This Technical Advisory was canceled January 20, 2004.
U.S. Department of Transportation
Federal Highway Administration
PREPARING ENGINEER'S ESTIMATE AND REVIEWING BIDS
December 29, 1980
- Preparing Engineer's Estimates
- Bid Evaluation
- PURPOSE. To outline recommended procedures for preparing engineer's estimates and for reviewing bids prior to concurrence in award.
- BACKGROUND. Volume 6, Chapter 1, Section 1, Subsection 1 of the Federal-Aid Highway Program Manual (FHPM), Controlling Design, Construction, and Maintenance Costs to Combat Inflation, encourages development of estimates for upcoming projects on the basis of previous bids, local market surveys of prices, and by taking into account actual prices. The FHPM also discusses specific justification on contract awards if the low bid received exceeds the engineer's estimate by asignificant amount. This advisory provides further technical guidance to program personnel to accomplish those objectives.
- PREPARING ENGINEER'S ESTIMATES
- Estimating, by definition, is an inexact process whose accuracy may be governed by more factors than can be taken into account in any formalized process. The engineer's estimate should reflect the amount that the contracting agency considers reasonable and is willing to pay for performance of the contemplated work. Estimates of project costs can be forecast using available information and should produce a reasonable degree of accuracy as measured against actual bids received. This available information includes:
- Previous unit bids - a file of previous unit bid prices should be maintained according to type, size, and location of project. Upcoming projects should be matched to the most recent projects to develop base prices for estimating the value of the work. Further adjustment of the base prices should be considered based upon the ages of the similar projects, but past inflation rates should not be projected into the future unless based on circumstances which can be reasonably expected to occur, such as labor rate increases through labor negotiations. Where the magnitude and timing of future increases are uncertain and would have a major effect on critical unit prices, price adjustment clauses may be a better alternative.
- Surveys of local market prices of labor, equipment, and materials - a feedback mechanism should be developed with labor organizations; equipment manufacturers, dealers, and rental companies; and material suppliers to obtain current cost information on a regular basis. Davis-Bacon minimum wage rates on Federal-aid contracts could be easily incorporated to provide labor costs; purchases and rentals of construction equipment could provide equipment costs; and contracts for material and supply purchase could provide confirmation of industry quotes to assure that reasonably accurate information was obtained.
- Actual price trends - it is suggested that price trends be developed from recent contract awards and used to project future cost trends for upcoming work. Large upward or downward adjustments in estimated base unit prices should not be made based on short-term price changes, but long-term price trends should be a consideration.
- The FHPM 6-1-1-1 suggests that the division office incorporate surveillance reviews of engineer's estimate preparation and accuracy in its annual review of competition in bidding. It is recommended that such a review be performed annually if more than 50 percent of the engineer's estimates are not within 10 percent (plus or minus) of the actual low bids for the previous year. A suggested guideline for use in such a review is included as Attachment 1.
- BID EVALUATION. The FHPM 6-1-1-1 discusses treatment of apparent high bids in the process of awarding or rejecting bids. The FHPM recommends that guidelines be developed for reviewing bids and making award decisions for routine projects. Specialized highway construction work should be evaluated on a case-by-case basis. The following discussion expands on each of the four circumstances mentioned in the FHPM where an apparently excessive bid may be justified as a basis for award:
- Competition should be considered excellent when there are six or more bids within 20 percent of the low bid, including the low bid. Fewer competitive bids should require evaluation to determine whether competition was adequate, and whether additional competition or better prices could be obtained. As a guideline to thisdetermination, the following is offered as a suggestion for determining whether adequate competition was obtained:
Number of Competitive Competition May Be
Bids* (*Range = Low Considered Adequate When
Bid + 20 Percent) Low Bid Does Not Exceed**
5 120 percent of engineer's
4 115 percent of engineer's
3 110 percent of engineer's
estimate 2 105 percent of engineer's
1 The engineer's estimate
**(Exceptional types of projects should be identified where competition has been historically poor, and when the prospects of increased competition are not apparent. Such projects should be reviewed independently of this or any alternative guideline.)
- Few projects are considered so essential that deferral (even for 60 days to solicit readvertised bids) would not be in the public interest. However, projects which are considered essential are of the following types:
- Safety projects which are to correct extremely hazardous conditions where the traveling public may be in danger.
- Emergency repair or replacement of damaged facilities.
- Projects to close substantial gaps in otherwise completed facilities to allow opening to traffic.
- Projects which are critical elements in a staged or phased construction schedule, where a delay would mean substantial impact on the completion date of thefacility.
- It is difficult to justify that readvertising would likely result in higher costs without concluding that all practical anti-inflation measures contained in FHPM 6-1-1-1 have been employed to the maximum extent possible.
- Estimating errors should not be considered unless the magnitude of the error is significant and procedures are modified to attempt to prevent the occurrence of similar errors. Some errors are merely mistakes which can be corrected easily once discovered, while others are "errors of judgment" which cannot be as easily explained. The critical review of any high bid depends on the reliability of the estimate it is being compared to; therefore, States are strongly urged to devote sufficient attention to preparation of estimates.
- CONCLUSION. The recommendations presented above are suggestions for consideration, not rigid rules. Consultation between the contracting agency and the Division Administrator to develop procedures which will accomplish the objective of minimizing the costs of highway construction is encouraged.
Sanford P. LaHue, Director
Office of Highway Operations
REVIEW OF ENGINEER'S ESTIMATE PREPARATION
- Are any State laws or regulations in effect regarding release or protection of the engineer's estimate?
- Are any State laws or administrative regulations in effect for determination of whether a contract award is proper, based on estimate overrun, competition, or other factors?
- Review and attach copies of any written procedures or instructions the State may have pertaining to preparation, revision, checking, and use of the engineer's estimate.
- Briefly describe the intended process for preparation of estimates. Verify the actual method used in comparison with the intended process and note any differences.
- Does the State have an estimating section? Which other portions of the agency become involved in preparing, checking, or approving the estimate?
- Briefly describe the personnel resources available for preparing, etc., estimates and note any workload changes vs. personnel available over the past 3 years.
- What is the primary basis for establishing estimated unit prices?
- What methods are used to identify and incorporate anticipated changes in cost of labor, equipment, and material?
- Are upcoming labor negotiations considered in the process?
- Are material suppliers contacted for anticipated materials costs?
- Are adjustments made for individual project conditions? In what way?
- What other factors are used to adjust the primary basis to determine the estimated prices for the project?
- In typical cases, how far in advance of the letting date is the estimate prepared?
- How often is the estimate revised during the advertising period? Discounting addenda and quantity changes, what are the usual reasons for revising estimated prices?
- Is every estimate routinely evaluated by anyone other than the preparer? If so, when?
- If possible, determine how often further study and/or revision is believed desirable but not accomplished due to workload restriction.
- Is any information released publicly which may indicate the actual or approximate value of the estimate prior to opening bids? Is the estimate released after opening bids?
- Is it published and where?
- Who receives copies, if published?
- In detail or only giving total cost?
- Is any other information regarding the estimate available to a contractor on request?
- Review the State's experience during the past calendar year for Federal-aid contracts for up to 100 randomly selected projects if the contract volume exceeds 100 projects.
- Determine the percentage of projects sampled where the low bid fell within ±10 percent of the estimate, and plot the distribution of low bids above and below the estimate.
- Determine the percentage of projects with zero, one, two, three, four, etc., bids. Are there any project size trends noted?
- Prepare graphs with percent above or below estimate for each project vs. cumulative percent of number of low bids for three separate groups of projects, single bids, two or three, and four or more bids. (Each group should be arranged in ascending order to facilitate preparing these graphs.) Are any trends noted?
- Review the State's procedure for evaluating bids received prior to recommending award or rejection.
- Is there an established policy on, or apparent pattern of, awards or rejections of bids at a set level above the engineer's estimate?
- In the case of poor competition or excessive difference between the estimate and the low bid, does the State contact the bidders and nonbidders who checked out proposal forms?
- Are there any "ground rules" for adjusting estimates after receipt of bids? Is such action taken on its own merits or may it be prompted by pressure to award an apparently excessive bid?
United States Department of Transportation - Federal Highway Administration