Relying on RSMeans for Procurement-Level Construction Cost Activities

To: Organizations Relying on RSMeans for Procurement-Level Construction Cost Activities

Subject: Improving the Accuracy, Transparency, and Defensibility of Procurement-Level Construction Cost Estimates

Dear Procurement, Facilities, Construction, and Asset Management Leaders:

Organizations increasingly depend on construction cost databases not only for conceptual budgeting, but also for Independent Government Estimates (IGEs), Job Order Contracting (JOC), IDIQ/MATOC/SATOC/SABER programs, proposal evaluation, change-order validation, negotiations, and other procurement-level activities.

At these levels, the question is no longer simply:

“What should this project roughly cost?”

The question becomes:

“Can we demonstrate, at the line-item level, why this is a reasonable and defensible price in this specific local market?”

That distinction is important when comparing RSMeans with 4BT OpenCOST™.

4BT OpenCOST is fundamentally different in its data architecture and local-market research methodology. RSMeans provides detailed construction unit-cost data, including labor, material, equipment, crews, and productivity information. However, its geographic localization methodology is top-down: national-average costs are adjusted to specific geographic markets through the RSMeans City Cost Index (CCI) and related location factors.

4BT OpenCOST, by contrast, is designed as a bottom-up, locally researched cost-tracking system, with underlying costs developed and maintained at the individual line-item and labor-category level.

This distinction is important.

The issue is not whether RSMeans contains detailed line items—it does.

The issue is how those costs are converted into a representation of the actual local market.

For conceptual estimating, either approach may have utility.

For procurement-level cost management, however, the differences become consequential.

1. The Difference Between Detailed Cost Data and Local Cost Research

RSMeans provides extensive detailed construction cost information. That makes it a valuable resource for many estimating applications.

But detailed national-average unit costs and locally researched costs are not the same thing.

RSMeans’ City Cost Index is designed to localize its construction costs by comparing construction costs in a particular location with national-average costs. In simplified terms, the localization process can be represented as:

National-average cost → City Cost Index/location adjustment → localized cost

This is a top-down localization methodology.

4BT OpenCOST approaches localization differently:

Local market research → labor/material/equipment costs → detailed line item → assembled estimate

This is a bottom-up local-market methodology.

The distinction matters because the individual components of construction cost do not necessarily move together.

A local market may experience a shortage of pipefitters while electrician wages remain stable. Concrete labor may follow another trend. Equipment rental rates may be driven by equipment availability. Material prices may be affected by national or international supply conditions rather than local labor conditions.

A broad geographic adjustment cannot independently observe all of those individual market movements.

4BT’s methodology is intended to research and maintain those underlying cost components directly.

2. Eliminating the Distortion Potential of Broad Location Factors

The use of location factors is not inherently inappropriate. Geographic adjustment is a practical way to translate generalized cost information into a local benchmark.

The issue is the degree to which a generalized geographic adjustment can accurately represent the underlying local cost structure.

Independent research has specifically examined this issue.

Peer-reviewed research has evaluated construction location-cost-adjustment methodologies, including research using RSMeans City Cost Index data. That research has demonstrated that the relationships between construction cost indexes and their underlying socioeconomic and geographic variables are not uniform across the United States.

In other words, local construction markets are more complex than a single geographic adjustment factor may suggest.

Other peer-reviewed research has compared alternative methods for deriving construction location-adjustment factors and has demonstrated meaningful differences in predictive error.

For example, Zhang, Bogus, Lippitt, and Migliaccio reported a 25%–40% reduction in median absolute error using an alternative location-factor methodology compared with other methods evaluated in their study.

This finding should be interpreted correctly.

It does not mean that every RSMeans estimate is 25%–40% inaccurate.

It does demonstrate something more specific and more important:

The methodology used to convert generalized construction costs into localized costs can itself introduce measurable and potentially substantial error.

That is a legitimate consideration whenever a location-adjusted cost database is being used for a consequential procurement decision.

Why this matters

Suppose a local market experiences a significant shortage of pipefitters.

A pipefitter shortage could increase:

• Hourly labor costs;
• Premium labor rates;
• Overtime;
• Subcontractor pricing; and
• Crew costs.

But there is no reason to assume that the same percentage increase should automatically apply to:

• Electricians;
• Carpenters;
• Concrete labor;
• Equipment operators;
• Material suppliers; or
• Other unrelated trades.

Local construction markets are not monolithic.

4BT’s approach is designed to recognize this by researching the underlying local costs rather than relying principally on a broad geographic adjustment.

3. Micro-Level Labor Breakdown

Procurement-level estimating frequently requires more than a generalized labor rate.

Actual construction markets distinguish among:

• Apprentices;
• Journeymen;
• Foremen;
• Specialty classifications;
• Equipment operators;
• Inside and outside workers; and
• Other trade-specific labor categories.

4BT OpenCOST’s detailed labor structure allows these categories to be represented independently where supported by the underlying market data.

The Apprentice Gap

Where a contract requires a specific apprentice-to-journeyman ratio, a generalized blended crew rate may not accurately represent the labor composition required for the work.

4BT can identify Apprentice, Labor, and Foreman classifications as separate data points, allowing the estimator to construct a crew that reflects actual project requirements.

This becomes particularly important on public construction projects.

The U.S. Department of Labor’s Davis-Bacon framework establishes prevailing wage requirements by labor classification, geographic area, and construction type.

Consequently, labor classification is not merely an estimating detail.

It can be a procurement requirement.

Inside vs. Outside/Civil Work

The same principle applies to civil and utility construction.

An equipment operator working inside a facility does not necessarily represent the same labor market as an operator performing underground utility work.

Likewise, a plumber working inside a building may encounter different market conditions than a plumber performing outside utility work.

4BT’s data structure allows these distinctions to be represented as separate cost components rather than relying solely upon broad trade or MasterFormat-level adjustments.

4. Direct Alignment With Local Hard Bids

There is another fundamental consideration:

Contractors bid the local market—not a national cost book.

A contractor’s proposal reflects actual market conditions, including:

• Local labor availability;
• Prevailing or negotiated wages;
• Material suppliers;
• Equipment availability;
• Local subcontractor competition;
• Productivity;
• Schedule requirements;
• Site conditions;
• Current workload; and
• Competitive market conditions.

Consequently, the owner’s cost database should provide an independent benchmark against which actual contractor pricing can be evaluated.

4BT OpenCOST is designed around that principle.

Where applicable, labor information incorporates Davis-Bacon or prevailing-wage requirements, together with directly researched local labor-market information.

The objective is to establish the direct cost of performing the work before contractor overhead and profit.

That provides greater visibility into the relationship between:

Labor + Material + Equipment + Productivity → Direct Cost

and the contractor’s eventual:

Direct Cost + Overhead + Profit → Bid Price

This distinction is particularly valuable for:

• Independent Government Estimates;
• Contractor proposal evaluation;
• JOC task-order pricing;
• IDIQ/MATOC/SATOC/SABER negotiations;
• Change-order analysis;
• Price reasonableness determinations;
• Negotiation of disputed pricing; and
• Owner/contractor cost discussions.

5. Quarterly Cost Research and Market Volatility

Construction markets can change rapidly.

Labor shortages, material disruptions, tariffs, supply-chain conditions, regional demand, major infrastructure programs, and other market forces can materially affect construction costs within months.

Consequently, the age of the underlying data matters.

4BT OpenCOST is rebuilt and issued quarterly, providing a more frequent opportunity to capture changes in local market conditions.

This does not eliminate uncertainty.

No cost database can.

But it can reduce the time between market observation and database publication.

For procurement organizations, that distinction matters because a cost estimate is only as relevant as the information underlying it.

A useful procurement principle is:

Know the source. Know the market. Know the date. Know the assumptions.

6. From Cost Estimating to Cost Evidence

The most important distinction is perhaps philosophical.

A procurement-level cost database should not merely produce a number.

It should provide evidence supporting the number.

When an owner is:

• Establishing an IGE;
• Evaluating a contractor proposal;
• Pricing a JOC task order;
• Negotiating an IDIQ/MATOC/SATOC/SABER requirement;
• Reviewing a change order; or
• Challenging a proposed price,

The ability to explain the estimate at the detailed labor, material, equipment, productivity, and line-item level becomes critical.

That is the difference between cost estimating and cost management.

The U.S. Government Accountability Office’s Cost Estimating and Assessment Guide emphasizes the importance of appropriate data, sufficient estimating detail, documented assumptions, risk and uncertainty analysis, updating estimates with actual costs, and independent cost-estimate comparisons.

The implication is straightforward:

The greater the financial consequence of an estimate, the greater the need to understand and document the data behind the estimate.

7. Why Cost Data Architecture Matters

The difference between RSMeans and 4BT is therefore not simply a question of how many line items appear in a database.

It is a question of how the underlying costs are constructed and localized.

RSMeans can provide highly detailed unit costs.

However, when those costs are localized using a City Cost Index or other geographic adjustment, the local estimate remains dependent upon a top-down localization mechanism.

4BT OpenCOST’s fundamental approach is different.

It seeks to establish the underlying cost components through local market research and maintain those costs at detailed line-item and labor-category levels.

The conceptual difference is:

RSMeans Localization

National-average cost

↓

City Cost Index / location factor

↓

Localized unit cost

↓

Estimate

4BT OpenCOST

Local market research

↓

Local labor + material + equipment + productivity

↓

Detailed local line item

↓

Assembled unit cost

↓

Estimate

Neither methodology eliminates uncertainty.

The distinction is that 4BT does not require a broad location factor to manufacture a local cost from a national average.

8. Where RSMeans Can Be Appropriate

This letter is not an assertion that RSMeans has no value.

It clearly does.

RSMeans can be an effective resource for:

• Conceptual estimating;
• Class 4 and Class 5 estimating;
• Preliminary budgeting;
• Benchmarking;
• Early project planning; and
• Macro-level affordability analysis.

At these stages, the question may simply be:

“Can we afford to build this?”

A national-average database with geographic adjustment can be an effective tool for answering that question.

But procurement-level activities ask a different question:

“What should this specific work reasonably cost in this specific market at this specific point in time—and can we demonstrate why?”

That is a substantially different requirement.

9. Procurement-Level Applications Require a Higher Standard

For Class 1 definitive estimates, IGEs, JOC, IDIQ, MATOC, SATOC, SABER, proposal evaluation, change-order analysis, and contractor negotiations, the owner needs more than a generalized indication of construction costs.

The owner needs cost information that is:

Current.

Local.

Objective.

Standardized.

Granular.

Transparent.

Traceable.

Auditable.

Procurement-ready.

This is particularly important when public funds are involved and the estimate may ultimately be reviewed by contracting officials, auditors, inspectors general, oversight organizations, contractors, or other stakeholders.

10. A Practical Test for Organizations Currently Using RSMeans

Organizations currently relying on RSMeans should not necessarily view the issue as simply RSMeans versus 4BT.

A more rigorous approach is to test the data.

Select representative projects and compare:

• Individual labor rates;
• Labor classifications;
• Material costs;
• Equipment costs;
• Crew compositions;
• Productivity assumptions;
• Detailed line items;
• Assembled unit prices; and
• Final estimated costs

against current, independently verifiable local market evidence.

Then evaluate the alternatives based upon:

Accuracy.
Currency.
Locality.
Granularity.
Transparency.
Traceability.
Auditability.
Procurement utility.

The question should not be:

“Which database is more familiar?”

It should be:

“Which methodology gives the owner the strongest independent basis for making, explaining, negotiating, and defending a procurement decision?”

11. The Bottom Line

For conceptual budgeting, national-average construction cost data adjusted for geographic differences can provide a useful benchmark.

For procurement-level cost management, however, the methodology used to localize construction costs becomes increasingly important.

The issue is not whether RSMeans has detailed cost data.

It does.

The issue is whether national-average costs adjusted through geographic factors provide sufficient local-market transparency for the procurement decision being made.

4BT OpenCOST takes a different approach.

It is designed around primary-source local research, detailed labor classifications, granular line-item costs, local market conditions, and frequent updating.

The fundamental distinction is therefore:

RSMeans: detailed cost data with top-down geographic localization.

versus

4BT OpenCOST: detailed cost data developed through bottom-up local-market research.

For conceptual estimating, the first may be sufficient.

For procurement-level cost management, the second can provide a stronger foundation for cost visibility, cost control, proposal evaluation, negotiation, and defensibility.

The objective is not simply to obtain a cost number.

The objective is to obtain a cost number that can be understood, challenged, validated, negotiated, and defended.

That is the principle upon which 4BT OpenCOST™ was developed.

Current. Objective. Standardized. Local. Granular. Transparent. Procurement-ready.

Sincerely,

Four BT, LLC
4BT OpenCOST™
4BT Benchmark Construction Estimator™

Independent References

U.S. Government Accountability Office (GAO). (2020). Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Program Costs, GAO-20-195G. Washington, DC: U.S. Government Accountability Office.

Migliaccio, G.C., Zandbergen, P.A., & Martinez, A.A. Empirical Comparison of Methods for Estimating Location Cost Adjustment Factors. Journal of Management in Engineering. This research evaluates the empirical performance and assumptions underlying construction location-adjustment methodologies.

Zhang, S., Bogus, S.M., Lippitt, C.D., & Migliaccio, G.C. (2017). Estimating Location-Adjustment Factors for Conceptual Cost Estimating Based on Nighttime Light Satellite Imagery. Journal of Construction Engineering and Management, 143(1). The study reports differences in median absolute error among alternative location-factor methodologies, including a reported 25%–40% reduction under its proposed methodology.

Zhang, S., Migliaccio, G.C., Zandbergen, P.A., & Guindani, M. (2014). Empirical Assessment of Geographically Based Surface Interpolation Methods for Adjusting Construction Cost Estimates by Project Location. Journal of Construction Engineering and Management, 140(6).

U.S. Department of Labor, Wage and Hour Division. Davis-Bacon Wage Determinations and Prevailing Wage Resources. U.S. Department of Labor.

RSMeans/Gordian. RSMeans City Cost Index. Publisher documentation describing the CCI and its use in geographically adjusting construction costs.

Disclaimers

Comparative methodology disclaimer. This document compares general characteristics of construction cost-data methodologies. It does not claim that every RSMeans estimate is inaccurate or that 4BT OpenCOST will produce a more accurate estimate in every project, location, trade, or market condition.

Location-factor error disclaimer. The cited 25%–40%+ figure refers to differences in measured error among alternative location-factor estimation methodologies reported in published research. It should not be represented as a universal 25%–40% error rate for RSMeans or for all RSMeans estimates.

RSMeans methodology disclaimer. References to RSMeans as employing a “top-down” methodology refer specifically to its geographic localization approach—the use of national-average cost information with City Cost Index/location adjustments. This characterization does not imply that RSMeans lacks detailed unit-cost, labor, material, equipment, crew, or productivity information.

No guarantee of bid price. Neither 4BT OpenCOST nor any other cost database can guarantee that an estimate will equal an actual contractor bid, negotiated price, or final project cost. Actual prices depend upon scope, design maturity, quantities, productivity, schedule, competition, site conditions, contractual requirements, market conditions, and numerous other factors.

Independent verification. Significant procurement decisions should be independently validated through appropriate market research, historical project data, applicable wage determinations, supplier/subcontractor quotations, and other relevant evidence.

Davis-Bacon disclaimer. Applicable wage requirements must be independently determined for each procurement based upon the applicable statute, regulation, wage determination, construction type, location, solicitation, and contract requirements.

Procurement compliance disclaimer. Nothing in this document constitutes legal advice or establishes that a particular cost database is legally required, prohibited, or sufficient for a particular procurement. Contracting officers and procurement officials remain responsible for compliance with applicable statutes, regulations, FAR/DFARS provisions, agency policies, solicitation requirements, and contract terms.

4BT representation disclaimer. Statements concerning 4BT OpenCOST’s local research, data structure, update frequency, and capabilities are representations of Four BT, LLC and should be independently evaluated through appropriate technical documentation, demonstrations, data samples, and validation.

Purpose disclaimer. This document is intended to encourage informed evaluation of construction cost-data methodologies. It is not intended to disparage RSMeans, Gordian, or any other commercial cost-data provider.