Whether you are involved in Job Order Contracting or engaging in general construction cost estimating its time to Stop Using Construction Cost Indexes, Location Indexes, Location Factors. The use of construction cost indexes, location indexes, or location factors is likely costing your organization money and creating major problems for everyone involved; real property owners, contractors, subs, architects, engineers, and oversight groups.
Using location indexes appears to be a gamble, and the result will vary significantly depending on the index used. There is no obvious consistency between the publications, even those of the same type. This is very concerning as major decisions may be based upon this information. – A Guide to Construction Cost Sources, Prism Economics and Analysis and the Department of Civil Engineering, University of Toronto
First, if one compares construction cost factors from various sources there appears to be no rhyme of reason for their development. The variances can be extreme. Secondly, applying a location factor to a unit price line time just doesn’t make sense. The location of a job affects the labor rates, fringes, crew composition, and productivity… all of which can’t simply be multiplied by a factor. As labor alone accounts for 60% of construction cost alone, the use of location factors can easily introduce gross errors. (Note: Some vendors even state the productivity is not considered in creating the location factor!)
Location indexes generally do not contain any assumptions or adjustments related the local labor productivity. It is important to note that the quantities are constant in every location. This means that some aspects of the construction process are not captured, such as labor skill levels or practices and local building code requirements.
Why are location factors used?
Simple. Traditionally cost estimators have researched there own costs by calling subs and also by using national average price books. Locally researched construction cost data either wasn’t available or was too expensive.
That is no longer the case, locally researched cost data is not only available, but it provides a faster, more efficient and reliable method of creating construction costs estimates for all parties. Locally researched line item construction cost data can be even be relied upon to check estimates received from subcontractors/trades!!!
Learn more about locally researched detailed line item construction cost data…
Stop Using Construction Cost Indexes, Location Indexes, Location Factors
Validation
The reliability of the cost data is always in question. The method used to collect the cost data is very important to ensure the data are representative of the political and economic conditions. Data collection may be done by phone with associated firms (engineers, cost estimators, subcontractors/trades, contractors) providing information, by survey of published labor, material, and equipment costs, and/or by review of completed project files. Where associated firms are providing the information, it is important that they all understand the assumptions that must remain constant for all locations, and to not allow personal or local biases affect the reliability of the process.