Hello, I'm Kamino, a civil engineer and government employee who writes a blog.
Is everyone doing cost estimates?
These are essential skills for civil engineering government employees"Cost Estimation"But how well do you all really understand it? Especially since the cost estimation process has been streamlined for those who joined the agency in recent years, I think there are actually cases where people are doing cost estimates without fully understanding them. That’s just how it is for everyone.
In this blog series, titled “An Introduction to Cost Estimation for Civil Engineering Civil Servants,” we will provide a detailed explanation of the overall process of cost estimation over several installments. Here,First, I’ll explain what cost estimation is and what its purpose is.。
Once you've read through it, I think the vague concept of "cost estimation" will become much clearer.
Since administrative staff often handle project budgets just as technical staff do, it might be important to understand what “cost estimation” is and what it involves.
What Is Cost Estimation?
"Cost estimation" is a technical term used in the construction industry.
Cost estimation is,Calculating the cost of construction or contracted services based on design documents such as drawings and specifications.means.
We explain design documents in this article.
In this section, we will focus specifically on contract construction work—particularly general civil engineering projects—but the principles apply almost identically to other types of construction work and outsourced services.
I’ll explain public works projects from a civil servant’s perspective.
Cost Estimation and Quotations
Words similar to "cost estimation" include"Estimate"There are some. Some have okurigana, like “estimate.”
The process of calculating an amount is called “cost estimation,” but “estimate” has the same meaning, right?
Definitions vary, but in my view,
The process by which a client calculates construction costs (estimated price) is called cost estimation, and the document in which a contractor presents to the client the costs required for actual construction, including a reasonable profit margin, is called a bid.It seems that distinctions like this are made in usage.
We also refer to simply having someone provide us with prices for materials and the like as a “quote.”
Client → Cost Estimation → Calculate the Estimated Price (Generally not disclosed)
Contractor → Cost Estimation → Submit a Quote
Although both government agencies and contractors perform cost estimates in the same way, contractors must not only estimate the projected price but also base their estimates on their own company’s construction unit rates and factor in the company’s profit margin.
And if there is an intention to place an order, we will submit a “quote.”
This is the general process by which subcontractors and manufacturers calculate costs and submit quotes.
Why Do We Perform Cost Estimation?
When performing cost estimates, it is important to clearly understand the reasons and objectives behind them.
For example, if you’re thinking of doing a small-scale home renovation, you’d ask a contractor for an estimate, right? If you’re satisfied with the quote, you’d sign a contract. It’s not the client’s job to calculate the cost.
So, why do contracting authorities perform cost estimates for public works projects? Why do they calculate the construction costs?
To put it in my own words,To calculate appropriate construction costs, conduct fair competitive bidding, and ensure that contractors are able to earn a reasonable profit while carrying out the workThat's it.
This is the purpose for which civil engineering officials perform cost estimates; if they lose sight of this purpose, they will end up making incorrect estimates.
What Is a "Reasonable" Profit?
"A reasonable profit" refers to a profit that allows the company to continue operating under normal business conditions, and a situation where profits increase in proportion to the company's efforts. (This is my personal opinion.)
If you could rake in huge profits just by slacking off at work, no one would make an effort anymore; and if prices were unreasonably high, we wouldn’t be able to allocate funds to where they’re truly needed. Citizens would get angry, calling it a waste of tax dollars, wouldn’t they? In a world where contracts are awarded based solely on the contractor’s asking price—without any cost estimates—that’s probably exactly what would happen.
If construction costs are too low, it can lead to failed bids, substandard work, and a lack of profit, ultimately causing the construction industry to decline.
Therefore, we calculate the appropriate construction cost (known as the estimated price) and conduct a competitive bidding process with this amount as the upper limit.
Estimated construction cost = projected price
Well, if you can’t calculate construction costs, you can’t draw up a budget, you won’t know the construction schedule, and you won’t be able to start the project—so, in fact, cost estimation for building construction has existed since ancient times.
In public works projects funded by taxpayer money, we want to keep construction costs as low as possible, but if that causes contractors to operate at a loss and go out of business, it defeats the whole purpose.
As public servants, we are required to strike the perfect balance and calculate a “fair price” that yields just the right amount of profit.
I don't usually think about things this deeply, though (;´･ω･)
Laws and Regulations Concerning Estimated Prices
By the way, I’ll highlight two key points you should know from the laws and regulations regarding estimated prices and bidding.
The Preliminary Decision Order and the Product Quality Assurance Act.
Ordinance on Budget, Settlement of Accounts, and Accounting (commonly known as the Budget and Settlement Ordinance)
Article 80
2. The estimated price must be determined appropriately for the goods or services that are the subject of the contract, taking into account actual transaction prices, supply and demand conditions, the difficulty of performance, the quantity involved, and the duration of performance.
Act on the Promotion of Quality Assurance in Public Works (commonly known as the Quality Assurance Act)
Article 7
(1) To ensure that entities undertaking public works projects, etc., can secure a reasonable profit necessary for the medium- to long-term development and retention of personnel responsible for ensuring the quality of public works, such entities shall, based on appropriately prepared specifications and design documents and taking into account changes in economic and social conditions, set prices for labor, materials, and other items in the market, insurance premiums that employers are obligated to pay under the Health Insurance Act and other relevant laws; insurance premiums for policies necessary to secure compensation for work-related injuries and other incidents suffered by persons engaged in public works projects; the construction period; and other factors accurately reflecting the actual circumstances of the public works project, in order to ensure that the estimated price is set appropriately.
The phrase in the Quality Assurance Act—"reasonable profits necessary to foster and secure personnel responsible for ensuring the quality of public works projects over the medium to long term"—is what I meant by "just the right amount of profit," isn't it?
In addition, regarding the bidding process,For a country, the Accounting Act、For local governments, laws such as the Local Autonomy Act, etc.There is a reference to the source.
It’s important to be aware that the Housing Quality Assurance Act is subject to amendments in response to changes in social conditions.
What is a standard?
The term “standard” is often used to calculate an appropriate estimated price.
It’s used frequently in government offices, and you often see responses like “We’re using standard cost estimates” in reply to questions from contractors, don’t you?
Even the publication of the “Ministry of Land, Infrastructure, Transport and Tourism Civil Engineering Cost Estimation Standards”—which serve as the foundation—is described as establishing guidelines for estimating “standard” construction costs for projects under the Ministry’s direct jurisdiction.
Hmm... What exactly does "standard" mean? (´･ω･)?
According to the Digital Daijisen, “standard” is often used to mean “average” or “the most common type.”
In other words, standard cost estimation criteria are based on the assumption that it is standard for most materials to be traded at that price (something like an average) and for most contractors to perform work at that labor rate.
In my view, if 80 to 90 percent of the contractors in the city can do the work at that rate, then I consider that to be standard. Since about 10 percent of contractors do work that’s hard to figure out, there’s no need to aim for 100 percent—80 to 90 percent is fine.
BugakariThis refers to a combination of unit prices for labor, materials, and machinery.
A quantity schedule showing the number of laborers, materials, and pieces of equipment required for a specific construction project.
Therefore, if you ask five materials manufacturers in the city and more than half say, “We can’t supply it at that price,” then that price isn’t a standard unit price; similarly, if you ask five contractors and more than half say, “That labor rate won’t work for us (we’d be operating at a loss),” then that labor rate isn’t standard.
Even if you calculate using the estimating system in accordance with the estimating guidelines, the results may not match on-site conditions. Therefore, carefully consider the actual circumstances, obtain estimates for labor rates and materials if necessary, and aim for a “standard” estimate as much as possible.
Contractors will try to get you to increase the design budget to boost their profits, so you need to determine whether their suggestions are actually valid.
Be sure to read the Cost Estimation Guidelines carefully
As I mentioned earlier, when it comes to calculating the total cost,"Civil Engineering Cost Estimation Standards"There is a rulebook called...
This publication, issued by the Ministry of Land, Infrastructure, Transport and Tourism, covers construction projects directly managed by the national government.
In contrast, since local governments carry out construction projects using their own independent budgets, they have developed their own “cost estimation guidelines.” (Although subsidized projects should generally follow the national cost estimation guidelines.) You should be able to find these cost estimation guidelines by searching the websites of prefectural governments.
In addition to these,
Sewer"Standard Design Rate Table for Sewer Systems"(Under the jurisdiction of the Ministry of Land, Infrastructure, Transport and Tourism)
Water Supply"Essential Guide to Water Supply Construction"(National Association of Small-Scale Water Supply Systems; under the jurisdiction of the Ministry of Health, Labor and Welfare)
Agricultural Civil Engineering"Cost Estimation Standards for Land Improvement Projects (Civil Engineering Works)"(Under the jurisdiction of the Ministry of Agriculture, Forestry and Fisheries)
In the park's"Landscape Construction and Renovation Cost Estimation Manual"(Construction Price Survey Council) and"Maintenance and Cost Estimation for Parks and Green Spaces"(Economic Research Council)
There are many books on the subject, and larger municipalities often develop their own standards manuals for various fields.
Since these books list the conditions for each type of work and the corresponding unit rates, you must read the relevant pages thoroughly from cover to cover when preparing cost estimates.
Sometimes really important information is written in small print (;´･ω･)
I'll go into more detail in the next post!
In Closing
So, that concludes my introduction to cost estimation.
To calculate appropriate construction costs, conduct fair competitive bidding, and ensure that contractors are able to earn a reasonable profit while carrying out the work.
This is the purpose of cost estimation by civil engineering officials.
I’m planning to split the course on cost estimation into about five sessions, so stay tuned.
Well, that's all for today.
See you later (*’ω’*)ﾉ
