Estimating Highway Preconstruction Services Costs - Volume 1: Guidebook (2016)

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43 5.1 Introduction Functional-level PCS cost estimating is used to assign resources during the preconstruction phase of a project, as shown in Figure 5.1. Rather than assessing the project with a top-down approach, functional-level estimating works by passing responsibility on to each agency bureau or office to scope and price the work they need to complete to assist the overall project. Estimates from each functional area are then aggregated to form a project bottom-up estimate. The tasks required for each engineering function will vary greatly depending on the scope of the project. Typically, members of each office or functional area within a DOT will participate in a preliminary field review to the project site to observe conditions and make note of features that will affect the preconstruction activities for their respective teams (Montana Department of Transportation 2013). These notes are shared across the project teams, and actions are assigned. Typical offices or functional areas that would be involved in an initial field trip include: • Roadway, • Structures, • Survey, • Geotechnical, • Hydrology, • Right-of-way, and • Environmental. The title and structure of these offices will vary from agency to agency; however, it is impor- tant that an experienced member represents each of these disciplines during the site visit. With the information gathered from this review, an office can begin identifying the various preconstruction services required for the development of the project and select whether they will be completed by in-house staff or external consultants. Current practice for functional-level PCS estimating varies greatly across the nation. There appears to be an ad hoc approach to estimating work effort, with little accountability if numbers are off the mark. PCS costs are viewed as a very small portion of the total project cost, suggesting that any overrun is considered irrelevant in the grand scheme of things. Given the lack of impor- tance placed on PCS, assigning time and resources to forming accurate work-effort estimates is not viewed as a priority. Instead, retrospective reviews of submitted consultant fee proposals are conducted, or vague comparisons with similar completed projects are used as replacements for independent cost estimates. C H A P T E R 5 Functional-Level PCS Cost Estimating

44 Estimating Highway Preconstruction Services Costs This chapter is intended to assist readers in improving functional-level estimating practice by clarifying its importance in the preconstruction phase and providing a range of tools to assist with developing better estimating methods. The content of this chapter should assist the reader in forming more accurate and faster estimates by implementing a structured approach to the process. 5.2 Process for Functional-Level PCS Cost Estimating The preconstruction phase includes the delivery of many intermediate products and services such as environmental investigations, geotechnical studies, public involvement, and permitting. The level of effort required to complete many of these tasks is often influenced by project loca- tion, resources affected, and regulations activated by the project, rather than a specific project characteristic such as lane miles or bridge length (American Association of State Highway and Transportation Officials 2008). As a result, the best way to quantify these services is to develop a scope of work for the effort required to complete each. Functional-level cost estimation is a form of bottom-up estimating. The scope of work can be divided into smaller work tasks that can be estimated individually. These smaller estimates are then combined to form a total estimate for a specific service. A bottom-up estimate is typically estimated by a person who is involved in monitoring the project, such as a senior designer who will manage the team to complete the work (Larson and Gray 2011). It is important for an engineering department to develop a scope of work that is sufficiently detailed so that cost estimates based on the specific tasks can be performed. AASHTO specifies that “an effective scope of services is written in clear, unambiguous, and precise language. It contains provisions for determining the quality of services or products rendered” (American Association of State Highway and Transportation Officials 1996). Figure 5.2 illustrates the key steps that are taken to form a functional-level estimate. Once the scope of work has been defined, the tasks required to fulfill the scope must be identified. To sim- plify this process, some DOTs have a standard task inventory, also known as a work breakdown structure, which contains a comprehensive list of common activities that are typically required during preconstruction. This inventory of work tasks can then be assigned a level of effort to complete and hence a rate of pay for that effort. After the hours of each specific work task have been multiplied by the relevant payment rate, the cost of each task can be combined to calculate the total PCS cost estimate. Planning •Purpose & Need •Feasibility Study 30% Design •NEPA Study •Alternave Evaluaons •Preliminary Design 60% Design •Preferred Alternave •NEPA and Permit Approval •Stage 2 Design 100% Design •Final Plans •Engineers Cost Esmate •Adverse for Bids Construcon •Begin Physical Work PRECONSTRUCTION PHASE Figure 5.1. Preconstruction phase of a highway project with examples of typical tasks.

Functional-Level PCS Cost Estimating 45 5.3 Identifying Work Tasks with a Work Breakdown Structure The activities that occur during preconstruction can be organized into a hierarchy, as dis- played in Figure 5.3. This hierarchy can be used to develop a WBS. The WBS provides an orderly classification of work tasks and indicates when they should occur during the PCS phase. It is typically set up as a spreadsheet, listing preconstruction tasks specific to different departments and then assigning effort hours to them. Breaking each functional level into specific tasks allows work to be clearly identified, managed, and controlled (Association for the Advancement of Cost Engineering International 2011). It is possible to create different levels of detail within a WBS. Figure 5.3 shows the 30% design phase split into functional levels and then further into two more tiers of specific work tasks. The second level (in blue) provides broadly assigned tasks; the third level (in green) includes an added tier of detail to individual tasks. Agencies have noted that creating a detailed WBS can be time consuming; the concept of two- tiered specific work tasks allows time to be used more efficiently. For the initial functional-level estimate, after a preliminary field review has been completed in-house, a manager may only have a broad understanding of the tasks to be completed. To gain an indication of the resources required to fulfill the project, a less detailed WBS can be used (Level 2). Once a project becomes more defined, a better comprehension of individual tasks means the WBS can be developed in more detail with an additional tier (Level 3). 1. Develop Scope of Work 2. Idenfy Work Tasks 3. Assign Level of Experse Required for Each Task 4. Assign Hours to Work Tasks 5. Mulply Work Hours by Relevant Payment Rate 6. Combine Cost of Each Task for Total Esmate Figure 5.2. Functional-level estimating process. Specific Work Tasks 30% Design Survey Roadway Prelim Traffic Report Roadway Alignment Plan Prelim Alignment and Grade Establish Major Control Prelim Plans Preparaon ..... ...... Environment ..... Functional Level Level 2 Level 3 Figure 5.3. Work breakdown structure for PCS activities – example.

46 Estimating Highway Preconstruction Services Costs It is encouraged that DOTs work toward a detailed WBS; however, for those DOTs that do not currently use functional-level estimation, it is important to first establish a basic WBS that can then be expanded upon. An example from the Ohio DOT is included in Appendix E to provide a guide to the types of activities included and the structure of a PCS WBS. If the reader is interested in a more detailed example, Florida DOT has a well-developed WBS that includes a comprehensive list of work tasks (Florida Department of Transportation 2015). 5.4 Assigning Level of Expertise Required Different work tasks can require variations in expertise. To document the different staff mem- bers that work on each task and their skill levels, a spreadsheet such as the one developed by Colorado DOT (CDOT) can be used (shown in Figure 5.4). Levels of expertise may be distin- guished in a number of ways but are typically defined by pay rates. This aids the estimation of total functional-level PCS costs since rates of pay can be multiplied by the appropriate number of hours each staff member is responsible for. Colorado’s cost-estimating guide has preliminary design tasks listed at a relatively high level. There are many more columns to the right of the “Structures” and “Roadway Design” headings depicting the various other engineering functions that would be involved in some tasks. 5.5 Assigning Hours to Work Tasks Research has found that complexity is the most influential factor in early estimates, affecting PCS costs at both the program and project level. The research included a survey of nine DOTs, and the results were supplemented by 16 case studies. The research found that complexity was ranked the highest of 12 characteristics that can influence PCS cost (see Appendix F for the complete list) based on mean response value. It is important to recognize the role complexity can play in the PCS requirements of a project. DOTs usually classify complexity into three levels. Table 5.1 describes characteristics that can be used to determine the complexity for various work tasks. Figure 5.4. CDOT consultant cost-estimating guide for preliminary design.

Functional-Level PCS Cost Estimating 47 Tasks that have a greater complexity associated with them will require more work-effort hours. The influence of complexity can be integrated into a functional-level estimate through range estimating, which will be discussed in the Range Estimating subsection. 5.5.1 Uncertainty An estimate is, after all, a prediction, and therefore a degree of uncertainty must be recognized within it. While it is not possible to know the exact effort that will be required for any given task, there is often a relatively high confidence when estimating routine or low-complexity tasks. For tasks that are new or uncommon and that could be deemed complex, there is a greater level of uncertainty. Complexity is increased when there is a high level of uncertainty surrounding objectives to be achieved or how they will be implemented (Shane et al. 2014). Figure 5.5 shows the relationship between uncertainty, estimate ranges, and complexity levels. Greater complexity results in larger uncertainties and in turn a wider estimate range. Range Estimating At the functional level, the estimate range illustrated in Figure 5.5 is bounded by the best- and the worst-case estimate of work-effort hours. The best case is defined as being the minimum number of hours required, and the worst case as being the maximum hours for a specific work task. For unfamiliar tasks, where there is little historical data to aid a decision, this range will be relatively wide. Within this range of extremes, a most likely number of hours must be stated. The Level of Complexity Description High • Completely original design work • Many public stakeholders to involve • Large study area size for field investigations • Difficult geotechnical conditions • Scope definition included within PCS work – not yet defined • Little historical work-effort data available Medium • Building upon existing design work • Some public stakeholders • Average study area size for field investigations • Familiar geotechnical conditions Low • Repetitive or basic design work • Few or no public stakeholders • Small study area size for field investigations • Well known geotechnical conditions Table 5.1. Levels of complexity affecting work tasks. Uncertainty Estimate Range Level of Complexity High High Normal Medium Low Low Figure 5.5. Complexity’s relationship with uncertainty and estimate range.

48 Estimating Highway Preconstruction Services Costs most likely number of hours can be based on professional judgment until sufficient data have been collected to identify a statistical mode (most common value). The high and low estimates for a work task are influenced by its complexity. Range estimating allows a manager or department engineer an opportunity to assess the confidence associated with the work hours (Larson and Gray 2011). Figure 5.6 demonstrates how a range could be assigned to each work task within a WBS. Three-Point Estimation While it is valuable to visually inspect the level of confidence associated with a task, “most of the end uses of an estimate require a single point value within the probable values to be selected” (Association for the Advancement of Cost Engineering International 2011). To combine the minimum, most likely, and maximum values from the range estimate into a single number, a weighted average number of hours can be calculated using Equation 5.1. Weighted average hours Min. 4 Most Likely Max. 6 Eq. 5.1 ( ) = + × + This equation is based on a historic distribution of work-effort hours for the project type being estimated. It weights the average hour estimate four times more heavily than either the maximum or minimum hour estimates. The output of this equation is the expected value of the number of hours required for the specific task. An example is shown in Figure 5.7 for estimating the work-effort hours required for utility coordination and documentation for a project. The most probable number of work-effort hours required for the task of utility coordination and documentation is 15 (after rounding up from 14.5). This total number of hours can now be assigned pro rata to the levels of expertise needed to complete the task. In this instance, an intermediate engineer will spend 10 hours coordinating changes to utilities within the project, and an administration staff member will spend 5 hours organizing the correct documentation (shown in Figure 5.8). Assigning the weighted average hours across the levels of expertise is sufficiently accurate for a functional-level estimate. However, if more certainty in the estimate is required, a range of work- effort hours could be assigned to each individual level of expertise. This would allow a weighted average of hours to be calculated for each team member working on a specific task instead of pro-rata allocation of total weighted average hours (as shown in Figure 5.9). Using this method increases the accuracy of hours estimated for each role; however, sufficient historical data on specific expertise levels are required. Acknowledging uncertainty is important to ensure the validity of any estimate. Knowing the exact work-effort hours required for a specific task would not require an estimate at all; however, EXPERTISE Project Manager Senior Professional …… Technician Admin Total Hours Range Min Most Likely Max W BS Task 1 Task 2 Task 3 …. Task n Figure 5.6. Estimate range for WBS.

Functional-Level PCS Cost Estimating 49 Figure 5.7. Calculating the weighted average hours required for utility coordination and documentation given an estimate range. EXPERTISE Professional Admin Total Hours Range Weighted Avg. HoursMin Most Likely Max W BS Utility Coordination and Documentation 10 5 10 13 25 15 Figure 5.8. Pro-rata assignment of work-effort hours. EXPERTISE Professional Total Hours Range Admin Total Hours Range Min Most Likely Max Min Most Likely Max W BS Utility Coordination and Documentation 11 8 9 21 4 2 4 4 Figure 5.9. Improved accuracy with hour range estimates for each level of expertise.

50 Estimating Highway Preconstruction Services Costs an estimator of PCS is rarely so fortunate. Assigning a range of possible hours for any given task recognizes uncertainty and allows a three-point estimate to be formed. The weighted average hours calculated provide the best possible indication of how many hours will be required for a task, given the historic distribution of work hours from previous projects. 5.6 Use of Functional-Level PCS Cost Estimating Once there is a scope of work, a department will need to assess who will complete the work. Should an in-house team be used, or external consultants (see Figure 5.10)? While it appears most agencies would prefer to perform work in-house, this is not always possible. The amount of PCS work that is outsourced varies from state to state. Some DOTs have suf- ficient staff capacity and expertise to complete the majority of work internally, while other agen- cies employ consultants more frequently. Table 5.2 indicates the levels of PCS work outsourced from the responses of 17 DOTs surveyed by the researchers at the AASHTO Subcommittee on Design conference in Montana, June 2013. Typically, external consultants are employed in the following scenarios: 1. When an agency cannot complete the work within the desired time with its available resources, or 2. When the work entails specialized professional or technical skills not readily available within the DOT (Colorado Department of Transportation 2013, Montana Department of Transportation 2010, Iowa Department of Transportation 2012). It should be noted that it is possible to engage a consultant at any time during the preconstruc- tion phase, as needed. 5.6.1 In-House Design A functional-level estimate can be used to quantify the number of work hours that will be required by a PCS team to complete a given work package. This can play a significant role in management’s decision on whether to perform the work with in-house resources. If the estimated work effort does not require specialized services and can be accommodated in the department’s schedule, then a decision to do the work in-house can be made. The estimate can aid the distribution and monitoring of forward workload to available team members. 5.6.2 External Consultant If the work package cannot be completed in-house, the functional-level estimate is still use- ful. It can be used during negotiation with the consultant who will complete the work instead. The use of consultants to assist state DOTs with PCS is predicted to increase (Wiegers 2000). This surge in contracting external services has led to the implementation of various state policies Preliminary field review Project tasks assigned to appropriate engineering funcon Scope of work defined Funconal levelesmate In house External consultant Figure 5.10. Functional estimate sequence.

Functional-Level PCS Cost Estimating 51 and consultant services manuals. Within these documents, DOT engineers are often required to perform detailed in-house cost estimates or independent cost estimates for the work to be contracted out (Touran and Lopez 2006). The Brooks Act, introduced in 1972, requires that all applicable architectural and engineer- ing service contracts be awarded in accordance to an open negotiation process on the basis of demonstrated competence and qualifications. Federal regulation stipulates a “detailed cost estimate, except for contracts awarded under small purchase procedures, with an appropriate breakdown of specific types of labor required, work hours, and an estimate of the consultant’s fixed fee . . . for use during negotiations” (General Services Administration, n.d.). The purpose of an independent in-house cost estimate is to provide a DOT with a compre- hensive understanding of the scope of work and the effort required to complete the preconstruc- tion services for a given project. This estimate can then be used as a guide to determine fair and reasonable compensation for services rendered. The independent cost estimate is “an important baseline for negotiations with the consultant” (Touran and Lopez 2006). 5.6.3 Current Practice and Limitations Interviews with DOTs indicated that currently not all agencies create an independent estimate to negotiate with. In these cases, a department may review a submitted consultant proposal with professional judgment and anecdotal experience on how long its in-house team would typically take to complete the same task. This process is not encouraged since a bias is formed by viewing the proposal early, which may hinder a fully objective analysis. Creating the independent cost estimate prior to negotiation is preferred. Reasons for not completing an independent cost estimate included having limited time and resources. It should be noted that these same DOTs did not have a WBS or database in place. Implementing both a WBS and database would greatly reduce the amount of time needing to be invested in each independent cost estimate. There are a number of issues that can make implementing a WBS difficult. For example, if the scope of work has not yet been defined and its definition is an activity to be included within a consulting contract, then it can be hard to identify specific tasks to estimate. Also, if tasks are unique and complex, it is unlikely there is any historic data that can be used as a reference for estimating. In both of these situations, a wide estimate range should be used to reflect the high level of uncertainty. As more information comes to light, the estimate can be refined until an acceptable level of accuracy is achieved. 5.7 Continuous Improvements Creating better functional-level estimates is an ongoing process that can continuously be improved upon. Figure 5.11 illustrates how a WBS and database feed into the development of a functional-level PCS estimate. Recording the actual PCS work-effort hours/costs that correspond to each past estimate strengthens the quality of the database that then goes on to form more accurate future estimates. All three elements in this diagram affect the success of each other. Table 5.2. Percentage of PCS outsourced to consultants by state. 0% 61%–90% WY CA, GA, KS, WI, NC AK, ME, AL, MD, MS, NE, MN, WV, AZ WA, SD 1%–30% 31%–60%

52 Estimating Highway Preconstruction Services Costs For engineering departments with no formal estimating process, this feedback loop will take some time and effort to develop. Defining work tasks within a WBS is the best place to start. Once tasks are clearly identified, estimates of their work effort can be created. Review of each estimate compared to actual PCS work-effort hours will then provide the first pieces of data to the database. Over time, the quality of the database will improve as more projects’ actual work-effort hours are recorded. Functional-level PCS cost estimating is a valuable tool for allocating resources, whether in-house or outsourced. Investing in a WBS and database to efficiently estimate the work effort of each engineering activity ensures better-value services. As mentioned previously, insufficient resources during planning and design can lead to higher costs during construc- tion; conversely, with restricted transportation budgets, there is a limit to this investment. Improved functional-level PCS cost estimating can increase cost certainty during the pre- construction phase, assisting with the appropriate allocation of funds across the entire project. WBS + Database Funconal Level PCS Esmate Record Actual Work Effort Hours/Costs Figure 5.11. Feedback loop for continuous improvement of PCS functional-level estimating.