In considering Estimate No. 3 several things should be borne in mind. The following may usually be fairly said regarding the engineer responsible for it:
He is more able and experienced than the author of Estimate No. 2.
He is unbiased, whereas the other may be affected by some contingent or prospective interest in the success of the project.
He is acquainted with many projects, hence can assign to the one under consideration a fairly accurate relative value, which is fully as important as an absolute value. Indeed, projects within the engineer's knowledge may often be mutually exclusive. His broader view enables him to say which one should be built, which one should economically be built first, or even that it might be wise to have a project wait on the natural course of developments five or ten years hence.
If he is a member of a large engineering firm or organization, he should have at his command within such organization highly specialized engineering talent to which various particular features of the project may be advantageously referred.
Such an organization, however, has its corresponding disadvantage, which in some cases has been known to be considerable. The work of several specialists may be very imperfectly correlated and assembled. Unless the estimate in its course through the organization is governed continuously by one well-balanced engineer, each engineer or each gradation in authority may boost the prices estimated by each previous department, "just to be on the safe side." The result is that the estimate, when it finally emerges, proves to be such a load that the project is pronounced inadvisable.
Assuming that Estimate No. 3 or one of them, shows the project to be so favorable that the capital is pledged; then, without tracing all the steps in the formation of the company, the negotiations with the promoters, the examination of titles, franchises, charters, etc., there is an interval between decision and construction which is utilized in making Estimate No. 4.
In making Estimate No. 4 all previously considered data are supplemented by additional and more extensive information. Surveys are extended, checked and made to show more detail; borings and test pits are made in sufficient number to assure that no surprise will be encountered during construction. All questions which have a bearing upon the proper design and the cost of the works are thoroughly investigated and final plans and specifications drawn up. Both the quantities involved and the prices should have been subjected to such an investigation that any element of uncertainty is very largely eliminated. If Estimate No. 4 shows a larger total than Estimate No. 3, it should be because the scope of the project has been extended or altered in such a way as to show an additional return commensurate with the additional outlay.
The purpose of Estimate No. 4 is to form the basis for the construction contracts, and to determine the issues of securities. Very many of the best companies now engaged in examining, financing and constructing such projects undertake the construction only upon a cost plus percentage basis. Where such is the arrangement no further estimate than No. 4 is required, as cost accounts, being bills for labor and material, are not considered here as estimates.
However, when the construction contract is awarded to some contractor after receiving bids on a lump sum or unit price basis, the several bidders must each make an estimate, which will be here referred to as No. 5.
The lump sum basis is deservedly falling into desuetude on many kinds of work. Its only reason or excuse is where an experienced and financially strong contractor is able and willing to undertake the function of insurance, of insuring that a certain thing will not cost more than a certain amount. This feature sometimes appeals to certain timid capital, but it is an undesirable mingling of functions which should properly be kept separate. Usually it means that the financiers have not spent enough money on their own investigation (for Estimate No. 4) or, which is the same thing, that they have not been properly advised by an engineer in whom they have confidence. In such a case the contractor's estimate practically corresponds to an estimate No. 4. It must embrace a determinaton of the quantities involved, as well as a fixing of the price at which he is satisfied he can do the work.
The lump sum basis more than doubles the elements of risk and uncertainty which the contractor must be paid for assuming. Let it be emphasized that the contractor is paid. The cost of the investigation, plus a percentage on it, as well as the insurance, is somewhere in the bill just like the drummer's overcoat in the expense account. If such an investigation is made and bid submitted by but one contractor, the absence of competition can have but one effect upon the price. If several contractors investigate and bid there is an economic loss in the multiplicity of investigations. This multiplication of work results in an injustice to other work or to other projects undertaken; for however disguised or stated as "overhead charges," each contractor must saddle his expense for all investigations upon those projects which he does construct. Even the project under consideration pays the successful bidder. It must bear a proportion of the cost of that bidder's fruitless investigations of other projects, or else the contractor is in business for his health.
When, however, the contract is to be let on a unit price basis the attention of the contractor in making up Estimate No. 5 is devoted principally to one phase of the estimate, that of fixing the unit prices. It is usually assumed that the other phase, that of determining the quantities, has been studied with sufficient accuracy by the engineer in making up Estimate No. 4. The contractor's procedure in making up a schedule of unit prices is, to a greater or less degree. as follows: All operations, incidental as well as principal, which must be performed in order to finally deliver the completed work are each analyzed and resolved into elements such that their cost can be stated with sufficient accuracy. When all items of cost have been estimated and assembled, and certain allowances made for contingencies and profit, a total is arrived at which represents the total which should appear in the bid. The total, however, is the only point of resemblance between such an assemblage of items and the bid. The form must be changed and the items combined and redistributed with due regard to a balanced bid. In fact, possibly twenty items or shares of items are combined to make a total which divided by a certain number of cu. yd. gives the price to be bid per cu. yd. for that particular item. The process is strictly analogous to that applied by the engineer in determining quantities. Thus a mass is resolved into its measurable elements, i.e., linear dimensions, which multiplied together give the mass. The contractor (although his process is more complicated as it involves results and processes of the engineer, judgment and experience) resolves the problem into elements as measurable as possible, the sum of which items gives him his total. Further description is not here necessary. The value and weight of the bid depend upon the detail with which the process is applied, as well as the intelligence and judgment of the bidder.