W20_RM_Estimate Preparation Effort For a Bid


1. Problem Recognition

In a bid process, generally, after bidder’s conference the contractors will submit the proposals to the owner in a specific time agreed by both parties. In this blog posting, the Author will conduct the analysis related to time and cost needed to prepare the appropriate estimation by the contractors in a bid process for the process industries.

The results of time to prepare an estimation during a bidding, then will be compared to the existing company regulation stated that “bidder should submit their bidding proposal 3 to 7 working days in a normal project”.

The Author will use the following project value classification used in Oil & Gas company:

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Table 1. Project Value Classification

2. Identify the Feasible Alternative

The following matrix provide the cost estimate classification for the Process Industries [1]:

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Table 2. Cost Estimate Classification System for Process Industries

3. Development of the Outcome for Alternative

Based on the above matrix, cost estimates can be described as follow [2]:

  • Class 5 estimates are generally prepared base on very limited information.
  • Class 4 estimates are typically used for project screening, determination of feasibility, concept evaluation, and preliminary budget approval.
  • Class 3 estimates are used as the project budget until replaced by more detailed estimates.
  • Class 2 estimates are often used as the “bid” estimate to establish contract value for contractors.
  • Class 1 estimates are typically prepared to form a current control estimate to be used as the final control baseline.

 

4. Selection of Criteria

In bidding process, the contractor will use Class 2 estimate in their proposal. Based on the Class 2 estimates, the preparation effort ranges from 0,02% to 0,1% of project cost.

5. Analysis and Comparison of the Alternative

To get the preparation effort (cost and time) for the project, the Author then using some external data such as Rate for cost estimator and Assumption of working hours a day. In this case, Rate for the cost estimator is US $ 29,03 / hour and 8 hours of work  per day. [3]

The following table describe the preparation effort based on the project value classification in the company:

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Table 3. Bid Estimation Preparation Effort

  • (* Days) = 85% productivity rate for the cost estimator

 

6. Selection of the Preferred Alternative

From table 3, the preparation effort to prepare the project estimate for instance a 5 million USD project  is range from 5 days to 22 days and 6 to 26 days for 85% productivity.

Based on the company regulations, contractor should submit their bidding proposal 3 to 7 working days in a normal project. In this case study, the Author assumed that the 5 million USD as normal project since most of the company’s project range in this value.

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Table 4. Estimation Preparation Effort: Company vs AACE RP

Based on the comparison, the company should revised their bidding rule so that the bidder have more time to prepare their estimation. The longer time to produce an estimation, the higher quality of the estimates is and minimize the possible change order during the project execution.

By using the range from 5 days to 22 days, it will accommodate the  variation of project size, project complexity, estimator skills and knowledge, and on the availability of appropriate estimating cost data and tools.

7. Performance Monitoring and Post-Evaluation Results

The implementation of this analysis, especially for the contractor is that the contractor should monitor their actual spent during estimating preparation not exceed the budget range and time allowance set by the owner during bidding process.

References:

  1. Amos, S. J. (2012). Skills & Knowledge of Cost Engineering: A Continuing Project of the AACE International Education Board (5th ed.). Section 2, Chapter 9. Morgantown, WV: AACE International.
  2. Wibowo, Gideon. (2014). W8_GW_ Costs to Prepare a Bid for a Contractor. Retrieved from:  https://kristalaace2014.wordpress.com/2014/04/16/w8_gw_-costs-to-prepare-a-bid-for-a-contractor/
  3. Occupational Employment Handbook. (2016, May). Retrieved from: Bureau of Labor Statistics: http://www.bls.gov/ooh/business-and-financial/cost-estimators.htm
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2 Responses to W20_RM_Estimate Preparation Effort For a Bid

  1. drpdg says:

    AWESOME posting, Pak Rico!!!! WOW, very well done………. You can’t imagine how important it is to convince your organization to allow more time for contractors to bid your projects.

    Not only will you get better bids but it will help to DECREASE the number of CHANGE orders you get on the projects……..

    Keep up the good work!!!!

    BR,
    Dr. PDG, Jakarta

    Like

  2. Pingback: W7_A_Estimates the required duration for contractor prepare bidding document – EMERALD AACE 2017 – WEEKLY BLOG

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