by estimating the equipment, labor, material, and production rates suitable for
the project developed.

2.4.2.2 Detailed estimating methods are to be employed whenever adequate

design information is known or can be reasonably assumed. This requirement is related
to total project scope or specific scope portions that are developed adequately for
detailed estimating in any product phase. Detail can be reasonably assumed for many
projects from experience in past designs, cost engineer experience, and use of
parametric models or templates. When details cannot be reasonably assumed, then
historical bid unit prices shall be used, but updated to current market costs. While cost
quotes can be used, caution should be exercised to establish those costs as reliable,
fair, and reasonable. Verification of reasonableness can be achieved by receiving
several quotes, making parametric comparisons, or developing a rough estimate for
comparison.

2.4.2.3 Upon completion of the construction estimate, a representative

construction schedule shall then be developed in support of the escalation calculations
for the Total Project Cost Summary (TPCS). The schedule and its logic can be used as
a quality check of the estimate as related to duration, overtime, and the number of
crews and shifts. The schedule logic may cause the estimate to be revised based upon
the schedule needs established for the project. The schedule shall be developed in
enough detail to portray the critical and near critical path construction elements as well
as critical concurrent activities.

2.4.3 Total Project Cost and Summary

2.4.3.1 The TPC reflects the costs for all features of the CWWBS specifically
related to the project. The TPCS provides a summary of the TPC estimate and should
reflect the CWWBS feature levels as presented in table 2.1 for the feature costs. A
TPCS shall be prepared in conjunction with the preparation of the BCEs, which support
major project milestones. Guidance and preparation details are presented in appendix
B. The TPCS relates the cost estimate and identified price level date to the fully funded
cost estimate by applying the appropriate adjustments for contingency and escalation in
accordance with the developed project schedule. In a sense, it is a reflection of three
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estimates: Current price level of the Baseline Estimate, Budget Year Baseline Estimate,
and Fully Funded Estimate. Appendix B includes a representation of the three
estimates.

2.4.4 The TPCS is the required cost estimate document to be submitted with
all projects sent for either division or HQUSACE approval. Both the PM and chief of the
cost engineering office shall review, approve, sign, and date all TPCS documents. Real
estate estimates included in the TPCS shall be reviewed and approved, and the TPCS
signed by the chief or designee of the real estate office. Signature by the chief of the
cost engineering office affirms that the construction feature costs are correct and that
the backup data provided for the non-construction features (Lands and Damages;
Planning, Engineering, and Design; and Construction Management) have been
included.

2.4.5 Baseline Cost Estimate. The TPCS accompanying the feasibility report
is used for project authorization and is the basis for allowable cost increases without
reauthorization (ER 1110-2-1150). The TPC at the time the project is authorized by
Congress becomes the BCE. The BCE represents the scope and schedule established
in the feasibility report. The cost estimate based on constant dollars is used for
authorization purposes (ER 1105-2-100).

2.4.6 Baseline Project Schedule. The primary engineering objective during

the feasibility phase is to provide engineering data and analyses sufficient to develop
the complete project schedule and cost estimate. Engineering data and analyses in the
feasibility phase shall be sufficient to develop the complete project schedule and TPC
with reasonable contingency factors for each cost item or group of cost items
(ER 1110-2-1150).

2.4.7 Preparation and Content. The cost engineering appendix of the

feasibility report will contain the MCACES cost estimate developed by the cost engineer
and will include:

• TPCS (all feature levels).

• Title page.
• Table of contents.
• Narrative presentation of the estimate, schedule, qualifications, project
concerns, risks, and contingencies.
• Summary Sheets for Owner, Indirect, and Direct Costs reported at all levels
down to the subfeature level.

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2.5 Estimates During Engineering and Design Phase.

2.5.1 General

2.5.1.1 Engineering and design is performed during the early phases of project
development and during construction. First, engineering occurs in the preconstruction
engineering and design phase during which all detailed technical studies and design
needed to begin construction of the project are completed, e.g., award of the first
construction contract. After initial contract award, engineering continues and includes
the completion of all design for the remaining contracts and the design to support
ongoing construction required during the construction period.

2.5.1.2 ER 1110-2-1150, appendix D states, “…the baseline estimate in the

defined work breakdown structure must be continuously updated, as the design is
refined.” It also states, “A total current working estimate must be prepared at each
major milestone in the project development.”

2.5.2 Value Engineering Estimates

2.5.2.1 Value engineering has been defined as a systematic method to improve

the "value" of goods and services by using an examination of function. Value, as
defined, is the ratio of function to cost. Value can therefore be increased by either
improving the function or reducing the cost. It is a primary tenet of value engineering
that basic functions be preserved and not be reduced as a consequence of pursuing
value improvements. Value engineering also applies to life cycle cost (LCC) analyses.
Value engineering is specifically discussed within Public Law (PL) 104-106, which
states, “Each executive agency shall establish and maintain cost-effective value
engineering procedures and processes.”

2.5.2.2 Districts and divisions have established a value engineering officer in

response to these requirements. During the course of design and estimate
development, there will likely come a period of opportunity where scope development
warrants a value engineering study. The cost engineer may be called upon to
participate in these value engineering studies.

2.5.3 Total Project Cost Estimates

2.5.3.1 Project cost estimates during preconstruction engineering and design

are primarily revisions to the TPC due to refinements or changes in the design and/or
progress schedule developed in the feasibility study. As the project is developed and
the design is refined, the BCE must be used as a guide in managing the engineering
and design process. A cost estimate represented by a TPCS must be prepared and
included as a part of any required Design Documentation Report, Engineering
Documentation Report, GRR, or LRR. The cost estimate documentation required for
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any of these project submissions requiring HQUSACE or higher approval will be the
same as discussed above for estimates for the feasibility phase.

2.6 Independent Government Estimates for Contract Award.

2.6.1 Requirement

2.6.1.1 An IGE is required for award of each construction contract, in excess of

$100,000 (Federal Acquisition Regulation [FAR]/ Engineer FAR Supplement [EFARS].
Chapter 7 provides detailed information on IGEs.

2.6.1.2 PL 95-269 requires that no work of river and harbor improvement will be
performed by private contract if the contract price is more than 25 percent in excess of
the estimated comparable cost of doing the work by Government plant or more than
25 percent in excess of a fair and reasonable estimated cost (without profit) of a well-
equipped contractor performing the work.

2.6.2 Preparation and Content

2.6.2.1 The IGE shall be prepared by the cost engineer using the latest HQ
approved MCACES software. The cost engineer will participate in all negotiated
contracts including, but not limited to, Small Business and Small Business Section 8(a),
Service and Supplies, and/or cost plus contracts.

2.6.2.2 IGE detailed estimates shall be prepared as though the Government

were a prudent and well-equipped contractor estimating the project. Therefore, all
costs, which a prudent, experienced contractor would expect to incur, should be
included in the cost estimate in as much detail as possible. The detailed estimate
remains “For Official Use Only” (FOUO) until the construction contract is closed.

2.6.2.3 The IGE for bidding purposes is comprised of the title page, signature
page and the bid schedule. It does not include the detailed estimate. The IGE shall be
designated FOUO until after bid opening (paragraph 7.7.2).

2.6.3 Directives. Those responsible for the preparation of estimates should be

thoroughly familiar with the requirements of the appropriate ERs, FARs, Defense FAR
Supplements (DFARS), and EFARs. While this ETL discusses IGE preparation, the
FARs present the processes related to IGE preparation as well as bid evaluation,
protests, modifications, disputes, claims and resolution.

2.6.4 Approvals. Approval signatures signify that the estimate was prepared
by qualified personnel, independently reviewed by qualified personnel, and reflect the
requirements and processes of the pertinent regulations. IGEs for contracts or
modifications exceeding $100,000 shall be approved by the chief of cost engineering.
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The IGE shall be approved, dated, and signed by the district commander or approved
designee. The IGE will be included in the contract documentation and is subject to the
final approval of the contracting officer (EFAR 1.602).

2.7 Estimates for Contract Modifications and Other Negotiated Procurement.

2.7.1 Requirement. FAR Part 36 requires an independently prepared

Government estimate for modifications in excess of $100,000. Normally, estimates are
not required for changes less than $100,000 but are recommended to support
negotiations. IGEs are required by the contracting officer for unilateral modifications.
Further, for contract modifications, the amount refers to the sum of the absolute value of
increases and decreases. For example, a modification containing an increase of
$60,000 and decrease of $45,000 has an absolute value of $105,000, therefore, an IGE
would be required.

2.7.2 Preparation and Content. IGEs for contract awards and contract
modifications are treated the same. In some cases, portions of the cost estimate may
be revealed only to the extent determined necessary by the negotiator to settle disputed
items of work. The total of the IGE will not be released during negotiations. On
occasion, important information has been revealed through negligence by allowing the
estimate to lay open upon the negotiation table. The FOUO (paragraph 7.7.2)
designation will be removed after issuance of a signed modification.

2.7.3 Approvals. IGEs for contract actions less than $100,000 that occur
during construction shall be approved by the administrative contracting officer or
appointed designee. For other contract actions including those exceeding $100,000,
the approval of the estimate shall be the chief of cost engineering (as appropriate) or
the contracting officer’s appointed designee. When the IGE is changed during or
subsequent to conferences or negotiations, the details of the basis for the revision or
changes in price shall be fully explained and documented in the price negotiation
memorandum. The IGE will be included in the contract documentation and is subject to
the final approval of the contracting officer or administrative contracting officer.

2.8 Dredging Estimates.

2.8.1 Dredging estimates are developed somewhat differently, but still

prepared by cost engineering as part of construction estimates. General guidance is
provided in appendix D and ER 1130-2-250. The recommended software for dredge
estimating is the USACE Cost Engineering Dredge Estimating Programs (CEDEP),
which is developed within an Excel format.

2.8.2 Dredging estimates may be prepared electronically using the CEDEP

software. CEDEP contains a narrative documenting reasons for decisions and
selections made by the cost engineer. Software distribution is restricted because
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CEDEP is considered proprietary to the Government and should not be distributed to

A-Es or to contractors.

2.8.3 The CEDEP estimate results are then loaded into the latest MCACES
software to support the total construction estimate. Each cost engineer should be
aware of various techniques that have proven to produce the most accurate results for
specific dredging projects. It is highly recommended that cost engineers are properly
trained for estimating dredging projects. The methodology for cost estimating of
pipeline, hopper, and mechanical dredging should be part of the course training.

2.8.4 Associated work items, such as clearing and grubbing, dike or weir
construction, disposal area operation and maintenance, drilling and blasting, and
environmental protection, are not included within CEDEP and should be estimated
separately in accordance with other parts of this ETL and included within the MCACES
estimate.

2.9 Life Cycle Cost Study Support.

2.9.1 LCCs encompass all costs associated with the product's life cycle.
These include all costs involved in acquisition (research and development, design,
production and construction, and phase-in), operation, support, and disposal of the
product.

2.9.2 ER 1150-2-1150 and ER 1110-2-8159, Life Cycle Design and

Performance and Civil Works Missions and Evaluation Procedures, require LCC
analyses be performed to evaluate system alternatives. These analyses are the
responsibility of the design team. The cost engineer may be required to support the
analysis by providing cost input. As preparation to such responsibility, the cost engineer
should be familiar with the LCC requirements in ER 1110-2-8159 and appendix E of ER
1105-2-100.

2.10 Estimates for Operation, Maintenance, Repair, Rehabilitation, and Replacement.

This project phase is managed by operations division and is divided into two categories:
major rehabilitation and all other work.

2.10.1 Major Rehabilitation. The development of major rehabilitation projects is

based on an evaluation report, which is similar to a feasibility report in economic
justification, evaluation of alternatives, and identification of a recommended plan. Cost
estimates developed to evaluate alternatives considered in the report may be based on
historical data. The cost estimate for the recommended plan shall be developed using
MCACES and the CWWBS in the same format as a cost estimate for a feasibility report.

2.10.2 All Other Work. All Operation, Maintenance, Repair, Rehabilitation, and
Replacement projects not meeting the criteria for major rehabilitation fall in
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this category. The recurring nature of these projects facilitates the development of a
historical database. This historical data lends itself well to use in MCACES for
development of the cost estimates for these projects. The cost estimate for the
recommended plan shall be developed using MCACES and the CWWBS in the same
format as a cost estimate for a feasibility report.

2.11 Estimates to Support Other Programs.

2.11.1 Continuing Authorities Program. Continuing Authorities Program

projects are often limited in scope, and initial planning studies are usually limited in time.
Cost estimate preparation should still follow the guidance within this ETL, developing
the estimates to the greatest level of detail as possible related to scope (reference
paragraph 2.1.3) and utilizing the latest approved version of MCACES. These
estimates must fully support the report recommendations with accurate cost data
documented with the appropriate narrative.

2.11.2 Dam Safety Assurance Program. As stated within paragraph 2.1.3,

detailed estimating methods are to be employed as much as possible in relation to the
known and assumed design scoping information. An MCACES estimate shall be
developed for the recommended plan. The level of the cost detail will vary with the
design information available to support the project scope but shall be at least to the
subfeature level of detail. A higher level of detail is recommended where possible to
achieve the greatest accuracy to confidently establish the BCE. Although this baseline
estimate is not subject to reauthorization if the Section 902 limit (of the Water
Resources Development Act of 1986) is exceeded, the goal is to make every effort to
adhere to the criteria of the 20 percent growth limitation. A program estimate shall be
reflected within a TPCS structure with the costs separated to the subfeature level of the
CWWBS. The MCACES estimate shall be accompanied by a narrative summary for the
recommended plan.

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CHAPTER 3

Preparing Construction Cost Estimates

3.1 General.

3.1.1 This chapter applies to the construction estimates within the

responsibility of the cost engineering office. In the normal sequence of events
throughout the preparation of any estimate, it is important to understand basic principles
and responsibilities. This includes an understanding of the scope of work, the
acquisition plan, determining the quantities, types of feature level costs and CWWBS,
the cost and pricing sources, cost development, and supporting documentation. Basic
elements of each estimate consist of:

3.1.1.1 Descriptions of work elements (tasks) to be accomplished.

3.1.1.2 Quantity of work required for each task.

3.1.1.3 Unit cost for each task quantity.

3.1.2 A unit cost for each task is developed to increase the accuracy of the
estimating procedure and should provide a reference comparison to historic experience.
Lump sum unit cost and unit pricing when used at the task level is discouraged, but if
used must be documented. As design scope evolves, those lump sum costs should
then be better defined.

3.2 Planning the Estimate.

3.2.1 Project Scope. The cost engineer must thoroughly understand the
project scope of work, the biddability, constructability, and operability of the project
being estimated. The cost engineer must also review drawings, specifications, and
construction sequences and durations to determine total construction costs. A site visit
is strongly recommended to enable the cost engineer to relate the physical
characteristics of the project to the available design parameters and details. This is
particularly important on projects with unusual site conditions, major maintenance and
repair projects, alteration/addition projects, environmental projects, and dredging
projects. The construction sequence must be developed as soon as possible and
should be used to provide a checklist of construction requirements throughout the cost
estimating process. The overall format of major cost elements in an estimate should be
compatible with current standards, management needs, the anticipated price/bid
schedule, and the appropriate CWWBS.

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3.2.2 Project Acquisition Plan. It is strongly advised that the project

acquisition plan or strategy be determined early within the project planning. This is
normally established by a management Corporate Board or Contract Acquisition Board.
The planned acquisition can influence cost. Acquisition examples include a competitive
bid, a small disadvantage business, a sole source negotiated procurement, a design-
build project lacking complete design, a construction or services contract, etc. If no plan
has been established, the estimator must make a major assumption, based on
experience and consultation with the PDT, as to the likely acquisition plan. The
estimate should document this major assumption.

3.2.3 Format and Supporting Documentation. The cost engineer must plan
the structure of all tasks of each estimate so that the data is logical and traceable. The
overall structure of the cost estimate should be in accordance with the appropriate
CWWBS as described in chapter 2. The cost engineer shall always remain mindful of
the documentation necessary to support the cost estimate submission requirements
specified for each phase of project development, such as reconnaissance, feasibility,
and IGE (refer to chapter 2). Support documentation includes a project narrative,
construction schedule, plan of construction, plan of work (subcontracting), backup data,
and drawings and sketches. In the case of IGEs and negotiated procurements, the
estimate structure may have to be reformulated to reflect the bid schedule or to support
a likely negotiation.

3.2.4 Identify Types of Feature Level Costs. Various types of cost elements
must be evaluated in detail.

3.2.4.1 Total construction cost is the sum of all direct costs plus applicable
indirect costs to reflect the total construction cost.

3.2.4.2 Non-construction costs of all other feature levels within the CWWBS,
such as Lands and Damages, Planning Engineering and Design, and Construction
Management may be added to the construction costs to determine the TPC as required
by program specific requirements.

3.2.5 Degree of Estimate Detail

3.2.5.1 Construction Tasks. All cost estimates within the scope of this ETL will
be prepared based on calculated quantities and unit prices that are commensurate with
the degree of detail of the design known or assumed. This is accomplished by
separating construction into its incremental parts. These parts are commonly referred
to as construction tasks and are the line-by-line listings of every estimate. Each task is
then defined and priced as accurately as possible. Construction tasks are seldom
spelled out in the contract documents but are necessary to define the construction
requirements and develop the construction cost. It is highly recommended that critical

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construction tasks reflect a standard unit price enabling historic and reasonable price
comparisons.

3.2.5.2 Analyzing Construction Tasks. When analyzing construction tasks in an

estimate, the cost engineer should identify the tasks that account for the major costs in
the estimate. These tasks can be identified by applying the 80/20 rule (Pareto
Principle), which states that approximately 80 percent of the project cost is contained in
20 percent of the tasks. Because these significant tasks account for most of the project
cost, they should receive prime emphasis and effort in both preparation and review.
This approach is generally applied in early budget estimates. As the scope evolves, a
more detailed cost emphasis can then be placed on all project scope. The final
estimate should capture all scope at a detailed level to support the independent
estimate that is used for bidding purposes.

3.2.6 Most Detailed Estimate Level

3.2.6.1 At the most detailed level, each task is usually related to, and performed
by a crew. The cost engineer develops or selects the task description by defining the
type of effort or item to be constructed. Task descriptions should be as complete and
accurate as possible to lend credibility to the estimate and aid in later review and
analysis.

3.2.6.2 Whenever a significant amount of design assumptions are necessary,

such as during the reconnaissance phase and in design-build process, the cost
engineer should use historical cost data from previous similarly designed projects
and/or use parametric estimating models.

3.2.6.3 Estimates should include notes that clarify the design, cost, crew,
productivity, and unit price assumptions. It is important that the estimate demonstrate
the basis of cost, the basic assumptions, and traceability for defense of the estimated
costs.

3.3 Quantity Development.

3.3.1 The quantity “takeoff” is an important part of the cost estimate. It must
be as accurate as possible and should be based on all available engineering and design
data. Use of appropriate automation tools is highly recommended. Accuracy and
completeness are critical factors in all cost estimates. An accurate and complete
estimate establishes accountability and credibility of the cost engineer, therefore,
providing greater confidence in the cost estimate. The estimate contingencies for
programming purposes reflect the estimate confidence.

3.3.2 After the scope has been analyzed and broken down into construction
tasks, each task must be quantified prior to pricing. Equal emphasis should be placed
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on both accurate quantity calculation and accurate pricing. Quantities should be shown
in standard units of measure and should be consistent with design units. Assistance for
preparing “takeoffs” may be provided by others within the organization in support of cost
engineering or by A-E contracts; however, the responsibility for the accuracy of the
quantities remains with the cost engineer. Distinction should be made between “hard-
line” or “net” quantities without waste versus quantities that include waste or loss. This
is necessary to ensure duplication does not occur within the estimate.

3.3.3 The detail to which the quantities are prepared for each task is
dependent on the level of design detail. Quantity calculations beyond design details are
often necessary to determine a reasonable price to complete the overall scope of work
for the cost estimate. A simple example would be fabrication waste material that is a
material cost to the project. Project notes will be added at the appropriate level in the
estimate to explain the basis for the quantity calculations, to clearly show assumed
quantity allowances or quantity contingencies, and to record quantities determined by
cost engineering judgment that will be reconciled upon design refinement. Use the
following recommended guidelines in quantity development:

• Coordinate the quantity takeoff process and plan with the lead estimator.
• Ensure full project scope is reflected within the estimate.
• Include a list of materials in quantity takeoffs.
• Utilize a process that easily records the quantity development, i.e., document
source and date, estimator name and date, location within the project,
demonstrated calculations, separation of hard quantities, and additions such
as waste or loss.
• Use a systematic approach similar to the construction methodology required.
• Check scales and dimensions on each drawing sheet; dimensions govern.
• Highlight or mark drawing areas where quantities have been determined to
ensure all scope is captured but not double counted.
• Consider items that have no material but still require cost, e.g., job office
overhead (JOOH), task setup, training and certifications, and labor
preparation.
• Develop quantities within a reasonable range for the work using decimals
where critical.
• Add a certain amount of waste, loss, drop off, or length related to the material
purchases for a bulk order. Ensure this addition is separate from the original
quantity measured.
• Select a natural stopping point during work interruptions.
• Provide a QC check of high cost and volume items.
• Coordinate with designers if the design appears in error, is unbiddable, if a
better approach is discovered, or a value engineering process is warranted.

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3.4 Construction Unit Costs. Whenever possible, the cost engineer should obtain
multiple pricing sources. In pricing from any source, experience and ability to relate
data in hand to a specific circumstance is important. The following paragraphs discuss
commonly used pricing sources and price development.

3.4.1 Cost Book

3.4.1.1 The Cost Book is the common name for the Tri-Services Automated
Cost Engineering Systems construction direct costs database (see appendix C and
https://www.hnd.usace.army.mil/TRACES/). Another common term of the Cost Book as
related to the MCACES supporting databases is the Unit Price Book (UPB). In generic
terms, “cost book” refers to any cost-related commercial books that depict direct costs in
the fashion of labor, equipment, material, crew, and productivity. For the purposes
within this ETL, the Cost Book is considered synonymous with the UPB. The Cost Book
is organized in accordance with the Construction Specification Institute numbering
system. Some Cost Book line items may include quotes for work that is fully provided
and installed by a subcontractor. Each office may use the Cost Book as well as refine
the database by obtaining quotes to more accurately reflect local costs at the project
site.

3.4.1.2 Commercial unit cost books are common sources typically available
through subscription or purchase. Basis of costs shown are typically explained along
with adjustment methodology. Such publications are valuable for verification and
appropriate for commercial type work item pricing. Caution is advised, however, since
the costs are averages that may not reflect special applications for specific project
scopes.

3.4.2 Historical Data. Historical costs from past similar work are excellent
pricing sources as long as two criteria are met: adequate details of the basis for the
historical costs must be known, and the historical costs must be adjusted to account for
project specifics. When these two criteria are met, portions of other estimates having
similar work can be retrieved and repriced to the current project rates. Such repricing
includes adjustments for project location, work methodology, quantity of work, and other
dissimilarities, which affect prices. Additionally, historical costs must be escalated on a
constant dollar basis to the current estimate effective price level. Cost engineering
automated systems enable the collection and analysis of historical costs. Automated
historical databases are discussed in appendix C.

3.4.3 Parametric Database. Parametric Cost Engineering System is a

parametric database of predefined assemblies for buildings and site work (see
appendix C). This is more commonly applied to military works; however, this can also
be a useful tool in certain civil works estimates or portions of estimates.

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3.4.4 Development of Unit Costs for Specific Tasks

3.4.4.1 When standard tasks from published price sources do not meet project
needs, a unit cost for a specific task may need to be developed. Such development
requires experience. Descriptions developed must adequately define the scope and
requirement for each task. A unit cost for each task is developed as a direct cost (see
chapter 4) with separate costing for labor, equipment, and material components, This is
also true for certain unit prices related to the indirect costs (see chapter 5), usually
found within the JOOHs. Notes, which explain key factors in the pricing, methodology,
and assumptions, should accompany the task development. Comparison with existing
pricing guides is recommended.

• Labor unit cost. This cost is based on a defined crew from the Cost Book or
on a newly developed crew, which performs the tasks at an assigned
production rate. Hourly wage rates for each craft are applied to the crew labor
to arrive at the hourly crew labor cost. The total crew labor cost/hour is divided
by the expected production rate (units/hour) to derive the labor cost per unit or
“labor unit cost.”
• Equipment unit cost. This cost is derived similar to labor unit cost. Hourly
equipment rates are obtained from the appropriate regional pamphlet,
Engineer Pamphlet (EP) 1110-1-8, Construction Equipment Ownership and
Operating Expense Schedule, or developed according to the methodology as
described in that pamphlet.
• Material unit cost. This cost is developed using vendor quotes, historical
costs, commercial pricing sources, or component calculations. The price
should include delivery to the project site.

3.4.4.2 The unit cost for each developed specific task is the sum of the direct
cost elements for labor, equipment, and materials resulting in the direct cost per unit.

3.5 Safeguarding Cost Estimates. Project cost estimates should be safeguarded and
handled in a discretionary manner. The estimates may contain proprietary information.
Access to each estimate and its contents will be limited to those persons whose duties
require knowledge of the estimate. Estimates prepared by contract will also be similarly
handled. Any request by the public for information and pricing in the estimate will not be
provided until coordination, verification of data, and approvals have been given by the
commander or the responsible cost engineer.

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CHAPTER 4

Direct Cost Development

4.1 General. Direct costs are those costs that can be attributed to a single task of
construction work that are applied to the prime contractor's cost. These costs are
usually associated with a construction labor crew performing a task, using specific
equipment and materials, or subcontracted efforts for the respective task.
Subcontracted costs shall be considered as direct costs to the prime contractor in
estimates. Subcontracted costs include the direct costs, which the subcontractor would
perform, plus the indirect costs the subcontractor would incur such as subcontractor
markups.

4.2 Crews. Direct labor cost requirements are broken into tasks of work. Since each
task is usually performed by a labor crew including equipment, the crew must be
defined, costed, and a production rate established for the task. Crews may vary in size
and mix of skills. The number and size of each crew should be based on such
considerations as having sufficient workers to perform a task within the construction
schedule and the limitation of workspace. Once the crews have been developed, the
task labor costs can be determined based on the production rate of the crew and the
labor wage rates.

4.3 Labor. Direct labor costs are defined as base wages plus labor cost additives
including payroll taxes, fringe benefits, travel, and overtime allowances paid by the
contractor for personnel who perform a specific construction task. In addition to the
actual workers, there are generally working crew foremen, who receive an hourly wage
and are considered part of the direct labor costs. Certain trades may require travel or
subsistence, depending upon trade availability and duration.

4.3.1 Wage Rates

4.3.1.1 A wage rate must be developed for each labor craft, which will represent
the total hourly cost rate to the construction contractor. This total rate will include the
base wage rate plus labor overtime, payroll taxes and insurance, fringe benefits, and
travel or subsistence costs as further described in this chapter. The composite wage
rate for each craft will be used for development of the estimate. The computation can
be prepared similar to forms found in appendix E.

4.3.1.2 Wage rates are generally well defined. The Davis-Bacon Act, PL 74-
403, requires a contractor performing construction in the United States for the
Government to pay not less than the prevailing rates set by the Department of Labor.
Information on prevailing rates can be found at http://www.wdol.gov/. A schedule of
minimum rates is included in the project specifications and is normally kept on file for
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each location by each local office of counsel. The cost engineer should consult with the
contracting officer on any questions regarding determination coverage, specific
definitions, or concerns. Where labor is in short supply for certain crafts in the area, the
work is in a remote area, or it is well known that rates are higher than the set rate scale
will be paid, these higher wage rates should be used instead of the minimum wage,
since this would be required of the contractor in order to attract labor to the job. The
wage rate should be adjusted to include travel time or night differential where these are
a customary requirement.

4.3.1.3 For a long duration project, where future wage rates are known and
used, care must be taken to avoid duplication by also applying an escalation rate to
such costs.

4.3.2 Overtime and Shift Differential. The cost engineer should carefully
consider the available working time in the construction schedule for each task
accomplishment in a normal time period. The efficiency of both the second and third
shifts should be adjusted to recognize that production will not be as high as the day shift
for most types of construction operations. A three-shift operation should normally be
avoided due to lower labor efficiency and the requirement to include equipment
maintenance.

4.3.3 Overtime. Overtime should be included in the labor cost computation

when work in excess of regular time is required by the construction schedule or is the
custom of labor in the local vicinity. Overtime labor cost is normally calculated as a
percentage of the base wage rate. It is usually based on time and one-half, but may be
double time depending on the existing labor agreements. Tax and insurance costs are
applied to overtime, but fringe benefits and travel and/or subsistence costs are not.
Example 4-1 illustrates the overtime percentage calculation for 40 hours regular time,
plus 8 hours overtime at time and one-half:

Example 4-1:

48 hours at straight time = 48.00 hours

8 hours at ½ time = 4.00 hours paid

Equivalent straight time = 52.00 hours

(52 hrs paid/48 hrs worked = 1.0833) -1 x 100%

= 8.33%

Note: See example estimate sheets in appendix E for

method of application.

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4.3.3.1 Shift Operations. Many construction projects utilize multiple shift

operations. When estimating direct labor costs for multiple shift operations, the cost
engineer should estimate the number of hours to be worked (include shift differential
work loss) and the number of hours to be paid for each shift based upon the developed
construction schedule. Differential shift premiums may need to be added to the hourly
rate.

4.3.3.2 Tabulation of Overtime Percentages. A tabulation of overtime

percentages for most conditions is shown in table 4-1. The percentage also includes an
allowance for the direct work loss of multiple shift or shift differential, where applicable.

Table 4-1. Overtime and Shift Differential

Percentages for Overtime and Shift Differential
1.5x 1.5x
Week/Sat Week Week
Actual Hours Worked Hours Paid 2x 2x 2x
Shift Day Week Regular Overtime Sun Sat/Sun All Overtime
One-shift operation
5-Day Week 8 40 40 0 0 0 0
9 45 40 5 5.56 5.56 11.11
10 50 40 10 10.00 10.00 20.00
11 55 40 15 13.64 13.64 27.27
12 60 40 20 16.67 16.67 33.33

6-Day Week 8 48 40 8 8.33 16.67 16.67

9 54 70 14 12.96 21.30 25.93
10 60 40 20 16.67 25.00 33.33
11 66 40 26 19.70 28.03 39.39
12 72 40 32 22.22 30.56 44.44

7-Day Week 8 56 40 16 21.43 28.57 28.57

9 63 40 23 25.40 32.54 36.51
10 70 40 30 28.57 35.71 42.86
11 77 40 37 31.17 38.31 48.05
12 84 40 44 33.33 40.68 52.38

Two-Shift Operation (one 8 hours and one 7.5 hours)

5-Day Week 15.5 77.5 80 0 3.23 3.23 3.23
18 90 80 12.5 9.72 9.72 16.67
20 100 80 22.5 13.75 13.75 25.00
22 110 80 32.5 17.05 17.05 31.82
24 120 80 42.5 19.79 19.79 37.50

6-Day Week 15.5 93 80 16 11.83 20.43 20.43

18 108 80 31 17.13 25.69 31.48
20 120 80 43 20.42 28.96 38.33
22 132 80 55 23.11 31.63 43.94
24 144 80 67 25.35 33.85 48.61

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Percentages for Overtime and Shift Differential

1.5x 1.5x
Week/Sat Week Week
Actual Hours Worked Hours Paid 2x 2x 2x
Shift Day Week Regular Overtime Sun Sat/Sun All Overtime
7-Day Week 15.5 108.5 80 32.0 25.35 32.72 32.72
18 126 80 49.5 29.76 37.10 42.06
20 140 80 63.5 32.50 39.82 47.86
22 154 80 77.5 34.74 42.05 52.60
24 168 80 91.5 36.61 43.90 56.55

Two-Shift Operation (each 7.5 hours)

5-Day Week 15 75 80 0 6.67 6.67 6.67
18 90 80 15 13.89 13.89 22.22
20 100 80 25 17.50 17.50 30.00
22 110 80 35 20.45 20.45 36.36
24 120 80 45 22.92 22.92 41.67

6-Day Week 15 90 80 16 15.56 24.44 24.44

18 108 80 34 21.30 30.09 37.04
20 120 80 46 24.17 32.92 43.33
22 132 80 58 26.52 35.23 48.48
24 144 80 70 28.47 37.15 52.28

7-Day Week 15 105 80 32 29.52 37.14 37.14

18 126 80 53 34.13 41.67 47.62
20 140 80 67 36.43 43.93 52.86
22 154 80 81 38.31 45.78 57.14
24 168 80 95 39.88 47.32 60.71

Three-Shift Operation
5-Day Week 22.5 112.5 120 0 6.67 6.67 6.67
6-Day Week 22.5 135.0 120 24 15.56 24.44 24.44
7-Day Week 22.5 157.5 120 48 29.52 37.14 37.14

4.3.4 Taxes and Insurance

4.3.4.1 Rates. Rates for all taxes and insurance applied to labor should be
verified prior to computation. Insurances may include costs applied to longshoreman
work near water, diving work, etc. Local unions can be a source of information for these
peculiar insurance applications.

4.3.4.2 Workman's Compensation. Workman's compensation and employer's

liability insurance costs applicable for the state in which the work is performed should be
included in the composite wage rate. Insurance rates may be obtained from the state if
the state law provides a monopoly or from insurance companies providing this type
insurance. The project compensation rate is based on the classification of the major
construction work and applies to all crafts employed by the contractor. Typically, the

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actual rate that a contractor will pay is also adjusted annually based upon the company
safety record and the number of claims submitted.

4.3.4.3 Unemployment Compensation Taxes. Unemployment compensation

taxes are composed of both state and Federal taxes. Unemployment compensation tax
will vary with each state while the Federal unemployment tax will be constant for all
projects. Insurance rates can be obtained from the state unemployment office,
commercial publications, or the Bureau of Labor Statistics.

4.3.4.4 Social Security Tax Rates. The social security tax rates and the income
ceilings on which social security taxes must be paid vary from year to year. Therefore,
the cost engineer must verify the rate to be used in the cost estimate. Current and
future rates can be obtained from the Social Security Administration.

4.3.4.5 Total Percentage of Taxes and Insurance. The total percentage of the
above taxes and insurance is summed and then applied to the basic hourly wage rate
plus overtime for the various crafts. Example 4-2 illustrates the method for deriving the
total tax and insurance percentage. Since rates are subject to change and in some
cases vary by region, the calculations shown are presented as an example only. Actual
values must be determined by the cost engineer for the specific project.

Example 4-2:

Workman's compensation and employer's liability

(varies with state and contractor) 7.60%

State unemployment compensation

(varies with each state) 3.20%

Federal unemployment compensation 0.80%

Social Security & Medicaid 7.65%

Total taxes and insurance 19.25%

Note: Foreman and overhead labor rates must also include

these applicable costs. See example estimate sheets in
appendix E for method of application.

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4.3.5 Fringe Benefits and Travel/Subsistence

4.3.5.1 Fringe benefits may include health and welfare, pension, and apprentice
training depending on the craft and the location of the work. These summed costs are
usually expressed as an hourly cost with the possible exception of vacation, which may
be easily converted to an hourly cost. The type of fringe and the amount for the various
crafts can usually be found with the Davis-Bacon Act wage determination in
the specifications. Non-union contractors pay comparable fringe benefits directly to
their employees.

4.3.5.2 Example 4-3 illustrates the calculations for fringe benefits. Since the
values change and vary by region and union agreement, the calculations shown are
presented as an example only. Actual values must be determined by the cost engineer.

Example 4-3

Health and welfare $0.70/hr

Pension 0.75/hr

Apprentice training 0.00/hr

(N/A in this case)

Total fringe benefits $1.45/hr

4.3.5.3 Travel and subsistence costs are normally expressed as a daily or

weekly cost. When included in the cost estimate, they should be converted to an hourly
cost and excluded from an overtime premium unless travel and subsistence are part of
an increased hourly wage. See example estimates in appendix E for methodology.

4.3.5.4 Some fringe benefits and travel/subsistence are subject to payroll taxes.
For example, vacation benefits are taxable and should be added to the basic wage
rate.

4.4 Labor Productivity.

4.4.1 General. Estimating labor productivity is subject to many diverse and

unpredictable factors. There is no substitution for the knowledge and experience of the
cost engineer when estimating labor productivity. For some types of work, the task
productivity of crewmembers such as equipment operators, helpers, or oilers is
determined by the productivity of the equipment. For some labor-based crews, the task
productivity of craftsman, such as carpenters, steel workers, and masons, may be

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based on average experience in the Cost Book, tempered with the experience of the
cost engineer, historical records, or other appropriate reference manuals.

4.4.2 Productivity Adjustment Considerations

4.4.2.1 Labor Effort. The labor effort needed to perform a particular task varies
with many factors, such as the relative experience, capability and morale of the workers,
the size and complexity of the job, the climatic and topographic conditions, the degree
of mechanization, the quality of job supervision, amount of similar task repetition, and
the existing labor-management agreements and/or trade practices. The effort from
these labor efficiency factors and work practices that exist in the project locality must be
considered in each productivity assignment.

4.4.2.2 Civil works projects are normally heavy equipment oriented, and care
should be used based on the tasks performed to ensure reasonable production rates
are used. Operational requirements for pumping on dredges are unique and
appropriate details are covered in appendix D for preparing dredge estimates.

4.4.2.3 Complexity of the Variable. The complexity of the variables affecting

productivity makes it difficult to estimate a production rate. Therefore, production rates
should be based on averaging past production rates for the same or similar work. The
cost engineer must incorporate particular job factors and conditions to adjust historical
data to the project being estimated. Other sources for production rates include
reference manuals, field office reports, construction logbooks, and observation of
ongoing construction.

4.4.2.4 Long Periods of Overtime. It is widely accepted that protracted overtime

can result in lost productivity. The effect on worker productivity from long periods of
overtime is shown in figure 4-1. Several tables and averaging charts have also been
developed by private industry to show this effect. There are certain projects where
multiple shifts are not possible due to environmental or public concerns. There are also
certain large projects where overtime may be an advantage regarding schedule needs
and the project appeals to industry for bidding competition. Many skilled trades prefer
and seek projects promising overtime as a means of increasing their income. Relating
to a specific project, the cost engineer should carefully consider other alternatives such
as schedule duration change instead of overtime or multiple shift work and discuss the
impact of these options with the PDT.

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Figure 4-1. Effects on Worker Productivity from Long Periods of Overtime

4.5 Construction Equipment and Plant. Construction equipment and plant refers to
the tools, instruments, machinery, and other mechanical implements required in the

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performance of construction work. Construction plant is defined as concrete batch

plants, aggregate processing plants, conveying systems, and any other processing
plants, which are erected in place at the job site and are essentially stationary or fixed in
place. Equipment is defined as items, which are portable or mobile, ranging from small
hand tools through tractors, cranes, and trucks. For estimating purposes, plant and
equipment are grouped together as equipment costs.

4.5.1 Selection of Equipment

4.5.1.1 An important consideration in the preparation of an estimate is the

selection of the proper equipment to perform the required tasks. The cost engineer
should carefully consider number, size, and function of equipment to arrive at optimum
equipment usage. Some factors to consider during the selection process are:

• Conformance to specification requirements.

• Job progress schedule (production rate).
• Magnitude of the job; type of materials.
• Availability of space and site access.
• Mobility and availability of equipment.
• Suitability of equipment for other uses.
• Onsite batch or production plants.
• Equipment capabilities.
• Loading and unloading of freight.
• Number of shifts.
• Distances material must be moved.
• Steepness and direction of grades.
• Weather conditions.
• Hauling restrictions.
• Standby time.
• Mobilization and demobilization costs.

4.5.1.2 The cost engineer preparing the estimate must be familiar with
construction equipment and job-site conditions. The equipment selected should
conform to contract requirements and be suitable for the materials to be handled and
conditions that will exist on the project. A good source of information to assist in
earthwork equipment choices is Field Manual 5-434, Earthmoving Operations.

4.5.2 Equipment Productivity

4.5.2.1 The "crew concept" for project cost estimates requiring detailed
estimating is to also be considered in costing equipment. For each significant work
task, workers and equipment are expressed in the hourly cost and expected

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production rate. Where a major piece of equipment serves more than one crew, the
total equipment time should be prorated between both crews.

4.5.2.2 After determining the type of equipment to be employed, the cost

engineer should select the specific equipment size that has a production rate suited to
the efficient and economical performance of the work. The size and number of units
required will be influenced by equipment production rate, job size, availability of space
for equipment operations, the project construction schedule for the various work tasks,
number of shifts to be worked, and the availability of equipment operators. Emphasis
must be placed on the importance of establishing a reasonable production rate.
Production may be based on actual performance data, commercial manufacturer tables,
or rates from MCACES historical equipment models and assemblies, or adjusted for
project conditions. A certain level of standby costs may be necessary if the equipment
chosen is used on a part-time basis, remaining dormant without operator attendance for
a significant period of the operation.

4.5.3 Mobilization and Demobilization

4.5.3.1 Mobilization costs for equipment include the cost of loading at the
contractor's yard, transportation cost from the yard to the construction site, including
permits, unloading at the site, necessary assembly and testing, and standby costs
during mobilization and demobilization. Trucks for the project capable of highway
movement are usually driven to the site and are often used to transport minor items. All
labor, equipment, and supply costs required to mobilize the equipment should also be
included in the mobilization cost. When the equipment location is unknown, the
mobilization and demobilization distance should be based on a circular area around the
project site, which will include a reasonable number of qualified bidders. Demobilization
costs should be based on that portion of the equipment that would be expected to be
returned to the contractor's storage yard and may be expressed as a percentage of
mobilization costs. All labor, equipment, and supply costs required for
cleaning/prepping the equipment so that it is in the same condition as it was when it
arrived at the site should also be included in the demobilization cost. Transporting rates
should be obtained periodically from qualified firms normally engaged in that type work.

4.5.3.2 Mobilization and demobilization costs for plant should be based on the
delivered cost of the item, plus erection, taxes, and dismantling costs minus salvage
value at the end of the project. Maintenance and repair are operating costs and should
be distributed throughout work accomplishment.

4.5.4 Equipment Ownership and Operating Expense Cost Rates

4.5.4.1 The EP 1110-1-8 establishes the methodology for calculating hourly

rates for equipment ownership and operating expense. Similar methodology and hourly
rates can be found in the Cost Book and used in the preparation of cost estimates for
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owned equipment. The EP 1110-1-8, volumes 1 through 12, has been developed for
different geographic regions in the United States, and the appropriate volume or Cost
Book should be used based upon project location. Rented and leased equipment is
appropriate for inclusion in the estimate at competitive rates if judgment determines this
to be a reasonable approach by a prudent contractor. The cost engineer may also use
current commercially available publications for assistance in determining rates.

4.5.4.2 When the cost engineer develops costs for the actual equipment being
used at a job site exceeding 40 hours per week, the rates shall be adjusted as
described by EP 1110-1-8.

4.5.5 Plant Cost. In cases of highly specialized plant, 100 percent write off of
the total value of the plant may be justified for a particular project. For less highly
specialized plant, some salvage may be anticipated, depending on storage cost, resale
value, and probability of sale or reuse in the immediate future. The total project charge
including operation, maintenance, and repair should be distributed in proportion to the
time and item the plant is used on the various contract items. Cost of plant required for
the production of concrete, aggregates, ice or heat for cooling or heating of concrete,
etc., should normally be included in the estimate as part of the cost of these materials or
supplies manufactured or produced at the site.

4.5.6 Small Tools. The cost of small power and hand tools and miscellaneous
non-capitalized equipment and supplies may be estimated as a percentage of the labor
cost. The allowance must be determined by the cost engineer in each case, based
upon experience for the type of work involved. The small tool cost will be considered as
part of equipment cost. Such allowance can range typically up to 12 percent of direct
labor cost. Another acceptable approach is to apply an actual small tools cost within the
respective crew where it is applicable. The cost engineer must ensure that this cost is
not duplicated in the overhead rate percentages. The crew’s database in the Cost Book
does not contain a small tools allowance.

4.6 Materials and Supplies. Materials and supplies are defined below and, for the
purpose of estimating, both can be considered materials unless they need to be
separated because of different tax rates. Materials are physically incorporated into and
become part of the permanent structure. Supplies are items used in construction but do
not become physically incorporated into the project such as concrete forms, welding
rod, etc.

4.6.1 Sources of Pricing Data. Prices for materials and supplies may be
obtained from pricing services, the Cost Book, commercial cost books, catalogs,
quotations, and historical data records. Each office should review the source of the
pricing contained in these publications and assess the reasonableness prior to use.
Standard unit prices from these sources are considered satisfactory only after an

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applicability determination has been made. Care should be taken when using this type
of cost data to make proper allowances for quantity discounts, inflation, and other
factors affecting contractor cost.

4.6.2 Waste Allowance. Waste and loss considerations may be included in

material unit price computations. This methodology when computing material costs
results in a quantity takeoff of work placement, which is not altered to reflect material
losses. However, the alternative methodology of increasing the measured quantity by
waste and loss quantity is acceptable if the excess quantity will not be used for any
other purpose. If quantities are provided by others, it must be determined whether
those quantities include waste or loss to avoid a double counting. The methodology
used by the cost engineer should not include charging labor on the excess quantity. In
either case, a note statement is required in the estimate explaining the methodology
used.

4.6.3 Quotes from Manufacturers and Suppliers. Quotes should be obtained

for all significant materials and installed equipment and for specialized or not readily
available items. Quotations may be received either in writing or telephonically. It is
preferable to obtain quotes for each project to ensure that the cost is current and that
the item meets specifications. If possible, more than one quote should be obtained to
be reasonably sure the prices are competitive. The cost engineer should attempt to
determine and ensure that contractor discounts are considered in the estimate. The
cost engineer should ascertain whether the quote includes delivery and sales tax.
Quotes should be kept proprietary to preserve the confidentiality entrusted. A sample
telephone quotation data sheet similar to that shown in appendix E, figure E-5, should
be utilized for recording quoted information. The cost engineer should also take into
consideration FAR Subpart 25.2, Buy American Act-Construction Materials, and FAR
Subpart 6.1, Full and Open Competition, for the materials specified.

4.6.3.1 Forward Pricing. Sometimes quotes are requested in advance of the

expected purchase date. However, suppliers are reluctant to guarantee future prices
and often will only quote current prices. It may, therefore, be necessary to adjust
current prices to reflect the cost expected at the actual purchase date. This cost
adjustment, if required, must not be included as a contingency but should be clearly and
separately defined in each estimate. Adjust current pricing to future pricing using
escalation factors. This is applicable when there will be an extended construction
period. Computations of adjustment should be clear and should be maintained as cost
estimate backup support.

4.6.3.2 Freight. The cost engineer should check the basis for the price quotes
to determine if they include delivery. If they do not include delivery, freight costs to the
project site must be determined and included. The supplier can usually furnish an

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approximate delivery cost. For delivery charge, Free on Board (FOB) refers to the point
to which the seller will deliver goods without additional charge to the buyer.

• FOB Factory or Warehouse - if the materials or supplies are FOB factory or

warehouse, freight costs to the construction site should be added to the cost of
the materials or supplies.
• Unloading and Transporting Materials or Supplies - if the cost of materials or
supplies includes partial delivery, FOB to the nearest rail station, the cost of
unloading and transporting the materials or supplies should be included in the
estimate.

4.6.4 Handling and Storage

4.6.4.1 If the materials or supplies are a large quantity in bulk that would require
extensive equipment for unloading and hauling, it may be desirable to prepare a labor
and equipment estimate for the material handling and delivery.

4.6.4.2 The contractor is usually required to offload, handle, and stockpile or

warehouse materials on site. These costs should be included in the estimate. An item
of electronic equipment requiring special low-humidity storage might have this special
cost added to the direct cost of the equipment. For common items, such as
construction materials or equipment needing secure storage, the cost for the security
fencing, temporary building, and material handling should be considered as an indirect
cost and be included in the job site overhead cost.

4.6.5 Taxes. When applicable, state and local sales tax should be added to
the materials or supplies cost. In some states, material incorporated into Federal
construction is exempt, but supplies are not. Care should be taken, therefore, that the
sales tax rate is applied as required. The cost engineer should verify the tax rates and
the applicability of these rates for the project location. Sales tax is considered a direct
cost of the materials and supplies and should be applied to Government-furnished
equipment and included in the estimate. In certain projects that are on the dividing line
between states, such as roads, bridges, and dams, tax application may vary for the
same material.

4.6.6 Materials or Supplies Manufactured or Produced at Site. If it is likely the

contractor will manufacture or produce materials or supplies at the project site, a
separate estimate component should be developed for this work. This estimate should
be detailed and include all equipment, labor, materials, and supplies to produce the
product and should conclude with a unit cost of material or supplies delivered to the
stockpile, storage yard, or other end point.

4.6.7 Government-Furnished Materials or Equipment. On some projects, the

Government may provide some of the project materials. Government-furnished
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materials and equipment should be estimated in the same manner as other materials,
except that the purchase price is not included. The estimate should include an
allowance for transporting handling, storage from point of delivery and assembly, sales
tax, and installation if applicable. There may be special costs associated with
Government-furnished materials such as insurance to cover loss until final installation,
special storage costs, or special security measures. Note that these materials and
procurement costs are normally to be included as part of the TPC.

4.7 Subcontracted Work.

4.7.1 In construction, specialty items such as plumbing, heating, electrical,

roofing, and architectural finishes are usually more effectively performed by subcontract.
With so many specialties being performed, subcontract work becomes a very
significant portion of the total costs of construction. Since each estimate should be
prepared as practically and as realistically as possible, subcontract costs become a
necessary consideration.

4.7.2 On major rehabilitation projects, such as dams, locks, or power

generating facilities, the cost engineer must ensure that costs for mobilization and
demobilization, access to site, tear down or demolition work, and contractor markup are
included with the subcontractor costs or added to the prime contractor. This is
particularly important for rebuilt or replacement of permanent equipment (e.g., turbines,
generators, and navigation lock gates) for previously constructed projects where
ancillary costs, in addition to the rebuilt costs, can be significant (e.g., exceed
$1 million).

4.7.2.1 Parts of Work to be Subcontracted. The cost engineer must first

determine those parts of the work that will probably be subcontracted. When the work
to be subcontracted has been determined, those items will be identified in the estimate.
The appropriate subcontractor overhead and profit costs should be applied to
subcontractor direct cost items in addition to the appropriate prime contractor overhead
and profit.

4.7.2.2 Cost of Subcontracted Work. The cost of subcontracted work is the total
cost to the prime contractor for the work performed. Subcontractor's costs include direct
labor, materials and supplies, equipment, second tier subcontracts, mobilization and
demobilization, transportation, setup, and charges for overhead and profit. Particular
attention should be given to large items such as turbines, generators, and incinerators.
The total subcontract cost is considered a direct cost to the prime contractor.

4.7.2.3 Use of Quotations. While not the preferred method, the cost engineer
may utilize quotes for the expected subcontracted work when reviewed and verified as
reasonable. This is more acceptable if the subcontracted work is not considered a
major task in the estimate and not intended for use as an IGE where the IGE
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independence may be compromised Verification is normally established by obtaining

several quotes or by developing a rough order estimate or by making comparison with
historical or parametric data. In lieu of a quotation, each task of the subcontract should
be priced as a direct cost with an appropriate rate of subcontractor's overhead and profit
added.

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CHAPTER 5

Indirect Costs

5.1 General. Indirect costs are those costs, which cannot be attributed to a single
task of construction work. These costs include the prime contractor markups such as
overhead, profit, bond, and certain taxes. Indirect costs are also referred to as
distributed costs. The following discussions present the indirect costs in the order they
are applied within the prime contractor markup structure. This is critical, because the
values typically are compounded rates applied against the previous rates.

5.2 Overhead Costs.

5.2.1 Overhead costs are those costs that cannot be attributed to a single task
of construction work. Costs, which can be applied to a particular item of work, should
be considered a direct cost to that item and are not to be included in overhead costs.

5.2.2 For large civil works projects, the various tasks for overhead should be
developed for each project rather than using flat overhead percentage rates. Flat rates
may be used during the preliminary studies or when alternatives must be prepared if
design is limited or not available.

5.2.3 The overhead costs are customarily divided into two categories:

5.2.3.1 JOOH also referred to as general conditions or field office overhead.

5.2.3.2 General home office overhead commonly referred to as general and

administrative (G&A) costs or home office overhead (HOOH).

5.2.4 Duplication of Overhead Costs. The cost engineer must be sure that
overhead costs are not duplicated between the two categories. Because of the nature
of overhead costs, it is not practical to discuss all overhead items. Specific
considerations must be carefully evaluated for each project. The cost engineer must
use considerable care and judgment in estimating overhead costs. Many indirect cost
items are frequently described in the General Requirements Section (Construction
Specification Institute Division 01) of the contract specifications. If not related to a
specific work task, these costs must be identified and appropriately assigned as
overhead costs.

5.2.5 Previously Determined Overhead Rates. The application of a previously

determined overhead rate for either category may be used for early project phases, but
it is not an accurate or reliable method of forecasting costs. Overheads will vary from
project to project and may even vary from month to month within any given project.
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JOOH items for the prime contractor should be estimated in detail for all IGEs. Detailing
of JOOH costs for subcontract work is recommended when the impact of these costs is
significant.

5.2.6 Job Office Overhead. JOOH costs are those costs at the project site
that occur specifically as a result of the particular project. In early estimate stages, a
percentage near 5 percent is acceptable; however, from feasibility level forward, a
detailed estimate should be developed. Table 5-1 provides general descriptions of
typical costs encountered and appendix J is a template listing more detail; however,
each project should be considered on its own merit.

Table 5-1. Job Office Overhead Costs

ADMINISTRATION JOB OFFICE
Includes all field administrating, accounting, purchasing, inventory, and security
personnel and expenses. Also, consider subsistence and travel, offices, vehicles,
supplies, and miscellaneous items to run the field office. Subsistence amounts may
vary depending upon seniority and job classification.

WAREHOUSE AND MATERIALS HANDLING

Includes all field warehouses, stockyards, personnel, and equipment to handle, receive,
unload, store, and transport materials around the project site. Also, consider
subsistence and travel, vehicles, supplies, and miscellaneous cost items.

ENGINEERING AND SURVEYING

Includes all engineering, drafting, submittals, scheduling, surveying, and change order
personnel. Also, consider subsistence and travel, vehicles, miscellaneous computer
expenses, shop drawings, submittals and Critical Path Method schedules, operation
and maintenance manuals, and miscellaneous cost items. Note: Personnel costs and
supplies may cover submittal development and required contract document costs.

QUALITY CONTROL AND TESTING

Includes personnel, vehicles, equipment, and supplies to produce all QC reports, QC
inspections, and all other contract quality requirements. Also, consider subsistence and
travel, vehicles, supplies, and miscellaneous cost items. Note: Personnel costs and
supplies may cover submittal development and required contract document costs.

SAFETY, TRAFFIC CONTROL, FIRST AID, AND FIRE

Includes all personnel, supplies, and vehicles needed for safety, traffic control, first aid,
safety training, and fire prevention. Also, consider subsistence and travel, vehicles,
supplies, and miscellaneous cost items. Note: Personnel costs and supplies may
cover submittal and required contract document costs.

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SANITATION FACILITIES AND TEMPORARY BUILDINGS

Includes all sanitation facilities miscellaneous, buildings, yards, and building costs not
otherwise classified. This grouping does not include all project utilities costs.

GENERAL EQUIPMENT EXPENSES

Includes equipment not required by specific work items. Also, consider testing and
rental of equipment when not charged to a specific bid item or items of work. Inspection
fees and permits are included in mobilization and demobilization items.

PROJECT UTILITIES SITE AND CLEANUP

Includes all project costs not otherwise classified.

WINTERIZE PROJECT
Includes all items needed for a winter shutdown of the project or for construction
activities during the winter months.

CAMP FACILITIES, WORKER SUBSISTENCE, AND TRAVEL

Includes costs to operate a camp to support construction workers. If no camp is
furnished and subsistence is not included in the worker’s hourly wage, show the number
of subsistence days and daily cost. However, it is preferred to include subsistence with
the hourly wage. Also, consider kitchens, camp vehicles, supplies, and miscellaneous
items.

INSURANCE, INTEREST, PERMITS, AND FEES

Includes insurance costs, permits, and fees required by the contract. Business and
occupation taxes, tribal taxes, and bid bond cost are not included in the JOOH but are
included in other indirect cost markups.

MOBILIZATION AND PREPARATORY WORK (Optional)

Includes all items needed for the contractor mobilization and site preparatory work.
Also, consider trucks, trailers, pilot cars, inspection fees, highway permits, loading,
unloading, equipment standby and setup, and surveys. USE ONLY if the project does
NOT have a mobilization bid item.

DEMOBILIZATION WORK (Optional)

Includes all items needed for contractor’s demobilization from the project site and
halfway to another project. Also, consider trucks, trailers, pilot cars, inspection fees,
highway permits, loading, unloading, equipment standby, and take down. USE ONLY if
the project does NOT have a demobilization bid item.

GOVERNMENT INSPECTION COSTS (In Alaska only)

Includes all items needed to keep Government Inspectors on site excluding salary.

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5.2.7 General Home Office Overhead

5.2.7.1 G&A expenses are those incurred by the contractor in the overall
management of business associated with all costs at the home office. These overhead
expenses are not incurred for any one specific project and must be apportioned to all
the contractor’s projects.

5.2.7.2 Many expenses such as interest and entertainment are not allowable.
Construction equipment depreciation is included in the EP 1110-1-8 cost rates and
should not be included in the G&A rate. An accurate percentage of G&A can only be
determined by an audit. On major changes requiring an audit, it is important to request
that the G&A rate be determined through the contracting officer.

5.2.7.3 Of all the categories of costs, the contractor's G&A costs are the least
definable. Each contractor organizes his company differently from any other. Each
incurs costs differently from varying sources and manages operations of that home
office by their own methodology. There may be more than one home office employed.
It is important to understand that home office costs are not standard and fixed. Even
though the cost for a specific contractor varies from period to period, a rate is normally
averaged as a computation of total home office costs over a sufficient period divided by
the total volume of business during that specific period. This rate computation
methodology allows distribution and projection to future project estimates. When more
specific data is not available, the cost engineer may include empirical rates. Home
office costs are typically included in the estimate of overhead as the product of an
average experienced percentage rate times the expected contract amount. Typical
categories of HOOH are:

• Main office building, furniture, equipment, etc.

• Fabrication shop and yard.
• Management and office staff salary and expense.
• Main office utilities.
• General communications and travel.
• Main office supplies.
• Corporate vehicles.
• General business insurance.
• Taxes.

5.2.8 Duration of Overhead Items. After the overhead items have been listed,
a cost must be determined for each. Each item should be evaluated separately. Some
items such as erection of the project office may occur only once in the project. The cost
engineer should utilize the developed job schedule in estimating duration requirements.
Costs reflective of each particular item during the scheduled period should then be
applied. The product of duration and unit cost is the overhead cost for the item. In the
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case of construction modifications, overhead should be re-addressed as related to the

cost items and durations in the original contract.

5.2.9 Sources for Pricing. The cost engineer must rely on judgment, historical
data, and current labor market conditions to establish overhead costs. Sources for
information can be obtained from current or past contractor’s bid data and audits. Other
sources include previously negotiated modifications and review of organizational charts
of construction firms for staffing and overhead costs evaluation. Overhead salaries
should include an allowance for payroll taxes and fringes such as Federal Insurance
Contributions Act, health benefits, and vacation.

5.2.10 Distribution of Overhead. The prime contractor's overhead costs, which

have been costed in an organized format, should be summed and distributed to the
various bid items. A proportionate distribution is commonly made by percentage ratio of
total direct costs to those direct costs in each item. When additive, option, or split-bid
items are included, only those overhead costs that relate directly to the additive work
should be distributed to those additive items. Those overhead costs, which the
contractor will incur regardless of additive or deductive items, should be distributed to
base bid schedule items only. Selective distribution ensures recoupment of costs if only
the basic contract scope is awarded. Regardless of the method of distribution, the
estimates should clearly demonstrate the procedures and cost principles applied. As a
refinement to distribution, the cost engineer may reasonably and justifiably reduce the
prime overhead distribution on subcontract work items. The balance of the total prime
overhead should then be distributed as discussed above to the remaining prime items of
work. For modification estimates, overhead requirements should be itemized and
costed to reflect the actual net change in cost of overhead, i.e., costs before and after
the modification work.

5.3 Profit.

5.3.1 Profit is defined as a return on investment. It is what provides the

contractor with an incentive to perform the work as efficiently as possible. The proper
approach to use will depend on the type of contractual acquisition action and the
supplemental regulations that apply to the type of contract activity. For example, A-E
contracting profit is calculated differently than construction profit. Refer to FAR, Subpart
15.404-4, prescribing the use of a structured approach for determining the profit or fee
objective for construction projects. Consultation may be in order with the contracting
officer in regards to profit application for various procurement actions.

5.3.2 The DFAR, Subpart 215.404-4, prescribes three structured approaches

for determining a profit or fee objective on any negotiated contract action (with
exceptions); the weighted guidelines method, the modified weighted guidelines method,
and an alternate structured approach. Generally ,the latter two are for contract actions

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with nonprofit organizations and A-E respectively. Construction cost estimating shall
use the weighted guideline method and is discussed further in this chapter.

5.3.3 Prime contractor profit is not included in civil works IGEs prepared for
contract award. However, prime contractor profit is included in all estimates prepared
for programming of funds for projects and for contract modifications. Profit may be
included for projects funded by non-Federal users in work for others.

5.3.3.1 Weighted Guidelines Method. The weighted guidelines method yields a

reasonable profit value and should be used to determine profit for all contracts that
include profit. Since contract modifications are considered contracts, this rule still
applies. This methodology should also be used wherever a detailed direct costing
method is used for preparing construction estimates. A rate of profit may be used
based on historical experience for reconnaissance or comparative estimates for
alternative analysis during feasibility studies.

5.3.3.2 Weighted Guideline Factors. Based on the circumstances of each

procurement action, each of the factors listed in table 5-2 will be weighted from 0.03 to
0.12 as discussed in the following text and provided in figure 5-1. Statements in
sufficient detail to explain the reasons for assigning the specific weights shall be
included on the profit computation sheet. The value will then be obtained by multiplying
the rate column by the weight column. The value column when totaled indicates the fair
and reasonable profit percentage.

• Degree of risk. Where the work involves no risk or the degree of risk is very
small, the weighting should be 0.03; as the degree of risk increases, the
weighting should be increased up to a maximum of 0.12. Lump sum items will
have, generally, a higher weighted value than unit price items for which
quantities are provided. Other things to consider include the nature of work;
where the work is to be performed; the reasonableness of negotiated costs;
the amount of labor included in the costs; and whether the negotiation occurs
before or after the period of performance of work.
• Relative difficulty of work. If the work is difficult and complex, the weighting
should be 0.12 and should be proportionately reduced to 0.03 on the simplest
of jobs. This factor is tied in to some extent with the degree of risk. Some
things to consider include technical nature of the work by whom work is to be
done; location of work; and time schedule.
• Size of the job. Work not in excess of $100,000 will be weighted at 0.12.
Work estimated between $100,000 and $5,000,000 will be proportionately
weighted from 0.12 to 0.05. Work from $5,000,000 to $10,000,000 shall be
weighted at 0.04 and work in excess of $10,000,000 at 0.03.
• Period of performance. Jobs in excess of 24 months are to be weighted at
0.12. Jobs of lesser duration are to be proportionately weighted to a minimum
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of 0.03 for jobs not to exceed 30 days. No weight is given for modification
estimates when additional performance time is not required.
• Contractor’s investment. Jobs are to be weighted from 0.03 to 0.12 on the
basis of below average, average to above average of contractor investment.
Things to consider include amount of subcontracting; mobilization payment
item; Government-furnished property; method of making progress payments;
and front-end requirements of the job.
• Assistance by Government. Jobs are to be weighted from 0.12 to 0.03 on the
basis of below average to above average. Things to consider include use of
Government-owned property, equipment and facilities, and expediting
assistance.
• Subcontracting. Jobs are to be weighted inversely proportional to the amount
of subcontracting. Where 80 percent or more of the work is to be
subcontracted, the weighting is to be 0.03 and such weighting proportionately
increased to 0.12 where all work is performed by the contractor's own forces.

5.3.4 Separate Profit Calculation. A separate profit calculation should be

performed for the prime contractor and for each subcontractor. When the subcontractor
assumes the risk and responsibility for significant portions of the work, the prime
contractor's profit rate on that work should be decreased. As a general rule, profit is
applied as a percentage rate to the total of all costs required by the contract or
modification scope. For early design stage estimates, a rate of profit may be assumed
based on past experience.

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Figure 5-1. Weighted Guidelines Profit Sheet

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Table 5-2. Factors for Profit Determination

FACTOR 1 Degree of Risk (Judgmental)
Degree Weight
Small 0.03
High 0.12

FACTOR 2 Relative Difficulty of Work (Judgmental)

Degree Weight
Difficult 0.12
Simple 0.03
FACTOR 3 Size of Job
Value (x 1000) Weight Value (x 1000) Weight
$ 0 to 100 0.120 $ 2,701 to 2,800 0.081
101 to 200 0.119 2,801 to 2,900 0.080
201 to 300 0.117 2,901 to 3,000 0.079
301 to 400 0.116 3,001 to 3,100 0.077
401 to 500 0.114 3,101 to 3,200 0.076
501 to 600 0.113 3,201 to 3,300 0.074
601 to 700 0.111 3,301 to 3,400 0.073
701 to 800 0.110 3,401 to 3,500 0.071
801 to 900 0.109 3,501 to 3,600 0.070
901 to 1,000 0.107 3,601 to 3,700 0.069
1,001 to 1,100 0.106 3,701 to 3,800 0.067
1,101 to 1,200 0.104 3,801 to 3,900 0.066
1,201 to 1,300 0.103 3,901 to 4,000 0.064
1,301 to 1,400 0.101 4,001 to 4,100 0.063
1,401 to 1,500 0.100 4,101 to 4,200 0.061
1,501 to 1,600 0.099 4,201 to 4,300 0.060
1,601 to 1,700 0.097 4,301 to 4,400 0.059
1,701 to 1,800 0.096 4,401 to 4,500 0.057
1,801 to 1,900 0.094 4,501 to 4,600 0.056
1,901 to 2,000 0.093 4,601 to 4,700 0.054
2,001 to 2,100 0.091 4,701 to 4,800 0.053
2,101 to 2,200 0.090 4,801 to 4,900 0.051
2,201 to 2,300 0.089 4,901 to 5,000 0.050
2,301 to 2,400 0.087 5,001 to 10,000 0.040
2,401 to 2,500 0.086
2,501 to 2,600 0.085 Over 10,000 0.030
2,601 to 2,700 0.084

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Table 5-2. Factors for Profit Determination (Cont.)

FACTOR 4 Period of Performance Weight

23 to 24 Months 0.120
22 to 23 Months 0.116
21 to 22 Months 0.112
20 to 21 Months 0.109
19 to 20 Months 0.105
18 to 19 Months 0.101
17 to 18 Months 0.098
16 to 17 Months 0.094
15 to 16 Months 0.090
14 to 15 Months 0.086
13 to 14 Months 0.082
12 to 13 Months 0.079
11 to 12 Months 0.075
10 to 11 Months 0.071
9 to 10 Months 0.068
8 to 9 Months 0.064
7 to 8 Months 0.060
6 to 7 Months 0.056
5 to 6 Months 0.052
4 to 5 Months 0.049
3 to 4 Months 0.045
2 to 3 Months 0.041
1 to 2 Months 0.038
Under 30 Days 0.034
0.030

FACTOR 5 Contractor's Investment (Judgmental)

Degree Weight
Below average 0.03
Average 0.07
Above average 0.12

FACTOR 6 Assistance by Government (Judgmental)

Degree Weight
Below average 0.12
Average 0.07
Above average 0.03

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Table 5-2. Factors for Profit Determination (Cont.)

FACTOR 7
Percent of Weight
Subcontracting
80% or more 0.030
70% to 80% 0.042
60% to 70% 0.055
50% to 60% 0.068
40% to 50% 0.080
30% to 40% 0.092
20% to 30% 0.105
10% to 20% 0.118
0 0.120

5.4 Surety Bonds. Surety bonds are three-way agreements between a bidder or
contractor (the principal), and a second party (the surety), to assure fulfillment of the
principal's obligations to a third party (the obligee). If the principal obligations are not
met, the bond assures payment to the extent stipulated of any loss sustained by the
obligee. In most Government construction contracts, the three parties are as follows:

Three Under Under

Parties General Contract Subcontract

1. Principal Contractor Subcontractor

2. Obligee Government Contractor
3. Surety Surety Surety

5.4.1 Types of Bonds. The purpose of surety bonds varies with the type of
bond:

5.4.1.1 Bid Bonds or Bid Guarantee. These types of bonds provide an

assurance that the bidder will not withdraw his bid within the specified period for
acceptance and will execute a written contract and furnish the required bonds if the bid
is accepted.

5.4.1.2 Payment Bonds. A payment bond assures payments to all persons

supplying labor or material of the work provided for in the contract. These type of bonds
protect subcontractors, suppliers, and laborers against nonpayment by the prime
contractor.

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5.4.1.3 Performance Bonds. A performance bond ensures the contractor will

complete the project as specified and for the agreed price. It does not shift
responsibility for administering the contract to the surety. A performance bond provides
a financial guarantee for the work and provides the contractor with a method of freeing
his working capital and other assets, which might otherwise be tied up by other forms of
surety such as certified checks, retainage, or deposits.

5.4.2 Surety Bond Requirements

5.4.2.1 The amount included in the estimate should be based on the contract
requirements, the bond rules, premium rates, and, if known, the actual contractor bond
cost. A bid guarantee is required on Federal projects whenever a performance bond
and/or a payment bond is mandated. Performance and payment bonds are required for
all construction contracts of $100,000 or more and some form of payment guarantee for
lesser value contracts (FAR 28.102). For contracts under $100,000, Congress directed
agencies to develop alternatives to surety bonds for contracts between $25,000 and
$100,000. These statutory requirements are implemented in FAR part 28.

5.4.2.2 The cost of all performance bonds, payment bonds, and other types of
bonds determined to be appropriate by the cost engineer are allowable costs.

5.4.3 Classes of Bonds. Bonds are classified as Class A, Class B, or Class A-

1, depending on the type of construction to be performed. Most types of civil works
projects are classified as Class B. Table 5-3 illustrates the various types and classes of
bonds.

Table 5-3. Classes of Bonds

CLASS A (Contracts for furnishing and installing, or installing only, certain services or equipment)
Airport runways Greenhouses Ski lifts
Aluminum siding High-pressure power piping Sprinkler systems
Athletic fields Janitorial service Stone (furnishing, delivering only)
Beacon or floodlights Machinery made to special order Storage tanks metal
Burial contracts Map making Tennis courts
Ceilings (metal or acoustical tile) Millwork Water carnage of freight
Certain walls (nonstructural) Murals Water proofing (except with
gunite)
Coal storage Parking areas Wind tunnels
Ducts (underground power, light, Planting and cultivation of land
phone)
Elevators/escalators Playgrounds and parks

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Table 5-3. Classes of Bonds (Cont.)

CLASS B
Airport buildings Gas piping Sand blasting
Aqueducts Golf courses Sculptures
Atomic energy plants Grain elevators Sea walls
Breakwaters Gunite contracts Sewage disposal plants
Canals and canal lining Heating systems Sewers/septic tanks
Carpentry Hospital buildings Shipyards
Coal stripping Incinerators Spillways
Commercial buildings Industrial buildings and plants Stone
Concrete work Jetties Subways
Dams Landscaping Swimming pools
Dikes Locks Terminals-buses
Ditches Masonry Test boring
Docks and drydocks Missile installations Tile and terrazzo
Drilling contracts Nuclear reactors Transmission or distribution lines
Educational buildings Office buildings Tunnels
Electrical Offshore platforms Underwater cables
Embankments Painting Ventilation systems
Excavations Piers Water works
Filling stations Pilings Wells
Filtering plans Pipelines for water Wharves
Fountains Plastering
Garbage disposal plants Plumbing
Gasoline cracking plants Power plants
Gas compressor stations Public improvements
Gas mains and laterals Railroad roadbeds

CLASS A-1 (Contracts for furnishing and installing, or installing only, certain services or
equipment)
Arms Guardrails Repair of automobiles and trucks
Ash conveyors Heating Re-smelting old metal
Automatic strokers Incinerator operations Riprap stone (furnishing only)
Automatic telephone exchange Insulation contracts Rolling stock
and equipment
Automotive service contracts Kitchen equipment Scaffolding cost engineer should
Band concerts Laboratory equipments Sidewalks
Bird control Leasing of motor vehicles Signaling systems on railroads
Boiler re-tubing and repair Lightning rods Signs (all)
Bookbinding Lock gates Stack rooms
Cataloging Mail handling machinery Standpipes
Coal handling machinery Metal windows and shutters Street and subway lighting
systems
Computers and data processing Mosquito control contracts Temporary personnel services
equipment
Conveyors Movies Thermostat equipment
Data processing and computer Office personnel Tollgates
works
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Table 5-3. Classes of Bonds (Cont.)

Doors/dynamos Organ repairs Track laying
Exterminating contracts Ornamental ironworks Traffic control systems on
highways
Fire alarm systems Parking meters Training manuals
Fire escapes Photogrammetric work Tree trimming and removal
Flagpoles Pipelines for oil or gas Watchmen and signal services
Floats Police alarm systems Water towers
Floors Projectiles Weather stripping
Furnishing food services Public address and music Weed mowing
systems
Gas tanks Radio towers Window cleaning
Generators Radiological equipment Work and Labor
Grain doors, salvage, and Recapping automobile tires X-Ray inspections
disposal

5.4.4 Determining Bond Rates. If the contract is susceptible to two

classifications, normally the higher rate is applicable. Separate contracts take the same
classification as a general contract. Neither the classification nor the rate is changed by
subdividing the work or by the Government providing certain materials. Subcontracts
use the same classifications and rates as general contracts. Bond rates may change
and should be verified on an annual basis and verified for the specific locale. A good
source for verification is construction branch, which commonly receives the bond rate
calculations for specific projects.

5.4.4.1 Non-Deviating States Exceeding 12 months Stipulated Time. For states

in conformance (non-deviating) with the Surety Association of America (SAA) rates
(table 5-4) where the construction time exceeds the bond stipulated time of 12 months,
add 1 percent of the bond premium for each month in excess of 12 months.

5.4.4.2 Deviating States Exceeding Stipulated Time. For states not conforming
(deviating) with the SAA rates (table 5-5) where the construction time exceeds the bond
stipulated time of 12 months, add one-half percent of the basic premium for each month
in excess of 12 months up to 24 months and 1 percent of the basic premium for each
month in excess of 24 months.

5.4.4.3 Non-Deviating States Exceeding 24 Months Stipulated Time. For states

in conformance (non-deviating) with the SAA rates (table 5-6) where the construction
time exceeds the bond stipulated time of 24 months, add 1 percent of the basic
premium for each month in excess of 24 months.

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5.4.5 Consent of Surety

5.4.5.1 Not required. If the consent of the surety is not required and given for
changes or extras, first and renewal premiums for the additional cost thus caused are
computed at manual rates from the date of the bond.

5.4.5.2 Required. If the consent of the surety is required and given for changes
or extras, premium for the additional cost thus caused, is computed at manual rates
from the date of such surety cost.

5.4.6 Cost of Performance and Payment Bonds. Performance and payment

bonds are normally obtained as a single package. The premium is the same as for the
performance bond alone. Rates vary with the type of the contract work, the dollar value,
and the length of the contract.

5.4.6.1 Coverage Limit of Performance Bonds. The coverage limit of

performance bonds is specified in each contract and is usually for the full amount of the
contract price (bid amount). The premium is adjusted at the completion of the work for
any modification changes in the contract price other than changes due to time bonuses
or penalties. If the original contract price is increased through change order, the
contractor must pay an additional premium. Conversely, if any part of the original work
is deleted and the original price thereby reduced, the contractor will receive a refund
from the surety.

5.4.6.2 SAA Issues Advisory Rates. It should be noted the surety industry has
become a state-regulated industry. The SAA issues advisory rates, but these rates may
or may not be accepted by the state involved. Therefore, actual rates charged by surety
corporations may vary from state to state.

5.4.6.3 Calculation of Bond Premium Cost. The following example illustrates

the calculation of bond premium cost. Since the rates are subject to change and may
vary by state, the calculations are to be used as a sample only. The cost engineer is
responsible for ensuring the rates used are accurate and current. This example
assumes a canal excavation project in Tennessee to be accomplished at an estimated
cost of $2.5 million, including profit, with a duration of 11 months. From table 5-3,
“excavation” is found in Class B. Referring to the Class B rate schedule in table 5-4, the
premium for a performance-payment bond written in the full amount of the contract price
(including bond) and by a non-deviating Surety Association Company would be
calculated as follows:

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Example of Class B Bond Premium Calculation:

Estimated Bond Amount x Rate = Premium

First $100,000 x $25.00/M $2,500

Next $400,000 x $15.00/M $6,000
Next $2,000,000 x $10.00/M $20,000

Anticipated Estimated Amount (inc. bond)

$2,500,000 $28,500

(20 mos. - 12 mos. = 8 mos. surcharge)

Eight additional months @ 1%/MONTH

(8 mo × 1% × $28,500) $2,280

TOTAL PREMIUM $30,780

Table 5-4. Performance and Payment Bond (completion time not over 12 months) with
Non-Deviating Rates
Amount of
Contract Price Class B Class A Class A-1

First $ 100,000 $25.00/M $15.00/M $9.40/M

Next 400,000 15.00 10.00 7.20
Next 2,000,000 10.00 7.00 6.00
Next 2,500,000 7.50 5.50 5.00
Next 2,500,000 7.50 5.00 4.50
Over 7,500,000 6.50 4.50 4.00
Note: SAA advisory rates per $1,000 of contract value for all jurisdictions except South Carolina,
Louisiana, Delaware, Hawaii, and Arkansas.

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Table 5-5. Performance and Payment Bond (completion time not to exceed 12 months)
with Deviating Rates
Amount of
Contract Price Class B Class A Class A-1

First $ 100,000 $10.00/M $7.50/M $4.90/M

Next 400,000 8.00 5.50 4.50
Next 2,000,000 7.00 5.00 4.10
Next 2,500,000 6.00 4.40 3.80
Next 2,500,000 5.00 3.80 3.50
Over 7,500,000 4.50 3.25 2.95
Note: Deviating rates from companies that may or may not belong to the SAA and are dependent on
competition and contractor net worth. The rates per $1,000 of contract value are typical of a large
contractor having a preferred rate structure.

Table 5-6. Performance and Payment Bond (not to exceed 24 months) with Non-
Deviating Rates
Amount of
Contract Price Class B Class A Class A-1

First $ 500,000 $14.40/M $10.80/M $7.20/M

Next 2,000,000 8.70 6.72 6.00
Next 2,500,000 6.90 5.28 4.92
Next 2,500,000 6.30 4.92 4.44
Over 7,500,000 5.76 4.44 3.96
Note: Non-deviating SAA advisory rates per $1,000 of contract value are for South Carolina, Louisiana,
Delaware, Hawaii, and Arkansas.

5.5 Taxes. Indirect costs may include certain tax applications and are dependent
upon the state wherein the project is located. The cost engineer should ensure those
taxes are covered within the prime contractor markups, within the indirect costs.
Examples include the business and occupation tax and the gross receipts tax.
Consideration should be made when applying these rates when profit is not included
within the estimate, since these rates are applied on total construction cost, including
profit.

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CHAPTER 6

Risk, Contingency, and Escalation

6.1 General. While the cost engineer is responsible for developing the construction
cost and schedule estimates, the risk, contingency, and escalation must address all cost
and schedule estimates of all features within the CWWBS. For this reason, it is
recommended that the MCACES estimate includes all feature levels within the
CWWBS. This chapter provides guidance regarding other costs not specifically
identified in the previous chapter but costs that must be included in the preparation of
TPC estimates for all feature level costs.

6.2 Risk Analysis.

6.2.1 A risk analysis is a formal process used to calculate or project the cost
and schedule contingency at a selected confidence level for project execution success.
The process must include the PDT since it addresses all perceived risks and benefits to
TPC and schedule. The civil works risk analysis process is based upon the Monte
Carlo methods related to probability of occurrence for the risk areas of concern, both
positive and negative influences. HQUSACE mandates the use of the nationally
recognized software Crystal Ball, an Excel-based Monte Carlo risk simulation software.
Further guidance and procedures to conduct risk analysis is presented in appendix G.

6.2.2 A risk analysis should be provided on the TPC, including all features of
the project, but excluding escalation and contingency. Too often, risk focuses on just
the construction activities, which can result in critical risk elements remaining
unidentified. Through early determination of potential project risks, management can
then focus efforts in those areas for potential risk mitigation, resulting in cost and
schedule savings. A formal risk analysis should be accomplished as a joint analysis
between the cost engineer and the other PDT members that have specific knowledge
and expertise on all possible project risks for all features, internal and external.

6.2.3 To accomplish this process, it is vital to first establish the method or

process in risk identification. A recommended process is provided in the flow chart in
figure 6-1. The current HQ guidance requires a formal analysis on all projects where
the TPC exceeds $40 million. For projects where the TPC is less than the $40 million, a
formal risk analysis is not mandatory, but may be prudent. Another accepted method
for assessing risk and contingency for projects valued at less than $40 million is to
evaluate on the merit of scope definition, quantity, and estimate confidence by feature,
subfeature, major cost elements, and technical complexity.

6.2.4 Upon PDT formulation and instruction of the risk analysis process, the
PDT addresses scope, identifying those areas that significantly contribute to cost and
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schedule uncertainty. During this process, it is important that a risk facilitator lead the
PDT risk discussions. It is also important that the cost engineer discuss the current
estimate and schedule, the methodologies, and assumptions, because they will have
bearing on the risk discussions and impacts. Figure 6-2 provides what is commonly
referred to as a risk register. This sample is extremely helpful in guiding the PDT
through the initial risk discussions. The outcome of those discussions is a preliminary
risk register that indicates the perceived risks and the perceived impacts.

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District Coordinate with

Begin Obtain
Access to other District or the
Risk Analysis Risk Analysis No
Crystal Ball Walla Walla Cx
Model Template
Software for Support
0 1 2 3

Yes

Complete PDT to identify

PDT Meeting to Development
Customize Risk Register Risk Items
Brainstorm of the
Risk Model Documentation (Likelihood &
Risk Items Risk Register
(ref template ) Impact )
8 7 6 5 4

Cost Engineer Cost Engineer Cost Engineer

Market Analysis * transfers the “Most transfers the “High transfers the “Low
Run Risk
by Likely” Cost & Values” Cost & Values” Cost &
Cost Engineer Model
Schedule Data Schedule Data Schedule Data
9 to Cost Risk Model to Cost Risk Model 11 to Cost Risk Model 12

10 13

Fail

Sanity Check
Identifies Monetary
Identifies Key based on Generate
& Schedule Pass
Risk Drivers Sensitivity Risk Report
Impact of Drivers
Analysis

17 16 15 14
Incorporate Risk Reduction Measures

Complete
Present to PM Define Resulting
Total Project Cost
Project Cost with for potential Contingency Level
Summary w /
Confidence Levels Risk Reduction based on
Contingency and
Efforts Confidence Level
Escalation

18 19 20 21

Figure 6-1. Recommended Risk Analysis Process

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`
Risk Level
Likelihood of Occurrence

Very
Low Moderate High High High
Likely

Likely Low Moderate High High High

Unlikely Low Low Moderate Moderate High

Very
Low Low Low Low High
Unlikely

Negligible Marginal Significant Critical Crisis

Impact or Consequence of Occurrence

Project Cost Project Schedule

Rough
Rough Order Order Variance Correlation to Affected Project Project
Risk No. Risk/Opportunity Event Discussion and Concerns Likelihood* Impact* Risk Level* Impact ($) Likelihood* Impact* Risk Level* Impact (mo) Distribution Other(s) Responsibility/ POC Component Implications
Internal Risks (Internal Risk Items are those that are generated, caused, or controlled within the PDT's sphere of influence.)
Scope is fairly well defined for standard civil works features.
The pumping plant requires considerable design and Project
I-1 Scope Definition approximates 20% of the cost. LIKELY SIGNIFICANT HIGH $1,200,000 LIKELY SIGNIFICANT HIGH 8 UNIFORM I-2 Manager/Planner Construction Cost Cost & Schedule
Scope is fairly well defined for standard civil works features.
Scope Growth / The pumping plant has potential of VE savings through Project
I-2 Reduction better data and VE. LIKELY MARGINAL MODERATE ($275,000) LIKELY MARGINAL MODERATE 10 UNIFORM I-1, I-16 Manager/Planner Construction Cost Cost & Schedule

$3 Billion construction will be occurring in locale over the Project Labor/ Production
I-3 Labor Availability/Pricing next 5 years. LIKELY SIGNIFICANT HIGH $3,000,000 LIKELY MARGINAL MODERATE 9 TRIANGULAR Manager/Planner Rates Cost & Schedule

Equipment Large cranes required, but available. Pump plant Equipment/

I-4 Availability/Pricing equipment long lead time. UNLIKELY NEGLIGIBLE LOW $900,000 UNLIKELY MARGINAL LOW 6 TRIANGULAR I-15 Cost Engineering Production Rates
Material Needed aggregates in short supply locally. This affects
I-5 Availability/Pricing concrete, rip rap, base course and asphalt VERY LIKELY SIGNIFICANT HIGH $2,300,000 VERY LIKELY MARGINAL MODERATE 4 TRIANGULAR Cost Engineering Material Costs Cost & Schedule

$2.65 per gallon was used in the Oct 06 MCACES,

I-6 Fuel Prices increases will effect equipment and delivery or materials VERY LIKELY SIGNIFICANT HIGH $1,750,000 VERY LIKELY NEGLIGIBLE LOW 0 TRIANGULAR Cost Engineering Equipment Cost
Location is rural. However, several unmarked and
abandoned farm related utilities are prevalent at this
I-7 Utility Relocations location. LIKELY MARGINAL MODERATE $870,000 LIKELY MARGINAL MODERATE 3 TRIANGULAR Civil Design Construction Cost Cost & Schedule
Studies indicate that the area is heavily saturated with de- Environmental
icing chemicals as well as agricultural fertilization and Compliance
I-8 Environmental Mitigation pesticide residuals. LIKELY SIGNIFICANT HIGH $1,600,000 LIKELY SIGNIFICANT HIGH 24 UNIFORM Specialist Construction Cost Cost & Schedule
Environmental
A small portion of the project is located within the limits of Compliance
I-9 HTRW an Army Chemical Depot undergoing BRAC. UNLIKELY MARGINAL LOW $400,000 UNLIKELY SIGNIFICANT MODERATE 18 UNIFORM Specialist Construction Cost Schedule
Substantial permitting delays may occur if there are
significant environmental mitigation/HTRW issues, or PED/Lands &
I-10 Permits political opposition. LIKELY NEGLIGIBLE LOW $150,000 LIKELY MARGINAL MODERATE 17 TRIANGULAR I-14, E-4 Planning/Regulatory Damages Schedule
Project site is a natural habitat for various species of
threatened wildlife that spawn during Spring months. No Project
I-11 Environmental Windows excavation is permitted from April 15 - June 30. VERY LIKELY SIGNIFICANT HIGH $3,500,000 VERY LIKELY SIGNIFICANT HIGH 30 TRIANGULAR E-2 Manager/Planner Construction Cost Cost & Schedule
Project is a fast-track project, although complicated.
Concerns exist on obtaining appropriate schedule and
Sufficient Planning funding for sufficient review and effort by specialized team Project
I-12 Schedule members and contractors LIKELY MARGINAL MODERATE $300,000 LIKELY SIGNIFICANT HIGH 14 TRIANGULAR Manager/Planner Construction Cost Cost & Schedule

Due to fast-tracking, portions of design and planning effort

are split between Gov't and AE specialists. Concern Project
I-13 Adequate Technical Staff remains that the integration of staff may create delays. LIKELY NEGLIGIBLE LOW $200,000 LIKELY MARGINAL MODERATE 7 TRIANGULAR Manager/Planner PED Schedule

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Site access is limited due to clearances required from U.S.
Army installation, and local farmers remaining on property.
Also, no excavation (or boring) is permitted April 15 - June Project
I-14 Site Access 30. VERY LIKELY MARGINAL MODERATE $500,000 VERY LIKELY NEGLIGIBLE LOW 2 TRIANGULAR I-10 Manager/Planner Construction Cost Cost
There are only two known manufacturers of the specialized
Special Equipment filtration and pumping stations required on site, and neither
I-15 Fabrication are domestic. UNLIKELY NEGLIGIBLE LOW $1,900,000 UNLIKELY NEGLIGIBLE LOW 7 TRIANGULAR I-4 Cost Engineering Construction Cost

Potential savings due to

innovation, streamlining, Value Engineering has already been incorporated into the Value Engineering
I-16 and gains in efficiency project. VE remains on the pumping plant. LIKELY MARGINAL MODERATE ($2,500,000) LIKELY NEGLIGIBLE LOW 11 UNIFORM I-2 Team Productivity Cost
The estimate was based on full and open competition, with
minimal tiering of contractor subs. The Acq Plan has not
been finalized, therefore there is a potential for additional Acquisition Strategy
I-17 Acquisition Plan tiering of the contracts. LIKELY SIGNIFICANT HIGH $7,500,000 LIKELY MARGINAL MODERATE 16 TRIANGULAR E-3 Board Construction Cost Cost & Schedule
I-XX Other Potentials
External Risks (External Risk Items are those that are generated, caused, or controlled exclusively outside the PDT's sphere of influence.)

Work will be done on the river, unpredictable, scour Labor/ Production

E-1 Weather protection is more vulnerable LIKELY NEGLIGIBLE LOW $175,000 LIKELY MARGINAL MODERATE 6 TRIANGULAR N/A Rates Schedule
Environmental Policy There are external environmental policy changes that can Project
E-2 Changes change the construction work windows. LIKELY SIGNIFICANT HIGH $1,400,000 LIKELY SIGNIFICANT HIGH 10 TRIANGULAR I-11 Manager/Planner Construction Cost Cost & Schedule

Bidding Climate – $3 Billion construction will be going on in downtown Acquisition

E-3 Saturated Local Market Pittsburgh over the next 5 years. LIKELY MARGINAL MODERATE $2,000,000 LIKELY NEGLIGIBLE LOW 4 UNIFORM I-16 Professional Construction Cost Cost
Project is highly visible and controversial. Delays due to
Political political ramifications are possible and could critically delay Project
E-4 Support/Opposition or terminate the work. LIKELY SIGNIFICANT HIGH $6,400,000 LIKELY SIGNIFICANT HIGH 28 UNIFORM I-10 Manager/Planner Project Cost Cost & Schedule
Budget constraints could limit or delay funding, creating
Sufficient Incremental potential sequencing delays and issues, considering the Project
E-5 Funding environmental window constraints. VERY LIKELY SIGNIFICANT HIGH $4,600,000 VERY LIKELY SIGNIFICANT HIGH 27 TRIANGULAR Manager/Planner Project Cost Cost & Schedule
E-XX Other Potentials
*Likelihood, Impact, and Risk Level to be verified through market research and analysis (conducted by cost engineer).
1. Risk/Opportunity identified with reference to the Risk Identification Checklist and through deliberation and study of the PDT.
2. Discussions and Concerns elaborates on Risk/Opportunity Events and includes any assumptions or findings (should contain information pertinent to eventual study and analysis of event's impact to project).
3. Likelihood is a measure of the probability of the event occurring -- Very Unlikely, Unlikely, Moderately Likely, Likely, Very Likely. The likelihood of the event will be the same for both Cost and Schedule, regardless of impact.
4. Impact is a measure of the event's effect on project objectives with relation to scope, cost, and/or schedule -- Negligible, Marginal, Significant, Critical, or Crisis. Impacts on Project Cost may vary in severity from impacts on Project Schedule.
5. Risk Level is the resultant of Likelihood and Impact Low, Moderate, or High.pRefer to the p matrix located at topj of page. p , y p y p y g
A risk item for which the PDT has little data or probability of modeling with respect to effects on cost or schedule (i.e. "anyone's guess") would probably follow a uniform or discrete uniform distribution.
7. The responsibility or POC is the entity responsible as the Subject Matter Expert (SME) for action, monitoring, or information on the PDT for the identified risk or opportunity.
8. Correlation recognizes those risk events that may be related to one another. Care should be given to ensure the risks are handled correctly without a "double counting."
9. Affected Project Component identifies the specific item of the project to which the risk directly or strongly correlates.
10. Project Implications identifies whether or not the risk item affects project cost, project schedule, or both. The PDT is responsible for conducting studies for both Project Cost and for Project Schedule.
11. Results of the risk identification process are studied and further developed by the Cost Engineer, then analyzed through the Monte Carlo Analysis Method for Cost (Contingency) and Schedule (Escalation) Growth.

Figure 6-2. Sample Risk Register

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6.2.4.1 Following the Pareto Principle, 80 percent of the cost of a project is

contained in 20 percent of the estimated work elements. The object is to focus on the
uncertainty associated with the so-called 20 percent “critical” elements. Variables such
as internal project and external project influences should be considered. Internal
variables that carry differing degrees of confidence that can significantly impact cost and
schedule might be items such as real estate, mitigation, scope definition, quantities,
productivity, labor, specific materials or equipment, location, and access. Scope has
been identified as the largest impact to cost and schedule growth. Examples of external
influences might be contract acquisition strategy and bidding climate, bid competition,
assurance of project funding, weather, etc.

6.2.4.2 Upon determination of what items are considered potential risks, the
cost engineer then completes the most likely cost estimate, which becomes the base
cost represented within the TPCS before application of contingency and escalation.
The cost engineer then studies the market to determine whether the perceived risks are
real and significant to the successful execution of the project.

6.2.4.3 Upon completion of the market studies, conclusions can then be made
related to the significance of the risks. The cost engineer then completes the risk
register(s), addressing both cost and schedule impacts. The cost engineer evaluates
the most likely estimate and related risk parameters, determining the best or most
optimistic potential, the most likely potential, and the worst-case potential. Caution
should be exercised to ensure the best case and worst case are not taken to an
extreme, because those extremes can skew the risk potential.

6.2.4.4 Upon completion and understanding of the impacts for the significant
items, the cost engineer is then ready to prepare the data for a software application and
analysis. It is recommended that the risk be captured and reported at the 80 percent
confidence level. Quite often, the first software application will result in contingency
value that does not seem credible. The cost engineer should re-evaluate and question
the risk potentials, studying possible duplication, item correlations, or unreal best or
worst-case items. There are occurrences where the entire PDT must meet again to
discuss the results, but often, the cost engineer can resolve concerns by working with
key individuals of the PDT.

6.2.4.5 A high contingency can mean several things. It can reflect lack of clear
scope. It may mean that the “most likely” estimate is actually low or too optimistic. It
can also imply a flawed risk analysis. Conversely, if a low contingency result is
obtained where scope is still poorly defined, further risk study is in order.

6.2.4.6 A cost and schedule risk analysis will identify the contingency that must
be added to a project to cover cost and schedule growth potential. It should be noted
that the use of risk analysis will not reduce the uncertainties associated with the project
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cost estimate or solve the problems of cost variance due to insufficient investigations or
design data. This process more readily identifies elements of the project where
additional design or study effort may reduce the uncertainties and provide a more
reliable cost estimate.

6.3 Contingency.

6.3.1 Contingency is to cover unknowns, unforeseen uncertainties, and/or

unanticipated conditions that are not possible to adequately evaluate or determine from
the data on hand at the time the cost estimate is prepared. Contingencies relate to the
uncertainties of the current known and defined project scope and are not a prediction of
future project scope or schedule changes.

6.3.2 The goal in contingency development is to determine a confidence value

by means of a percentage in potential cost and schedule growth. The contingency
value reflects the level or degree of project development. Typically, the less defined a
project, the higher the contingency value. Scope definition and estimate quality have a
significant bearing on confidence, risks, and resulting contingency development. The
more defined a scope and the better developed the estimate will result in a lower
contingency. Consideration must be given to the details available at each stage of
planning, design, or construction for which a cost estimate is being prepared.

6.3.3 For a preliminary estimate at feasibility level, the contingency may be a

result of a formal risk analysis. When performing the analysis, the estimate should not
contain a contingency, because the risk analysis is developing that amount. Upon
completion of the estimate, sufficient contingencies should be considered at the lowest
MCACES title or detail level where the risks or uncertainties have been identified.
Contingencies may vary throughout the cost estimate and could have a significant
impact on overall costs being high when the lack of investigation data or design detail is
associated with critical/high cost elements. The cost estimate narrative should discuss
the reasons for the applied estimate contingency rate and assignment.

6.3.4 Forward pricing in an estimate to adjust current prices to reflect the cost
expected at the actual purchase date, e.g., long construction period, should not be
included as a contingency, but should be clearly and separately defined in each
estimate. Labor wage increases throughout long construction periods shall be included
and clearly documented in the estimate and not considered contingency.

6.3.5 Contingency allocations are specifically related to the project

uncertainties and should not be reduced without appropriate supporting justification.
The decision to reduce these uncertainties and improve the cost estimate through
additional investigations or studies, or to proceed with the higher cost estimate, is a
management decision.

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6.4 Cost Escalation.

6.4.1 Civil Works Construction Cost Index System (CWCCIS), Engineer

Manual (EM) 1110-2-1304, provides historical and forecasted cost indexes for use in
price indexing and escalation to account for inflation. The indexes presented in the
manual are specifically designed for civil works construction, and are specific for each of
the major civil works features. Only indexes for construction costs have been
developed. The indexes are also used to escalate or inflate various project cost
features to current or future price levels respectively.

6.4.2 Each cost engineer providing support to planning studies must be

familiar with cost estimates prepared on a constant dollar basis (escalation) and an
inflated dollar basis (inflation) described in the Planning Guidance Notebook (ER 1105-
2-100). Reporting civil works project costs and guidance for preparing the TPCS sheet
(presented in appendix B).

6.4.3 Construction cost estimates, when finalized, must reflect the total
estimated cost during the entire duration of construction. Cost escalation due to
inflation must be identified as a separate element within the cost estimate. This allows
the cost engineer the ability to easily adjust the estimate to reflect construction schedule
changes.

6.4.4 For projects with construction cost estimates more than two years old
without an update in pricing, special consideration is required. In these situations, it is
the responsibility of the cost engineer to perform an appropriate analysis to ensure that
the construction estimate is based on the current design and schedule. The
construction cost estimates for major or unique and Congress-approved projects will be
updated and re-priced using current labor and material rates.

6.4.5 For projects with construction estimates less than two years old, it is
acceptable to use the CWCCIS cost indexes to update the construction estimate and
other project cost elements. This decision should be based on the judgment and
experience of the cost engineer.

6.4.6 Schedule Development for Total Project Schedule

6.4.6.1 The project schedule is used to forecast when project tasks or activities
will begin, the duration of each task, and its relationship to other tasks. Knowing how
each task or activity is funded will illustrate when the costs are expected to occur and
when the funding is needed. When referring to CWCCIS and the TPCS, it becomes
very apparent that escalation is dependent upon the project schedule. In order to
confidently compute the escalation that is reflected within the TPCS, a project schedule
must be developed that represents all feature levels, engineering, and design as well as
construction efforts. The cost engineer is responsible to develop the schedule for the
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construction elements and tasks. There are several software programs available to
accomplish this.

6.4.6.2 It is recommended that, as a minimum, schedule development includes

the main tasks or activities; the main cost and schedule drivers that can affect duration.
While the cost engineer may choose to resource load the schedule for both cost and
time, the minimum schedule should reflect the logic and construction flow of critical and
near critical path elements and durations. Those durations should reflect the estimate
task productivities. Often times, the schedule will indicate logic flaws within the estimate
related to critical and near-critical tasks, concurrent activities, sequential activities, work
windows and restrictions, need for crew adjustments, and/or overtime. The schedule
may result in a need to change the estimate logic. This is critical, because the objective
is to estimate an escalation value commensurate with the project requirements and
restrictions.

6.4.7 Price Level/Escalation Adjustment

6.4.7.1 All cost estimate elements will be priced to a common calendar date
base (month and year). This date is referred to as the effective price level date. Once
the cost estimate has been prepared to the effective price level date, the estimate may
require cost adjustment to accommodate economic analyses, budgeting and financial
analyses, the construction schedule, or the project schedule. Therefore, the cost
engineer should calculate escalation as separately identifiable elements, and the
calculation methodology should be clearly defined and indicated. See CWCCIS, EM
1110-2-1304, for specific guidance and the TPCS found in appendix B.

6.4.7.2 As the project scope progresses to a feasibility level and as indicated in

ER 1110-2-1150, project schedules are required to support escalation calculations as
well as planning project management activities. The project schedules are extremely
helpful in considering the estimate logic related to critical path, near critical path, and
concurrent activities as well as potential need for overtime, multiple crews, and shifts to
perform the work.

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CHAPTER 7

Independent Government Estimates

7.1 General.

7.1.1 The IGE for construction is the formal, approved cost estimate prepared
and submitted to support contract award. This estimate is required for all contracts of
$100,000 or more (FAR 36.203). The IGE is used to determine the reasonableness of
competitive bids or proposals received in connection with formally advertised
construction contracts, regardless of the acquisition strategy or contract type. The IGE
typically consists of a Government Estimate of Contract Cost, Details and Analysis of
Construction Contract Costs, and Support to the Estimate. Each part is shown in
figure 7-1. Sample Government estimate sheets are illustrated in appendix E. Security
and control of the Government estimate is described in paragraph 7.7.4.1.

7.1.2 The IGE normally consists of a title page, signature page, and price or
bid schedule. Supporting documents that are publicly available as parts of the
solicitation (such as plans, specifications, and project descriptions) are not part of the
IGE. The IGE shall be approved, dated, and signed by the District Commander or
approved designee.

Figure 7-1. Example Composition of an Independent Government Estimate

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7.2 Contract Cost. The IGE is the portion of the cost estimate to be submitted as
required by procurement regulations. It includes the title page, signature page, and
bid/price schedule.

7.2.1 Title Page. The title page should include the name and location of the
project, the office responsible for the project design, the cost engineer responsible for
preparation of the cost estimate, and the date and price level of the cost estimate.

7.2.2 Signature Page. The signature page should contain the names and
signatures of those individuals responsible for the preparation, review, submittal, and
approval of the cost estimate. It is necessary that the sheet contain the total amount of
the estimated costs. The number of amendments included in the estimate should
appear on the same page so that there will be no question as to the approved amount.

7.2.3 Pricing Schedule. The bid/price schedule required by the solicitation

documents must be completed as part of the IGE. As part of the design team, the cost
engineer should be involved in the development of the bid/price schedule. The format
of the bid/price schedule must be anticipated in planning and design estimates. When
the bid/price schedule is finalized for procurement, it must show unit prices, quantities,
extension of unit prices, lump sum items, and total costs. Rounding off is not permitted
on the bid/price schedule between the unit price and extension. Any rounding
adjustments must be performed in the bid schedule. Instructions found within the
contract solicitation bid documents also pertain to the IGE.

7.3 Details and Analysis of Construction Contract Costs. This part of the estimate of
construction cost consists primarily of those sheets with notes, which describe the
scope tasks and costing. It also contains discussions, considerations, and developed
construction plan. The types of items normally included are as follows:

7.3.1 Table of Contents. The table of contents should reflect the estimate
structure and CWWBS. For IGEs, the table of contents should reflect the bid schedule
at the highest level, estimate structure at the lower levels, reflecting the CWWBS.

7.3.2 Project Narrative. The project narrative provides general details of the
project scope and supporting cost databases. The narrative shall present discussion of
the major construction features and elements. The narrative shall also define the critical
assumptions and basis of costs that were made during the preparation of the cost
estimate. It describes the project requirements and construction methodology that must
be performed in sufficient detail to give a clear understanding of the scope of work. It
also describes project details including length, width, height and shape of primary
features, special problems that will be encountered in performing the work, site
conditions affecting the work, reasons for selection of major plant and equipment,
method and time for mobilization and demobilization of all equipment, and the reasons
for unusually high or low unit prices. Each estimate will include a statement, which
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relates both the development of design, as appropriate, and date of effective pricing.
Other factors to be considered in the project narrative include:

7.3.2.1 Construction schedule, use of overtime, construction windows, phasing,

acquisition plan, and subcontracting.

7.3.2.2 Project related details including site access; borrow areas; construction
methodology; unusual conditions (soil, water, or weather); unique techniques of
construction; equipment/labor availability and distance traveled; environmental
concerns; and effective dates and sources for labor, equipment, and material pricing.

7.3.3 Construction Schedule

7.3.3.1 The cost engineer may prepare a construction schedule to support the
cost estimate that is consistent with the schedule for completion of the project. It may
be in the form of a bar chart or network analysis system. It must identify the sequence
and duration of the tasks upon which the cost estimate is developed. The schedule
must be prepared in sufficient detail to adequately develop the required labor,
equipment, crew sizes, and production rates required for each of the identified
construction tasks.

7.3.3.2 Schedules are helpful in determining estimate logic, sequencing,

phasing, and concurrent activities as well as critical path elements. The schedule
should be compared to the contract schedule requirements when determining which
portions of the work may require overtime and/or multiple work crews and crew sizes.

7.3.4 Equipment and Materials Utilization. On those projects involving

considerable heavy construction equipment, it is necessary to sufficiently plan the
equipment usage against the work schedule to identify the actual number of cranes,
dozers, etc., and allow for proper mobilization to assure that demand for the equipment
is not over- or understated. For equipment selected from EP 1110-1-8, indicate the
region and date of the equipment schedule used for pricing the equipment. Materials,
which require long lead time and can become critical to the construction schedule,
should be noted, planned, and adequately considered. Certain heavy equipment
choices must consider load and size restrictions on structures such as dams, highways,
bridges, overhead obstructions, etc.

7.3.5 Labor Discussion and Utilization. The estimate should clearly state the
sources for the various labor classifications and rates and include tabulation by crafts of
the various composite wage rates used. When extensive overtime beyond the normal
workday is used in the estimate, an explanation should be included.

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7.4 Support to the Estimate.

7.4.1 This part of the estimate consists of all the support and backup
documentation. The various categories of support documentation contained in this part
include:

7.4.1.1 Cost Analysis Summary Sheets. The automated or manually prepared

summary sheets for direct, indirect, and owner costs are used to summarize cost
components for each bid item and by the appropriate CWWBS. Distribution of
overhead and profit is shown on this sheet.

7.4.1.2 Mobilization, Preparatory Work, and Demobilization. These costs should

be itemized and costed separately. These costs may be combined at the summary
level with overhead if these costs are not paid as a separate bid item. This item may be
shown as a lump sum on the bid schedule.

7.4.1.3 Profit Computation Sheet. Profit is not to be included in any construction

IGE for work to be performed by private contract (33 United States Code 624) so that
the 25 percent fair and reasonable award measure can be made in accordance with
PL 95-269. This applies to any basic contract for construction, as well as task orders
since they are considered separate contracts. Should profit be requested by the
contracting officer for negotiation purposes, the weighted guideline (paragraph 5.3.3.1)
profit calculation method will be used to compute the profit and will be part of the cost
estimate backup, but it shall not be included within the 25 percent award comparison.

7.4.1.4 Overhead Costs. The itemization and calculations of overhead costs,

both job site and home office, should be accomplished in accordance with chapter 5.

7.4.1.5 Bond Costs. Bond costs should be calculated in accordance with

paragraph 5.4. Distribution is made to bid items similar to or as part of overhead costs
distribution.

7.4.1.6 Automated Detail Sheets. The completed direct costs should be

organized in the proper sequence by the appropriate CWWBS for each bid item.

7.4.1.7 Production Rates. The automated or manually prepared details are

used to express production rate analysis of crews. See chapter 4 for further discussion.

7.4.1.8 Crew, Labor, and Equipment Rates. These automated or manually

prepared details are used to express the crew composition and associated rates for
labor and equipment costs. The information contained on these sheets provides the
backup support for the task unit labor and equipment costs shown.

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7.4.1.9 Quantity Computations. The quantity takeoff computations for the tasks
estimated should be organized by task for the bid items and kept as backup. The
takeoff should reference the drawing and clearly explain the computation.

7.4.1.10 Quotations. Quotations should be collected and compiled by task or bid

item into an organized reference. When quotations were not obtained for significant
material and supply items, the basis for the cost used should be fully described.
Quotations should be considered proprietary information and should be kept confidential
to protect the information entrusted to the cost engineer. Quotations should consider
whether markups and delivery have been included.

7.5 Miscellaneous Support Data.

7.5.1 Include all other information pertinent to the estimate such as drawings
and sketches, which were used as the basis of the cost estimate. Drawings may
include a project map showing the location of the work with respect to principal cities,
roads, railways, and waterways. A site map may show the location of the work, borrow,
quarry, spoil areas, and existing work access roads. Any existing facilities usable by the
contractor should be included as well as a general plan and elevation or profile of the
work with typical sections and a construction layout.

7.5.2 Supporting documents that are publicly available as parts of the

solicitation, such as plans, specifications, and project description, or that contain no cost
information, such as sketches, soil boring, and material classifications, are not part of
the IGE or Government estimate backup.

7.6 Estimate and Schedule Quality Review.

7.6.1 Before IGE approval and submission by cost engineering, the cost
engineer shall ensure an adequate DQC review (chapter 9) has been provided, and the
estimate adjusted accordingly.

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7.7 Revision to Independent Government Estimate. Prior to award, the IGE may be
changed or revised as a result of errors, omissions, or additional information. Approval
authority for revision to the estimate remains the original estimate-approving official.
Each office shall assure that appropriate justification is attached to the revised cost
estimate. Estimates may be revised by supplementary sheets or by actually changing
the contents of the original estimate pages. The method used will be determined by the
nature of the revision and the format of the estimate. Whichever the method, all
revisions to the estimate must be clearly indicated, dated, justified, and approved. A
new signature sheet relating both the previously approved total and revised total will be
reapproved. A copy of each estimate that has been approved should be included in a
file along with the details and circumstances reflecting the revisions.

7.7.1 Access to Independent Government Estimates. Access to the IGE and

its contents will be limited to personnel whose duties require knowledge of the subject.
When an A-E is contracted to prepare an estimate, the A-E submittal should include a
list of personnel that have had access to the total estimate amount. It is recommended
that all personnel sign a confidentiality agreement. Government cost engineers
preparing or reviewing the final IGE may also sign the same or a similar list. A list
similar to figure E-1 (appendix E) may be filed with the IGE.

7.7.2 Marking the Records “For Official Use Only.” The marking of records at
the time of their creation provides notice of FOUO content and facilitates review when a
record is requested under the Freedom of Information Act (FOIA). The responsible cost
engineer will ensure that the FOUO marking is applied in accordance with Army
Regulation 25-55, The Department of the Army Freedom of Information Act, to all
pertinent documents, computer files, compact discs, printouts, and other documents
prepared manually or electronically for incorporation into the IGE.

7.7.3 Disclosure of Records

7.7.3.1 The IGE and Government estimate backup data, prepared for
construction contracts, are sensitive procurement information and should in many cases
be withheld under FOIA. Ordinarily, after contract award, only the title page, signature
page, and price schedule are disclosed outside the Government. The Government
estimate backup data should not be released since it contains sensitive, detailed cost
data (e.g., contractor quotes, crews, and productivity) that are proprietary or might
compromise claim litigation and cost estimates for future similar procurement.

7.7.3.2 Fair market price determinations, under the Small Business Program,
FAR 19.202.6, will be treated as IGEs for purposes of this guidance.

7.7.3.3 Supporting documents that are publicly available as part of the

solicitation, such as plans, specifications and project description, or documents that do

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not contain cost information, such as sketches, soil borings and material classifications,
are not part of the IGE or Government estimate backup.

7.7.4 Bid Protests and Litigation

7.7.4.1 During bid protests and litigation, if appropriate and to the extent
possible, USACE Office of Counsel should have the IGE and/or the Government
estimate backup data placed under a “protective order.” At that time, security of the IGE
becomes even more critical and any cost information and release should go through the
Office of Counsel. There are valid reasons for not releasing the Government backup
data supporting the IGE to the contractors and can be considered one of the
exemptions under the FOIA. In the case of a bid protest, there is a possibility that the
contract could be re-advertised or converted to a negotiated procurement. Release of
the Government backup data would provide bidders with the detailed cost data that
supports the IGE. If, however, the apparent low bidder protests the reasonableness of
the IGE, the USACE command may choose to provide the IGE and Government
estimate backup data, to the protestor only, upon receipt of complete details of the
protestor’s estimate.

7.7.4.2 For this potential, it is imperative that the estimate be well developed
and defensible with adequate information to support the basis of the estimate through
discussion and notes supporting estimate assumptions and methodology.

7.7.5 Release Under Freedom of Information Act. IGE and Government

estimate backup data are intra-agency memoranda, which may be withheld under FOIA
Exemption 5, “confidential commercial information” and “deliberative process”
privileges. Proper use of Exemption 5, however, requires a showing that release of
information will harm the Government’s interests. Therefore, requests for the IGE and
Government estimate backup data will be reviewed on a case-by-case basis, based on
the following guidance, to determine whether release will harm the interests of the
Government.

7.7.5.1 In reviewing requests, the FOIA officer will seek the assistance of the
cost engineer. If the FOIA officer determines that release will harm the interests of the
Government, the information will be withheld.

7.7.5.2 When sealed bidding is used, neither the IGE nor the Government
estimate backup data should be released prior to bid opening. See FAR 36-203(c),
36.204. It is well established that release of IGE and Government estimate backup data
before contract award would harm the interests of the Government. The FAR and legal
reference is FAR 36.203, Federal Open Market Committee v. Merrill, 443 U.S. 340
(1979), Morrison-Knudson v. Department of the Army, 595 F. Supp. 352 (D.D.C. 1984),
aff’d 762 F.2d 138 (D.C. Cir 1985).

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7.7.5.3 The IGE will normally be released when bids are opened. In some
instances, however, the IGE will not be released at that time, such as when all bids
received are non-responsive and a re-procurement is envisioned.

7.7.5.4 In negotiated procurement for construction under FAR Parts 15 and 36,
the IGE should not be released prior to contract award, except that Government
negotiators may disclose portions of the IGE in negotiating a fair and reasonable price,
see FAR 36-203(c).

7.7.5.5 The Government estimate backup data should not be released. Release
of Government estimate backup data after contract award and before completion of a
construction contract may also result in harm to the Government. The Government
estimate backup data is used to develop cost estimates for modifications and claims.
Release of the backup data prior to contract completion provides the contractor with the
details of the Government’s position and would allow the contractor to develop a biased
price proposal or support a claim. This could harm the Government’s ability to negotiate
a fair and reasonable price for the modification or claim, putting the Government at a
serious commercial disadvantage. Moreover, knowledge of the construction methods
contemplated by the Government might reduce the contractor’s incentive to discover
less expensive methods. This could also reduce the contractor’s incentive to locate and
charge out materials at a lower cost, or to achieve project goals using less labor and
equipment. See Quarles v. Department of the Navy, 983 F.2d 390, (D.C. Cir 1990) and
Taylor Woodrow International, Ltd. V. Department of the Navy, No. 88-429R, (W.D.
Wash. Apr. 6, 1989).

7.7.5.6 Generally, after contract completion (and after all claims have been
resolved), the Government estimate backup data may be released. Situations where
the information should not be released include frequently recurring contracts and
multiple-phased projects where a series of similar contracts are awarded in sequence.
In those cases, each IGE is based upon the same backup data and the same analysis
of how to perform the work.

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CHAPTER 8

Independent Government Estimates for Contract Modifications

8.1 General. The cost engineering office is currently not responsible to prepare
construction modification estimates, but may do so upon request from the construction
office. The district cost engineer has several important tasks to perform prior to actually
preparing the estimate. The cost engineer will review the contract modification package
to thoroughly understand the scope of changes, dispute, or other issues related to cost
and time impacts. A contract modification and its estimate must address both cost and
time, since both will be negotiated. Some of the major activities to be considered in
preparing the estimate in addition to labor, material, equipment, and construction
techniques include the following discussions.

8.2 Reviewing Documents. The cost engineer will review documents received and
become thoroughly familiar with the scope and requirements of the changed work. The
review should entail comparison, analysis, and discussions with the designer or field
office to ensure common understanding of the scope of work. The cost engineer must
assure that the proposed modification is clearly defined with regard to specified work
requirements, proposed measurement, and payment.

8.3 Determine Status of Construction. The cost engineer will determine the status of
construction and the effect the changed work will have on the construction schedule.
This will require obtaining progress reports, schedules, and discussions with the field
office responsible for the construction. For major or complex changes, a visit to the
construction site is required.

8.4 Contractor's Existing Methods. The cost engineer should be fully aware of the
contractor's existing methods, capabilities, and rates of accomplishment. The estimate
should not arbitrarily include methods and capabilities different from the method in
which the contractor is performing the ongoing work. The cost engineer should base
the change on existing contractor operations for similar work. When work is anticipated
to be subcontracted, the estimate should be prepared to include subcontractor costs.

8.5 Current Labor and Equipment Rates. Current labor and equipment rates for the
workforce must be obtained for ongoing work. These rates are usually available from
labor reports or from the contractor upon request. Suppliers for materials should be
contacted for quotes. The price, which the contractor is expected to pay, should be the
basis for estimating material costs. A list of equipment on the job should be obtained
and equipment rates determined in accordance with EP 1110-1-8.

8.6 Scope of Work Coordination. The cost engineer should become familiar with the
scope of work through the contracting officer’s designated representative and with the
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contractor prior to preparation of the IGE. This discussion will assist both the
Government and contractor in reaching a mutually acceptable scope of work to
eliminate unnecessary effort for both parties during negotiations. After initial scope
discussions, the scope of work documents may require revision for accuracy and clarity
to support estimates and negotiations.

8.7 Preparation of Cost Estimates and Negotiation. The estimate can be prepared
after all the information has been collected and analyzed, and the cost engineer decides
upon the format to present the change. The format should distinguish between added
work and deleted contract work. The estimate should denote both cost and time
impacts. It is important to have a prior agreement and discussion as previously
indicated with the contractor. Generally, successful negotiations depend on agreement
in scope of work and accurate quantity takeoff and a detailed estimate supported by
accurate cost data for all elements.

8.7.1 Additional Work. For additional work, items and format should be priced
similar to a new contract as performed by the known contractor. All new work should be
priced at the rates anticipated to be in effect at the time the work will be performed.

8.7.2 Changed Work. For changed work, a separate quantity takeoff for each
item directly affected will be required for both before and after the change. Each item
should be priced at the rates that would be in effect at the scheduled time of
accomplishment. Typically, each item of changed original work is priced, and each
comparable item of revised work is priced at the applicable rates. The net cost (or
credit) would be obtained by subtracting the total of the original work from the total of
the revised work. It is important that the cost engineer maintains a comparable scope of
work for both estimates. When an item of work will be performed as originally specified,
except for a revision in quantity, the net quantity may be estimated directly for that item.

8.7.3 Deleted Work. For deleted work, the item and format should be priced
similar to a new procurement as performed by the current contractor. Rates in effect at
the time the work would have occurred should be utilized. In addition to the direct cost
of the work, overhead, profit, and bond costs should be included for credit on the
deleted work.

8.7.4 Impact Related Costs. Often times, a modification can affect other
portions of the contract that are not easily discernable when reviewing the modification
scope. Impacts related to cost and schedule, if applicable, should be clearly described
and included as part of each cost estimate. Remobilization, schedules, efficiencies, and
productivities are prime examples of impact related costs. Further discussion is in
paragraph 8.11.

8.8 Detail of Estimate. The cost estimate for a modification should be prepared in as
much detail as required to clearly cost the change for negotiations. In many instances,
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even more detail is required to negotiate the lowest reasonable price. The estimate
should, however, be modified to reflect a negotiated procurement in lieu of an
advertised procurement. It should include a general summary sheet relating the major
categories of cost of the modification, both for increases and decreases. Revised
construction drawings and specifications are included in the modification supporting
documents. When the cost engineer prepares the estimate, the effort should be the
same as the contractor acting prudently under the given conditions. The results will
generally provide an accurate estimate, which can be used as a firm basis for
negotiation. The IGE should not rely on past generalized rates and settlements unless
actually appropriate to the specific modification under consideration.

8.9 Basis of Estimate. The estimate should be based on the data actually collected
and experienced from the project. Time motion studies are important, and periodic field
visits and log records can provide this data. Previous modifications can also provide
valuable data. Valuable cost data is often available from past audit reports on other
modifications. With the assistance of the auditor, many costs can be readily obtained
and may be directly applicable to the present modification. The cost engineer must
exercise judgment in the use of audit information from a specific report that may not be
released to Government personnel or other contractors.

8.10 Estimate Preparation. In addition to the preparation of an accurate cost estimate,

it must be prepared in a timely manner. Procurement requirements stress the
importance of settlement prior to commencing the work. As construction time
progresses, the Government is at greater risk for further contractor impacts which can
increase cost and time. Therefore, the cost engineer should immediately proceed to
obtain the necessary data for the modification and notify the appropriate authorities of
the earliest date that the estimate can be completed. It is generally understood that the
larger and more complex the change, the longer the time requirement for the initial
preparation of an accurate cost estimate.

8.11 Impact Cost and Schedule.

8.11.1 When a modification is initiated, the settlement of that modification

includes not only the cost and time change of the work directly affected but also the cost
and time impact on the unchanged work. It is very important to accurately estimate the
impact portion of a modification. The scope of impact may be broad and susceptible to
a large variety of situations. The following discussion will provide guidance and
understanding of impact cost considerations.

8.11.2 Generally, the greatest portion of impact costs results from acceleration
and/or delays due to changes. When delays due to a change can be minimized, impact
costs are reduced. Impact costs are normally determined on a case-by-case basis for
each particular situation. The determinations have been based on interpretation of the

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Contract General Provision Clauses and on Board of Contract Appeals and court
decisions.

8.11.3 The contractor generally presents impact costs as part of the proposal.
The existing construction schedule furnished by the contractor must be analyzed to
determine the actual construction and the extent of the impact at the time of the change.
The modification work must be superimposed upon the original schedule in such a
position to determine and minimize the delay. The revised plan must then be
thoroughly reviewed relative to the existing job plan. This comparative review should
indicate those areas, which have been affected by the modification.

8.11.4 Once the extent of impact has been determined, each cost claimed must
be classified as either factual or judgmental. The factual costs are those which are fixed
and established and can be determined directly from records. These include rental
agreements, wage rate agreements, and purchase orders. Once the item has been
determined valid as a factual impact, the item cost may be directly calculated. The
amount of cost change is stated on the certified document or can be determined from
the scheduled time change of the construction progress plan. Judgmental costs are
dependent on variable factors such as performance, efficiency, or methodology and
cannot be stated factually prior to actual accomplishment. These costs must be
negotiated and based upon experienced judgments. In actual practice, most factual
costs are based to varying degrees upon judgment.

8.11.5 Estimating Impact Costs and Schedules. The estimate of impact should
be prepared for each activity affecting the change. In some cases, the impact items are
typically so interrelated that it is often best to develop a detailed plan for accomplishing
the remaining work. Each item in this plan would be estimated at the productivity and
rate in effect at the time the work is to be accomplished. The same items of work under
the original plan would also be estimated at the productivity and rate in effect at the
originally scheduled time. The comparison of these two estimates yields the cost
of impact. Impact costs determined to be valid must be estimated by the most accurate
method available and included in the modification.

8.11.6 Impact Factors. The following impact factors or conditions play a

recurring role in determining impact costs and schedules. Each modification must be
evaluated separately and impacts considered specifically for the implications of the
particular change. Impacts should only be included by detailed itemization and only
after having been found to be valid.

8.11.6.1 Impact costs considered factual include escalation of material and labor
wage rates, and change in equipment rates.

8.11.6.2 Impact costs and schedules considered judgmental include change of

efficiency resulting from rescheduling; loss of labor efficiency resulting from long hours;
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loss of efficiency caused by disruption of the orderly existing processes and procedures;
inefficiency from tearing out completed work and the associated lowering of morale; loss
of efficiency during rescheduling of manpower; inefficiency incurred from re-submittal of
shop drawings, sample materials, etc.; and additional costs resulting from inability to
transfer manpower expertise to other work; and change in management for the revised
work.

8.11.6.3 Impact costs and schedules considered factual but based on judgmental
decisions include increase from extending the storage period for materials and
equipment; increase from extending the contract for labor cost and subsistence;
increase from a longer period of equipment rentals and/or use; increase from a longer
period of using overhead personnel, materials, and utilities; and increase from a longer
period of providing overhead and project office services.

8.12 Cost Engineering Support.

8.12.1 Before participating as part of a negotiating team, the cost engineer must
become thoroughly familiar with negotiating requirements and techniques. The
expertise and support of the cost engineer can be very beneficial in major and complex
changes.

8.12.2 The cost engineer should review the contractor's proposal. Many of the
costs that are presented in the contractor's proposal breakdown must be reviewed for
allowability. Of those costs found allowable, each item must further be reviewed for
applicability for that portion relevant to the particular change. The auditor has primary
responsibility for this determination and should advise the negotiation team accordingly.
For those cases where the auditor is not directly involved, the negotiation team must
base their decisions on regulatory guidance and the best expertise available. In
accomplishing the review of the proposal, the cost engineer should remain constantly
aware of the contractor's profit motivation. The Government must consider all
reasonable costs anticipated to be incurred by the contractor.

8.13 Estimate Revisions. Revision of the IGE may be necessary as a result of an

error, changed conditions, or additional information. Approval authority for revisions to
the estimate remains the responsibility of the contracting officer or authorized original
estimate-approving official. When the IGE is changed during or subsequent to
conferences or negotiations, the details of the basis for the revision or changes in price
shall be fully explained and documented in the price negotiation memorandum. A copy
of each estimate that has been approved should be included in the official modification
file along with the details and circumstances causing the revisions.

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CHAPTER 9

Technical Reviews

9.1 General. To improve the quality of the cost estimates, there are various levels of
review as discussed within this chapter. Certain reviews are mandatory and are
directed by headquarters (refer to ER 1110-2-1150 and ER 1110-2-1302). The reviews
cover the products from “top to bottom” to ensure quality and confidence has been
maintained.

9.2 District Quality Control Review.

9.2.1 The DQC review (also known as a peer review) is an internal peer
review by a technical element within a district as a quality control measure. It consists
of a formal procedure or set of procedures intended to ensure that the developed
product adheres to a defined set of quality criteria or meets the requirements of the
client, customer, and regulations. A DQC is similar to, but not identical with, QA. QA is
often times defined as a procedure or set of procedures intended to ensure that a
product or service under development (before work is complete, as opposed to
afterwards) meets specified requirements. QA is sometimes expressed together with
QC as a single expression, QC/QA. A sample quality review checklist is provided in
appendix F.

9.2.2 Within the estimate processes, the cost engineering office is required to
prepare the products in accordance to the regulations, most specifically to ER 1110-2-
1150 and ER 1110-2-1302 for each phase of the estimate. The cost engineering office
shall provide a formal review process performed by a senior lead estimator to ensure
the products meet cost estimating requirements. In these cases, it may relate to various
design phases with respect to scope, quantities, estimates, schedules, escalation, and
contingencies.

9.2.3 While much focus is placed on the quality of the IGEs, other estimates
are equally and possibly more important. It is highly advisable that all critical estimates,
schedules, and the resulting TPCS receive a quality review by a senior estimator within
a formal process. When cost estimates are subject to an ATR or independent cost
review, the quality responsibility remains within the estimating office that produced the
estimate. The earlier estimates used for budgeting, programming, and congressional
authorization and funding are very important management tools that should not be
overlooked, underutilized, or unsupported by the PDT.

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9.3 Agency Technical Review.

9.3.1 It has become more commonplace for upper management to require an

ATR (formerly known as an independent technical review). An ATR is an independent
technical review, which is a critical examination by a qualified person or technical team
outside the submitting district that is not involved in the day-to-day technical work that
supports a decision document. The review products normally include all documents,
including the TPC. Documents include scoping information, plans and specifications,
reports, quantities, estimates, schedules, risk analyses, and record of DQC. For the
cost data, the ATR may include the TPC or specific portions of the TPC. The ATR can
be performed at any stage of product development, even during construction as a
measure of quality, confidence, and reliability.

9.3.2 HQUSACE mandates that the National Planning Centers of Expertise

coordinate with the Cost Engineering Center of Expertise (CX) at the Walla Walla
District for ATR of cost estimates, construction schedules, and contingencies included in
all decision documents requiring Congressional authorization. The Cost Engineering
CX will assign the reviewer(s) to the review teams and will utilize the USACE personnel
and/or private sector to assure highly qualified persons are available to conduct these
reviews. This approach will provide consistency in business practices and in the use of
cost engineering tools. The Cost Engineering CX also developed a technical review
checklist (appendix F) to assist the Cost Estimator on the PDT and the ATR team to
ensure that the critical project planning, design, and engineering data are made
available prior to preparation of the TPC estimate (appendix B of ER 1110-2-1302).
This checklist is intended to serve as guidance, is considered a living document, and
can be changed to better serve the product under review.

9.3.3 An ATR during the reconnaissance phase shall concentrate on

evaluation of the overall project plans, on the initial cost estimates, and on the PMP.
Reviewers shall also evaluate the schedule, budget, and work plan proposed in the
PMP for the feasibility phase (refer to ER 1110-2-1150).

9.3.4 An ATR for the feasibility phase, as a minimum, must verify that the level
of engineering is sufficient to substantiate both the screening level comparative cost
estimates and the BCE with contingencies to support selection of the recommended
plan and to establish the baseline schedule and cost estimate with contingencies.

9.3.5 Senior estimators, preferably USACE regional technical experts, shall be

used for ATRs. A-Es shall use senior experienced cost engineers or estimators, who
are certified by a professional estimating organization, to conduct their product ATRs.
The ATR process requires a formalized comment and resolution process.

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9.3.6 In order to receive a certification, the ATR process requires a formalized

comment and resolution process. It is important that the reviewer be given the
opportunity to formally place the comments, consider comment responses, back check
the revised products, and close out all comments as having been resolved. For the
TPC, the certification shall document the final acceptance date, the accepted cost, and
schedule to ensure the integrity of what product has been certified and to what value.

9.4 Independent External Peer Review. Like the ATR, an IEPR may be required by
upper management. An IEPR is an independent review of the technical efficacy of a
decision document by a review organization external to USACE. The term “external”
implies non-USACE or non-governmental review. An IEPR is conducted on projects
that meet mandatory or discretionary triggers outlined in Engineer Circular 1105-2-410,
Review of Decision Documents. Similar to the ATR process, a formalized comment
resolution process must take place and may fall under scrutiny through FOIA. Often
times, the IEPR occurs at the same time as an ATR. IEPR coordination is critical
regarding timeliness and funding, because the IEPR commonly requires a contractual
process to fund the IEPR.

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APPENDIX A

References

Public Law 74-403

Davis-Bacon Act, http://www.dol.gov/esa/regs/statutes/whd/dbra.htm

Public Law 95-269 (91 Stat. 218-219)

Pertains to preparation of construction cost estimates as though the Government were a
prudent and well-equipped contractor.

Public Law 99-662 (H.R.6)

The Water Resources Development Act of 1986.

Title 33 United States Code Section 622 and 624

Section 624 provides that projects for river and harbor improvement shall be performed
by private contract if the contract price is less than 25 percent in excess of the
estimated comparable cost of doing the work by Government plant or less than 25
percent in excess of a fair and reasonable estimated cost of a well-equipped contractor
doing the work.

Federal Acquisition Regulation (FAR), Subparts 14, 15, and 36

http://www.acquisition.gov/far/

Defense Federal Acquisition Regulation Supplment (DFARS)

http://www.acq.osd.mil/dpap/dars/dfarspgi/current/index.html

Engineer Federal Acquisition Regulation Supplement (EFARS)

http://www.hq.usace.army.mil/cepr/efars.htm.

Army Regulation (AR) 25-55

Department of Army Freedom of Information Act Program,
http://www.army.mil/usapa/epubs/pdf/r25_55.pdf

Army Field Manual 5-434

Earthmoving Operations

Engineer Regulation (ER) 5-1-11

U. S. Army Corps of Engineers Business Process
http://www.usace.army.mil/inet/usace-docs/eng-regs/er5-1-11/toc.htm

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ER 1110-1-12
Quality Management
http://www.usace.army.mil/publications/eng-regs/er1110-1-12/toc.htm

ER 1110-1-1300
Cost Engineering Policy and General Requirements
http://www.usace.army.mil/inet/usace-docs/eng-regs/er1110-1-1300/toc.htm

ER 1105-2-100
Planning Guidance Notebook
http://www.usace.army.mil/publications/eng-regs/er1105-2-100/toc.htm

ER 1110-2-1150
Engineering and Design for Civil Works Projects
http://www.usace.army.mil/inet/usace-docs/eng-regs/er1110-2-1150/toc.htm

ER 1110-2-1302
Civil Works Cost Engineering
http://www.usace.army.mil/inet/usace-docs/eng-regs/er1110-2-1302/toc.htm

ER 1110-2-8159
Life Cycle Design and Performance and Civil Works Missions and Evaluation
Procedures
http://www.usace.army.mil/publications/eng-regs/er1110-2-8159/toc.htm

ER 1130-2-520
Navigation and Dredging Operations and Maintenance Policies
http://www.usace.army.mil/publications/eng-regs/er1130-2-520/toc.htm

Engineer Manual 1110-2-1304

Civil Works Construction Cost Index System (CWCCIS)
http://www.usace.army.mil/publications/eng-manuals

Engineer Pamphlet 1110-1-8

Construction Equipment Ownership and Operating Expense Schedule
http://www.nww.usace.army.mil/cost/ep.asp

Construction Specifications Institute

http://www.csinet.org/s_csi/index.asp

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APPENDIX B

Total Project Cost Summary

B-1. General.

a. A Total Project Cost Summary (TPCS) is required for all civil works cost
estimates submitted for approval at all levels within the U.S. Army Corps of Engineers
(Corps). Figure B-1 illustrates the TPCS process. Figures B-2 and B-3 are examples
based upon feasibility estimate reporting requirements in Engineer Regulation (ER)
1105-2-100, Planning Guidance Notebook. “Two project cost estimates shall be
displayed in the feasibility report; one based on constant dollars and one based on
projected inflation rates.” The basis for this second estimate is the project schedule. It
is developed on an inflated dollar basis and represents the fully funded project cost.

b. This inflated total project cost is information for the non-Federal sponsor’s
financial analysis. The primary purpose of the financial analysis itself is to ensure that
the non-Federal sponsor has a reasonable plan for meeting its financial commitment.
Financial analysis is not normally a function of cost engineering.

c. A TPCS shall be prepared at each significant milestone throughout project

development. Whenever the construction cost estimate is greater than 2 years old, the
estimate shall be updated and a new TPCS prepared. For authorized projects, the
estimate and TPCS shall be updated annually.

d. The TPCS is a signature document for the appropriate district managerial

approvals. ER 1105-2-100 states that project cost estimates will be prepared by or
reviewed by the cost engineering office in the district and the chief of that office will sign
the estimate. Real estate estimates included in the project cost are reviewed,
approved, and signed by the chief or designee of the real estate office. Figure B-2 lists
other review/approval signatures that may be a district requirement.

e. Preparing a TPCS during the reconnaissance phase is recommended,

because it is the first document that will show the estimated total project cost at the
anticipated authorizing budget year and forecast the total project cost inflated through
construction based on the known scope and schedule.

f. The sample TPCS (figure B-2) is in a spreadsheet format beginning with the
total project cost summary followed by total contract cost summary sheets (figure B-3).
One contract summary sample is shown whereas the data shown in the project
summary sheet represents multiple contracts for this sample project. The summary is a
rollup of all contracts.

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g. Each form consists of three primary data columns. For reporting purposes,
round project costs to the nearest thousand dollars. By definition, total project cost
reflects all related costs to the project in the form of all feature level accounts,
escalation, and contingency.

B-2. Current Total Project Cost.

a. The first primary column is the current total project cost including the
Microcomputer Aided Cost Engineering System construction estimate, estimates for
lands and damages, feasibility studies, planning, engineering and design, and
construction management. All are identified by their applicable Civil Works Work
Breakdown Structure / work category code / feature code. A contingency for each item
is shown. The effective price level date for costs in this primary column is the date
when the estimates were prepared. This is typically the preparation date of the
construction estimate.

b. For lengthy projects having construction contracts with extended construction

periods and multiple cost elements scheduled over a period of years, the cost engineer
must assure that the estimates include escalation for inflation when funding is obligated
at the beginning of an extended period. Refer to Engineer Manual 1110-2-1304, Civil
Works Construction Cost Index System (CWCCIS). The best example is a fixed price
contract where the funds are obligated at the beginning of the contact.

c. Without firm cost estimates and schedules, neither the Federal government
nor the non-Federal sponsors can make prudent financial and budgetary decisions.

B-3. Program/Budget Year Total Project Cost.

a. The second primary column is the total project cost at the price level for the
authorization year/budget year/program year. This total project cost estimate based on
constant dollars is the one used for authorization purposes and is the total project cost
used to determine subsequent Section 902 cost limits (appendix G of ER 1105-2-100),
which is one of the cost estimates to be displayed in the feasibility report.

b. The total cost of each contract and/or element in the project is indexed to the
scheduled budget/program year. The dollar amounts are computed on a constant dollar
basis using the appropriate cost indices. Refer to CWCCIS. Typically, the price level
date is 1 October (of the program year). The basic formula is as follows:

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Cost Index
(Budget/Program Year)
-------------------------- X Current Cost = Budget/Program Year Cost
Cost Index (Extended duration
(Current Preparation activities Include
Date) escalation for inflation)

c. Current total project cost and program/budget year total project cost
presented in the first two columns on the TPCS, respectively, are suitable for economic
analysis, because each are developed on a constant dollar basis. Costs and benefits
are to be compared on the same price level.

B-4. Inflated Total Project Cost.

a. The third primary column of the TPCS is the total project cost estimate
inflated through project completion, which is the second cost estimate to be displayed in
the feasibility report. For financial analysis, an inflated dollar basis is to be used for the
sponsor’s information. Reasonably accurate and complete cost estimates and
schedules are necessary for the Federal Government and the non-Federal sponsors to
make prudent financial and budgetary decisions.

b. The project schedule is used to forecast when project elements will begin and
the duration of each element. Knowing how each activity/element is funded and the
duration will illustrate when the costs are expected to occur.

c. When the activity/element is scheduled over an extended period and the

estimate includes escalation to account for inflation over the duration of the
activity/element, the date used to select the CWCCIS index must be the beginning of
the activity/element.

Cost Index
(Beginning Date)
----------------------------------- X Current Cost = Inflated Cost
Cost Index (including escalation for inflation)
(Current Preparation Date)

d. For construction contracts and other project elements having a relatively short
duration, choosing an index coinciding with the midpoint of the duration may be
adequate to escalate the costs for inflation. Also, activities/elements that are primarily
level of effort, where costs are relatively consistent throughout the duration, a date at

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the midpoint of the duration is usually adequate to select the CWCCIS index to inflate
the activity/element cost.

Cost Index
(Duration midpoint Date)
----------------------------------- X Current Cost = Inflated Cost
Cost Index
(Current Preparation Date)

e. Sunk costs, construction and activities completed, are reported in this primary
column. Reconnaissance study costs are 100 percent Federal cost prior to project
authorization and should not be included as a sunk cost.

f. Not printed (for reporting purposes) with the contract summary sheet are
additional spreadsheet cells containing the costs indices used in the constant dollar and
inflated dollar calculations. On the far left of figure B-3, the CWCCIS cost index for
each line item is shown. The project schedule is used to determine the applicable index
for each line item.

g. The costs of water resources studies and projects developed by the Corps
are shared between Federal and non-Federal entities as defined in laws and
administrative provisions. The Water Resources Development Act of 1986, established
new cost sharing rules for all studies and projects conducted by the Corps. The cost
sharing provisions of the Water Resources Development Act of 1986 place greater
financial responsibilities on non-Federal sponsors of Corps projects. The amount of
non-Federal share varies depending upon the project purpose and the general and
specific laws that apply to each project.

h. The total project cost inflated through construction is divided into Federal cost
and non-Federal cost. The non-Federal cost is for the sponsor’s information and
financial analysis.

i. The cost engineer must coordinate with the project manager to determine the
appropriate cost sharing percentages applicable to the project. To illustrate, the cost of
feasibility studies is shared equally (50/50) and the remaining project cost may be
shared 25 percent non-Federal cost and 75 percent Federal cost. Guidance on cost
sharing for each civil works mission and authority is presented in ER 1105-2-100.

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B-5. Section 902 Project Cost Limit.

a. When appropriate for authorized projects spanning several years, the TPCS
is updated annually and the Section 902 project cost limit is computed and presented on
the updated TPCS.

b. The maximum project cost limit imposed by Section 902 is a numerical value
specified by law, which must be computed in a legally supportable manner. It is not an
estimate of the current cost of the project. The construction component of the
authorized cost will be updated to account for historical inflation using the CWCCIS.
The real estate component of the authorized cost will be updated to account for
historical inflation based on changes to the Consumer Price Index. ER 1105-2-100,
appendix G, paragraph G-15a., provides detailed guidance on the calculations
necessary to determine the numerical value.

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Figure B-1. TPCS Flowchart

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Figure B-2. Total Project Cost Summary

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Figure B-3. Total Contract Cost Summary

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APPENDIX C

Tri-Service Automated Cost Engineering Systems

C-1 General.

a. This appendix provides information on the Tri-Service Automated Cost

Engineering Systems (TRACES), which is the umbrella linking all automated cost
engineering systems and their associated databases. The Tri-Service Committee on
cost engineering is the proponent for all the major components of TRACES. The
assigned responsible agency for TRACES is the U.S. Army Engineering and Support
Center, Automated Systems Branch, TRACES group, Huntsville, Alabama
(https://www.hnd.usace.army.mil/TRACES/). The assigned responsible agency serves
as the focal point for support usage of these software programs by providing operation,
maintenance, and "Hot-Line" telephone support.

b. Detailed guidance on the use of each system can be found in the appropriate
system user manual for each software program. The appropriate policy guidance on
the use of automation in developing cost estimates is provided in the specific agency
cost engineering regulations.

c. The entire system seeks to provide a user-friendly cost engineering platform

in a standard environment that will provide the cost engineer the tools to prepare,
review, and maintain all types of cost estimates. Software for scheduling construction
projects is also linkable to TRACES. Figure C-1 depicts the major components of
TRACES.

C-2 Use of Automated Systems. The use of cost engineering automated systems
enhances the efficiency, accuracy, and credibility of project cost estimates. Automation
assists in the standardization of estimating procedures and provides estimates that are
easily reviewed, revised, and adapted to new projects or situations. Standardization
assists in collection and analysis of historical costs that can be used to develop budget
estimates for cost comparison purposes, for reporting and tracking of project cost data,
and for the building of parametric models.

a. Software Updates and New Systems. Automation continues to develop at a

rapid pace. Minor upgrades may occur annually and major system changes every 2 or
3 years. Major new systems may be fielded at any time. Cost engineers should ensure
that they are using the latest available software versions.

b. Limitations of Automation. Automation is a tool, and even the best cost

automated system is not a replacement for good estimator judgment. The cost
engineer should always be knowledgeable of the system’s capabilities and limitations in
relation to a project. The cost engineer must be especially careful in using models,
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parametrics, average unit rates and prices, cost books, and in adopting existing
estimates to new projects. The automated information sources, especially in critical and
major cost areas, should be further studied for reasonableness as related to the specific
project under development. Estimate output should be checked for reasonableness.
Assumptions and methodology should be verified and documented.

C-3 Major Automated Systems and Modules. TRACES includes the following major
systems/modules: a detailed quantity takeoff, cost engineering system referred to as
Microcomputer Aided Cost Engineering System (MCACES); a parametric system for the
preparation of less than fully detailed design estimates for military construction projects
referred to as Parametric Cost Engineering System (PACES); a historical cost analysis
generator (HAG) to collect, store, and analyze historical cost data for facilities and site
work; a location area cost factor (ACF) system to adjust average historical facility costs
to a specific project location; a Cost Engineering Dredge Estimating Program (CEDEP);
a life cycle cost (LCC) module for analysis of system design alternatives; a parametric
system for preparation of Hazardous, Toxic, and Radioactive Waste (HTRW); budgetary
estimates called Remedial Action Cost Estimating Requirements (RACER); a
scheduling interface (SI) module; and risk analysis systems.

a. Microcomputer Aided Cost Engineering System. MCACES is a multi-user

software program for the preparation of detailed construction cost estimates for military,
civil works, and HTRW programs. The system also includes a project database and
supporting databases. The supporting databases include Cost Book, crews,
assemblies, labor rates, equipment ownership schedule costs, and models. All
databases work in conjunction with each other to produce a detailed cost estimate. The
databases are described in the MCACES user manual.

b. Parametric Cost Engineering System. PACES is a parametric cost estimating

system, which is used primarily for development of programming or budgetary cost
estimates in support of Military Construction Programs such as military facilities, family
Housing, medical, and operation and maintenance projects. PACES is a
comprehensive program incorporating cost models for new construction, alteration, and
renovation. The system uses a parametric methodology adjusting cost models for
estimating project costs. The cost models are based on generic engineering solutions
for building and site work projects, technologies, and processes. The generic
engineering solutions were derived from historical project information, government
laboratories, construction management agencies, vendors, contractors, and engineering
analysis. PACES provides the capability to prepare cost estimates of military projects
based on past designs on less than fully detailed design information. It uses the
appropriate Work Breakdown Structure (WBS), a database of models and assemblies
from historic projects, and a series of detailed linking algorithms used to develop a cost
estimate. If desired, the estimate can be transferred to MCACES or SUCCESS™ for

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task-by-task analysis of the cost estimate. PACES is the U.S. Air Force’s primary tool
for preparing programming estimates.

c. Historical Cost Analysis Generator Software/Module. HAG is a stand-alone

software/module, which is used to collect and display historical cost data from
awarded projects. HAG uses the standard WBS structure to track historical bid costs by
type, location, size, and time and has the capability of automatically normalizing and
adjusting awarded costs. The HAG system also provides a vehicle to retrieve selected
statistical cost information from the historical cost database for use in the preparation of
programming or budgetary cost estimates.

d. Area Cost Factor Program. The ACF program calculates the area cost factor
index for each specific location based on material, labor, and equipment index and
matrix factors. At a given installation, the combination of local labor, material, and
equipment costs has the largest impact on total construction cost. Therefore, a
comparison of the local labor, material, and equipment project costs for typical military
construction at different cities would give a comparison of relative construction costs. A
market basket of 10 labor crafts, 20 materials and 4 pieces of construction equipment,
and 7 matrix factors for each location are used in the calculation of the ACF index.

e. Cost Engineering Dredge Estimating Program.

(1) The CEDEP is a stand-alone program used for the preparation of pipeline,
hopper, and mechanical dredge estimates. Two support data files are also provided
within CEDEP. The CHECKRATE support program also included in the CEDEP is a
computerized version of the Dredge Ownership and Operating Rate Worksheet, chapter
4 of Engineer Pamphlet 1110-1-8, Construction Equipment Ownership and Operating
Expense Schedule.

(2) CEDEP is a comprehensive software package that allows the user to prepare
estimates for dredging. Three separate Microsoft Excel® templates are available.
Clamshell CEDEP, which is used to create estimates using mechanical type dredge,
Hopper CEDEP, which is used to create estimates using hopper dredge plant, and
Pipeline CEDEP, which is used to create estimates using cutter head type dredge.

f. Life Cycle Cost Module. The LCC module is a stand-alone program designed
primarily to conduct LCC analyses among competing design alternatives for a given
project providing a record of the results. The program comes with an extensive
maintenance and repair (M&R) database tailored for U.S. Army buildings. Estimates of
construction/acquisition costs can be transferred electronically into the LCC module
from any MCACES Gold project estimate. The most prominent capabilities are: (1) to
conduct LCC analyses in accordance with the provisions of statutes, regulations, and
requirements; (2) to calculate the present worth of individual building or facility

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components; and (3) to compare M&R costs for building components in the M&R
database.

g. Remedial Action Cost Estimating Requirements System. RACER is a

parametric cost estimating system, which is used primarily for development of
programming or budgetary cost estimates for environmental projects. The RACER
system provides engineers, managers, estimators, and technical support personnel an
easy-to-use tool to quickly develop budget estimates for environmental projects when
little or no design information is available to develop a detailed cost estimate. The
system is a comprehensive program incorporating cost models for studies (PA/SI, RI/FS
and RFI/CMS), remedial design, remedial action, operations and maintenance, long
term monitoring, and site work and utilities. The system uses a parametric methodology
for estimating costs. The cost models are based on generic engineering solutions for
environmental projects, technologies, and processes.

h. Scheduling Interface Module. The SI module is a stand-alone program that

provides project scheduling capabilities for MCACES or SUCCESS™ cost estimates.
The SI module produces a pure logic sequencing of project activities for scheduling
purposes. The module also allows export of this data to various scheduling software
packages for the development of more detailed scheduling functions. The scheduling
data produced by the SI module is stored with the MCACES/SUCCESS™ estimate
(Project Database) and can be saved as a master template or as a model for future use
by other projects.

i. Risk Analysis Systems

(1) Crystal Ball® Software. For civil works, 2007 Headquarters U.S. Army Corps
of Engineers guidance requires utilization of a Monte Carlo theory, i.e., statistical-based
risk software known as Crystal Ball® to study risks for contingency development. This
replaces previous software programs for civil works estimates. This requirement is “for
all decision documents requiring Congressional authorization for projects exceeding $40
million.” This guidance statement refers to the total project cost, normally established at
the feasibility stage; however, during any critical period of the project, a risk analysis
may be prudent to highlight areas of concern that may be “mitigated” to lessen risk to
cost and schedule. The advantage of the risk analysis process is that it includes all
major project delivery team members with respect to all costs and features related to
the total project cost. This risk analysis process provides a forum for discussion
whereby the members meet to discuss risk potentials that may adversely impact the
project. Moreover, those meetings may also highlight opportunities that the team finds
advantageous for the project. Value engineering studies may also be an outcome of
these meetings.

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(2) COSTRISK. The Risk Analysis Systems (CostRisk) software program

provides the capability to assess risk and uncertainty associated with any Military, Civil
Works, or HTRW project cost estimate at any time during the project life cycle period.
This process of “probability based” estimating can be used to revise estimates based on
“confidence levels” and can assist in the evaluation of project contingency funds. The
CostRisk software is designed to work with TRACES parametric cost estimating
programs (PACES and RACER). In addition to these interfaces, CostRisk is capable of
performing a cost risk analysis on any cost estimate that is developed in Microsoft
Excel®. CostRisk performs cost risk analysis on the construction cost estimates using
Monte Carlo simulation techniques as the basis of its calculations.

j. Other Systems. The need to integrate cost estimating tools with agency
specific program/project management systems has led to the development of several
cost estimating tools and modules. Some of these tools are stand-alone programs
designed primarily for a specific requirement and for use by base/installation personnel,
which include PC-Cost, Department of Defense Form 1391 (for Army users);
SUCCESS, PCEM, Department of Defense Form 1391 + Project Cost (for Navy users).

C-4 Databases and Files Used by TRACES Systems/Modules.

a. Cost Book Database. The Cost Book database, also referred to as the Unit
Price Book (UPB) supporting the MCACES, is a collection of common construction
detail line item tasks used in developing project estimates for military, civil works, and
HTRW programs. The Cost Book is organized in accordance with the Construction
Specification Institute numbering system. These material costs can be modified to
reflect localized costs for other locations. Each task listed provides unit costs for labor,
equipment, and materials. Localized Cost Books can be developed by modifying the
key rates in the national Cost Book.

b. Models Database. This database contains groupings of assemblies for a

whole facility or site work entity. Linkage between assemblies and assemblies to tasks
are by WBS or as exists in a historic estimate. Linkage algorithms are provided to the
cost engineer for project-specific estimate refinement. At the heart of the detail pricing
is the Cost Book task costs. Using models can reduce the time for estimate preparation
but relies heavily on past designs using default linkages.

c. Assemblies Database. The assemblies database stores common groupings

of related work tasks, each representing a composite cost required to create a larger
piece of a project rather than a single task. The individual cost items within each
assembly are either extracted from the Cost Book or from the labor and equipment
databases. The database is broken down according to the WBS. Each assembly
includes parameter worksheets, requiring only input of parameters appropriate for the

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specific job. Using assemblies can greatly reduce the amount of data entry required to
build a project.

d. Other Databases. Other TRACES databases include the crews’ database,

labor rates database, and equipment rates database.

e. Work Breakdown Structure Data File. This data file provides a separate
hierarchical work breakdown master structure for use as a template in formatting cost
estimates for civil works, military, and HTRW projects.

f. Civil Works Construction Cost Index System. The Civil Works Construction
Cost Index System (Engineer Manual 1110-2-1304) will be used to update unit prices
and various project cost features to current price levels. Inflation factors published in
Civil Works Construction Cost Index System for use in predicting future costs are based
on those factors developed by the Office of Management and Budget. The factors are
published by Headquarters U.S. Army Corps of Engineers, Programs Division, in the
Engineer Circular for the Annual Program and Budget Request for Civil Works Activities.

g. Area Cost Factor Index. The ACF index is used in adjusting estimated costs
to a specific geographical area. The factors reflect the average surveyed difference for
each location in direct costs between that location and the national average location.

h. Historical Cost Analysis System. The Historical Cost Analysis System is a

stand-alone system to store historical cost data for HTRW remedial action projects.
Project costs are stored in the program using a Historical Cost Analysis System-
developed category code and the Remedial Action WBS. The user may search the
database by using the query function and specifying the type of media, type of
contaminant, and type of technology. The search can also be narrowed by additional
criterion such as contract types, geographic location, award date, HTRW Remedial
Action WBS, etc. Project cost can be printed or exported to other programs.

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Figure C-1. Tri-Service Automation Cost Engineering Systems

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APPENDIX D

Preparation of Dredge Cost Estimates

D-1 Preparation of Dredge Cost Estimates. This appendix provides guidance for
estimating the dredging portion of a project. Each cost engineer should be aware of
various techniques that have proven to produce the most accurate results for specific
projects. It is highly recommended that proper training be taken for estimating dredging
projects. The methodology for cost estimating of pipeline, hopper, and mechanical
dredging should be part of the course training.

D-2 Associated Work Items. Associated work items, such as clearing and grubbing,
dike or weir construction, disposal area operation and maintenance, drilling and
blasting, and environmental protection, are not included and should be estimated
separately in accordance with other parts of this manual.

D-3 Software Program.

a. Estimates may be prepared in accordance with the software program, entitled

Cost Engineering Dredge Estimating Programs (CEDEP), and will contain narrative
documenting reasons for decisions and selections made by the cost engineer.
Figure D-1, Dredge Prism, indicates project dimensions and quantity of material
considerations to determine pay items.

b. Software distribution is restricted, because CEDEP is considered proprietary

to the Government and should not be distributed to architect engineers or to
contractors.

D-4 Definitions.

a. Allowable Downtime. "Allowable downtime" is "non-effective working time"

(see non-effective working time).

b. Allowable Over Depth Not Dredged. "Allowable over depth not dredged" is
the volume of "allowable over depth volume" that is estimated and will not be dredged.

c. Allowable Over Depth Volume. "Allowable over depth volume" is the volume
of material between the required pay prism and the maximum pay prism.

d. Cost Engineering Dredge Estimating Programs. CEDEP is the acronym for

the three four Cost Engineering Dredge Estimating Programs that operate on
microcomputers. The three four software programs developed are Pipeline Rock
Dredge, Pipeline CEDEP; Mechanical CEDEP; and Hopper CEDEP. The software
programs are available at http://www.nww.usace.army.mil/cost/cedepframe.htm.
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e. Dredging Time. "Dredging time" is "operating time" plus "allowable

downtime."

f. Effective Working Time. "Effective working time" is time during the dredging
operation when actual production is taking place, such as material moving through the
pipeline. "Effective working time" is chargeable to the cost of work.

g. Gross Production Cost. "Gross production cost" is the cost of dredging the
gross volume. It is determined by multiplying the total monthly cost by the dredging
time in months and adding the fixed and indirect costs.

h. Gross Volume. "Gross volume" is the "net pay volume" plus the "non-pay
volume."

i. Lost Time. "Lost time" is downtime, which is not operational, normally due to
a lack of required crew, major repairs and alterations, drydocking, cessation, and
collisions. "Lost time" is not chargeable to the cost of work.

j. Maximum Pay Volume. "Maximum pay volume" is the sum of the "required
volume" and the "allowable over depth volume."

k. Net Pay Volume. "Net pay volume" is the "maximum pay volume" minus the
"allowable over depth not dredged."

l. Non-Allowable Downtime. "Non-allowable downtime” is “lost time" (see "lost

time").

m. Non-Effective Working Time. "Non-effective working time" is time during the

dredging operation when the dredge is operational but no production is taking place,
such as making changes to pipelines, cleaning trash from the suction head, minor
operating repairs, and moving between locations. "Non effective working time" is
chargeable to the cost of work.

n. Non-Pay Volume. "Non-pay volume" based on excavation measurement is

the volume of material estimated to be removed from outside the maximum pay prism.
“Non-pay volume" based on fill measurement is the volume of material that results in
overfill and/or washes away.

o. Operating Time. "Operating time" is the "effective working time" (see

"effective working time").

p. Percentage of Effective Working Time. (See “time efficiency.")

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q. Required Volume. "Required volume" based on excavation measurement is

the volume of material to be removed from within the required pay prism. "Required
volume" based on fill measurement is the volume of material to be placed within the pay
prism.

r. Time Efficiency. "Time efficiency" is the ratio of the "operating time" to the
"dredging time," and is expressed as a percentage. Also known as "percentage of
effective working time" (% of EWT).

D-5 Development of Dredging Estimate. The methods of development of dredging

estimates are as follows:

a. Historical Information. The simplest and most reliable approach for

estimating production for all types of dredges is to rely upon dredging records for the
same or similar type work performed by the same or at least a similar dredge. The
dredging records include the daily dredging reports. If project conditions have changed,
for example, a different horsepower or haul distance, historical production information
must be adjusted and documented for use in the estimate. Using such adjustments is a
valid method for obtaining production rates when historical data is not available. Some
valuable sources of historical dredging data include daily reports of operations,
operations personnel, other districts, and regional dredge teams. Cost and pricing data
may be obtained from audits and contract modifications. Adjustments should be made
to this data reflecting current pricing levels.

b. Similar Projects. Information may be obtained from similar projects with

similar characteristics to prepare a dredging estimate.

c. Regional Dredge Teams. The use of regional dredge teams is

recommended. Members of regional dredge teams can be contacted for guidance on
production rates, effective times, cost data, or other pertinent information.

d. Combining Methods. A combination of the methods, as previously described,

may be used at the discretion and judgment of the cost engineer.

e. Computer Programs. When historical data is not available, CEDEP may be

used to compute a production rate, or the production rate may be computed using
recognized commercially generated programs or industry-generated programs. The
cost engineer should include in the estimate a complete statement of the source of
computer program used in the estimate.

D-6 Project Overview. The cost engineer should review the known project conditions
and scope of work for the following items and determine which items are judgmental
and which are factual at the time the estimate is prepared.

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a. Location of Work. This information is necessary to make a determination of

availability of historical data, plant availability, mobilization distances, disposal areas,
and restraints placed on the various types of dredge operations.

b. Type of Material to be Dredged. Information may be obtained from geo-

technical investigations, expert opinion, and historical data of specific site or adjoining
areas, site visits, or similar projects with similar characteristics.

c. Placement Area. Information should be obtained on location, size, type,

regulatory, and permit requirements.

d. Project Dimensions. Project dimensions may include such items as length,

width, depth, and channel alignment.

e. Site Restrictions. This may include such items as waterway usage, vessel
traffic, as well as time, weather, noise, and environmental restraints. Many areas are
subject to restricted dredging seasons. To minimize environmental impacts creating
scheduling conflicts, higher costs may occur and must be considered and documented
in the cost estimate.

D-7 Selection of Equipment. An economical dredge shall be selected. Dredge type

and size depends mainly on availability, job duration, type of material, and exposure to
the elements, disposal area restraints, environmental restraints, and production
requirements. The narrative will include the rationale used by the cost engineer for
equipment selection.

a. Pipeline Dredging. The term "pipeline" refers to the discharge method

through onboard pumps. The common types are cutterhead, suction, and dustpan
dredges, which refer to the intake method. Pipeline dredges are sized by the inside
diameter of the dredge discharge flange, and they are effective in dredging densely
packed materials. Although they are best suited for low-traffic areas and sheltered
waterways such as rivers, bays, harbors, and canals, some pipeline dredges are
equipped to operate in calm to moderate seas offshore. Pipeline dredges lend
themselves well to shore disposal operations.

b. Hopper Dredging. Hopper dredges are sized or classed by their hopper

capacity. However, a particular size dredge is actually limited by its weight carrying
capacity and the environmental restrictions of the project. Hopper dredges operate in
cycles, and they normally cover the length of the total dredging area, deepening it
gradually. They are the most efficient type dredge for excavating loose, unconsolidated
material and are used mainly in exposed harbors and shipping channels where traffic
and operating conditions rule out the use of stationary dredges.

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c. Mechanical Dredging. Mechanical dredges include bucket, bucket-ladder,

clamshell, and dragline dredges. Transportation of the dredged material is made by
additional plant, tug and barge, or scow. Mechanical dredges are classified by bucket
size and are best adapted for dredging fine-grained material. They are the most
efficient dredge for working near bridges, docks, wharfs, piers, or breakwater structures.

d. Specialty Dredging. Some dredging projects have unusual conditions or

unique project requirements that cannot readily utilize standard dredge plant. There are
a variety of specialized dredge plant, which must be considered under these
circumstances. For example, when dealing with rock dredging, special equipment may
be required. In addition, adjustments to production and maintenance may have to be
considered.

D-8 Production. In calculating production rates for dredging, effective time is

commonly used. Lost time due to major repairs and alteration, cessation, and collisions
is not used in dredging time calculations. Whenever possible, the production rate used
in CEDEP should be based on historical data. When historical data is not available, the
sequence described in this appendix shall be used.

a. Pipeline Dredging.

(1) Production is determined by the pumping rate and the effective time.

(2) Pumping rate is affected by items such as water depth, density of material,
distance discharged, available horsepower, bank height, wave climate, disposal area
restraints, environmental restraints, and dredge configuration, such as spud carriage,
ladder pump, degassers, and Hoffa valve.

(3) The effective time is affected by items such as weather, handling pipeline,
moving swing wires, minor operating repairs, vessel traffic, repositioning the dredge,
and surveys.

b. Hopper Dredging.

(1) Hopper dredge production is best evaluated in terms of its cycle components
and the effective time.

(2) The hopper dredge cycle consists of excavation time, transport time, and
disposal time. Excavation time per load may be limited to pumping to overflow only,
due to environmental concerns, or may be continued beyond overflow to obtain an
economic or a maximum load. Transport time may be affected by items such as ship
traffic, weather, distance, and tides. Disposal consists of either gravity dumping or
pumping out the material. The time required to gravity dump the material in open water
depends on the type of material and the dredge. If the material is pumped out, the time
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becomes a function of pump size, discharge diameter, and pipeline length, similar to a
pipeline dredge. The volume per load depends on the hopper size, the dredge's load
carrying capability, type and characteristics of material, distance to the placement area,
and environmental concerns.

(3) The effective time is affected by items such as vessel traffic, minor operating
repairs, and refueling.

c. Mechanical Dredging.

(1) To determine mechanical dredge production, the cost engineer must calculate
both a dredge excavation cycle time and a haul cycle time. Effective time is considered
separately for each cycle. The longer of these two cycle times determines the
production rate. When the haul cycle time is longer than the dredge excavation time,
the dredge is sitting idle while waiting on scows. Normally, when this occurs, the
number of scows required is increased to achieve the most efficient cost.

(2) The dredge excavation cycle consists of excavating the material and loading
scows. This cycle is affected by items such as bucket size, type of material, operator
efficiency, and size of dredge. Effective time is affected by items such as weather,
vessel traffic, repositioning of dredge, and minor operating repairs.

(3) The haul cycle consists of transport time and disposal time. This cycle is
affected by the size, type, and number of scows available, as well as the size, type, and
number of towing vessels available. Effective time is affected by items such as
weather, vessel traffic, and minor operating repairs.

d. Specialty Dredging. The cost engineer will have to investigate in detail the
method, equipment, and expected production on a case-by-case basis.

D-9 Monthly Costs. The monthly costs for all types of dredges are based on labor,
equipment, and other monthly costs.

a. Labor. Labor costs consist of wages, fringe benefits, taxes, and insurance.
Labor consists of personnel necessary for the operation of the dredge, attendant plant
and equipment with required supervision, and shore personnel used for the dredging
work.

b. Equipment Costs. Equipment costs consist of ownership costs and operating

costs. Costs for dredge plant will be based on historical data. In the absence of valid
historical data, the CEDEP will be the basis for cost of dredge plant. Other equipment
costs shall be obtained from Engineer Pamphlet 1110-1-8, Equipment Ownership
Schedule.

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c. Other Costs. Indirect costs are to be determined by the cost engineer. In

addition, such things as surveys, environmental monitoring, and navigation aids may
need to be included.

D-10 Fixed Costs

The fixed costs for all types of dredges are project specific. They are one-time costs for
the project that are not included elsewhere.

D-11 Pay Items

a. Mobilization and Demobilization. The cost estimate for this item consists of
the following:

(1) Preparing Dredge and Attendant Plant for Transfer. Costs incurred may
consist of such items as preparing laid-up equipment for use, re-inspection, and
stocking equipment and supplies.

(2) Mobilization Transfer Costs. This item includes the cost to move all plant and
equipment and the return of the tug or towing vessels(s).

(3) Preparing Plant for Work. This item includes preparation costs that are
incurred to setup the equipment to start work, assemble, and place discharge line and
boosters.

(4) Construction Support Site. Establishing a work yard at or near the project site
may be necessary and is a part of mobilization cost.

(5) Demobilize Plant. This item includes preparing the dredge and attendant
plant for transfer.

(6) Demobilization Transfer Costs. This item is similar to mobilization transfer

costs. Mobilization and demobilization distances may not necessarily be the same.
Reasons for using different distances must be documented.

(7) Prepare Plant for Lay-up. This item includes all costs to secure machinery
and equipment for storage.

(8) Indirect Costs. Indirect costs must be included in the mobilization and
demobilization pay item. They should be the same as those used for the dredging pay
item.

b. Dredging. Pay for unit price contracts may be based on volume, area, time,
scow or bin measure, or lump sum as described in Engineer Regulation 1130-2-520.

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To determine the unit cost of dredging, divide the gross production cost by the number
of pay units.

(1) Pipeline dredge gross production costs consist of costs associated with
dredging time and are not separated by elements of work.

(2) Hopper dredge and mechanical dredge gross production costs consist of
costs associated with excavation time, transportation time, and disposal time.

(3) Specialty dredging gross production costs will be determined on a case-by-

case basis.

c. Total Dredging Costs. Total dredging cost includes mobilization and

demobilization cost plus dredging cost as previously discussed.

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Maximum pay volume = Required volume + Allowable over depth volume

Net pay volume = Maximum Pay Volume – Allowable over depth not dredged
Gross Volume = Net pay volume + non-pay volume

Figure D-1. Dredging Pay Prism

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APPENDIX E

Sample Estimate Sheets and Forms

E-1. General. This appendix contains samples of the standard estimating forms that
can be used to present construction cost estimates. It is recommend that a project
narrative present the general information of the major features and assumptions of the
project.

E-2. Preparing Forms. Estimates developed using these forms may be prepared in an
electronic format or pencil format. For uniformity in form completion, the following
general guidance is provided:

a. Each original sheet should be in reproducible quality.

b. Once the estimate has been completed, checked, and approved, the desired
number of copies should be reproduced from the original.

c. For architect-engineer prepared estimates, the original should be forwarded

with the final submittal.

d. Originals should normally be retained by the cost engineering office preparing

the estimate.

e. A cover sheet with the “For Official Use Only” marking should be initialed by
both the preparer and the reviewer.

E-3. Form Standardization. The following figures are intended as samples that record
and convey estimating efforts used in developing cost estimates. Although no forms are
mandatory for use in estimates, it is recommended that the cost engineer consider
using forms to express unit price and extended prices calculations.

Figure E-1. Example Control Record for Independent Government Estimates ...........E-3
Figure E-2. Example Signature Page for Independent Government Estimate ............E-4
Figure E-3. Example Price Schedule...........................................................................E-5
Figure E-4. Example Simplified Construction Schedule ..............................................E-6
Figure E-5. Example Telephone Quotation Sheet .......................................................E-7
Figure E-6. Example Reasonable Contract Estimate ..................................................E-8
Figure E-7. Example Reasonable Contract Estimate Detail Summary Sheet .............E-9
Figure E-8. Example Reasonable Contract Estimate Worksheet Summary..............E-10
Figure E-9. Example Reasonable Contract Estimate Worksheet ..............................E-11
Figure E-10. Example Reasonable Contract Estimate Worksheet ............................E-12

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Figure E-11. Example Reasonable Contract Estimate Worksheet ............................E-13

Figure E-12. Example Reasonable Contract Estimate Worksheet ............................E-14
Figure E-13. Example Reasonable Contract Estimate Worksheet ............................E-15
Figure E-14. Example Wage Rate Calculations ........................................................E-16
Figure E-15. Example Estimate Detail Summary Sheet ............................................E-17
Figure E-16. Example Construction Cost Estimate Worksheet .................................E-18
Figure E-17. Example Crew and Productivity Worksheet..........................................E-19
Figure E-18. Example Cost Estimate Analysis (DA Form 5418-R)............................E-20

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Figure E-1. Example Control Record for Independent Government Estimates

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Figure E-2. Example Signature Page for Independent Government Estimate

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IFB No. XXX - -X-

PRICING SCHEDULE

FY ________ Contingency Communications Element Facility and Vehicle Maintenance Facility

CLIN Contract Line Item No. (Description of bid item) UOM UNIT QTY TOTAL PRICE
PRICE

0001 All work for the Contingency LS 1,000,000.00 1 $ 1,000,000.00

Communications
0002 All work for the Vehicle Maintenance Facility. LS 600,000.00 1 $ 600,000.00

0003 All work for the decorative screening contained

in the contingency Communications Element LS 100,000.00 1 $
100,000.00
Facility project.

0004 Site Preparation SM $ 5.00 10,000 $ 50,000 .00

TOTAL AMOUNT OF CLIN ITEMS 0001 THROUGH 000 $ 1,750,000.00

(Additives/deductives will also be shown on the price schedule)

NOTES TO BIDDERS (May vary according to the type of project, military, civil or HTRW)

1. The low bidder for purpose of award will be determined on the basis of the bidder offering the lowest
total of Contract Line Items Numbers (CLIN) 0001 through 0004.

2. The bidders are required to bid on all items or their bid will be rejected.

3. Bidders are reminded that they must bid on the issued plans and specifications, as amended. Any
deviations, conditions or attachment made by the bidder himself thereto may render the bid non-
responsive and be cause for its rejection.

4. Any bid, which is materially unbalanced as to prices for each Contract Line Item Number, may be
rejected. An unbalanced bid is one, which is based on prices significantly less than cost for some work
and prices, which are significantly overstated for other work.

Figure E-3. Example Price Schedule

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Figure E-4. Example Simplified Construction Schedule

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Figure E-5. Example Telephone Quotation Sheet

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Figure E-6. Example Reasonable Contract Estimate

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Figure E-7. Example Reasonable Contract Estimate Detail Summary Sheet

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Figure E-8. Example Reasonable Contract Estimate Worksheet Summary

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Figure E-9. Example Reasonable Contract Estimate Worksheet

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Figure E-10. Example Reasonable Contract Estimate Worksheet

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Figure E-11. Example Reasonable Contract Estimate Worksheet

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Figure E-12. Example Reasonable Contract Estimate Worksheet

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Figure E-13. Example Reasonable Contract Estimate Worksheet

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Figure E-14. Example Wage Rate Calculations

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Figure E-15. Example Estimate Detail Summary Sheet

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QUANTITY TAKE-OFF
CALCULATIONS SHOULD BE
PREPARED IN A MANNER THAT
IS CONSISTENT WITH THE
DISTRICT’S ESTABLISHED
PROCEDURES

Figure E-16. Example Construction Cost Estimate Worksheet

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EQUIP RATES HAVE BEEN ADJ FOR 50 HR WORK

WEEK AND RATES TAKEN FROM EP 1110-1-8, VOL 3.

LABOR RATES TAKEN FROM DAVIS BACON ACT

AGREEMENT

GENERAL DECISION NUMBER

_____________________

Figure E-17. Example Crew and Productivity Worksheet

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Figure E-18. Example Cost Estimate Analysis (DA Form 5418-R)

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APPENDIX F

Sample Quality Review Checklist

Reviewed by: Review Date:

Organization: Rev. Date:
Estimate Type and Phase:
FOR:
PROJECT:
WORK REQUEST NUMBER WORK REQUEST DATE

SCOPE OF WORK / PROJECT DESCRIPTION

Provide brief description of project scope, major components, and complexities.
REGULATION AND GUIDANCE

Engineer Regulation (ER) 1105-2-100, Planning Guidance Notebook.

ER 1110-2-1150, Engineering and Design for Civil Works Projects.
ER 1110-1-1300, Cost Engineering Policy and General Requirements.
ER 1110-2-1302, Civil Works Cost Engineering.
Engineer Manual (EM) 1110-2-1304, Civil Works Construction Cost Index System
(CWCCIS).
Engineer Technical Letter 1110-2-573 Construction Cost Estimating Guide for Civil
Works
Engineering and Construction Bulletin No. 2006-5, 12 June 2006, Microcomputer Aided
Cost Engineering System (MCACES).
Corps of Engineers Directorate of Civil Works Planning and Policy (CECW-P)
Memorandum for Peer Review Process, 30 March 2007
Engineering and Construction Bulletin No. 2007-17, 10 September 2007, Risk Analysis.

LIST OF DOCUMENTS REVIEWED

Yes No Main report
Yes No Cost appendix
Yes No Engineering appendix
Yes No Scoping documents
Yes No Estimates of recommended plan in electronic format for MCACES MII
and Corps of Engineers Dredge Estimating Program (CEDEP)
Yes No Total project cost sheet – all feature accounts
Yes No Total project schedule – all feature accounts
Yes No Risk analysis for projects (required for project >$40 million)
Yes No Labor funding to provide review
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REVIEW ITEMS AND COMMENTS

[Note to reviewer: copy and paste these comments to DrChecks or other

document submitted to the customer.]

Cost Summary
$ RECOMMENDED PLAN CONSTRUCTION ESTIMATE (EXCLUDING
CONTINGENCY)
% PERCENT CONTINGENCY
$ TOTAL RECOMMEND PLAN CONSTRUCTION COST
PRICE LEVEL DATE OF THE RECOMMENDED PLAN
CONSTRUCTION COST
$ TOTAL PROJECT COST (CONSTANT DOLLARS)
PRICE LEVEL DATE OF THE TOTAL PROJECT COST (CONSTANT
DOLLARS)
$ TOTAL PROJECT COST INFLATED THROUGH THE PROJECT
SCHEDULE

REPORT CONTENT COMMENTS

(Comments with the corresponding line reference numbered 1.XX)

COMPARATIVE COST ESTIMATES COMMENTS

(Comments with the corresponding line reference numbered 1.3XX)

RECOMMENDED PLAN CONSTRUCTION COST ESTIMATE REVIEW COMMENTS

(Comments with the corresponding line reference numbered 2.XX through 6.XX)

CONSTRUCTION AND PROJECT SCHEDULE REVIEW COMMENTS

(Comments with the corresponding line reference numbered 7.XX)

TOTAL PROJECT COST SUMMARY REVIEW COMMENTS

(Comments with the corresponding line reference numbered 8.XX through 10.XX)

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COST ENGINEERING FEASIBILITY AGENCY TECHNICAL REVIEW

CHECKLIST
INSTRUCTIONS: Check items that are approved by the technical review as “Y” for yes
or “N” for no. Check “N/P” for items not provided, “N/A” for lines that do not pertain to
the level of estimate being reviewed. Fill out "Comment Review Form" or "DrChecks"
with the corresponding line reference number. Indicate whether the comments have
been submitted in DrChecks.

Y N N/P N/A Categories/Questions

1.00 Basic Information for Reviewer – SCOPE AND FORM
1.10 Draft Report Document, General
1.101 Is the complete report document provided for this cost review? As a
minimum, this should include the main body of the report, the
engineering appendix, all cost tables or appendixes, and the project
schedule. .
1.102 Is the detailed construction cost estimate provided in electronic format?
Current software is MCACES MII or CEDEP.
1.103 Does the executive summary clearly present the “Total Project Cost”
(TPC) inflated through the project schedule? The TPC at the time the
project is authorized by Congress becomes the Baseline Cost Estimate
(BCE). The BCE is subject to cost limits of Section 902 Water
Resources Development Act of 1986. (ER 1105-2-100)
1.104

1.20 Draft Report Document, Cost Estimate Report Section

1.201 Does the report include separate sections summarizing the

development of screening comparative estimates, the construction cost
estimate for the recommended plan, and the TPC (BCE)?
1.202 Does the cost estimate report section summarize and describe the
basis and development of the comparative estimates, such as
describing the method of construction, assumptions used in developing
the estimate, and the technical/design data available? (ER 1110-2-
1302, 3.a.)
1.203 Does the cost estimate report section clearly indicate, summarize, and
describe development of the recommended plan construction cost
estimate?
1.204 Does the cost estimate report section summarize the uncertainties
associated with major cost items in the recommended plan estimate?
(ER 1105-2-100, appendix E)
1.205 Does the cost estimate report section summarize the cost risk and
resulting contingency development for the recommended plan
construction cost estimate?
1.206 Does the report describe the development of the recommended plan
construction schedule and where applicable, development of multiple

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Y N N/P N/A Categories/Questions

construction contract schedules?

1.207 Does the cost estimate report section summarize and describe the
basis and development of TPC. For example, the source and basis of;
the feasibility report cost (Feature 22), engineering and design (E&D)
(Feature 30), construction management (Feature 31), other pertinent
feature costs, the price level of the constant dollar estimates
(preparation date and program year date), and basis of cost indexes
for inflating the project costs (inflated dollar basis) through the project
schedule?
1.208

1.30 Comparative Construction Cost Estimates

1.301 Is the technical/design data, method of construction, and assumptions

used for developing the comparative estimates included and
described? (ER 1110-2-1302)
1.302 Are all comparative cost estimates at the same price level?

1.303 Is the TPC of each comparative estimate accurately used in the

economic analysis comparisons, such as costs and benefits at the
same price level? (ER 1105-2-100)
1.304

1.40 Recommended Plan - Construction Cost Estimate

1.401 Does it appear that the scope of the recommended plan has been
adequately captured and presented in the construction estimate? If
not, provide specific examples.
1.402 Is the construction cost estimate prepared using current estimating
tools in MCACES (Currently MII and CEDEP)?. Engineering and
Construction Bulletin, 12 June 2006, MCACES.
1.403 Are construction cost estimates at current price levels for the
recommended plan?
1.404 Has the estimate been previously reviewed and checked? Date:
(ER 1110-1-1300)
1.405 Has estimate been approved by Chief, Cost Engineering
Branch/Section? (ER 1110-1-1300)
1.406

1.50 Construction Schedule(s)

1.501 Is the construction schedule(s) based upon the scope of design and
details in the cost estimate for the recommended plan?
1.502

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Y N N/P N/A Categories/Questions

1.60 Project Schedule – Baseline Project Schedule

1.601 Has a total baseline project schedule been provided indicating pre-
construction and post-construction award activities for all Features?
1.602 Are the construction schedules clearly presented in the project
schedule?
1.603

1.70 Total Project Cost Summary - Baseline Cost Estimate

1.701 Are the costs for lands and damages, all construction features,
planning, E&D, and construction management, and all project
management included in the TPC?
1.702 Are appropriate contingencies included and supported with sound
basis?
1.703 Are two TPC estimates displayed in the feasibility report; one based on
constant dollars and one based on projected inflation rates? (ER
1105-2-100, ER 1105-2-100, 4.3., and ER 1110-2-1302)
1.704 Is each contract and/or element of the recommended plan escalated
for inflation according to the baseline project schedule?
1.705 Are the Federal and non-Federal cost share percentages shown and
total costs separated accordingly?
1.706 Is the non-Federal sponsor’s obligations clearly shown?

1.707

1.80 Engineering Appendix

1.801 Does the design package clearly meet the requirements of ER 1110-2-
1150, E&D for Civil Works Projects – Feasibility Stage (Section 13 –
Engineering During Feasibility Stage)?
http://www.usace.army.mil/publications/eng-regs/cecw.htm
1.802 Scope is extremely important as it affects cost, schedule, and
contingency. Has the scope been adequately captured and presented
at the prescribed level in accordance with ER 1110-2-1150?
1.803 Does reviewer have a clear definition of scope? Provide general
comment regarding your confidence in the scope quality
provided.
-
-
-
1.804 Does the package meet the requirements within ER 1105-2-100,
Exhibit G of the Planning Guidance Notebook?
1.805

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Y N N/P N/A Categories/Questions

2.00 Project Description (General Construction Details and Narrative)

in the Construction Cost Estimate Project Notes
2.100 Basis of Cost Estimate Notes
2.101 Do the project notes present a clear understanding and definition of
scope?
2.102 Is the scope in the project notes consistent with the scope of the
recommended plan?
2.103 Do the project notes identify documents used as the basis for this
estimate?
2.104 Are the major project features identified?
2.105 Do the project notes identify Federal and non-Federal cost sharing
requirements?
2.106 Do the notes address significant volatile cost items in the project
scope?
2.107 Do the project notes describe the process used to establish
contingencies, such as a risk analysis, process, concerns?
2.108 Do the project notes clarify major assumptions such as acquisition
strategy, expected bid competition, prime and subcontractor
assignments, major cost quotes, major construction processes,
construction phasing and/or sequencing?
2.109

2.20 Basis of Construction Schedule Notes

2.201 Is the construction schedule consistent with the baseline project
schedule?
2.202 Are dates for completion given, milestone dates set?
2.203 Are construction windows or limitations considered and documented?
2.204 Do the notes identify inflation points (beginning or midpoint of
construction) consistent with the project schedule?
2.205 Do the notes address number of crews, shift work, and overtime?
2.206

2.30 Construction Estimate Notes

2.301 Are general assumptions noted in the project notes and are they
reasonable?
2.302 Is site access considered and presented in the notes?
2.303 Are borrow areas needed and identified?
2.304 Are unusual conditions (soil, water and water diversion, hazardous
materials, weather) considered and documented in the estimate notes?
2.305 Are unique construction techniques considered and documented?
2.306 Do the notes address equipment availability and distance traveled?
2.307 Do the notes address labor availability and distance traveled?

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Y N N/P N/A Categories/Questions

2.308 Do the notes address material availability and distance traveled?
2.309 Are environmental concerns during construction documented in the
notes?
2.310 Is there an Acquisition Plan? (When and what method of acquisition)
2.311 Is there a subcontracting plan and subcontract crafts identified?
2.312 Are effective dates for pricing labor, equipment, and material given?
2.313 Are estimate supporting databases listed, current and up-to-date for
the location?
2.314

2.4D Dredging Estimate Notes

2.4D1 Do the project notes include a narrative presenting the rationale used
by the cost engineer for dredging equipment selection?
2.4D2 Do the project notes describe the basis for production rates?
2.4D3 Do the notes adequately address containment and disposal areas?
2.4D4

2.40 Question, at this point do you, the reviewer, have a good

understanding of the project?

3.00 General Estimate Layout - Title Structure (Work Breakdown

Structure)
3.01 Is the estimate in proper Work Breakdown Structure (WBS) format in
accordance with all guidelines?
3.02 Does the WBS adequately reflect all project scope?
3.03 Are the title structure and the descriptions adequate to determine what
was being estimated?
3.04 Were good unit title task costs/assemblies developed to depict a
complete estimate?
3.05 Were good unit title task costs/assemblies developed to demonstrate
reasonable costs and unit prices?
3.06 Were good unit title task costs/assemblies developed to support the
development of a reasonable construction schedule?
3.07

4.00 Construction Estimate Details – Unit Price Book Items Used to

Develop Assemblies
4.10 General Details
4.101 Is the estimate detail traceable back to the scope package?
4.102 Does the estimate separate and include all major items scoped in the
recommended plan?
4.103 Does the estimate detail the assumptions made for development of the
detailed cost items?
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Y N N/P N/A Categories/Questions

4.104 Do quantities appear reasonable and consistent with the
recommended plan?
4.105 Are note fields used to briefly explain the detail costs?
4.106 Does the estimate organize and present a logical sequence of work?
4.107 Are critical quantities and costs identified in the estimate details?
4.108 Does the estimate contain specific detail to make judgment on whether
costs are reasonable?
4.109

4.20 Labor and Equipment

4.201 Are the actual labor rates reasonable? Check specific rates.
4.202 Do the labor rates reflect current market and locale such as rural or
metro availability?
4.203 Review the estimate settings for overtime and any other modifiers. Is
any overtime used judiciously for critical-path elements?
4.204 Are the actual equipment rates reasonable? Check specific rates.
4.205 Does crew makeup appear reasonable?
4.206 Are crew production rates reasonable?
4.207 Were equipment fuels updated to current rates?
4.208 Does the estimate clearly indicate that the costs for dredge plant are
based on historical data or CEDEP?
4.209

4.30 Materials
4.301 Are appropriate allowances applied to items where loss due to
handling, placement, cutting, transportation, contamination, etc.?
4.302 Does earthwork items make distinction and reasonable assumptions
for bank cubic yards, loose cubic yards, and embankment cubic yards?
4.303 Are critical or volatile materials and quantities identified at the detail
level?
4.304 Are major material quotes identified with quote source documentation?
4.305 Does the estimate clarify/include transport costs?
4.306

4.40 Mobilization - Preparatory Work, Demobilization – Cleanup

4.401 Are mobilization and demobilization costs detailed?
4.402 Does the total mobilization and demobilization cost appear
reasonable?
4.403
4.4D1 Dredge work: does the estimate include preparation of dredge
attendant plant for transfer, the cost to move all plant and equipment
return of tug or towing vessel, and preparation of the plant to start
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Y N N/P N/A Categories/Questions

work?
4.4D2 Dredge Work: Does the estimate clearly include a construction support
site?
4.4D3 Dredge Work: Does the estimate present the reasons for using a
different distance for demobilization?
4.4D4 Dredge Work: Does the estimate include all costs to secure machinery
and equipment for storage?
4.4D5 Dredge Work: Does the estimate clearly include indirect costs in the
mobilization and demobilization pay item?
4.4D6

4.50 Miscellaneous Estimate Details

4.501 Are volatile cost items identified? Check major items that affect cost.
4.502 Do major cost items reflect a reasonable unit of measure to ascertain a
unit cost?
4.503 Do major unit prices appear reasonable for the locale? (Concrete,
steel, earthwork, fabrication, etc.)
4.504 Are major construction concerns considered such as site access, care
and diversion of water, etc.
4.505 Are any costs developed for Hazardous, Toxic, and Radioactive Waste
concerns?
4.506
4.5D1 Dredge Work: Where applicable, are pipeline dredging gross
production costs consist of costs associated with dredging time, not by
element of work?
4.5D2 Dredge Work: Where applicable, are hopper and mechanical dredge
gross production costs based on excavation time, transport time, and
disposal time?
4.5D3

4.60 Subcontracting
4.601 Are subcontractor assignments and markups reasonable?
4.602 Does the estimate identify subcontract quotes (dependent on type of
estimate)?
4.603 Has an appropriate consideration been made in addressing multi-tier
subcontracting for specialty items?
4.604

5.00 Construction Cost Summary, Including Indirect and Markups

5.01 Are appropriate taxes included or excluded as may be required?
5.02 Is the field office overhead reasonable for this project?
5.03 Does the home office overhead look reasonable for this type of work?

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5.04 Is profit reasonable and was the weighted guideline method used to
calculate it?
5.05 Does bond seem reasonable?
5.06 Are all costs at the same price level?
5.07

6.00 Risk Analysis and Contingency (required over $40 million)

6.10 Risk Analysis
6.101 Does the estimate include a discussion of the uncertainties associated
with each major cost item? (ER 1105-2-100, appendix E)
6.102 Was a risk analysis completed and documented using accepted
software?
6.103 Was the analysis supported by market research?
6.104 Did the project delivery team provide input for the risk analysis?
6.105 Are key variables identified and considered?
6.106 Is scope quality and detail addressed?
6.107 Are key design elements considered within the study?
6.108 Is volatile pricing considered?
6.109 Is material availability and transport considered?
6.110 Is unique construction considered?
6.111 Is schedule (restrictive or permissive) considered?
6.112 Are there any other key variables requiring consideration?
6.113 Does risk consider acquisition strategy?
6.114 Does the analysis consider potential savings such as value
engineering and alternatives?
6.115 Are the contingency allowances a result of a risk analysis?
6.116

6.20 Contingency
6.201 Do the applied contingency rates appear reasonable for each major
cost item?
6.202 Does the overall contingency rate appear reasonable?
6.203 Does the contingency reflect a confidence value near 80 percent?
6.204

7.00 Schedules
7.10 Construction Schedule
7.101 Are construction schedules clearly presented in the feasibility report?
7.102 Does the schedule identify critical aspects of the construction?

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Y N N/P N/A Categories/Questions

7.103 Are key milestones depicted?
7.104 Does the construction schedule reflect reasonable logic of activities?
7.105 Does the construction schedule indicate a likely critical path?
7.106 Are all activities tied?
7.107 Does the construction schedule consider crew sizes, numbers of
crews, related productivity?
7.108 Do construction schedules make distinction between single shift and
double shift?
7.109 Does the estimate and risk analysis reflect the schedule (i.e., overtime
usage, numbers of crews, numbers of shifts, critical delivery aspects,
concurrent activities, etc.)?
7.110 Do construction schedules depict critical or time-sensitive orders or
procurements?
7.111

7.20 Project Schedule

7.201 Does the project schedule include all activities for Total Project such as
planning, E&D, advertising and award, construction, and closeout and
turnover to sponsor?
7.202 Does the project schedule clearly present dates to determine inflation
based on escalation indexes, i.e., the activity beginning date or the
activity midpoint?
7.203

8.00 Total Project Cost Summary in Current Dollars

8.01 Is there a proper TPC worksheet?
8.02 Is the price level date shown and is it consistent with the estimate
preparation date?
8.03 Are all the project-related Civil Works WBS Features shown in the TPC
Summary?
8.04 Do the Lands and Damages cost (01 Feature) provided by Real Estate
Division include contingencies?
8.05 Are Relocations (02 Feature) accurately separated and shown?
8.06 Are costs for Cultural Resources (18 Feature) included?
8.07 Is the basis of the Cultural Resources costs noted?
8.08 Are the feasibility study costs (22 Feature) shown and included in the
TPC?
8.09 Is the basis of the feasibility study costs noted?
8.10 Is the basis of the 30 and 31 feature costs noted?
8.11 Does the E&D clearly include costs for project management, planning
and engineering, E&D, independent technical review and value
engineering, contracting, reprographics, engineering during
construction, planning during construction, project operation?

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Y N N/P N/A Categories/Questions

8.12 Are reasonable percentages used to develop costs for E&D
(30 Feature)?
8.13 Are reasonable percentages used to develop costs for Construction
Management (31 Feature)?
8.14 Are contingencies separately shown for each Feature?
8.15

9.00 Total Project Cost Inflated (using escalation indexes) go the

Project Schedule
9.01 Is the contingency allowance consistent with the TPC in current
dollars?
9.02 Are the work breakdown codes (Feature Codes) shown in the inflated
TPC Summary?
9.03 Are all features and elements inflated through the project schedule?
9.04 Are the escalation dates shown for each inflated feature?
9.05 Are the escalation dates consistent with the project schedule?
9.06 Are inflated TPCs based on price indexes from the current CWCCIS,
EM 1110-2-1304?
9.07 Are inflation percentage rates shown for each feature?
9.08 Are inflation percentages calculated correctly?
9.09 If Lands and Damages are inflated, is the escalation for inflation based
on the Consumer Price Index?
9.10 Does the inflated TPC include any escalation beyond CWCCIS
guidance based on market research?
9.11 Does the feasibility report present the basis and rationale for inflating
the project cost using something other than CWCCIS guidance?
9.12

10.00 Federal and Non-Federal Costs

10.01 Are the Federal and non-Federal cost share percentages shown?
10.02 Is the feasibility report cost share clearly shown?
10.03 Is the project cost share percent consistent with the feasibility cost
sharing agreement?
10.04 If applicable, is the cost/value of non-Federal in-kind services shown?
10.05 Are cost shares calculated correctly?
10.06

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APPENDIX G

Cost and Schedule Risk Analysis

G-1. Risk Analysis Overview.

a. Cost risk analysis is the process of determining the probability of cost and
schedule overruns and assigning a studied growth potential presented as a contingency
percentage or value. The analysis is a formal process that includes involvement of the
project delivery team (PDT) utilizing nationally recognized software based on the Monte
Carlo principles.

b. A risk analysis should be provided on the total project cost, including all work
breakdown structure features of the project, but excluding escalation and contingency.
Too often, risk focuses on just the construction activities, which can result in critical risk
elements remaining unidentified. Through early determination of potential project risks,
management can then focus efforts in those areas for potential risk mitigation, resulting
in cost and schedule savings. A formal risk analysis should be accomplished as a joint
analysis between the cost engineer and the other PDT members that have specific
knowledge and expertise on all possible project risks for all features, both internal and
external project risks.

c. Beginning a Cost and Schedule Risk Analysis (Process Box 0). As part of the
PDT, the project manager (PM) shall establish a risk analysis member/facilitator, their
funding, and delivery schedule. The task of the PDT risk analysis facilitator is to lead
the PDT in risk assessment and then produce a Cost and Schedule Risk Analysis
(CSRA). In short, the CSRA begins with assembling members of the PDT to brainstorm
the project’s risk elements. PDT members who have the responsibility of either defining
scope or the development of data would participate in the brainstorming session.
Members are likely to include the PM, risk facilitator, and personnel from real estate,
relocations, environmental, design, contracting, construction, scheduling, and
estimating. The initial objectives are to develop:

(1) Cost risk register addressing all project features, internal and external risks.

(2) The “Most Likely” base cost estimate.

(3) The “best case” and “worst case” estimates.

(4) Cost risk assessment model using Crystal Ball.

(5) Schedule risk register addressing all features.

(6) Schedule risk assessment model using Crystal Ball.

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d. All project features must be addressed within the risk analysis study to ensure
total project risk has been captured. Communication is the key since the cost engineer
has based the construction estimate on certain assumptions. While the cost engineer is
responsible for the construction estimate, it is highly recommended that the estimate
used for the risk analysis include all project costs and all feature costs. Those
estimates should exclude any contingency and escalation, since those are determined
after the risk analysis is complete.

e. Risk elements are any aspect of the project that could cause the cost and/or
schedule to vary from the estimator’s “Most Likely” cost estimate and schedule (the
“Most Likely” estimate is the one presented as the base cost and base schedule). The
brainstorming sessions typically last 1 day or less, during which the team identifies risk
elements, their likelihood, and their potential impacts. The PDT considers internal risks
within the project but also external influences. The outcome of the initial brainstorming
session is a preliminary risk register(s) that displays the PDT’s perceived risks and
impacts to cost and schedule.

f. After the brainstorming session, the cost engineer will require several days to
develop low (best case) and high (worst case) cost and schedule estimates based upon
the risk elements identified by the PDT. Additional time may be required to perform
local market studies on key commodities such as fuel, material cost, and labor. The
studies identify the actual significance of the risk items and whether further risk study is
warranted. At that time, the cost engineer can complete the risk register(s) with the
identified risk items and their significance to the subsequent risk analysis. The market
studies may reveal a change of impact significance and criticality related to the
identified risk. The PDT risk analysis member will need several days to customize the
risk model based on the data available for the CSRA. During that period, the cost
engineer will assign distribution curves depicting the best, “Most Likely”, and worst case
for each high-risk item within the register(s). Once the CSRA model has been
developed, ran, and the results analyzed, a quality check is made to assure the results
are logic-based on model assumptions.

g. A typical CSRA requires 10-15 days to perform. Internal labor varies, but in
general, 80-120 hours are required for the risk analysis PDT member, plus additional
costs for the cost engineer and remaining PDT members who have provided support to
the risk development effort. On significantly large and complex projects, labor could be
as great as 1,000 hours where significant market analyses are required prior to the
CSRA.

G-2. Cost and Schedule Risk Process.

a. Figure G-1 illustrates the steps involved in conducting a CSRA.

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District Coordinate with other

Obtain
Begin Access to District or the Walla
Risk Analysis No
Risk Analysis Crystal Ball Walla Cx
Model Template
Software for Support 3
0 1 2

Yes

Complete
PDT Meeting to PDT to identify Development
Customize Risk Register
Brainstorm Risk Items of the
Risk Model Documentation
Risk Items (Likelihood & Impact) Risk Register
(ref template)
8 7 6 5 4

Cost Engineer
Market Analysis * transfers the “Most
Cost Engineer transfers Cost Engineer transfers
by the “High Values” Cost the “Low Values” Cost Run Risk
Likely” Cost &
Cost Engineer & Schedule Data & Schedule Data Model
Schedule Data
to Cost Risk Model to Cost Risk Model
9 to Cost Risk Model10 11 12 13

Fail

Sanity Check
Identifies Monetary &
Identifies Key based on Generate
Schedule Pass
Risk Drivers Sensitivity Risk Report
Impact of Drivers
Analysis
17 16 15 14

Incorporate Risk Reduction Measures

Complete
Define Resulting
Present to PM Total Project Cost
Project Cost with Contingency Level
for potential Summary w/
Confidence Levels based on Confidence
Risk Reduction Efforts Contingency and
Level
18 19 20 Escaltion 21

Figure G-1. Cost and Schedule Risk Process

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b. Obtain CSRA Template (Process Box 1). A U.S. Army Corps of Engineers
standard draft template for CSRA is available for download from the Walla Walla
District, Cost Engineering Branch Center of Expertise (CX) web page at
http://www.nww.usace.army.mil/html/offices/ed/cb/cepage.htm.

c. District Access to Crystal Ball Software (Process Box 2 and 3). The CSRA
template requires Crystal Ball software in order to conduct a risk analysis. This
software can be obtained through coordination with another district, architect-engineer
cost firm, or the Walla Walla Cost Engineering CX to support you on the CSRA.

G-3. Development of Risk Register (Process Box 4). The first worksheet of the CSRA
template, is the risk register (a sample risk register is shown in figure G-2 and
addresses both cost and schedule risks). The risk register is a structured approach to
communicate potential risk of the program or project and to assign risk potentials.

a. Project Delivery Team to Identify Risk Items (Process Box 5 and 6). The first
step in building the risk register is for the cost engineer to identify to the PDT the basis
of the cost estimate and schedule. The PDT would brainstorm and identify risks items
that could potentially cause a variance to the cost estimate or schedule. Drivers, which
should be discussed as a minimum, are bidding climate, saturated local market, volatile
real estate values, scope definition, evolving design changes, weather, schedule
constraints, labor availability/pricing, equipment availability/pricing, material
availability/pricing, fuel prices, productivity, potential savings due to innovation,
streamlining, acquisition strategy, and gains in efficiency.

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`
Risk Level
Likelihood of Occurrence

Very
Likely
Low Moderate High High High

Likely Low Moderate High High High

Unlikely Low Low Moderate Moderate High

Very
Unlikely
Low Low Low Low High

Negligible Marginal Significant Critical Crisis

Impact or Consequence of Occurrence

Project Cost Project Schedule

Rough
Rough Order Order Variance Correlation to Affected Project Project
Risk No. Risk/Opportunity Event Discussion and Concerns Likelihood* Impact* Risk Level* Impact ($) Likelihood* Impact* Risk Level* Impact (mo) Distribution Other(s) Responsibility/ POC Component Implications
Internal Risks (Internal Risk Items are those that are generated, caused, or controlled within the PDT's sphere of influence.)
Scope is fairly well defined for standard civil works features.
The pumping plant requires considerable design and Project
I-1 Scope Definition approximates 20% of the cost. LIKELY SIGNIFICANT HIGH $1,200,000 LIKELY SIGNIFICANT HIGH 8 UNIFORM I-2 Manager/Planner Construction Cost Cost & Schedule
Scope is fairly well defined for standard civil works features.
Scope Growth / The pumping plant has potential of VE savings through Project
I-2 Reduction better data and VE. LIKELY MARGINAL MODERATE ($275,000) LIKELY MARGINAL MODERATE 10 UNIFORM I-1, I-16 Manager/Planner Construction Cost Cost & Schedule

$3 Billion construction will be occurring in locale over the Project Labor/ Production
I-3 Labor Availability/Pricing next 5 years. LIKELY SIGNIFICANT HIGH $3,000,000 LIKELY MARGINAL MODERATE 9 TRIANGULAR Manager/Planner Rates Cost & Schedule

Equipment Large cranes required, but available. Pump plant Equipment/

I-4 Availability/Pricing equipment long lead time. UNLIKELY NEGLIGIBLE LOW $900,000 UNLIKELY MARGINAL LOW 6 TRIANGULAR I-15 Cost Engineering Production Rates
Material Needed aggregates in short supply locally. This affects
I-5 Availability/Pricing concrete, rip rap, base course and asphalt VERY LIKELY SIGNIFICANT HIGH $2,300,000 VERY LIKELY MARGINAL MODERATE 4 TRIANGULAR Cost Engineering Material Costs Cost & Schedule

$2.65 per gallon was used in the Oct 06 MCACES,

I-6 Fuel Prices increases will effect equipment and delivery or materials VERY LIKELY SIGNIFICANT HIGH $1,750,000 VERY LIKELY NEGLIGIBLE LOW 0 TRIANGULAR Cost Engineering Equipment Cost
Location is rural. However, several unmarked and
abandoned farm related utilities are prevalent at this
I-7 Utility Relocations location. LIKELY MARGINAL MODERATE $870,000 LIKELY MARGINAL MODERATE 3 TRIANGULAR Civil Design Construction Cost Cost & Schedule
Studies indicate that the area is heavily saturated with de- Environmental
icing chemicals as well as agricultural fertilization and Compliance
I-8 Environmental Mitigation pesticide residuals. LIKELY SIGNIFICANT HIGH $1,600,000 LIKELY SIGNIFICANT HIGH 24 UNIFORM Specialist Construction Cost Cost & Schedule
Environmental
A small portion of the project is located within the limits of Compliance
I-9 HTRW an Army Chemical Depot undergoing BRAC. UNLIKELY MARGINAL LOW $400,000 UNLIKELY SIGNIFICANT MODERATE 18 UNIFORM Specialist Construction Cost Schedule
Substantial permitting delays may occur if there are
significant environmental mitigation/HTRW issues, or PED/Lands &
I-10 Permits political opposition. LIKELY NEGLIGIBLE LOW $150,000 LIKELY MARGINAL MODERATE 17 TRIANGULAR I-14, E-4 Planning/Regulatory Damages Schedule
Project site is a natural habitat for various species of
threatened wildlife that spawn during Spring months. No Project
I-11 Environmental Windows excavation is permitted from April 15 - June 30. VERY LIKELY SIGNIFICANT HIGH $3,500,000 VERY LIKELY SIGNIFICANT HIGH 30 TRIANGULAR E-2 Manager/Planner Construction Cost Cost & Schedule
Project is a fast-track project, although complicated.
Concerns exist on obtaining appropriate schedule and
Sufficient Planning funding for sufficient review and effort by specialized team Project
I-12 Schedule members and contractors LIKELY MARGINAL MODERATE $300,000 LIKELY SIGNIFICANT HIGH 14 TRIANGULAR Manager/Planner Construction Cost Cost & Schedule

Due to fast-tracking, portions of design and planning effort

are split between Gov't and AE specialists. Concern Project
I-13 Adequate Technical Staff remains that the integration of staff may create delays. LIKELY NEGLIGIBLE LOW $200,000 LIKELY MARGINAL MODERATE 7 TRIANGULAR Manager/Planner PED Schedule

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Site access is limited due to clearances required from U.S.
Army installation, and local farmers remaining on property.
Also, no excavation (or boring) is permitted April 15 - June Project
I-14 Site Access 30. VERY LIKELY MARGINAL MODERATE $500,000 VERY LIKELY NEGLIGIBLE LOW 2 TRIANGULAR I-10 Manager/Planner Construction Cost Cost
There are only two known manufacturers of the specialized
Special Equipment filtration and pumping stations required on site, and neither
I-15 Fabrication are domestic. UNLIKELY NEGLIGIBLE LOW $1,900,000 UNLIKELY NEGLIGIBLE LOW 7 TRIANGULAR I-4 Cost Engineering Construction Cost

Potential savings due to

innovation, streamlining, Value Engineering has already been incorporated into the Value Engineering
I-16 and gains in efficiency project. VE remains on the pumping plant. LIKELY MARGINAL MODERATE ($2,500,000) LIKELY NEGLIGIBLE LOW 11 UNIFORM I-2 Team Productivity Cost
The estimate was based on full and open competition, with
minimal tiering of contractor subs. The Acq Plan has not
been finalized, therefore there is a potential for additional Acquisition Strategy
I-17 Acquisition Plan tiering of the contracts. LIKELY SIGNIFICANT HIGH $7,500,000 LIKELY MARGINAL MODERATE 16 TRIANGULAR E-3 Board Construction Cost Cost & Schedule
I-XX Other Potentials
External Risks (External Risk Items are those that are generated, caused, or controlled exclusively outside the PDT's sphere of influence.)

Work will be done on the river, unpredictable, scour Labor/ Production

E-1 Weather protection is more vulnerable LIKELY NEGLIGIBLE LOW $175,000 LIKELY MARGINAL MODERATE 6 TRIANGULAR N/A Rates Schedule
Environmental Policy There are external environmental policy changes that can Project
E-2 Changes change the construction work windows. LIKELY SIGNIFICANT HIGH $1,400,000 LIKELY SIGNIFICANT HIGH 10 TRIANGULAR I-11 Manager/Planner Construction Cost Cost & Schedule

Bidding Climate – $3 Billion construction will be going on in downtown Acquisition

E-3 Saturated Local Market Pittsburgh over the next 5 years. LIKELY MARGINAL MODERATE $2,000,000 LIKELY NEGLIGIBLE LOW 4 UNIFORM I-16 Professional Construction Cost Cost
Project is highly visible and controversial. Delays due to
Political political ramifications are possible and could critically delay Project
E-4 Support/Opposition or terminate the work. LIKELY SIGNIFICANT HIGH $6,400,000 LIKELY SIGNIFICANT HIGH 28 UNIFORM I-10 Manager/Planner Project Cost Cost & Schedule
Budget constraints could limit or delay funding, creating
Sufficient Incremental potential sequencing delays and issues, considering the Project
E-5 Funding environmental window constraints. VERY LIKELY SIGNIFICANT HIGH $4,600,000 VERY LIKELY SIGNIFICANT HIGH 27 TRIANGULAR Manager/Planner Project Cost Cost & Schedule
E-XX Other Potentials
*Likelihood, Impact, and Risk Level to be verified through market research and analysis (conducted by cost engineer).
1. Risk/Opportunity identified with reference to the Risk Identification Checklist and through deliberation and study of the PDT.
2. Discussions and Concerns elaborates on Risk/Opportunity Events and includes any assumptions or findings (should contain information pertinent to eventual study and analysis of event's impact to project).
3. Likelihood is a measure of the probability of the event occurring -- Very Unlikely, Unlikely, Moderately Likely, Likely, Very Likely. The likelihood of the event will be the same for both Cost and Schedule, regardless of impact.
4. Impact is a measure of the event's effect on project objectives with relation to scope, cost, and/or schedule -- Negligible, Marginal, Significant, Critical, or Crisis. Impacts on Project Cost may vary in severity from impacts on Project Schedule.
5. Risk Level is the resultant of Likelihood and Impact Low, Moderate, or High.pRefer to the p matrix located at topj of page. p , y p y p y g
A risk item for which the PDT has little data or probability of modeling with respect to effects on cost or schedule (i.e. "anyone's guess") would probably follow a uniform or discrete uniform distribution.
7. The responsibility or POC is the entity responsible as the Subject Matter Expert (SME) for action, monitoring, or information on the PDT for the identified risk or opportunity.
8. Correlation recognizes those risk events that may be related to one another. Care should be given to ensure the risks are handled correctly without a "double counting."
9. Affected Project Component identifies the specific item of the project to which the risk directly or strongly correlates.
10. Project Implications identifies whether or not the risk item affects project cost, project schedule, or both. The PDT is responsible for conducting studies for both Project Cost and for Project Schedule.
11. Results of the risk identification process are studied and further developed by the Cost Engineer, then analyzed through the Monte Carlo Analysis Method for Cost (Contingency) and Schedule (Escalation) Growth.

Figure G-2. Example of a Risk Register

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b. Complete Risk Register Documentation (Process Box 7).

(1) Once the risk events have been identified, the PDT will then assign a
likelihood and potential impact to each event within a preliminary risk register. This draft
risk register will identify the high cost and schedule concerns. It should also identify
potential savings related to cost and schedule. This will allow the risk model to place
emphasis on the events that result in the greatest potential impacts, positive and
negative. The team will provide the PDT cost engineer the information required to
calculate impacts of the identified driver or event. The PDT cost engineer will likely
need to consult the market as well as historical data as a basis for determining certain
impact potentials.

(2) Once the risk item impacts have been determined for cost and schedule, a
final risk register can be completed, demonstrating the significant or high-risk items that
warrant inclusion within the risk model. The final risk register is commonly completed
by the cost engineer that has performed the estimate and studied the cost impacts
through research. Note that during this period of study, the impact significance can
change as a result of further cost and schedule study of the identified impacts.

(3) After the initial PDT brainstorming session, it is common that the “Most Likely”
estimate may need revision based upon the issues learned during those discussions.
To adequately address risk associated with potential design or original assumption
changes, the PDT shall provide enough information for the cost engineer to develop a
reasonable “Most Likely” cost estimate and schedule to reflect these potential changes.
This initial process, more than any other, demonstrates that the CSRA process is a
team tasking. The risk model is only as good as the data provided.

G-4. Customize Risk Model (Process Box 8).

a. Having now completed the first worksheet (the Risk Register) of the CSRA
template, the second worksheet (the Risk Model) will need to be customized for the
CSRA currently being developed. The risk model will include one row for every
identified risk item to be included in the study within an Excel spreadsheet format. This
can be accomplished in a variety of ways such as utilizing the “Most Likely” estimate
work breakdown structure OR by reflecting the actual risk register. The risk model must
encompass the full scope, cost and schedule of the project with all features and at an
adequate detail level that clearly reflects the cost and schedule variances of the specific
risk(s). The risk model must address the low (best case) estimate, the “Most Likely”
estimate, and the high (worst case) estimate for those individual items that are deemed
significant risks. When developing the best and worst cases, the extremes should not
be included, because they can skew the results unreasonably. For this reason, the best
and worst cases are commonly presented as bounded by 20 percent (best case 20
percent, worst case 80 percent). It is highly recommended that the best and worst

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cases are developed from the “Most Likely” estimate. In that way, any other estimates
and variances reflect the same work breakdown structure OR risk register format for
comparison purposes. In order to develop a traceable document, the risk model should
reflect the “Most Likely” estimate, but be traceable back to the risk register.

b. The level of detail of these items, and hence the number of risk items
established for further study, should be determined by the PDT risk analysis member
working together with the cost engineer. Typically, risk that potentially affects the
overall estimate by 1 percent or more would be addressed in the risk model. A standard
number of critical risk items under study would approximate 8-12 variables. This could
be just the high risk items, but may also include the moderate risks if those risks are still
a considerable cost or schedule impact.

c. Market Analysis by Cost Engineer (Process Box 9). To establish the best and
worst-case estimates, the cost engineer will need to perform a market analysis for the
local area on the critical risk items. This would include information such as labor
market, construction market, fuel cost, material cost, bidding climate, and competition.
Some of this effort can begin prior to customizing the risk model, as the market
conditions may uncover other risks. Various tools are used for this study, sources such
as:

• Historical bid data.

• Internet research.
• Engineering news record.
• Construction records.
• Engineering and planning.
• Real estate.

This process could start at anytime prior to running the risk model. Typically, the cost
engineer may have already sought current data for the estimate development. For the
risk analysis, additional data would be required such as the range of values including
highs and lows.

d. Transfer the “Most Likely 1 ” Cost and Schedule Data to the Risk Model
(Process Box 10). The cost engineer will transfer data from the escalation and
contingency-free cost estimate to the risk model’s “Most Likely” column (figure G-3).
The “Most Likely” estimate is the estimate represented within the Total Project Cost
Summary as presented within appendix B. The level of detail to be run in the model will
vary on a project-by-project basis, and the cost engineer will be required to
communicate with the PDT risk analysis member to establish the level of detail.

1
“Most likely” is the cost developed by the cost engineer based on current project data and assumptions.
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e. Transfer the “High Values” Cost and Schedule Data to Cost Risk Model
(Process Box 11). The cost engineer will be required to develop the “High Cost”
estimate based on the information from the risk register. It is important to have clear
communications with the PDT risk analysis member to define what the high estimate
should reflect. The software program allows the user to customize the model for what
the “High” estimate constitutes. In figure G-3, the high estimate was based on cost that
reflects an 80 percent chance of covering the item. The cost model requires this input
to define the distribution (figure G-3).

f. Transfer the “Low Values” Cost and Schedule Data to Cost Risk Model
(Process Box 12). The cost engineer will be required to develop the “Low Cost”
estimate based on the information from the risk register. It is also important to have
clear communications with the PDT risk analysis member to define what the low
estimate should reflect. The software program allows the user to customize the model
for what the “Low” estimate constitutes. In figure G-3, the low estimate was based on
cost that reflects a 20 percent chance of covering the item. The cost model requires
this input to help define the distribution (figure G-3).
Risk Analysis
MAIN CHANNEL GATES, APRON AND SCOUR
Sample Project Backup for MCACES Changes
PROTECTION

Differences from Most Likely 0% 87% 100% 153% Qty's Labor Equip Materials Scope Change Variance

0 43,597,298 50,308,069 76,794,427 109,602 109,602 120,812 15,491,987 16,214,657 17,013,397 8,036,960 15,001,890 22,699,971 23,356,577 25,068,371 26,960,354 (300,000) 0 260,000

Ref # Project Description Min Low (20%) Most Likely High (80%) a Low (20%) Most Likely High (80%) Low (20%) Most Likely High (80%) Low (20%) Most Likely High (80%) Low (20%) Most Likely High (80%) Low (20%) Most Likely High (80%)

1 Demolition of Existing Gates $ 1,215,803 $ 1,312,374 $ 1,415,477 1 1 1 $ 907,142 $ 966,675 $ 1,032,474 $ 457,908 $ 492,444 $ 530,616 $ - $ - $ - $ -

2 Concrete Pier Repairs $ 736,835 $ 757,654 $ 761,713 1 1 1 $ 464,825 $ 462,687 $ 460,323 $ 192,429 $ 195,462 $ 198,815 $ 29,313 $ 29,935 $ 30,622 $ -

3 Metals $ 371,201 $ 375,411 $ 488,384 1 1 1 $ 101,867 $ 100,893 $ 99,817 $ 23,623 $ 24,779 $ 26,056 $ 245,414 $ 253,396 $ 262,219 $ -

4 Machinery Houses $ 2,731,159 $ 2,758,834 $ 2,967,275 1 1 1 $ 928,135 $ 923,818 $ 919,046 $ 396,429 $ 404,936 $ 414,339 $ 1,376,517 $ 1,437,120 $ 1,504,102 $ -

5 Vertical Lift Gates $ 7,620,202 $ 7,743,899 $ 8,139,560 7 7 7 $ 4,545,869 $ 4,761,581 $ 5,000,000 $ 378,822 $ 377,101 $ 375,199 $ 2,695,511 $ 2,964,582 $ 3,261,977 $ -

6 Install Gates $ 1,583,483 $ 1,597,189 $ 1,605,256 7 7 7 $ 730,189 $ 763,349 $ 800,000 $ 594,322 $ 1,066,966 $ 1,589,362 $ 2,025 $ 2,019 $ 2,013 $ -

7 Furnish & Install Machinery $ 10,299,060 $ 10,757,752 $ 14,250,120 8 8 8 $ 1,038,266 $ 935,401 $ 821,708 $ 252,684 $ 5,951,466 $ 12,250,120 $ 8,987,115 $ 10,019,172 $ 11,159,867 $ -

8 Electrical $ 1,654,423 $ 3,679,586 $ 4,527,996 1 1 1 $ 1,500,000 $ 1,605,773 $ 1,722,681 $ 104,907 $ 106,006 $ 107,220 $ 1,765,856 $ 1,822,304 $ 1,884,694 $ -

9 APRON - Underwater Excavation $ 342,850 $ 483,272 $ 599,252 4,155 4,155 4,155 $ 163,548 $ 188,095 $ 215,226 $ 263,510 $ 311,948 $ 365,485 $ - $ - $ - $ -

10 APRON - Exporatory Pile Driving $ 79,324 $ 80,029 $ 80,382 8 8 8 $ 27,524 $ 28,700 $ 30,000 $ 31,279 $ 31,580 $ 31,913 $ 9,757 $ 9,756 $ 9,754 $ -

11 APRON - Sheetpiling $ 1,192,550 $ 1,216,457 $ 1,303,549 23,640 23,640 23,640 $ 372,594 $ 373,737 $ 375,000 $ 344,379 $ 351,656 $ 359,698 $ 476,968 $ 523,448 $ 574,821 $ -

12 APRON PROTECTION, PLACE FILL $ 53,515 $ 53,961 $ 68,008 1,335 1,335 1,735 $ 13,677 $ 14,372 $ 15,140 $ 22,989 $ 24,348 $ 25,849 $ 17,390 $ 21,964 $ 27,019 $ -

13 APRON PROTECTION, PRECAST CONCRETE CAP $ 2,015,666 $ 2,018,551 $ 2,438,322 1 1 1 $ 703,673 $ 721,540 $ 741,288 $ 286,313 $ 304,259 $ 324,094 $ 523,088 $ 622,016 $ 731,358 $ -

14 APRON PROTECTION, TREMIE CONCRETE $ 818,559 $ 824,986 $ 1,028,568 960 960 1,250 $ 51,817 $ 54,688 $ 57,862 $ 82,341 $ 79,321 $ 75,984 $ 686,142 $ 782,147 $ 888,258 $ -

Ref # Project Description

15 APRON PROTECTION, INFILL GROUT

16 APRON PROTECTION, GROUT-FILLED BAGS

$

$
83,110

626,199 $
$ 83,776

626,601
$

$
102,004

632,988
205

600
205

600
265 $

600 $
13,208

227,192
$

$
13,865

226,159
$

$
Min
14,592 $

225,018 $
17,073 $

204,167 $
Low (20%)
18,065
$

208,454 $
19,161 $

213,192 $
47,141

194,527
$

$
Most Likely
54,098 $
61,787

194,499 $ 194,467
$

$
-

-
High (80%)
17 SCOUR PROTECTION, UNDERWATER EXCAVATION $ 3,312,060 $ 3,750,842 $ 4,797,704 53,200 53,200 63,660 $ 1,064,107 $ 1,248,265 $ 1,451,807 $ 1,699,429 $ 2,138,573 $ 2,623,943 $ - $ - $ - $ -

1 Demolition of Existing Gates

18 SCOUR PROTECTION, PLACE BEDDING MATERIAL $ 766,022 $ 873,278 $ 940,992 6,600 6,600 6,600 $ 224,517 $ 234,852 $ 246,275 $ 385,217 $
$ 406,376 $
1,215,803 $
429,763 $ 265,036 $ 264,997 $ 264,953
1,312,374 $ -
$- 1,415,477
19 SCOUR PROTECTION, PLACEMENT OF GROUT FILLED BAGS $ 8,198,314 $ 8,854,708 $ 9,290,269 12,400 12,400 12,400 $ 1,814,392 $ 1,993,294 $ 2,191,028 $ 1,539,140 $ 1,737,481 $ 1,956,700 $ 5,074,724 $ 5,073,978 $ 5,073,154
$ (300,000) $

2
21 ABUTMENT WALL, UNDERWATER EXCAVATION
Concrete Pier Repairs
20 SCOUR PROTECTION, SHEET PILE TRANSITIONS WALL $

$
251,173 $

29,349 $
253,618

30,400
$

$
271,564

30,664
2

260 260
2 2 $

260 $
76,414

5,641
$

$
76,067

5,805
$

$
75,684 $

5,986 $
80,268 $

23,708 $
82,199
$ 24,169
$

$
84,333 $
736,835
24,679 $ - $
$
97,028 $ 103,925 $

- $
111,549

- 757,654$
$ -
$- 761,713
22 ABUTMENT WALL, PIPE PILES $ 1,602,143 $ 1,638,505 $ 1,651,229 759 759 759 $ 341,546 $ 339,994 $ 338,279 $ 550,002 $ 557,298 $ 565,363 $ 616,379 $ 634,379 $ 654,273 $ -

3 Metals
23 ABUTMENT WALL, STEEL SHEET PILING PZC-18 $ 180,755 $ 184,577 $ 233,163 3,506 3,506 3,506 $ 51,181 $ 50,949 $ 50,692 $ 48,362 $ $ 48,848 $ 371,201
49,386 $ 81,213 $
$ 89,228 $ 98,086 375,411$ $- $ 488,384
35,000

24 ABUTMENT WALL, PLACE FILL $ 59,044 $ 59,528 $ 134,626 985 985 985 $ 12,068 $ 12,013 $ 11,953 $ 21,592 $ 21,645 $ 21,703 $ 25,980 $ 25,976 $ 25,972 $ - $ 75,000

25 ABUTMENT WALL, CAST-IN-PLACE SLAB

4
ABUTMENT WALL, DRAIN HOLES
Machinery Houses $ 120,035 $ 121,057 $ 271,496 185

4
185

4
185 $

4 $
54,791

15,367
$

$
54,542

15,297
$

$
54,267

15,220 $
$ 3,782 $

18,328 $
4,176
$ 18,341 $

$
4,612 $
2,731,159
18,356 $
58,647 $
$
501 $
58,638 $

501 $
58,629
2,758,834
500 $
$ -
$-
$ 150,000
2,967,275
26 $ 34,214 $ 34,501 $ 34,782

27 ABUTMENT WALL, GROUTED 5-6 RIPRAP

5 Vertical Lift Gates $ 135,655 $ 136,723 $ 136,664 770 770 770 $ 42,437 $ 42,244 $ 42,031 $ 13,957 $
$
13,992 $ 14,030 $
7,620,202 $
80,305 $ 80,293 $ 80,280

7,743,899
$

$
-

8,139,560

6 Install Gates $ 1,583,483 $ 1,597,189 $ 1,605,256

7 Furnish & Install Machinery $ 10,299,060 $ 10,757,752 $ 14,250,120

8 Electrical $ 1,654,423 $ 3,679,586 $ 4,527,996

Figure G-3. Example of Cost Model Input

g. The next step would be to assign, what are called in Crystal Ball,
“assumptions” to each risk item. Assumptions are simply probability distributions, e.g.,
triangular, uniform, binomial, or Bernoulli. The distributions most commonly used in
CSRAs are triangle and uniform, but the distribution should be tailored to best represent
the determined variance potential. The distribution reflects the best, “Most Likely”, and
worst-case parameters; thus, a triangular distribution is typically established. It is
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strongly suggested that someone who has been trained in performing a CSRA
customize the risk model. Note that the study includes both a cost and a schedule risk
run. Both are treated in a best, “Most Likely”, and worst-case scenario. The results can
be displayed as a percentage or as a cost in dollars or schedule by months. The
schedule growth can then be converted into a risk escalation and presented as part of
the contingency.

h. Schedule Risk Analysis (Process Box 10, 11, and 12). A schedule risk
analysis uses statistical techniques to predict the level of confidence in meeting a
program’s completion date. This analysis focuses not only on critical path activities but
also on activities near the critical path, since they can potentially affect program status.
Like a cost estimate risk and uncertainty analysis, a schedule risk analysis relies on
Monte Carlo simulation to randomly vary activity durations according to their probability
distributions to develop a level of confidence in the overall integrated schedule. This
analysis can provide valuable insight into “what-if” drills and quantify the impact of
program changes.

(1) To develop a schedule risk analysis, probability distributions for each activity’s
duration along and near the critical path must be established. (The critical path based
on the schedule network identifies the specific tasks that will lead to the entire program
slipping if not completed on time.) Typically, three-point estimates are used to develop
the probability distributions for the duration of workflow activities, including best, “Most
Likely”, and worst-case estimates.

(2) After the distributions are developed, the Monte Carlo simulation is run, and
the resulting cumulative confidence diagrams display the probability associated with the
range of program completion dates. If the analysis is to be credible, the program must
have a good schedule network that clearly identifies the critical path that is based on a
minimum number of date constraints.

(3) The risk analysis should also identify which tasks during the simulation most
often ended up on the critical path, so that near–critical path activities can also be
closely monitored and managed.

(4) One of the most important reasons for performing a schedule risk analysis is
that the overall program schedule will always be greater than the sum of the durations
for lower-level activities. This is because of schedule uncertainty, which can cause
activities to lengthen. When they do, other activities can be affected by network
schedule linkages. Lengthening of schedule would cause escalation increases to the
estimate.

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(5) Such uncertainty is typically brought on by:

• A large number of activities and tasks.

• Independent parallel tasks that have near the same completion date.
• Interdependence of two or more tasks.
• Work packages lasting longer than 3 months.
• Planning packages longer than 6 months.
• Reflection of a great deal of lag time in the schedule.

Figure G-4 Example of Critical Path Distribution

(6) Since each activity has an uncertain duration, it makes sense that the
duration of the overall program schedule will also be uncertain. Therefore, unless a
statistical simulation is run, the sum of “Most Likely” duration distributions will tend to
underestimate the overall program critical path duration. Accordingly, because critical
path activity durations are uncertain, the probability distribution of the program’s total
duration must be determined statistically, by adding the individual probability
distributions of critical path activities.

(7) To capture the uncertainty for each critical path activity distribution, various
estimates must be collected. They should be formulated by a consensus of
knowledgeable technical experts and coordinated with the same people who manage
the program’s risk mitigation watch list. Once the distributions have been established,
the Monte Carlo simulation uses random numbers to select specific durations from each
critical path activity probability distribution and calculates a new critical path. The Monte
Carlo simulation continues this random selection thousands of times, creating a new
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program duration estimate and critical path each time. The resulting frequency
distribution displays the range of program completion dates along with the probabilities
that these dates will occur, as seen in figure G-4.

(8) The program schedule should satisfy the 11-point schedule assessment listed
below. Questions that should be answered during a schedule risk assessment include:

• Does the schedule reflect all work to be completed?

• Are the program critical dates used to plan the schedule?
• Are the activities sequenced logically?
• Are activity interdependencies identified and logical?
• If there are constraints, lags, and lead times, what documentation is available
to justify the amounts?

• How realistic are the schedule activity duration estimates?

• How were resource estimates developed for each activity and will the
resources be available when needed?

• How accurate is the critical path and was it developed with scheduling
software?

• How reasonable are float estimates?

• Can the schedule determine current status and provide reasonable
completion date forecasts?

• What level of confidence is associated with the program schedule completion

date?

(9) Other rules of thumb that can mitigate schedule risk include:

• Longer activities should be broken down to show critical handoffs. For

example, if a task is 4 months long but a critical handoff is expected halfway
through, the task should be broken down into separate 2-month tasks that
logically link the handoff between tasks.
• Work packages should be no longer than 2 months so that work can be
planned within two reporting periods.

• Lag should represent only the passing of time and should never be used to
replace a task.

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• Resources should be scheduled to reflect constraints, such as availability of

staff or equipment.

• Constraints should be minimized, not to exceed 5 percent, because they

impose a movement restriction on tasks and can cause false dates in a
schedule.

• Total “float” that is more than 5 percent of the total program schedule may
indicate that the network schedule is not yet mature.

G-5. Run Model, Interpret Data, and Apply Results.

a. Run Risk Model (Process Box 13). Once the model has been setup and
populated with data, the PDT risk analysis member will run the risk model using the
Crystal Ball software.

b. Generate Risk Report (Process Box 14). After running the risk model, there
are several information reports that can be generated to help communicate the areas of
cost and schedule risk on the project, and their potential impacts to the project cost
development. These reports will enable management to better understand the critical
risks that should be closely monitored and managed since they will reflect potential cost
and schedule growth.

c. Sanity Check Based on Sensitivity Analysis (Process Box 15). An important

step in the CSRA process is to check to assure the outcome fits a logical result from the
data. During the data generation stage, the cost engineer has “Most Likely” had to
make assumptions while generating model data. After running the risk model, the
results are available to analyze, and a sanity check of the results is required. The risk
result should be commensurate with the PDT confidence, a reflection of the scope
development, the estimate quality, and the perceived risk impacts. A sanity check may
require the team to review previous assumptions for accuracy or engage in risk
reduction efforts; keep in mind that the CSRA process typically requires several passes.
There is potential that the same or similar risks overly influence the outcome, thereby,
unreasonably magnifying a risk. An example might be contract acquisition strategy that
drives bidding competition. If both are measured separately, an undue exaggeration of
risk can result. Other risks can have a similar correlation whereby, if one risk increases,
the other must follow. An example might be aggregate, cement, asphalt, and concrete.
Care must be given to consider and minimize these potentials. Note: This is not a step
to artificially reduce the results. The PM and team must show great resolve to
accurately define the risk and potential impacts of the project or to enact risk reduction
measures through various means, such as more accurate information or assurance of
sound acquisition strategies.

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d. Identify Key Risk Drivers and Their Impact (Process Box 16 & 17). The PDT
risk analysis member will be able to generate reports that identify key risk drivers and
respective impacts to the project. This will allow management the ability to focus efforts
on risk reduction measures for the project. These reports are called, “tornado charts.”
A tornado chart is a visual attempt to sort risks in the project (figure G-5).

Figure G-4. Example of Sensitivity (Tornado) Chart

e. Project Cost with Confidence levels (Process Box 18). The next step is to
generate a table that depicts the project cost with corresponding confidence levels.
This data is generated from the risk model (figure G-6).

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Project Cost (Does not include Escalation)

90,000,000

Pr oj ect Cost based

on on 80%
80,000,000
Cor r sponding
Cont ingency

70,000,000

60,000,000

50,000,000

"Most Likel y"

40,000,000
Pr oj ect Cost

30,000,000
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
Conf idence Levels

Figure G-5. Project Cost versus Confidence Levels

f. Present to Project Manager for Potential Management Risk Reduction Efforts

(Process Box 19). An important outcome of the CSRA is the communication of high-risk
areas, which have a high potential to affect the project cost and/or schedule. When
considerable uncertainties are identified, a CSRA can establish the areas of high cost
uncertainty and the probability that the estimated project cost will or will not be
exceeded. This gives the management team another and effective tool in assisting the
decision making process associated with project planning and design. It is highly
recommended that this information is made through a report that indicates the
processes used, the PDT members included, methodology such as software tools,
market research, historical data. The report should present the risk register, indicate
the major concerns, and the various tables and charts supporting the calculated
contingencies. It is also recommended that this report be placed within the Cost
Engineering Appendix of the main project report such as a Decision Document at
feasibility level.

g. Define Resulting Contingency Levels (Process Box 20). The next step is to
determine what confidence level and associated contingency to report. This is a
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management decision. The PM will be responsible to direct what confidence level will
be used for final contingency development. Typically, an 80 percent confidence level is
used. However, factors such as how much risk reduction the PDT will be able to
generate will factor into this decision. A sample of a contingency analysis table is
provided in figure G-7. It is not necessary to carry the values to the nearest dollar.

Contingency Analysis

Most Likely Cost Estimate $ 50,308,069

Confidence Level Value Contingency

0% 43,155,265 -14%
5% 51,821,453 3%
10% 53,502,697 6%
15% 54,686,375 9%
20% 55,611,609 11%
25% 56,380,494 12%
30% 57,058,654 13%
35% 57,715,962 15%
40% 58,371,325 16%
45% 58,979,742 17%
50% 59,584,456 18%
55% 60,179,500 20%
60% 60,823,452 21%
65% 61,468,369 22%
70% 62,132,732 24%
75% 62,851,176 25%
80% 63,650,172 27%
85% 64,564,879 28%
90% 65,751,019 31%
95% 67,449,189 34%
100% 78,119,072 55%

Figure G-6. Example of Contingency Analysis Table

h. Complete Total Project Cost Summary with Contingency (Process Box 21).
The last step is to generate the Total Project Cost Summary that identifies base cost by
feature, project, and construction management costs; contingency cost; and escalation
cost. An example of a total project cost sheet is provided in figure G-8. The confidence
level is decided upon and provided to the cost member through the PM. The
contingency rate is used from the contingency analysis table. Total project cost,
including contingency, may differ slightly from the contingency analysis table, since the
contingency rate applied is usually rounded. In addition, small changes to the estimate
would not require that a complete new risk analysis be run, since the contingency rate is
used and should be relative to cost. If significant changes are made to the construction
cost estimate or schedule, then a new risk analysis may be required.

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Effective Price Level: 15-Jan-01

WBS Civil Works COST CNTG CNTG TOTAL

NUMBER Feature & Sub-Feature Description ($K) ($K) (%) ($K)

06 50,308,069 13,342,103
Fish and Wildlife Facilities 27% 63,650,172
__________ __________ ____________
CONSTRUCTION ESTIMATE TOTALS: 50,308,069 13,342,103 63,650,172

PROJECT: Example Project, XXXXX DISTRICT: Walla Walla PREPARED: 16-Aug-07

LOCATION: West Coast POC: Coug Smith, Chief, Cost Engineering

This Estimate reflects the scope and schedule in feasibility report; Enter the report or document this estimate is based upon.

Estimate Prepared: 14-Aug-07 Program Year (Budget EC): 2007

Effective Price Level: 15-Jan-01 Effective Price Level Date: 1 OCT 07 TOTAL PROJECT COST ESTIMATE
Spent Thru:
WBS Civil Works COST CNTG CNTG TOTAL ESC COST CNTG TOTAL ESC COST CNTG FULL
NUMBER Feature & Sub-Feature Description ($K) ($K) (%) ($K) (%) ($K) ($K) ($K) ($K) (%) ($K) ($K) ($K)

06 Fish and Wildlife Facilities 50,308,069 13,342,103 27% 63,650,172 3.2% 51,917,847 13,769,029 65,686,876 - 10.8% 55,741,819 14,783,177 70,524,996
__________ __________ ____________ ____________ __________ __________ __________ ___________ ____________ ______________
CONSTRUCTION ESTIMATE TOTALS: 50,308,069 13,342,103 63,650,172 51,917,847 13,769,029 65,686,876 0 55,741,819 14,783,177 70,524,996

01 LANDS AND DAMAGES - - - - - - - - - - -

21 RECONNAISSANCE STUDIES 100,000 100,000

22 FEASIBILITY STUDIES 50 13 26% 63 52 13 65 - 52 14 66

30 PLANNING, ENGINEERING & DESIGN 13,331,639 3,332,910 25% 16,664,549 13,758,231 3,439,556 17,197,787 - 14,306,681 3,576,672 17,883,353

31 CONSTRUCTION MANAGEMENT 7,294,670 1,823,668 25% 9,118,338 7,528,088 1,882,022 9,410,110 - 8,082,564 2,020,642 10,103,206
__________ __________ ____________ ____________ ____________ __________ __________ __________ ___________ ____________ ______________
PROJECT COST TOTALS: 70,934,428 18,498,694 26% 89,433,122 73,204,218 19,090,620 92,294,838 100,000 78,131,116 20,380,505 98,611,621

CHIEF, COST ENGINEERING

ESTIMATED FEDERAL COST: 98,611,621
Project Management, {Enter PM Name} ESTIMATED NON-FEDERAL COST: -

CHIEF, REAL ESTATE ESTIMATED TOTAL PROJECT COST: 98,611,621

CHIEF, PLANNING

CHIEF, ENGINEERING

CHIEF, OPERATIONS

CHIEF, CONSTRUCTION

CHIEF, CONTRACTING

CHIEF, PM-PB

CHIEF, DPM

Figure G-7. Example of Total Project Cost Sheet

G-6. Risk Register Checklist. Use the checklist of risk items for consideration when
performing a risk analysis. Of critical importance is consideration of all feature codes as
presented within the civil works breakdown structure.

FEATURE
CODE DESCRIPTION
01 Lands and Damages
02 Relocations
03 Reservoirs
04 Dams
05 Locks
06 Fish and Wildlife Facilities
07 Power Plant
08 Roads, Railroads, and Bridges
09 Channels and Canals

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10 Breakwaters and Seawalls

11 Levees and Floodwalls
12 Navigation Ports and Harbors
13 Pumping Plants
14 Recreation Facilities
15 Floodway Control-Diversion Structure
16 Bank Stabilization
17 Beach Replenishment
18 Cultural Resource Preservation
19 Buildings, Grounds, and Utilities
20 Permanent Operation Equipment
30 Planning, Engineering and Design
31 Construction Management

a. Engineering and Construction Management Risk Document Checklist. Risk

management reports vary depending on the size, nature, and phase of the project. The
following are examples of risk management documents and reports that may be useful:

• Risk management plan.

• Risk information form.
• Risk assessment report.
• Risk handling priority list.
• Risk handling plan of action.
• Aggregated risk list.
• Risk monitoring documentation:
o Project metrics.
o Technical reports.
o Earned value reports.
o Watch list.
o Schedule performance report.
o Critical risk processes reports.

b. The following items are a composite of several checklists from various

agencies. They have been tailored to better address the more common U.S. Army
Corps of Engineers civil works project risks. The list, though not all encompassing,
provides a valuable tool meant to serve as an aid in PDT discussions of potential risk
items for a specific project.

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CHECKLIST OF POTENTIAL RISK ITEMS:

Organizational and Project Management Risks

‰ Project purpose and objectives are poorly defined
‰ Project scope definition is poor or incomplete
‰ Project schedule in question
‰ No control over staff priorities
‰ Project competing with other projects, funding, and resources
‰ Functional and technical labor units not available or overloaded
‰ Losing critical staff at crucial point of the project
‰ Inexperienced or inadequate staff assigned
‰ Product development by several sources or entities (virtual or remote efforts)
‰ Coordination/communication difficulties
‰ Communication breakdown with project team
‰ Insufficient time to plan
‰ Timely response to critical decisions by project manager and/or management
‰ Architect-engineer and Construction Consultant or contractor delays
‰ Pressure to deliver project on an accelerated schedule
‰ Unanticipated project manager workload
‰ Internal red tape causes delay getting approvals, decisions
‰ Unplanned work that must be accommodated
‰ Local agency/regulator issues
‰ Priorities change on existing program

Contract Acquisition Risks

‰ Undefined acquisition strategy
‰ Lack of acquisition planning support/involvement
‰ Preference to Small Business Development and 8(a) contracts
‰ Acquisition planning to accommodate funding stream or anticipated strategy
‰ Numerous separate contracts
‰ Acquisition strategy decreasing competition
‰ Acquisition strategy results in higher scope risk (Design Build)

Technical Risks
‰ Design development stage, incomplete, or preliminary
‰ Confidence in scope, investigations, design, and critical quantities:
Geotechnical
Civil
Structural
Mechanical
Electrical
Architectural
Environmental
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Controls
Other Specialized Disciplines
‰ Design confidence in products by others
‰ Consultant design not up to department standards
‰ Inaccurate or risky design assumptions on technical issues
‰ Innovative designs, highly complex, first of a kind, or prototypes
‰ Incomplete studies (geotech, hydrology and hydraulic, structural, HTRW, etc.)
‰ Surveys late and/or surveys in question
‰ Sufficiency/availability of as-built data/base map data
‰ Borrow/fill sources identified/secured
‰ Sufficiency/condition of borrow/fill sites
‰ Right-of-way analysis in question
‰ Lacking critical subsurface information for under-water/in-water work
‰ Hazardous waste concerns
‰ Need for design exceptions or waivers
‰ Dredge estimate scope, quantities, and equipment:
Correct dredge equipment decisions
Consideration for adequate pumping for long pipeline runs
Adequate disposal facilities in size and number

Lands and Damages

‰ Real Estate plan defined
‰ Status of real estate/easement acquisition
‰ Objections to right-of-way appraisal take more time and/or money
‰ Ancillary owner rights, ownerships in question
‰ Freeway agreements
‰ Railroad involvement
‰ Relocations identified
‰ Records/as-built availability/inaccuracies
‰ Known and unknown utility impacts
‰ Relocations may not happen in time
‰ Environmental mitigation needs identified
‰ Vagrancy, loitering issues
‰ Quality of lands and damages estimates as “Most Likely” case
‰ Hidden estimate/schedule contingencies

Regulatory and Environmental Risks

‰ Established requirements for initial project studies and potential impacts
‰ Environmental and Water quality issues
‰ Conforming to the state implementation plan for air quality
‰ Historic/cultural site, endangered species, or wetlands present
‰ Project in an area of high sensitivity for paleontology
‰ Project in an area of high sensitivity for cultural artifacts
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‰ Numerous exclusion zones in project area/vicinity

‰ Hazardous waste preliminary site investigation required
‰ Status of critical environmental and regulatory studies
‰ Status of permits
‰ Lack of specialized staff (biology, anthropology, archeology, etc.)
‰ Reviewing agency requires higher-level review than assumed
‰ Permits or agency actions delayed or take longer than expected
‰ Reviewing agency requires higher-level review than assumed
‰ Potential for critical regulation changes
‰ New permits or new information required
‰ Project in the coastal zone
‰ Project on a scenic highway, state, or national park
‰ Negative community impacts expected
‰ Pressure to compress the study and permitting activities

Construction Risks
‰ Accelerated contract schedule
‰ Inefficient contractor
‰ Subcontractor capabilities
‰ Conflicts with other contracts
‰ Innovative project construction
‰ Timely delivery of critical Government-furnished equipment
‰ Permits, licenses, and submittal approvals
‰ Permit and environmental work windows
‰ Environmental restrictions (equipment use, exhaust, and paint fumes)
‰ Site access/restrictions (highways, bridges, dams, water, overhead/underground
utilities)
‰ Adequate staging areas
‰ Rural/remote locale
‰ Inadequate skilled trades available for labor force
‰ Inadequate housing/utilities to support labor force
‰ Special equipment and equipment availability
‰ Material availability and delivery
‰ Productivity of critical work items
‰ Critical fabrication and delivery
‰ Unknown utilities
‰ Survey information
‰ Limited transportation/haul routes available
‰ Transportation/haul routes constricted or unusable during periods of time
‰ Unusual transportation haul distances
‰ Regulatory/operational work windows or outage periods
‰ Restricted schedule, accelerated schedule impacts
‰ In-water work
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‰ Control and diversion of water

‰ Differing site conditions
‰ Unidentified hazardous waste
‰ Historic change order or modification growth
‰ Consideration for standard weather impact
‰ Adequacy of construction schedule depicting durations, sequencing, phasing, and
production rates

Estimate and Schedule Risks

‰ Estimate captures scope for all project features
‰ Estimate developed for current scope and design level
‰ Estimates developed in Microcomputer Aided Cost Engineering System MII and/or
Cost Engineering Dredge Estimating Program
‰ Estimate quality related to lesser designed features
‰ Estimate(s) quality when developed by others
‰ Estimate confidence in large and critical quantities
‰ Estimate include waste/dropoff quantities
‰ Estimate reflects local market for labor and subsistence
‰ Estimate reasonableness of crews and productivities
‰ Estimate reflects local material costs and delivery
‰ Parametric estimates for unit prices adequate for critical items
‰ Consideration and local quotes for special equipment (cranes, barges, tugs, and
diving)
‰ Prime and subcontractor structure matches likely acquisition strategy
‰ Adequate schedule depicting all project features
‰ Schedule matches preconstruction engineering and design plan
‰ Schedule portrays critical construction features, matching estimate productivity
‰ Schedule depicts logical construction sequencing, phasing, and parallel activities
‰ Estimate and schedule reflecting “Most Likely” occurrence
‰ Overall confidence in estimate and schedule

External Risks
‰ Adequacy of project funding (incremental or full funding)
‰ Priorities change on existing program
‰ Local communities pose objections
‰ Loss of public trust/goodwill
‰ Political factors change at local, state, or federal
‰ Stakeholders request late changes
‰ New stakeholders emerge and demand new work
‰ Influential stakeholders request additional needs to serve other purposes
‰ Political opposition/threat of lawsuits
‰ Stakeholders choose time and/or cost over quality
‰ Market conditions and bidding competition
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‰ Unexpected escalation on key materials

‰ Labor disruptions
‰ Acts of God (seismic events: volcanic activity, earthquakes, tsunamis; or severe
weather: freezing, flooding or hurricane)

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APPENDIX H

Sample Checklist for Cost Estimate Preparation

or Reviewer Checklist

H-1. It is highly advisable that all critical estimates, schedules, and Total Project Cost
Summaries receive a quality review by a senior estimator within a formal process. An
independent technical review or independent cost review is often requested, but the
main quality responsibility lies within the estimating shop that produced the estimate.
While much focus is placed on the quality of the bid estimates, other estimates are
equally and possibly more important. The earlier estimates used for budgeting,
programming, and congressional authorization and funding are very important
management tools that should not be overlooked, underutilized, or unsupported.

H-2. During the review process, certain items may indicate the need for further
resolution by specific project delivery team members. Many times, these items relate to
project scope, schedule, site access, contract acquisition, market conditions, value
engineering, risk, etc.

H-3. The estimate product should comply with applicable cost engineering guidance:

a. Engineer Regulation (ER) 1110-2-1150, Engineering and Design for Civil

Works Projects.

b. ER 1110-1-1300, Cost Engineering Policy and General Requirements.

c. ER 1110-2-1302, Civil Works Cost Engineering.

d. ER 1130-2-520, Navigation and Dredging Operations and Maintenance

Policies.

H-4. The following is a checklist for preparing construction baseline estimates.

‰ Prepare cost estimates, schedules, and risk analyses using agency approved
software, as appropriate, and structured using the appropriate Work
Breakdown Structure for civil works.
‰ Confirm the estimates level of development and quality as related to the
respective engineering regulations. For civil works estimates, ER 1110-2-
1150 and 1110-2-1302 are crucial to a successful review.
‰ Confirm whether a project schedule, risk analysis, and a Total Project Cost
Summary are required products based on engineering regulations. If so, they
should also be reviewed. The escalation and contingency are critical items
within the Total Project Cost Summary.
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‰ Ensure the estimate has been developed under a likely contract acquisition
strategy that may have a bearing on the costs. Examples include a
competitive Information for Bid, Small Disadvantaged Business set-aside,
Design-Build, limited competition, etc.
‰ Prepare narrative with statement summarizing purpose of estimate, brief
statement and description of the project, type of contract acquisition, level of
project scope, and major estimate assumptions.
‰ Identify the stage of the estimate (reconnaissance, feasibility, predesign,
30 percent, 60 percent, 90 percent, 100 percent, and bid).
‰ Clearly identify and define assumptions and identify significant features upon
which the cost estimate is based. Identify special issues, concerns, and
technologies.
‰ Identify significant findings and concerns during preparation. Coordinate
those concerns with the respective project delivery team member, seeking
resolution.
‰ Develop notes throughout the estimate, particularly to identify sequencing of
construction activities and crew productions, and include in the agency-
approved estimating software notes reference.
‰ Consider the quantity takeoffs and their application to the estimate. Ensure
an adequate process has been used to address material waste, losses, soil
factors, metal dropoff, etc.
‰ Separate subcontract work from prime contract work.
‰ Identify separate markups for subcontractors and prime contractor.
‰ Identify sources of unit prices and vendor or subcontractor quotes. Identify
what is included within those prices and quotes.
‰ Consider unit prices and quotes for reasonableness.
‰ Include design contingencies and construction contingencies in the cost
estimate, if appropriate.
‰ Include cost growth (escalation) from the date of the estimate to the midpoint
of construction and/or operation. Identify source of index used for escalation,
e.g., Civil Works Construction Cost Index System. Determine how the
escalation was developed as related to the estimate’s productivity rates and
project schedule.
‰ Total Project Cost includes all Federal and authorized non-Federal costs.
Refer to the civil works work breakdown structure to ensure all cost items
have been captured. Ensure the project delivery team provides costs for land
and damages, engineering and design, construction management, and
construction features are coordinated with the Civil Works Breakdown
Structure. The cost estimate becomes fully funded when inflation is added to
the estimate. An estimate for profit is included in the reconnaissance and
feasibility phases to ensure costs represent the total cost of the project;
however, profit is not included in the Government estimate for authorized civil

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work contracts for award. Profit is included in construction contracts for

modifications and change orders.
‰ Minimize use of lump sum pricing. If used, the lump sum description must
indicate in detail what is included in the price and whether or not it is based
on a quotation.
‰ Use prevailing current location-specific wage rates in the estimate. Consider
market rates for labor to ensure there is reasonable competition ongoing in
the area where the construction is being performed and/or may be competing
with the domestic projects being constructed.
‰ Check derived unit costs with historical data when available. Override Cost
Book labor and/or material unit prices as required, to fit project-specific
conditions.
‰ Complex or major features of a project should include a detailed breakdown
for labor, equipment, and material.
‰ Calculate in detail the job office overhead as applicable. Preliminary
estimates may need only a percentage markup.
‰ Calculate home office overhead as a percentage of total contract cost.
‰ Include bond costs, sales tax, and gross receipts taxes as applicable.
‰ Include all applicable costs for permits, insurances, licenses, taxes, and fees.
‰ Calculate prime and subcontractor profit by weighted guidelines method.
‰ Ensure the estimate has adequately captured the escalation and
contingencies based on studies from schedules and risk analyses where
applicable. A Total Project Cost Summary should capture all escalations and
contingencies of all features, their respective durations, and risk.
‰ Provide cost engineer point of contact and telephone number.
‰ Prepare a formal review document that denotes the items reviewed, items of
concern, senior reviewer’s name, and date of formal review.

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APPENDIX I

Protests or Litigation Concerning the Independent Government Estimate

I-1. Bid Protests.

a. In accordance with 33 United States Code 622 and 624, no civil works
construction contracts shall be awarded if the contract price exceeds the independent
Government estimate (IGE) prepared in accordance with Engineer Federal Acquisition
Regulation Supplement 36.203.100 by more than 25 percent. This limitation does not
apply to service and supply contracts, change orders, or contract modifications.

b. There are two major situations when the cost engineer may become involved
in litigation concerning the IGE: a bid protest when bids are opened or a proposed
change order/modification is not accepted by a contractor, and the contractor pursues
the dispute.

c. The procedure to process the issues are the same for all types of projects or
contracts associated with civil works programs. When either of the above occurs, the
cost engineer has a major role in reviewing the IGE and evaluating the Government's
position. That role must fall under the directorship of the contracting officer and office of
counsel; however, the cost engineer retains the technical expertise and ownership
related to the cost estimate. It cannot be over-emphasized that the IGE must be
defensible for its basis of cost and assumptions.

d. Bid Protests Affecting the Independent Government Estimate

(1) During the bidding process and upon receipt of bids, if all bids are sufficiently
higher than the IGE, any one of the proposers/offerors can protest the
unreasonableness of the IGE by stating it contains errors or omissions as being too low
and not fair and reasonable. A major concern occurs for a bid opening in civil works, as
the contract cannot be awarded to the low bidder if the low bid exceeds the IGE by
25 percent. In such a case, a bid protest will delay all further contractual action to
award until either the bid protester withdraws the protest, the IGE is revised, or a
determination is made through the judicial process.

(2) For special cost engineering dredging problems or concerns, the use of the
Corps’ regional dredge teams is recommended. These teams are composed of cost
engineering and construction-operations personnel most experienced in dredging and
established for the East Coast, West Coast, Gulf Coast, the Great Lakes, and
Mississippi River and tributaries. The appropriate team is convened at the request of
the district engineer. The chairperson of the regional dredge teams is appointed by
Headquarters U.S. Army Corps of Engineers and is responsible to ensure that the
teams are maintained with competent cost engineering and construction-operations
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personnel and that requests for assistance are promptly fulfilled. The regional dredge
teams are designed to provide assistance to all districts in the evaluation of bid protests,
mistakes in bids, or other unique issues that may be required to validate the estimate for
the Government. Further, the teams are available to support districts that seldom do
large dredging contracts and, therefore, may have little expertise or historical cost data
that is needed to prepare accurate planning estimates and/or Government estimates for
contract award. The teams' role in all cases is to act in an advisory capacity with the
requesting district having the responsibility and authority to make all final decisions.
The regional dredge teams are represented in geographical areas and the office of the
chairperson of each team is located in North Atlantic Division; Seattle District; New
Orleans District, and Detroit District.

e. Review of the Independent Government Estimate. The cost engineer should

review the estimate to be sure that it does not contain mistakes. This evaluation must
be completed as soon as possible to provide timely advice to the District staff to
preclude delay in award. If the IGE is revised, and the revised estimate brings an
offeror's price within the range of a fair and reasonable price, award will be made
provided funds are available. The revised estimate requires the same approval
authority as the original IGE.

f. Protest Resolution

(1) When the IGE is reviewed and has been determined to be fair and
reasonable for the intended scope of work, unless the protester withdraws the bid
protest, the usual procedure will require a contracting officer’s decision (COD) in the
form of a (letter) memorandum of denial of the protest unless the protestor withdraws
the bid protest.

(2) Meetings may be held with the apparent low bidder or contractor prior to
issuance of the COD memorandum to ensure that both the Government and the
protestor have the opportunity to review the project and agree to the scope of work as
specified by the plans and specifications. Meetings will also allow discussion whether
there are unusual conditions or circumstances that may affect or complicate the work. If
a meeting reveals an error or omission in the IGE, it may be revised as previously
discussed.

(3) The protest/dispute may take several months to resolve. The Government's
position may be reviewed and evaluated at the appropriate agency office, as well as by
the General Accounting Office, a court, or a board of contract appeals. During each of
these reviews, questions will arise, and the cost engineer will be called on to support the
estimate. The cost engineer(s) responsible for preparing the IGE is most familiar with
the estimate and should be prepared to assist counsel, contracting, and other staff to

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resolve the issue and be prepared to testify in court and certify the validity of the
estimate.

I-2. Contract Modifications/Change Orders.

a. Scope and Cost Development

(1) During ongoing construction, the cost engineer may be required to prepare
cost estimates for major or complex changes, design change orders, extensive quantity
overrun bid items or even assisting in evaluating claims occurring during construction
whereby an IGE is required.

(2) Prior to the cost engineer finalizing the IGE, it is important to meet with the
designated contracting officer’s representative and the contractor to agree on the scope
of work concerning change orders for ongoing construction (cost and time negotiations
are not allowed at this time). Discussions may include scope changes and impacts
affecting both cost and schedule. The cost engineer will prepare the cost estimate as
detailed in chapter 4 of Engineer Technical Letter 1110-2-573.

b. Modification Disputes

(1) On occasion, disputes arise between the Government and the contractor,
primarily due to a wide variance between the value of work estimated by the contractor
versus the IGE. When a dispute arises, meetings are necessary in an attempt to
resolve the difference between the contractor and the Government. Even when the
scope may be in general agreement, the cost or time may be in dispute. If resolution
cannot be reached, the contracting officer and office of counsel begin to play a major
role in the dispute settlement.

(2) The contracting officer may issue a unilateral modification establishing the
cost and time, and the modification may result in litigation. The procedure upon
encountering an impasse generally results in the Government issuing a COD, and the
process is the same as previously discussed for a bid protest.

c. Revised Independent Government Estimate

(1) It is possible that not all of the facts of a claim, change, or major overrun of
quantities have been provided or verified by the cost engineer. In those cases where
the cost engineer was unable to meet with the contractor, and additional facts are
discovered by other means, the cost engineer may revise the IGE as appropriate,
provided an original IGE was prepared. The revised IGE requires the same approval
authority as the original IGE. Upon revising the IGE and mutual agreement by the
contractor and Government, a modification is processed.

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(2) When the IGE is changed during or subsequent to conferences or

negotiation, the basis for the revision or changes in price shall be fully explained and
documented in the price negotiation memorandum. Judgment in making this type of
decision should be based on the circumstances of a particular issue, not all
encompassing, and recommendations should be made to the contracting officer.
For major differences in cost, disputes, or claims that are not resolved, a revised IGE is
recommended, supported by a technical and cost analysis of the dispute in litigation.

I-3. Technical and Cost Analysis by Cost Engineer.

a. In the case of bid protests or disputes regarding cost differences between the
IGE and the contractor(s), the cost engineer may be required to prepare a technical and
cost analysis evaluation for documentation in the contract file. Major factors in the
analysis include:

(1) The technical analysis will consist of an in-depth, point-by-point response to

all issues raised on the cost estimate by the protestor or contractor.

(2) The cost analysis will consist of a review of the IGE, including all backup and
supporting data, and assumptions made which support the estimate.

b. Additional information concerning factors to be considered in the technical

and cost analysis is presented in chapter 3. Reference is made to Federal Acquisition
Regulation (FAR) sub-part 15.608 for proposal evaluation.

I-4. Mistake in Bids. After the opening of bids, contracting officers shall examine all
bids for mistakes. In cases of apparent mistakes and in cases where the contracting
officer has reason to believe that a mistake may have been made, the contracting
officer shall request from the bidder a verification of the bid, calling attention to the
suspected mistake. The contracting officer before award may correct any clerical
mistake apparent on its face in the bid, i.e., obvious misplacement of a decimal point,
after first receiving verification of the bid intended.

a. Before Award in Sealed Bidding. For other mistakes disclosed before award
in sealed bidding, the bidder must provide clear and convincing evidence to establish
both the existence of the mistake and the bid actually intended. The contracting officer
must make a determination as to the circumstances to verify the mistake; to allow the
bidder to withdraw the bid; or make a determination that the bid be neither withdrawn
nor corrected. The cost engineer may be part of the team of specialists to provide an
analysis and a recommendation to the contracting officer. For the cost engineer, the
evaluation could be the verification of a quantity as related to a unit price bid item or
determination of a fair and reasonable cost for a service or product. The cost engineer
may refer to FAR part 14 for the appropriate definitions, discussions, and overview of
the acquisition requirements pertaining to sealed bidding.
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b. Before Award in Negotiated Procurement

(1) The process for determination of a mistake in bid when the solicitation of a
project is contracted by negotiated procurement is similar to the procedure as for sealed
bidding. Additional tools are available to the Government to amend a solicitation before
award as compared to sealed bidding. Clarification may be used to communicate with
an offeror for the sole purpose of eliminating minor irregularities, informalities, or
apparent clerical mistakes in the proposal. In negotiated procurement, discussions
mean any oral or written communications between the Government and an offeror that
involves information essential to determine the acceptability of a proposal or provides
the offeror an opportunity to revise or modify its proposal. When, either before or after
receipt of proposals, the Government changes, relaxes, increases, or otherwise
modifies its requirements, the contracting officer shall issue a written amendment to the
solicitation.

(2) In the event evaluation factors are selected to evaluate proposals, price, or
cost to the Government, those evaluation factors shall be included in every source
selection. If a mistake in a proposal is suspected, the contracting officer shall advise
the offeror or otherwise identifying the area of the proposal where the suspected
mistake is and request verification. If the offeror verifies its proposal, award may be
made. If an offeror alleges a mistake in its proposal, the contracting officer shall advise
the offeror that it may withdraw the proposal or seek correction by submitting clear and
convincing evidence and a determination is made by agency. The cost engineer may
also be involved in providing support to the contracting officer if any mistake concerns
scope, quantity, or prices in the IGE. The cost engineer may refer to FAR part 15 for
the appropriate definitions, discussions, and overview of the acquisition requirements
pertaining to negotiated procurement. In the event negotiations are conducted with
offerors in the competitive field, the cost engineer should be a member of the
negotiation team.

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APPENDIX J

Job Office Overhead Template

ADMINISTRATION JOB OFFICE

Descriptions
Includes all field administrating, accounting, purchasing, inventory, and security
personnel and expenses. Also, consider subsistence and travel, offices, vehicles,
supplies, and miscellaneous items to run the field office. Subsistence amounts may
vary depending upon seniority and job classification.

Some Cost Groupings

Field Office Administration Personnel
Field Office Building and Supplies
Inventory and Purchasing Personnel
Field Office Security Personnel
Field Office Subsistence and Travel
Security Fencing
Field Office Utility Installation and Removal
Field Office Utility Usage Fees

WAREHOUSE AND MATERIALS HANDLING

Descriptions
Includes all field warehouses, stockyards, personnel, and equipment to handle, receive,
unload, store, and transport materials around the project site. Also, consider
subsistence and travel, vehicles, supplies, and miscellaneous cost items.

Some Cost Groupings

Warehouse Personnel
Warehouse Building and Grounds
Material Handling Equipment and Operators
Warehouse Subsistence and Travel
Warehouse Utility Installation and Removal
Warehouse Utility Usage Fees

ENGINEERING AND SURVEYING

Descriptions
Includes all engineering, drafting, submittals, scheduling, surveying, and change order
personnel. Also, consider subsistence and travel, vehicles, miscellaneous computer
expenses, shop drawings, submittals and Critical Path Method schedules, operation
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and maintenance manuals, and miscellaneous cost items.

Note: Personnel costs and supplies may cover submittal development and required
contract document costs.

Some Cost Groupings

Field Engineering Personnel
Scheduling and Change Order Personnel
Field Surveying
Field Eng Subsistence and Travel

QUALITY CONTROL (QC) AND TESTING

Descriptions
Includes personnel, vehicles, equipment, and supplies to produce all QC reports, QC
inspections, and all other contract quality requirements. Also, consider subsistence and
travel, vehicles, supplies and miscellaneous cost items.

Note: Personnel costs and supplies may cover submittal development and required
contract document costs.

Some Cost Groupings

QC Management
QC Laboratory and Equipment
QC Subsistence and Travel
Offsite Testing
Project Monitoring
QC Utility Installation
QC Utility Usage Fees
Weld Testing

SAFETY, TRAFFIC CONTROL, FIRST AID, FIRE

Descriptions
Includes all personnel, supplies, and vehicles needed for safety, traffic control, first aid,
safety training, and fire prevention. Also, consider subsistence and travel, vehicles,
supplies and miscellaneous cost items.

Note: Personnel costs and supplies may cover submittal and required contract
document costs.

Some Cost Groupings

Safety Management
Field First Aid
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Field Hazardous, Toxic, and Radioactive Waste Safety Equipment and Clothing
Site Spill Containment
Safety Training
Personnel Safety Supplies
Field Fire Protection
Safety Subsistence and Travel
Traffic Control: Vehicles, Flaggers, Signage, Barricades, and Devices

SANITATION FACILITIES AND TEMPORARY BUILDINGS

Descriptions
Includes all sanitation facilities miscellaneous, buildings, yards, and building costs not
otherwise classified. This grouping does not include all project utilities costs.

Some Cost Groupings

Sanitation Facilities
Temporary Buildings
Equipment and Tool Sheds
Lighting

GENERAL EQUIPMENT EXPENSES

Descriptions
Includes equipment not required by specific work items. Also, consider testing and
rental of equipment when not charged to a specific bid item or items of work. Inspection
fees and permits are included in mobilization and demobilization items.

Some Cost Groupings

Hook Services
Crane Testing
Miscellaneous Vehicles and Equipment

PROJECT UTILITIES SITE AND CLEANUP

Descriptions
Includes all project costs not otherwise classified.

Some Cost Groupings

Site Cleanup
Miscellaneous Project Expenses
Site Utility Usage Fees
Site Utility Installation / Hookup Fees
Lighting

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WINTERIZE PROJECT
Descriptions
Includes all items needed for a winter shutdown of the project or for construction
activities during the winter months.

Some Cost Groupings

Winterize Project
Earthwork during cold periods
Facilities and utilities

CAMP FACILITIES AND WORKER SUBSISTENCE AND TRAVEL

Descriptions
Includes costs to operate a camp to support construction workers. If no camp is
furnished and subsistence is not included in the workers hourly wage, show the number
of subsistence days and daily cost. However, it is preferred to include subsistence with
the hourly wage. Also, consider kitchens, camp vehicles, supplies, and miscellaneous
items.

Some Cost Groupings

Camp Facilities
Camp Operations
Camp Supplies
Camp Worker Subsistence and Travel
Camp Utility Installation
Camp Utility Usage Fees

INSURANCE, INTEREST, PERMITS, AND FEES

Descriptions
Includes insurance cost, permits, and fees required by the contract. Business and
occupation taxes, tribal Employment Rights Office (TERO) taxes, and bid bond cost are
not included in the job office overhead (JOOH) but are included in other indirect cost
markups.

Some Cost Groupings

Insurance Costs
Money Costs
Project Permits

MOBILIZATION AND PREPARATORY WORK (Optional)

Descriptions
Includes all items needed for the contractors' mobilization and site preparatory work.

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Also, consider trucks, trailers, pilot cars, inspection fees, highway permits, loading,
unloading, equipment standby and setup, and surveys.

USE ONLY if the project does NOT have a mobilization bid item.

Some Cost Groupings

Mobilization and Equipment Setup
Preparatory Work
Plant Setup and Testing

DEMOBILIZATION WORK (Optional)

Descriptions
Includes all items needed for contractors' demobilization from the project site and
halfway to another project. Also, consider trucks, trailers, pilot cars, inspection fees,
highway permits, loading, unloading, equipment standby, and take down.

USE ONLY if the project does NOT have a demobilization bid item.

Some Cost Groupings

Demobilization of Equipment
Shutdown Programs
Plant Shutdown and Removal

GOVERNMENT INSPECTION COSTS (In Alaska only)

Descriptions
Includes all items needed to keep Government Inspectors on site excluding salary.

Some Cost Groupings

Inspector’s Accommodations and Travel costs

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GLOSSARY

Terms and Abbreviations

ACF Area Cost Factor

A-E Architect-Engineer
AR Army Regulation
ATR Agency Technical Review
BCE Baseline Cost Estimate
CEDEP Cost Engineering Dredge Estimating Program
COD Contractor Officer’s Decision
CSRA Cost and Schedule Risk Analysis
CWWBS Civil Works Work Breakdown Structure
CWCCIS Civil Works Construction Cost Index System
CX Cost Engineering Center of Expertise at the Walla Walla District
DFARS Defense Federal Acquisition Regulation Supplement
DQC District Quality Control
E&D Engineering and Design
EFARS Engineer Federal Acquisition Regulation Supplement
EM Engineer Manual
EP Engineer Pamphlet
ER Engineer Regulation
ETL Engineer Technical Letter
EWT effective working time
FAR Federal Acquisition Regulation
FOB Free on Board
FOIA Freedom of Information Act
FOUO For Official Use Only
FULLY FUNDED This term is used to indicate that the costs presented include
allowances for cost growth due to inflation through project
completion. Certain estimates by definition include cost growth and
are considered fully funded.
G&A General and Administrative or General Home Office Overhead
GRR General Revaluation Report
HAG Historical Analysis Generator
HOOH Home Office Overhead
HQUSACE Headquarters, U.S. Army Corps of Engineers
HTRW Hazardous, Toxic, and Radioactive Waste
IEPR Independent External Peer Review
IGE Independent Government Estimate
JOOH Job Office Overhead
LRR Limited Revaluation Report
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LCC Life Cycle Cost

MCACES Microcomputer Aided Cost Engineering System
MSC Major Subordinate Command
NED National Economic Development
PACES Parametric Cost Estimating System
PDT Project Delivery Team
PL Public Law
PM Project Manager
PMP Project Management Plan
QA Quality Assurance
QC Quality Control
RACER Remedial Action Cost Engineering and Requirements system
SAA Surety Association of America
SI Scheduling Interface
SUCCESS™ Cost Estimating Software Program
TPC Total Project Cost
TPCS Total Project Cost Summary
TRACES Tri-Service Cost Engineering Systems
UPB Unit Price Book
USACE U. S. Army Corps of Engineers

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