Increasingly, owners of dams and other heavy-civil projects are finding that construction costs or bids are not in line with their expectations. On bid day, anticipation and big surprises loom for owners and engineers alike. But this presents dilemmas for contractors as well since under-funded projects are often not awarded. The sudden increase in construction price escalation experienced by the industry over the past two years has been accompanied by an equally sudden increase in the number of Engineer's Opinions of Probable Construction Costs (a.k.a. "Engineer's Estimate") deviating from actual construction bids by 15% or more. An Engineer's estimate of construction is important to the planning, budgeting, and economic analysis for an owner's capital improvement program. Key financial decisions are based, in part, on this estimate, including project scope and timing. When the estimated cost deviates significantly from the actual construction pricing experienced through the procurement process, it not only upsets the budget planning process for an owner, but can require revisiting the economic analysis that a capital improvement program was predicated upon. Some of the increase in contractor bids for construction work is directly attributable to increased pricing for materials such as stainless steel, concrete, rebar, and fuel. Some of it is attributable to increased labor costs associated with a shortage of engineers and skilled craftspeople. Other factors that are driving price escalation are more difficult for the engineer to evaluate and can contribute to opinions that are poor predictors of actual construction pricing. These include the bid environment and the perceived risk of a project from the contractor's perspective. This paper will explore the relationship between estimating costs and actual construction costs, including cost estimating procedures, material escalations, market conditions, and procurement practices. Recommendations will be made regarding estimate practices and procurement considerations.
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