How much do you think it would cost to replace this door?

• What components of work are involved?
• What factors impact cost?

The primary steps in the estimating process were mentioned in the last lesson. They are:

1. Identify Scope
2. Develop Estimate
3. Review

The scope of work describes what is necessary to fix the facility. Defining the eligible scope of work is the most important aspect of the cost estimating process.

An accurate construction cost estimate begins with a well-defined, quantitative description of the project's scope of work. A poorly defined scope of work will cause inaccurate estimates.

FEMA works with the Applicant to develop the scope of work for eligible damages. This scope of work is also used to assist in preparing the cost of the grant.

A scope of work includes:

• All work items necessary to restore the facility to its pre-disaster design, function, and capacity in accordance with the laws, regulations, and policies that govern the Public Assistance program
• Eligible upgrades necessary to meet current codes and standards, if applicable
• Special Considerations
• Incidental non-permanent work that is required as part of completing construction, (i.e. scaffolding, traffic control, temporary erosion control)

The cost estimate is only as accurate as the information provided and the experience of the project formulation team. An accurate scope of work and appropriate unit cost data are required for an accurate estimate.

The costing specialist will review the scope of work information to ensure a full understanding of project conditions that may affect eligible costs.

The focus of this lesson is on estimates developed using detailed unit cost data. Regardless of the source, the cost elements (i.e., labor, equipment, materials, overhead, and profit) that generates the unit cost data, it must be documented and understood so that the unit cost can be properly applied.

The unit cost data must also be reproducible by future users and reviewers of the estimate, such as FEMA project closeout staff or auditors.

There are three potential sources for cost data:

• Local Historical Costs
• Industry Costs-Estimating Software
• FEMA Cost Codes

Local historical costs are the preferred and most reliable source of cost data. To be used, costs must be similar to those being estimated, recent, and procured in compliance with Federal, State, and local procurement regulations by either the Applicant or other agencies in the same or nearby jurisdiction.

Historical contract costs must have been competitively awarded and in compliance with all relevant government regulations. The scope of work in contract prices should be similar to repair or restoration work. Data must include a schedule of values or unit rates applicable to the eligible work being (or to be) performed.

State Departments of Transportation are a frequent source of historical project unit cost data. Additionally, Department of Transportation projects frequently involve Federal funding, an indication that procurement policies are in compliance with Federal procurement requirements.

Local historical costs must meet the requirements for producing a quantitative estimate. Data must also be accessible by others for verification and future use of the estimate.

When similar data are provided, it is recommended that the reported average of three low bids be used as a reasonable estimate of cost. In some cases, the contracted unit cost is higher than the average unit cost of the three low bids, suggesting the successful bidder used an unbalanced approach to prepare the bid.

The use of the average of three low bids will compensate for unreasonable unit costs, either high or low, used by the successful bidder.

Published industry standard construction cost-estimating resources include Xactimate, RSMeans, BNi Cost Books, Marshall & Swift, and Sweet's Unit Cost Guide. Unit cost data or estimating software used by the insurance industry is not approved for use in the Public Assistance program.

Unit cost data from published national construction cost databases must meet the same criteria as other unit cost sources. They must also:

• Be specifically designed for the construction industry and recognized as credible
• Provide documentation of the elements included in the unit costs (i.e., labor, material, equipment, overhead, and profit)
• Document the assumptions included in the unit costs, e.g., union vs. non-union, labor, productivity
• Be adaptable to project localities

RSMeans maintains a national construction cost database that provides accurate and up-to-date cost information that helps owners, developers, architects, engineers, contractors, and others to carefully and precisely project and control the cost of both new building construction and renovation projects. RSMeans' online database is called RSMeans On-Line.

RSMeans is widely accepted throughout the engineering and construction community and is generally consistent with other sources of construction cost data.

FEMA cost codes are issued by the FEMA Regional Office. They are issued for a specific location or declaration.

Generally, FEMA cost codes represent complete installed costs and include:

• Equipment
• Materials
• Labor
• Direct construction costs
• Supporting activities
• Project support and management
• Contractor profit

Some cost code data may be several years old and require escalation. FEMA cost codes are last on the list of acceptable cost data sources. Local historical costs or industry cost-estimating software should be used if possible.

The Construction Specifications Institute MasterFormat is an industry standard for organizing specifications and other written information for commercial and institutional buildings. The purpose of this format is to help the user locate specific types of information.

MasterFormat is a standardized list of numbers and titles for organizing construction documents, including cost estimates, by work results. A list of the 50 divisions is on the following slide.

MasterFormat provides a master list of divisions and section numbers and titles within each division to follow when organizing information about a facility's construction requirements and associated activities.

The Cost Estimating Format is designed to use the Construction Specifications Institute MasterFormat and to facilitate preparation of estimates using the Construction Specifications Institute (CSI) numbering system.

Construction Specifications Institute MasterFormat organizes all materials used in a construction project in a consistent format, which reduces errors. This provides a number of advantages:

• Design teams know where their components fit into the final contract documents package
• Contractors can separate construction documents by discipline and provide sections to trade subcontractors for bidding
• Estimating Specialists can readily identify all related work associated with each discipline

The total estimated cost for each work activity is a product of quantity, unit price, and a city adjustment factor. These elements are assembled and calculated in the Cost Estimating Format.

After cost estimates have been made, they must be reviewed and validated by FEMA. Applicants must submit relevant documentation for substantiating costs.

The FEMA review will focus on:

• Eligibility
• Reasonableness
• Cost inflation factors

FEMA must also validate all competitively procured contracts. A third-party expert panel review is required for estimates with a federal cost share of $5 million or greater.

Eligibility is an essential factor in developing cost estimates. The Applicant, facility, and work must be eligible for a cost to be eligible for Public Assistance reimbursement. Ineligible costs should not be included in the Public Assistance estimate.

Eligible costs must:

• Directly tie to the performance of eligible work
• Be reasonable and necessary to accomplish the work
• Comply with Federal, State, and local requirements for competitive procurement
• Not be a duplication of benefits
• Be traceable to one of three types of cost data: local historical costs, published industry costs, or FEMA cost codes

The final grant amount will be based on the cost estimate and programmatic adjustments including:

• Insurance proceeds
• No duplication of benefits
• Salvage value
• Other adjustments

A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the Applicant makes the decision to incur the cost.

FEMA determines reasonableness by evaluating:

• The cost is of a type generally recognized as ordinary and necessary for the type of facility or work
• The cost is comparable to the current market price for similar goods or services based on:
• Historical documentation
• Average costs in the area
• Published unit costs from national cost estimating databases

There are a variety of factors that may inflate costs involved with disaster response and recovery. FEMA evaluates the length of time the factors applied compared to the length of time costs were incurred.

• Shortages in equipment, materials, supplies, labor, or contractors
• Project-specific complexities, such as environmental or historic issues, remote access or location, provision of a unique service with few providers, or elements requiring an extraordinary level of effort
• Exigent circumstances

The Applicant is responsible for providing documentation to demonstrate its claimed costs are reasonable. If FEMA determines any of the costs to be unreasonable based on its evaluation, FEMA may disallow all or part of those costs.

As an example, a historic property needs to be re-built to historic standards, thus more expensive building materials and more custom labor are needed. Consequently, the Estimating Specialist must incorporate these elements and associated costs into the estimate.

A FEMA licensed engineer/architect with cost-estimating expertise or a certified cost estimator reviews all requests for replacement and validates the estimates. For any replacement requests over $5 million, the United States Army Corp of Engineers Center for Excellence for Cost Engineering performs an additional review of the repair and replacement estimates. FEMA considers the results of the USACE review prior to approving replacement.

For an Alternative Procedures Project with an estimated Federal share of at least $5 million, upon the Applicant's request, FEMA provides a FEMA-funded, independent validation of the cost estimate.