Construction Pricing and Contracting
There are a number of different options when paying contractors and outlining price in contracts. In the competitive bidding process, contractors submit their bid to work on the project. These bids are either submitted on a lump sum or unit price basis (whatever the owner specifies). A lump sum bid refers to the total price of work by the contractor, and unit price bidding is used in projects where the amount of labor and materials are uncertain. Instead of inviting competitive bidding, some private owners choose to award contracts to one or more selected contractors with negotiated contracts, which provides for more flexibility in pricing. Negotiated contracts usually require reimbursement of direct project costs plus the contractor’s fee determined by one of these methods: cost plus fixed percentage, cost plus fixed fee, cost plus variable fee, target estimate, or guaranteed maximum price or cost.
Cost Estimation and Budgeting
A cost estimation is prepared in order to submit a bid for a construction project and is used to establish a budget for the project once it is won. Cost estimates are sometimes prepared by a professional estimator, like a building estimator or a chief estimator. Even though the project manager may not be the sole person responsible for cost estimation, it is still necessary that he or she become familiar with the process to understand the scope of the project. The cost estimation process includes determining the cost estimates from building, unit prices and lump-sum estimates, job sites and general overhead, bidding procedures, and labor costs.
Cost Control Monitoring
As the project begins, project managers need to quickly create a process to monitor project costs. The sooner the cost control monitoring phase beings, the faster project managers will be able to identify trouble spots. For example, if an item is significantly more expensive than the estimate, the project manager should identify the reason for the difference and see if that cost increase affects anything else in the budget.