Estimation and Bidding of Construction Costs
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Estimation and Bidding of Construction Costs
Process Considerations
Controls over the estimating and bidding functions are necessary to provide reasonable
assurance that contracts are bid or negotiated on the basis of data carefully compiled to
take into account all factors that will affect the cost, revenue, and profitability of each
contract. Unreliable estimates and bids can obscure losses on contracts in their early
stages or can overstate or understate the estimated profitability of contracts. Controls
over this process should provide for adequate documentation, clerical verification and
overall review of estimated costs and should require that deliberate “low bids” are
approved by appropriate levels of management.
Estimation and Bidding Controls
Estimates should be based on contract specifications, plans and drawings to provide
assurance that the estimates of contract costs reflect all relevant cost elements.
Prices and quantities used should be from reliable sources.
Escalation clauses, if they are possible, are desirable in contracts to protect against
unforeseen increases in costs (material, labor, etc.), especially with long duration
contracts.
Verification of mathematical/clerical accuracy of the final contract bid should be
performed and documented.
There should be procedures for the review of the completeness and reasonableness
of the final estimate. Such procedures should prevent arbitrary, undocumented
management level adjustments to estimated costs.
Proper management approval, giving consideration to the size of the contract, should
be documented as required by policy.
The estimate of contract cost