developing internal cost estimates for architectural, engineering, land surveying and most related...

Developing Internal Cost

Estimatesfor

Architectural, Engineering, Land Surveying and most Related Services Contracts

Updated January 2012

Tutorial Overview

This tutorial covers: legal and business requirements associated with contracts not

awarded on a low bid basis, such as contracts for architectural, engineering, land surveying and related services

components of an internal cost estimate tools and resources available for preparation of internal cost

estimates

The target audience for this tutorial is ODOT project managers or ODOT contract administrators of contracts for architectural, engineering, land surveying and related services.

Tutorial Overview

This tutorial is a self-paced PowerPoint presentation. There are several ways to progress through the tutorial:

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Links

Underlined text are links. Click on the link to go to documents or other websites.

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Click “Exit” on the bottom of the tutorial slide. Read message in pop-up box and select accordingly; either selection will exit the tutorial.

Print this page for reference as you progress through the tutorial.

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What types of contracts does this apply to?

According to Oregon Revised Statutes (ORS), a Qualifications Based Selection (QBS) process is required for certain types of personal service contracts.

This means:

ODOT cannot evaluate cost proposals or billing rate information when selecting a consultant for contract award. Award must be to the highest qualified consultant for the project.

ODOT and selected consultant must negotiate costs that are fair and reasonable.

QBS is required when procuring:

Architectural services

Engineering services

Land surveying services

Photogrammetric mapping services

Transportation planning services required to comply with NEPA requirements

A&E Related Services related to a specific construction project and includes federal funding

Why Prepare Internal Cost Estimates?

For all contracts not awarded on the basis of low bid, ODOT is required to comply with the following federal requirements:

Per 49 CFR 18.36, ODOT… Must make independent estimates before receiving

bids or proposals. Must perform a cost or price analysis in connection

with every procurement action including contract modifications [amendments].

Per FAR 36.605… The estimate shall be prepared on the basis of a

detailed analysis of the required work as though the Government were submitting a proposal.

Cost Analysis Price Analysis

Cost Analysis is evaluation of separate elements of cost

(requires detailed breakdown of estimated costs)

Price Analysis isevaluation or comparison of total cost

(total estimated cost or total bid price)

Cost analysis is used when there is no pricing competition

(selection of consultant is based on evaluation of factors other than lowest

bid)

Price analysis is used primarily in competitive pricing situations

(selection of consultant is based on lowest

bid from pool of qualified bidders)

What’s the difference between a Cost Analysis and a Price Analysis?

A Cost Analysis is…

always required for architectural, engineering and land surveying contracts

required for related services contracts when award is not based on low bid

Slide 6

ODOT’s Business Practice

To comply with the federal requirements, ODOT has included preparing an internal cost estimate as Step 4 of ODOT’s recommended negotiation process, outlined below. The recommended negotiation process applies to contracts and amendments.

ODOT’s Recommended Negotiation Process1) Assemble a negotiation team (for multi-discipline projects, or as needed)2) Prepare a draft Statement of Work (SOW)3) Review and revise SOW with selected consultant

4) Independently prepare cost estimates

5) Review consultant’s estimate

6) Prepare Pre-negotiation Plan and Profit Worksheet

7) Negotiate cost, profit and SOW with consultant

8) Prepare Record of Negotiations (RON)

9) Submit final documents to OPO for contract or amendment review and execution

For additional information about the negotiation process, see the Negotiation chapter of ODOT’s Procurement Manual available at http://intranet.odot.state.or.us/opo/manual.htm#SN

What you need to prepare an Internal Cost Estimate

Tools

Breakdown of Costs form

Profit (Fee) Worksheet

MS Project Server Estimating Tool

Resources for information Negotiated Statement of Work Technical experts for level of effort input Breakdown of costs from similar contracts MS Project Server Estimating Reports Consultant billing rate schedules approved by

the ODOT Procurement Office (OPO)

Breakdown of Costs Form

Click on this hyperlink to access the Breakdown of Costs (BOC) form

The BOC form is located: OPO’s Intranet

Go to Procurement Forms - Personal Services (PSK) Forms and Templates ODOT’s Internet

Go to Contracting – General Contracting Information - Personal and Professional Services Contracting - Forms

The BOC form has 4 worksheets Summary – compiles totals from prime consultant and all subconsultants Breakdown of Costs – for documenting all estimated contract costs Expense Detail – for documenting detailed estimate of “other direct costs”,

such as travel Instructions – guidelines on how to complete the Breakdown of Costs

worksheet

Using the BOC form is optional, but recommended for: Preparing ODOT’s internal estimate Consultant to prepare their cost proposal Documenting the final negotiated contract budget

Profit (Fee) Worksheet

Click on this hyperlink to access the Profit (Fee) Worksheet

The Profit (Fee) Worksheet is located:

OPO’s Intranet Go to Procurement Forms - Personal Services (PSK) Forms and

Templates

ODOT’s Internet Go to Contracting – General Contracting Information - Personal and

Professional Services Contracting – Forms

http://www.oregon.gov/ODOT/CS/OPO/docs/aepage/ProfitFee.xls

Profit (Fee) Worksheet - continued

The Profit (Fee) Worksheet is designed primarily for ODOT to determine an initial profit rate that is reasonable for A&E and Related Services on a specific contract

Profit factors are scored based on ODOT’s assessment of the project

“Points Assigned” boxes on the Worksheet include pop up comments for rating the profit factor

“Profit Factor Scoring” worksheet includes guidance for rating profit factors, instructions for use, and information about profit limits

“Instructions & Limitations” worksheet includes information about profit limits

The initial profit rate is used as a basis for negotiating a reasonable profit rate with the prime consultant

The final negotiated profit rate is applied to the prime consultant and all subconsultants assigned to the contract, except for those with Negotiated Billing Rates

Consultants may complete a Profit (Fee) Worksheet for their own reference, but must not complete the Worksheet on ODOT’s behalf

MS Project Server Estimating Tool

The MS Project Server Estimating Tool is designed for A&E and Related Services

The MS Project Server Estimating Tool is a database program that runs reports based on data collected from Resource Management System (RMS) in MS Project Server

Report Options : Generic MS Project schedule template Existing projects published in MS Project Server

Estimating Tool is easy to use

Information is updated daily

The Estimating Tool…

Produces an Excel report that can be modified with Consultants’ billing rates to develop a closer estimate of total cost

Provides ballpark estimates for total costs and project milestones

Will not generate an estimate specific to your contract - Tasks and subtasks generally do not directly match those in the contract Job classifications do not match those on the consultants’ rate schedules Billing rates do not match those on the consultants’ rate schedules

More about the MS Project Server Estimating Tool

To obtain access to the MS Project Server Estimating Tool, go to the links on Project Web Access home page or contact Greg French at 503.986.6635

For more information about how to run reports using the MS Project Server Estimating Tool, go to the online tutorial posted on OPO’s Intranet training page

Resources for Information Subject Matter Experts

ODOT Technical Experts

ODOT Procurement Office Procurement Team Leads

Highway Division, Region 1 - Bob McKibben 503.731.8462 Highway Division, Region 2 and Technical Services Branch - Doug Peetz

503.986.2980 Highway Division, Regions 3, 4 and 5 - Kevin Cassidy 541.963.1326 All other business sections within ODOT - Tara Anderson 503.986.2921

Procurement Risk Manager – Ron Bennett 503.986.2825 Billing Rate Action Team (BRAT) – Chaye Bookey 503.986.2833

Department of Justice (assistance coordinated through the ODOT Procurement Office)

Resources and contacts from other agencies

Direct Salary Rates

Overhead & FCCM

Other Direct

Costs

Labor Hours

Rate Escalation Profit

JobClassifications

Tasks

Preparing Your Internal Cost Estimate(putting all the pieces together)

BILLI

NG

RATES

Slide 15

Components of an Breakdown of Costs

When developing an internal cost estimate for A&E and Related Services, ODOT requires a detailed breakdown.

The five components of an internal cost estimate are: Tasks Job Classifications Labor Hours Other Direct Costs Billing Rates

The following slides will cover each component of an internal cost estimate in more detail.

BOC Instructions

BEFORE YOU CONTINUE…

Please print the “Instructions for Completing Breakdown of Costs Form” to refer to during the following section of the tutorial

In a separate window, open Internet Explorer and go to ODOT Intranet Home Page

Select “Topics A-H” then “Contracts” in left hand menu; this brings you to the ODOT Procurement Office Intranet Home Page

Click on “Procurement Forms” in left hand menu Click on “View” button next to “Personal Services (PSK) Forms and

Templates” Click on “PSK Compensation Related Forms” Click on “Breakdown of Costs Template Instructions” link in the

description for Breakdown of Costs Template (BOC) Print “Instructions for Completing Breakdown of Costs Form” on ledger-

sized paper

Tasks

Task numbers and task names must correspond with those in the negotiated Statement of Work

Internal cost estimate must be broken down by task and should be broken down by subtask for adequate comparison and cost analysis of consultant’s estimate

Consultant’s estimate must be broken down by tasks and subtasks per contract requirement

Cost breakdown for contingency tasks must be broken down separately

Instructions for completing the Breakdown of Costs form

Task numbers and task names are entered into the Task # and name column on the left hand side of the Breakdown of Costs form

[Relates to comment box #5 on Instructions for Completing Breakdown of Costs Form.]

Slide 18

The job classifications on the Breakdown of Costs must match the job classifications listed on consultant’s approved billing rate schedule that’s in the Contract, Work Order Contract, or Price Agreement

Job classifications to be used for each task should be discussed and agreed to with the consultant during negotiations of the Statement of Work


Job classifications are entered into the “Job Classifications (Individual)” sections of the Breakdown of Costs form

Job classifications are entered separately for the prime consultant and each subconsultant assigned to the contract


Job Classifications

Slide 19

Labor Hours

Estimate the number of hours that each job classification will require to complete each task

ODOT estimates labor hours based on: Review and input from ODOT subject matter and technical experts Breakdown of costs from previous contracts for the same types of services Reports from MS Project Server Estimating Tool

Instructions for completing the Breakdown of Costs form Enter estimated number of labor hours for each job classification for each

subtask Subtotals for each task will calculate automatically


Slide 20

Other Direct Costs

Estimate the amount of travel that is reasonably needed to complete each task

Prepare a detailed cost breakdown of estimated travel expense based on reimbursement rates that comply with the requirements in the Contract or Price Agreement

“short term” travel per DAS Travel Policy #40.10.00.PO “long term” travel per Contract or Price Agreement


Document detailed estimate of other direct costs on an “Expense Detail” worksheet of the Breakdown of Costs form

Enter the total amount per task or subtask into the “Direct Expenses” column in the “Calculation Section” of the Breakdown of Costs form

Direct Expenses are entered separately for the prime consultant and each subconsultant assigned to the contract


Travel Related

Slide 21

http://oregon.gov/DAS/SCD/SARS/policies/oam/40.10.00.PO.pdf

Other Direct Costs

Estimate actual expense for items such as equipment rentals, lab tests, photocopy, printing, communications and other non-labor project related expenses that are NOT included in overhead

Some consultants have a separate rate schedule for Other Direct Costs (ODC) See next slide for information about where to find rate schedules ODOT can negotiate lower rates than those listed on a consultant’s ODC rate

schedule


Document detailed estimate of other direct costs on an “Expense Detail” worksheet of the Breakdown of Costs form

Enter the total amount per task or subtask into the “Direct Expenses” column in the “Calculation Section” of the Breakdown of Costs form

Direct Expenses are entered separately for the prime consultant and each subconsultant assigned to the contract


Miscellaneous

Slide 22

Billing Rates Schedules

Each consultant will have either of the following two types of billing rates: Escalated Salary Rates (ESR) or Negotiated Billing Rates (NBR)

To obtain appropriate rate schedules to use in an internal cost estimate:

New Project Specific Contracts – use currently approved billing rates schedules posted at \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR or contact the ODOT Procurement Office

New Work Order Contracts - refer to the Agreement to Agree (ATA) or Price Agreement (PA) rates workbooks located at \\Scdata2\opobillingratedata\acceptedrates\Workbooks or contact the ODOT Procurement Office

Overhead and FCCM rates – \\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates(When you open the file, choose “update” and “continue” on pop up screens) or contact the ODOT Procurement Office

Rate schedules for Other Direct Costs (optional) – \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR or contact the ODOT Procurement Office

Amendments to existing WOCs/contracts - refer to the WOC/contract rate schedules located at \\Scdata2\opobillingratedata\acceptedrates\Workbooks or contact the ODOT Procurement Office

Components of Escalated Salary Rates

Direct Salary Rate

Overhead

and

FCCM

ProfitRate

Escalation

Slide 24

Direct Salary Rates

Escalated Salary Rate Schedule (ESR) lists average and maximum salary rates which are derived from the actual salary rates of consultant’s staff.

ODOT project managers and consultants should use average rates in their cost estimates (contract requires this for consultant’s estimate, unless approved otherwise by Agency), or negotiate to use actual rates for staff. Avoid using maximum rates.

OPO adds up to 4.5% to the salary rates for annual escalation. For estimating purposes, use the escalated salary rates for the current year.


The direct escalated salary rates for the current year are entered into the “Direct Salary Rate (Avg, Actual, Max) Current Year” sections of the Breakdown of Costs form

Direct Salary Rate (Avg, Actual, Max) Current Year are entered separately for the prime consultant and each subconsultant assigned to the contract


Slide 25

How Rates Impact Estimate

Following is an illustration of the difference in cost resulting from using the maximum direct salary rate instead of the average direct

salary rate

Maximum vs. Average Additional Amount

Direct salary costs $47.50 vs. $37.50 $10

Escalation costs $2.14 vs. $1.69 .45

Overhead costs $74.46 vs. $58.79 $15.67

Profit costs $9.93 vs. $7.84 $2.09

FCCM 30 cents vs. 24 cents .06

Burdened Billing Rates $134.33 (maximum) vs. $106.06 (average)

Using the maximum rate instead of the average rate adds $28.27 more per labor hour to the estimated costs

Escalation based on 4.5%

Overhead based on 150%

Profit based on 8%

FCCM based on .60%Slide 26

Overhead and FCCM

Current overhead and FCCM rates are posted at \\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates OHRates.xls file(When you open the file, choose “update” and “continue” on the pop up screens)

Contact OPO Billing Rate Action Team (BRAT) for: Review, negotiation and approval of overhead rates for new consultants Review, negotiation and approval of updated overhead rates for existing

consultants Submit requests for BRAT assistance by email to ODOT Billing Rate Updates

Facilities Capital Cost of Money (FCCM) is a separate component from overhead Profit is calculated on overhead, but not calculated on FCCM


The current overhead and FCCM rates are entered into the “Multipliers” sections on the Breakdown of Costs form. For subconsultants with Negotiated Billing Rates, enter 0 (zero).

Enter Overhead and FCCM rates separately for the prime consultant and each subconsultant assigned to the contract

[Relates to comment box #12 on Instructions for Completing Breakdown of Costs Form.] Slide 27

Profit

ODOT scores several profit factors on the Profit (Fee) Worksheet to determine an initial profit rate that is reasonable for a specific contract

ODOT negotiates the profit rate with the prime consultant

The final negotiated profit rate is applied to the prime consultant and all subconsultants assigned to the contract, except for those with Negotiated Billing Rates (profit and overhead are not added to Negotiated Billing Rates)

The final negotiated profit rate may vary from the initial profit rate on ODOT’s Worksheet; document reasons for the rate adjustments in the Record of Negotiations


Final negotiated profit rate is entered in the “Multipliers” section for the prime consultant. The same Profit rate will automatically carry over for all the subconsultants.

For subconsultants with Negotiated Billing Rates, change the rate to 0 (zero).

[Relates to comment box #13 on Instructions for Completing Breakdown of Costs Form.] Slide 28

Rate Escalation

Older contracts may not allow rate escalation. Consult with the ODOT Procurement Team Lead or OPO Billing Rate Action Team (See slide 11 for contact information)

For multi-year contracts, specify percent of work to be completed each year on the Breakdown of Costs form. This information is used to calculate and add appropriate salary escalation into the labor estimate.


The allocation of work for multi-year contracts is entered in the “Multipliers” section of the Breakdown of Costs form for the prime consultant

The allocation automatically carries over to all subconsultants assigned to the contract, however adjustments can be made to the “Multipliers” sections for subconsultants


Slide 29

Direct Salary Rates

Overhead & FCCM

Other Direct

Costs

Labor Hours

Rate Escalation Profit

JobClassifications

Tasks

All the Components of an Internal Cost Estimate Using Escalated Salary Rates

Slide 30

Other Direct

Costs

Labor Hours

Negotiated Billing

Rates

Job Classifications

Tasks

All the Components of an Internal Cost Estimate Using Negotiated Billing Rates

Profit

Overhead

and FCCM

Rate Escalation

Direct Salary Rates

Slide 31

Negotiated Billing Rates

Negotiated billing rates are fully burdened hourly rates which include direct labor, indirect costs (overhead) and profit

Do not add salary escalation, overhead, FCCM, or profit to Negotiated Billing Rates

Consultant must negotiate increases of their Negotiated Billing Rates with the ODOT Procurement Office


Enter zero into all the fields in the ”Multipliers” section for consultants with Negotiated Billing Rates [Relates to comment box #11 on Instructions for Completing Breakdown of Costs Form.]

Enter zeros in the “Direct Salary Rate for Current Year” section for consultants with Negotiated Billing Rates [Relates to comment box #3 on Instructions for Completing Breakdown of Costs Form.]

Enter the negotiated billing rates in the “Annualized Direct Salary Rate” section for consultants with Negotiated Billing Rates [Relates to comment box #4 on Instructions for Completing Breakdown of Costs Form.] Slide 32

Totals and Subtotals

The Breakdown of Costs form includes: A Calculation Section for prime and each subconsultant Project Summary for total costs of the whole contract

The Project Summary includes:

Total Non-Contingency Total Cost: the not-to-exceed amount for the “Cost” portion

of Cost Plus Fixed Fee contracts Profit: the estimated profit used as a basis for negotiating

the “Fee” portion of Cost Plus Fixed Fee contracts Cost + Profit: the estimated total for all non-contingency

tasks

Total Contingency

Cost + Profit: the estimated total for all contingency tasks

Total Non-Contingency + Contingency

Cost + Profit: the estimated total for the contract

Tutorial Summary – Part 1

ODOT is required to complete an internal cost estimate prior to receiving consultant’s price proposal for all contracts not awarded on the basis of low bid, including:

Architectural, Engineering and Land Surveying (A&E) and Related Services contracts

Other contracts awarded on other than low bid

Amendments that add cost

ODOT must complete a cost analysis of what services “should cost” including a detailed analysis of consultant’s breakdown of estimated hours and costs compared to ODOT’s internal estimate.

A Pre-negotiation Plan must be prepared following cost analysis and prior to negotiation.

Consultants have billing rate schedules for either Escalated Direct Salary Rates or Negotiated Billing Rates

Escalated Direct Salary Rates are hourly billing rates that includes Direct Salary Rate, escalation, overhead, FCCM and profit.

Negotiated Billing Rates are fully burdened hourly billing rates. Rate escalation, overhead, FCCM and profit are not added.

Slide 34

Tutorial Summary - Part 2

Breakdown of Costs (BOC) form is an optional tool for preparing and documenting ODOT’s internal cost estimate. It’s a good business practice to require the consultant to prepare their cost proposal using the BOC form.

Profit (Fee) Worksheet is a required form for determining an initial profit rate that is fair and reasonable for the project. The final profit rate is negotiated with the consultant.

MS Project Server Estimating Tool is a database that runs estimating reports for A&E and most Related Services based either on RMS Project Templates, or templates from ODOT Projects that have been published. These reports can be used as a resource when estimating labor hours for tasks and milestones.

Subject matter experts and technical experts are generally a Project Manager’s best resources for estimating labor hours and project costs for a specific project.

Slide 35

Questions?

ODOT Negotiations Guide

For additional information regarding internal estimates, negotiation process and required forms, see the Negotiation chapter of ODOT’s Procurement Manual available at the following link:

http://intranet.odot.state.or.us/opo/manual.htm#SN

If you have questions or comments related to this tutorial, please contact:

Mary WandellProcurement Training Specialist

[email protected]

“Certificate of Completion”

To obtain a Certificate of Completion for this tutorial:

1) Use this link to access the test form.

2) Print the test form.

3) Answer the test questions correctly and fill out your contact information on the test form.

4) Fax or email the completed test form to Mary Wandell, Procurement Training Coordinator at 503.986.5790.

Acknowledgements

I would like to thank the following people for their assistance in developing this tutorial:

Chaye Bookey, ODOT Procurement OfficeGreg French, Technical Services Branch, Project Delivery Unit

Mike Jenkins, ODOT Procurement OfficeCindy Musgrove, ODOT Procurement Office

Kim Rice, ODOT Procurement OfficePam Schwarz, ODOT Procurement Office

developing internal cost estimates for architectural, engineering, land surveying and most related...

Documents

tutorial slide

odot slide

cost proposals

internal cost estimates

related services contracts

current slide

low bid slide

total bid price cost