Commercial Construction Estimating Services: What They Are And How They Work

Commercial construction projects are expensive, with many direct and indirect costs involved. Accurate cost estimation is the cornerstone of the success of such projects. However, tracking and accounting for a commercial project’s cost requires time and energy, resources that many project owners and commercial contractors cannot afford. That’s where commercial construction estimating services come in. 

In this guide, we will examine construction estimating services, how they work, and their benefits. After reading this guide, you’ll have enough information to help you choose the right cost-estimating services for your next commercial construction project. But first, let’s define commercial estimating services. 

What are Commercial Construction Estimating Services?

Commercial construction cost estimating services are professional services that provide construction stakeholders with accurate project cost estimates. 

Cost estimation involves accounting for direct and indirect costs involved in a construction project. Direct costs are expenses directly related to the construction project, and they include labor and material costs. Indirect costs are not directly related to the project but help to keep the construction company functional, such as administrative expenses.

Construction cost estimation services come in handy to project designers, architects, project managers, owners, and general contractors. They help break down the project’s cost and account for the contractor’s markups to help determine the project’s overall price. 

Now that we know what cost estimation services are, let’s look at where they’re used.

What are the Applications of Construction Estimating Services in a Project?

Cost estimation services come in handy in four major construction project phases. They include:

Pre-Construction Planning

Cost estimation services provide accurate estimates that help project designers and owners understand the project’s cost during the planning stages. The information helps with the feasibility study to determine the best budget during design development. 

It’s where project owners make crucial decisions after evaluating the project’s financial viability. 

Here is a quick summary of how commercial pre-construction estimates work:

A project manager outsources the cost estimation task to professionals who break down the entire project into smaller work units. They evaluate each work unit’s costs and the potential contractor’s pricing and return feedback to the client. 

The client, together with the architects and other designers, evaluates the cost estimates to determine whether the project is sustainable. They make the necessary improvements to the designs until they achieve the desired changes and release the project to the public for commercial construction bidding. 

Bid Preparation

Commercial contractors rely on the information from cost estimation services when preparing to bid on a project. They use this information to determine the project’s viability and total cost. 

Detailed construction cost estimates help contractors determine the best markups to include in the project to guarantee profitability. 

For instance, a commercial contractor could decide to include a 25% markup on the project cost to ensure they complete it without financial constraints and still earn profits.

By using commercial estimating services, contractors can craft competitive bids that increase their chances of winning a contract. 

Value Engineering

Every commercial construction project aims to minimize cost and still maintain quality work. That’s where value engineering comes in. 

Its essence is to evaluate and improve the project’s value by optimizing the function and cost relationship. 

Value engineering evaluates whether there is an alternative approach to complete the project at a lower price without altering its quality. 

For instance, project stakeholders could recommend using alternative building materials that are cheaper but have similar quality as their expensive counterparts. 

Change Order Management

Changes in project scopes are common in commercial constructions. While some changes are influenced by stakeholders to try and reduce costs, others are beyond their control, such as inflation, that cause material price hikes.

Whenever project scope changes are necessary, stakeholders rely on commercial estimating services for updated cost estimates to counter these changes. 

Let’s take a road construction project as an example. 

A shortage in materials in the market could lead to higher prices, forcing the contractor to change their approach. They could choose to buy the new stock at a higher price or opt for substitute materials. The choice they make is highly influenced by the information provided by commercial estimating services, highlighting the financial impact of these changes.

Now that we know how commercial estimating services are applied in different construction phases, let’s see how they work.

How do Commercial Cost Estimating Services Work?

Cost estimators should understand the construction industry to provide accurate and detailed estimates for any project. The process is tedious, with a lot of research involved. There’s also a lot of back-and-forth information sharing as they need the information to be as accurate as possible.

Here is how the whole process works. 

Gathering Relevant Project Data

The construction industry is data-driven, with every decision made based on the data provided. The cost estimator gathers all the project’s data to ensure they understand the project’s scope. When estimating for project designers, cost estimators start by evaluating the design documents, which include reading project drawings, designs, models, specifications, and materials required to complete the project.

They then break down every component in the design documents and research the market price for every material needed. 

Site visits also help construction cost estimators determine whether the designs are viable. For instance, they could take the soil sample to determine the best construction materials to use. Site visits also help them understand the terrain and potential logistic challenges the contractors are likely to face. 

Analyzing Project Requirements

Construction projects rely on many resources to complete. Cost estimators use the project scope to break down the entire project into smaller and manageable work units, making it easier to track every resource needed to complete these units. 

Let’s take the construction of a building foundation as an example. 

The cost estimator would break down this project’s phase into work units like excavation, leveling and grading, foundation wall construction, and waterproofing. 

As you can see, each of these work units requires specific tools, materials, and labor experience. The excavation work unit requires specific equipment like excavators and dozers to dig and loaders and trucks to transport the waste. 

Every work unit requires specific labor experience to handle, with each worker commanding different hourly rates. For instance, an excavator has different hourly wages compared to a truck driver. 

Finally, every work unit also requires different materials. For instance, the foundation wall construction work unit requires materials like bricks and concrete. Waterproofing requires materials like bituminous coatings for low water pressure and crystalline waterproofing systems for high water pressure. 

By breaking down the project’s scope, cost estimators end up with accurate materials, labor, and equipment needed to complete the project. 

Creating Cost Breakdowns

Every construction project has two types of expenses - direct and indirect costs. 

Direct Costs

The direct costs include tangible expenses like construction materials, equipment, labor, and transportation. These costs are tied to the project and directly impact its progress. Altering any direct costs creates a financial impact that can be felt throughout the project. Cost estimators calculate and sum up all direct costs to come up with a total project cost. 

Indirect Costs

Indirect expenses are not attributed to the project’s progress but help to keep the construction company going. They’re administrative expenses required to maintain office operations. They include utilities, permits, insurance, and project management. Construction estimators apply a certain percentage to the direct costs to account for indirect expenses. 

Here's a free general contractor estimate template you could use to track all the potential costs for a project.

Contingency Funds

Construction projects are unpredictable due to many parties working together. That’s why estimators include an additional percentage of the direct costs to account for the unforeseeable obstacles. Such challenges could include material price changes, labor strikes, weather changes, or material shortages. The amount of contingency funds vary with commercial projects and the general contractor working on the project. 

Profit Margin

A profit margin is the last cost breakdown an estimator includes before submitting the project estimate. They include a certain percentage of the total project cost that a contractor uses to submit a construction bid. An 8% to 15% profit margin is the most acceptable rate in the construction industry. 

Once they have identified all the resources needed to complete the project, cost estimators then break down their costs to come up with accurate estimates. 

They often achieve this in two ways:

Industrial Historical Data

They rely on historical data when creating estimates. Estimators check any similar project that might have been commissioned in the same region and around the same time frame. Historical data is a reliable way of estimating materials and labor costs, as these expenses don’t change much in a region. 

Real-Time Data

Cost estimators also stay updated on the labor, materials, and construction equipment market trends. Doing so ensures they have accurate, real-time information to help create reliable estimates. 

Handling Estimates Yourself

As we have seen, there is a lot of work involved in cost estimation. However, if you’re someone who doesn’t mind the challenges, there’s a way you can handle this process yourself. You can leverage online services like Downtobid. 

The construction bid management software helps to turn simple designs into complete scopes almost instantly. The action alone saves you time of going through the documents manually, taking care of the low value admin work, like going through the pages.

Downtobid creates a detailed project scope, including the bill of quantities, that includes the total materials and labor required to complete the project. With this information, commercial contractors can easily create accurate estimates, helping them 

Downtobid uses AI for construction estimating by checking the bid packages for accuracy and completeness, helping to eliminate the scope gap. Commercial contractors find this feature useful, as it allows them ample time to focus on important areas like value engineering.

Click here for a free trial.

Benefits of Construction Cost Estimating Services

Accurate commercial estimating services help project owners and general contractors determine the total construction costs. The information helps project owners know the acceptable bid range from contractors, ensuring the project remains within its budget. General contractors use the information to structure their bids and ensure they align with the project expectations. 

However, the benefits of hiring cost estimation services are far more diverse, and they include:

Foreseeing Potential Challenges

Residential and commercial projects often experience challenges that threaten to derail them. Such challenges could add to total expenses, forcing the project to exceed the budget. They could also impact the deadline, like abrupt weather changes, forcing a change in project delivery dates. Whichever the case, unforeseen challenges are likely to happen, and cost estimators can help identify potential phenomena. Here’s how they do this:

Industrial Experience

They rely on their experience in the industry to foresee potential challenges like permitting delays, material fluctuation, and subcontractor availability. Additionally, they offer potential solutions to each problem to ensure the contractor overcomes these challenges with little effort. 

Risk Analysis

Estimators rely on risk analysis to identify risks and their financial impact on the project. They also offer strategies to mitigate these hurdles to minimize the project’s financial losses. 

Ensuring Every Project’s Aspect is Covered by the Budget

Construction projects are budget and time-sensitive, and accounting for every aspect is crucial as it affects the project quality and delivery time. Project estimators break down the project and assign every cost associated with every stage of the project. To ensure accurate coverage, cost estimators use the following strategies:

Transparency and Communication

Transparency and constant communication between the estimators, contractors, and clients ensure stakeholders are comfortable with the estimates. Cost estimators reveal how they calculated the costs and the research methods they used to find this information. They also communicate with the stakeholders throughout the process, updating them on the progress. 

Budget Adjustments

Sometimes, estimators might submit construction estimates that are slightly above the projected budget. When this happens, estimators would make the necessary adjustments to ensure the estimates align with budget constraints. In this case, value-engineering options are the optimal suggestions, ensuring lower project costs without compromising the quality.   

Phased Estimates

Due to the complex nature of commercial construction projects, sometimes accounting for the entire project cost isn’t a viable option without running into problems. That’s why phased estimates work better. 

The process involves breaking down the entire project into different stages. Construction estimators break down each stage further to identify every estimate. Complex construction projects also use progress payments, where general contractors are paid after completing every phase, and the client is happy with the progress. This arrangement is crucial for monitoring and budgeting purposes. It also guarantees cash flow to the contractor to ensure the project progresses per requirements. 

Change Order Management

Sometimes, projects require changing the designs or scope to accommodate certain situations, like bad weather. In this case, the construction estimators have to adjust and update cost estimates, ensuring the budget accounts for the new requirements. 

For instance, heavy rains could flood the construction site, forcing the contractor to hire more labor to drain the area. If it’s a one-time thing, contingency funds should cover these expenses. However, new construction estimates would need to be created if it’s an ongoing problem that doesn’t show signs of ending soon. Such costs could not have been accounted for initially, but the budget would need updating to include the additional labor hours for new workers. 

How to Choose the Right Construction Estimating Services

Construction estimating services set the foundation for project management, budgeting, and bidding. Choosing the right estimating service provider is a multi-step process that shouldn’t be taken lightly. Here are the common steps to follow when searching for a commercial construction estimator:

Identify your Needs

Every construction work is unique, requiring different materials, labor, and equipment to accomplish. Identifying your needs helps you understand your project better and design the project documents. Here are a few steps to help you achieve this:

Project Type

Are you planning a new build, expansion, or renovation? Identifying your project types helps you narrow down to the most qualified estimating service provider. 

For instance, a new construction project would benefit most by hiring a service provider who has handled such projects before, compared to that who specializes in expansions. 

Scope of Work

The project’s scope contains all the details, like materials, labor, location, size, and timeline of the project. Do you want a detailed construction cost breakdown or a basic cost estimate? A complete breakdown takes time and is costly. It’s perfect for determining the project’s budget. A basic estimate takes a shorter time and is used to determine if the project is viable or not. 

Timeline

What’s your turnaround on these estimates? Do you need them quickly, or time isn’t an issue? Some estimate service providers specialize in speedy commercial cost estimates but charge higher for these services. Others prefer a slower and deeper breakdown to capture all details. 

Research and Shortlist Candidates

Before settling for any estimate service provider, it’s best to research all the candidates around you. Shortlist every candidate that meets your requirements so you can contact them later. Here’s how you can research service providers:

Ask for Recommendations

The easiest way of finding the right estimate service provider is by asking industry peers for recommendations. They’ll connect you with the service providers they have worked with before and shorten your research time. You can also ask engineers or architects for their top choices since they must have worked with several. 

Use Online Resources

Online directories like Guru, construction review websites, and social media profiles are your reliable information sources for finding reliable estimate service providers. Businesses still list their services online, seeking to leverage the internet traffic to their advantage. Construction review websites help you identify the right service providers and those you should avoid. 

Evaluate Portfolios and Website

After finding a few prospects, evaluate their portfolio to determine if they reflect your current needs. Nearly every commercial construction estimator lists their portfolio on their websites for readers to evaluate. The websites also contain their brief history, including their area of work, experience, and types of estimating services they use. Websites tell you everything you need to know about the company without contacting them. 

Evaluate Expertise and Experience

When searching for estimating services, it’s best to choose those that align with your needs. Here are a few steps to help out.

Their Industry Focus

Hiring an estimator experienced in the services you’re looking for helps to increase the estimate’s accuracy. For instance, commercial projects vary, from roads to office building construction projects. All these require slightly different resources to complete. They also require different estimating services. Ensure you choose an estimator that works within your industry focus for better results. 

Qualifications

The construction industry is highly regulated, with every stakeholder required to fulfill certain qualifications. Commercial construction cost estimators must have certifications like Certified Construction Estimator (CCE) or Certified Cost Professional (CCP). 

Another qualification to identify is a business license allowing them to work within your region. You can find all this information on their websites. 

Review Estimating Processes

How do they come up with estimates? How do they research the markets? Is the information they use to come up with construction estimates verifiable? These are some questions to help you handle this section. Let’s see how you can achieve this.

Estimating Methodology

Start by identifying the cost analysis and quantity takeoff approach by the service provider. Are they using the cost databases or industry-standard software when accounting for the costs? Identify these options and choose the one you feel comfortable with the most. 

Transparency

When accounting for the project’s cost, transparency helps the stakeholders track and verify every piece of information. Compare how each service provider explains their assumption and details provided in the estimate report. 

Service Pricing

Lastly, you must account for payment terms offered by every service provider. Are they charging hourly or fixed rates? Some estimate service providers combine the two. 

Do they require an upfront or deposit fee? Getting this information right helps you choose a service provider that reflects your budget for creating estimates. 

Final Thoughts

Commercial cost estimating services help construction stakeholders come up with a budget to determine the total project’s cost. Coming up with construction estimates requires time and industry knowledge, which is why project owners and contractors outsource this task. They break down the project into smaller work units, which helps them identify every cost associated with a work unit. You should ask for recommendations or research online when looking for an estimator. A great estimator has the necessary qualifications and experience to handle your estimation tasks.