Eugene Peterson | Advise & Consult, Inc. | September 23, 2015
A good construction estimate can be an effective tool in resolving construction related disputes. Conversely a bad construction estimate hinders the resolution process. There are 7 specific points relating to construction estimates being used in dispute related litigation, that if understood, will help attorneys get the best estimates out of their testifying contractors and experts.
Today construction related disputes are very common and come in many forms. Listed now as examples, (not a comprehensive list), are a few that immediately come to mind:
- disagreement with final billing
- expectations that have been set but have not been met
- loss of trust between parties
- contractual obligations that have not been filled
If construction estimates are to be helpful and supportive in dispute resolution and litigation they need to be good ones, not bad ones.
Here are the 7 things every construction attorney needs to know regarding estimates. Hopefully this will be a quick refresher of information you already know and understand and not necessarily new information.
- Basic definitions:
- scope of work – a detailed listing of the work agreed-upon to be completed for the project
- estimator – the person who applies a dollar cost to the scope of work including labor and materials
- estimate – “To form an approximate notion of the amount, number, magnitude or position of anything, without actual enumeration or measurement”- Oxford English dictionary
- Estimates: There are two general categories or types of estimates, one that deals with “time and material” while the other deals with forecasted “costs.”
- Time and material – the historic cost of the work based upon job records including invoices, timecards, etc.
- Cost – construction cost estimates are divided into four major categories:
- Order of magnitude estimate: loosely described this is an educated guess, sometimes referred to as a “napkin estimate,” or “ballpark estimate” as these estimates often result from conversations between contractors and clients in which an estimate is created, and if not given verbally, written down on the nearest piece of paper. This type of estimate can be completed in a matter of minutes. Accuracy is -30% to +50%.
- Square foot 10 ft.³ estimates: these are often useful one only the proposed size and use of a planned building is known. Very little information is required and thus the accuracy is -20% to +30%.
- Assemblies (or systems) estimates: unit cost assembly includes budgeted labor and materials needed to perform a single unit of work, for example a square foot, lineal foot, etc. The estimator then plugs in numbers of units, multiplies the units by the cost per unit. Accuracy is expected at -10% to +20%.
- Unit price estimates: provide a budgeted expected cost of each stick, brick and labor hour. This is the most accurate and also the most time-consuming estimate to detail. Accuracy is -5% to +10%.
- Traits of a good estimator: what it takes to write the best and most accurate estimates.
- Working knowledge of the details of the construction work. Having a theoretical understanding of how things are put together is good, but it is much better to have hands-on experience.
- Be seasoned in the industry so as to understand conditions that might affect the cost of the work.
- Well-trained in the use of the estimating software.
- Get, have and use the correct scope of work.
- Uses scientific approach to the arrival of the estimated costs.
- Honesty/integrity in the creation of the estimate. It is very easy to underestimate and also to overestimate line item quantities and values depending upon the estimator’s bias or intent.
- Trust of the abilities and qualifications of the estimator is essential.
- Understand the estimate: the presentation of the estimate in document form must be easy to read and understand. The calculations must be accurate and the reader must be able to easily determine what is included and what is not. It is important to know the abbreviations used in the estimate such as “SF” [square foot], “L F” [lineal foot], “LS” [lump-sum], “C Y” [cubic yard], etc. It is easy for an untrained eye to miss inappropriate and possible fraudulent line item entries.
- No estimate is perfect:
- Manual estimates are subject to improper takeoffs and simple calculation errors.
- The selection of the improper line item code for quality/value can lead to an undervalued or overvalued estimate.
- Use of incorrect quantities and/or the wrong type of units of measure, i.e. “SF” instead of “SY” can also make a huge difference in the estimate.
- The old saying applies here, “Garbage in garbage out.” Clerical errors in data entry are not unusual even with the best estimators and estimating software.
- The detail of what is included and what is not.
- Xactimate™ Estimating Software a Good Choice in Dispute/Legal Resolution:
- Strengths – The pricelist. Having the right pricing information is critical to the creation of an accurate estimate. The pricelist published by Xactimate monthly, by ZIP Code, is accepted as the best one in the industry. With few exceptions it is accurate, comprehensive and makes it possible for the estimator to write the best and most accurate “unit price estimates.”
- Weaknesses – this estimating software has so many bells and whistles it is difficult for a person who is not properly trained in the program to use it correctly.
- Choosing the right construction expert:
- A construction expert needs to have an exceptional working knowledge of construction practices, materials, equipment and site conditions.
- Also, an understanding of contractors’ standards and practices.
- And a working knowledge of a good estimating system or software, which includes access to an acceptable database.
- Many experts have good “book knowledge” associated with construction techniques and practices, yet few have the actual hands-on field experience that makes a difference in a good expert and an exceptional expert.
- Choosing the right expert, and getting them on board timely, is one of the most important decisions a litigation team makes.