Tuesday, November 6, 2012

Developing Estimates on Public Works Projects

Developing an cost estimate on a public works construction project is not only a good practice, but in some cases, it is required by laws or regulations.

When is an estimate required?  The following regulations address cost estimates on public works projects. 
  • Washington State:  RCW 39.04.020 dictates that there must be an estimate of the cost of a public works project prior to soliciting bids (whether advertised or through a Small Works Roster process).  Note that there is no minimum dollar thresholds specified for when the cost estimate must be performed.  Here's the specific language of the state law:
Whenever the state or any municipality shall determine that any public work is necessary to be done, it shall cause plans, specifications, or both thereof and an estimate of the cost of such work to be made and filed in the office of the director, supervisor, commissioner, trustee, board, or agency having by law the authority to require such work to be done. The plans, specifications, and estimates of cost shall be approved by the director, supervisor, commissioner, trustee, board, or agency and the original draft or a certified copy filed in such office before further action is taken.
  • Federal regulations:  In addition, many federal grant regulations contain language requiring "independent estimates before receiving bids or proposals."  Check the language of your federal grant regarding requirements on developing an estimate.
Who should perform the estimate?   The cost estimate may be performed by either internal agency staff, by the architect/engineer, or by another independent party hired by the public agency.  Some agencies make it a practice, especially on small projects, to obtain the estimate from contractors.  There are a couple of issues associated with this practice. First, depending on the circumstances, it may give one contractor a competitive advantage over others since they would have advance information about the project.  Second, an estimate from a contractor does not really represent an independent estimate.  The practice of obtaining the estimate from contractors should be used with caution, especially if federal funds are involved.

What should the estimate be based on?  An estimate should break down the project into its component parts of labor, materials, equipment, overhead, and profit, evaluating likely costs in each of these areas.  The size of the public works project will help dictate the level of detail and specificity that should be the basis of the estimate.  For example, a large public works project should be accompanied by a fairly detailed cost estimate based on estimates of current prices in the market.  On the other hand, a small public works project estimate might be based on historical prices the agency has paid for similar services.

Document the estimate:  It is important that the estimate be developed, reviewed, approved, and maintained as part of the project file.  Clearly documenting the estimate is an important step of demonstrating in an audit that the estimate was performed.

How is the estimate used?  The cost estimate is a matter of public record and is subject to public disclosure upon request.  Some agencies publish either the estimate or a range of the estimate in the Invitation to Bid or bidding documents.  Click here to see the results of a survey of agency practices on disclosing estimates that I conducted in the fall of 2011.  In Washington state, the estimate is important in determining at least two things:
  • Subcontractors List:  Whether the Subcontractors List required by RCW 39.30.060 should be submitted with the bid.  The Subcontractors List applies to public works projects estimated to cost $1 million or more. 
  • Small Works Roster:  Whether bids may be solicited through the Small Works Roster, which may be used only for projects estimated to cost $300,000 or less.
Work performed by public employees:  RCW 39.04.020 states that whenever an agency determines that a public work be "executed by any means or method other than by contract or by a small works roster process" (which I think means work by public agency employees), and the estimate is over $25,000, the agency must publish a notice of the work to be done (along with the estimate) in a legal newspaper at least fifteen days before the work begins.  Some types of agencies have restrictions in state law regarding how much work they can perform with their own forces.  Here's the language from RCW 39.04.020:
If the state or such municipality shall determine that it is necessary or advisable that such work shall be executed by any means or method other than by contract or by a small works roster process, and it shall appear by such estimate that the probable cost of executing such work will exceed the sum of twenty-five thousand dollars, then the state or such municipality shall at least fifteen days before beginning work cause such estimate, together with a description of the work, to be published at least once in a legal newspaper of general circulation published in or as near as possible to that part of the county in which such work is to be done.
Emergencies:  RCW 39.04.020 further notes that for an emergency public works project, the public agency is required to publish a description and estimate "within seven days after the commencement of the work."  This would be published in  your official newspaper or newspaper of general circulation in your area.  Some may consider that publication on your agency's website would also meet the requirement for publication.  Here's the language from RCW 39.04.020:
When any emergency shall require the immediate execution of such public work, upon a finding of the existence of such emergency by the authority having power to direct such public work to be done and duly entered of record, publication of description and estimate may be made within seven days after the commencement of the work.
Review your practices:  Review your agency's practices and policies regarding use of estimates, and discuss any concerns or outstanding issues with your attorney.

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 

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