Developing Internal Cost Estimates for Architectural, Engineering, Land Surveying and most Related Services Contracts Updated January 2012

Slide 2 Tutorial Overview This tutorial covers: legal and business requirements associated with contracts not awarded on a low bid basis, such as contracts for architectural, engineering, land surveying and related services components of an internal cost estimate tools and resources available for preparation of internal cost estimates The target audience for this tutorial is ODOT project managers or ODOT contract administrators of contracts for architectural, engineering, land surveying and related services.

Slide 3 Tutorial Overview This tutorial is a self-paced PowerPoint presentation. There are several ways to progress through the tutorial: To Move ForwardTo Move Back Press Page Down on keyboardPress Page Up on keyboard Click right arrow on keyboardClick left arrow on keyboard Click left mouse button Click right mouse button- click reverse on pop-up menu Links Underlined text are links. Click on the link to go to documents or other websites. To return to the tutorial, move the cursor off the open window and right click for a pop-up menu. Select Back on the pop-up menu. Click Open on the pop-up message box to return to the tutorial. To Leave the Tutorial Click Exit on the bottom of the tutorial slide. Read message in pop-up box and select accordingly; either selection will exit the tutorial. Print this page for reference as you progress through the tutorial. To print, right click for a pop-up menu and select Print. Set the print range for Current slide before printing.

Slide 4 What types of contracts does this apply to? According to Oregon Revised Statutes (ORS), a Qualifications Based Selection (QBS) process is required for certain types of personal service contracts. This means: ODOT cannot evaluate cost proposals or billing rate information when selecting a consultant for contract award. Award must be to the highest qualified consultant for the project. ODOT and selected consultant must negotiate costs that are fair and reasonable. QBS is required when procuring: Architectural services Engineering services Land surveying services Photogrammetric mapping services Transportation planning services required to comply with NEPA requirements A&E Related Services related to a specific construction project and includes federal funding

Slide 5 Why Prepare Internal Cost Estimates? For all contracts not awarded on the basis of low bid, ODOT is required to comply with the following federal requirements: Per 49 CFR 18.36, ODOT… Must make independent estimates before receiving bids or proposals. Must perform a cost or price analysis in connection with every procurement action including contract modifications [amendments]. Per FAR … The estimate shall be prepared on the basis of a detailed analysis of the required work as though the Government were submitting a proposal.

Cost AnalysisPrice Analysis Cost Analysis is evaluation of separate elements of cost (requires detailed breakdown of estimated costs) Price Analysis is evaluation or comparison of total cost (total estimated cost or total bid price) Cost analysis is used when there is no pricing competition (selection of consultant is based on evaluation of factors other than lowest bid) Price analysis is used primarily in competitive pricing situations (selection of consultant is based on lowest bid from pool of qualified bidders) Whats the difference between a Cost Analysis and a Price Analysis? A Cost Analysis is… always required for architectural, engineering and land surveying contracts required for related services contracts when award is not based on low bid Slide 6

Slide 7 ODOTs Business Practice To comply with the federal requirements, ODOT has included preparing an internal cost estimate as Step 4 of ODOTs recommended negotiation process, outlined below. The recommended negotiation process applies to contracts and amendments. ODOTs Recommended Negotiation Process 1)Assemble a negotiation team (for multi-discipline projects, or as needed) 2)Prepare a draft Statement of Work (SOW) 3)Review and revise SOW with selected consultant 4)Independently prepare cost estimates 5)Review consultants estimate 6)Prepare Pre-negotiation Plan and Profit Worksheet 7)Negotiate cost, profit and SOW with consultant 8)Prepare Record of Negotiations (RON) 9)Submit final documents to OPO for contract or amendment review and execution For additional information about the negotiation process, see the Negotiation chapter of ODOTs Procurement Manual available at

Slide 8 What you need to prepare an Internal Cost Estimate Tools Breakdown of Costs form Profit (Fee) Worksheet MS Project Server Estimating Tool Resources for information Negotiated Statement of Work Technical experts for level of effort input Breakdown of costs from similar contracts MS Project Server Estimating Reports Consultant billing rate schedules approved by the ODOT Procurement Office (OPO)

Slide 9 Breakdown of Costs Form Click on this hyperlink to access the Breakdown of Costs (BOC) formBreakdown of Costs (BOC) form The BOC form is located: OPOs Intranet Go to Procurement Forms - Personal Services (PSK) Forms and Templates ODOTs Internet Go to Contracting – General Contracting Information - Personal and Professional Services Contracting - Forms The BOC form has 4 worksheets Summary – compiles totals from prime consultant and all subconsultants Breakdown of Costs – for documenting all estimated contract costs Expense Detail – for documenting detailed estimate of other direct costs, such as travel Instructions – guidelines on how to complete the Breakdown of Costs worksheet Using the BOC form is optional, but recommended for: Preparing ODOTs internal estimate Consultant to prepare their cost proposal Documenting the final negotiated contract budget

Slide 10 Profit (Fee) Worksheet Click on this hyperlink to access the Profit (Fee) WorksheetProfit (Fee) Worksheet The Profit (Fee) Worksheet is located: OPOs Intranet Go to Procurement Forms - Personal Services (PSK) Forms and Templates ODOTs Internet Go to Contracting – General Contracting Information - Personal and Professional Services Contracting – Forms

Slide 11 Profit (Fee) Worksheet - continued The Profit (Fee) Worksheet is designed primarily for ODOT to determine an initial profit rate that is reasonable for A&E and Related Services on a specific contract Profit factors are scored based on ODOTs assessment of the project Points Assigned boxes on the Worksheet include pop up comments for rating the profit factor Profit Factor Scoring worksheet includes guidance for rating profit factors, instructions for use, and information about profit limits Instructions & Limitations worksheet includes information about profit limits The initial profit rate is used as a basis for negotiating a reasonable profit rate with the prime consultant The final negotiated profit rate is applied to the prime consultant and all subconsultants assigned to the contract, except for those with Negotiated Billing Rates Consultants may complete a Profit (Fee) Worksheet for their own reference, but must not complete the Worksheet on ODOTs behalf

Slide 12 MS Project Server Estimating Tool The MS Project Server Estimating Tool is designed for A&E and Related Services The MS Project Server Estimating Tool is a database program that runs reports based on data collected from Resource Management System (RMS) in MS Project Server Report Options : Generic MS Project schedule template Existing projects published in MS Project Server Estimating Tool is easy to use Information is updated daily The Estimating Tool… Produces an Excel report that can be modified with Consultants billing rates to develop a closer estimate of total cost Provides ballpark estimates for total costs and project milestones Will not generate an estimate specific to your contract - Tasks and subtasks generally do not directly match those in the contract Job classifications do not match those on the consultants rate schedules Billing rates do not match those on the consultants rate schedules

Slide 13 More about the MS Project Server Estimating Tool To obtain access to the MS Project Server Estimating Tool, go to the links on Project Web Access home page or contact Greg French at For more information about how to run reports using the MS Project Server Estimating Tool, go to the online tutorial posted on OPOs Intranet training pageOPOs Intranet training page

Slide 14 Resources for Information Subject Matter Experts ODOT Technical Experts ODOT Procurement Office Procurement Team Leads Highway Division, Region 1 - Bob McKibben Highway Division, Region 2 and Technical Services Branch - Doug Peetz Highway Division, Regions 3, 4 and 5 - Kevin Cassidy All other business sections within ODOT - Tara Anderson Procurement Risk Manager – Ron Bennett Billing Rate Action Team (BRAT) – Chaye Bookey Department of Justice (assistance coordinated through the ODOT Procurement Office) Resources and contacts from other agencies

Direct Salary Rates Overhead & FCCM Other Direct Costs Labor Hours Rate Escalation Profit Job Classifications Tasks Preparing Your Internal Cost Estimate (putting all the pieces together) BILLING RATES Slide 15

Slide 16 Components of an Breakdown of Costs When developing an internal cost estimate for A&E and Related Services, ODOT requires a detailed breakdown. The five components of an internal cost estimate are: Tasks Job Classifications Labor Hours Other Direct Costs Billing Rates The following slides will cover each component of an internal cost estimate in more detail.

Slide 17 BOC Instructions BEFORE YOU CONTINUE… Please print the Instructions for Completing Breakdown of Costs Form to refer to during the following section of the tutorial In a separate window, open Internet Explorer and go to ODOT Intranet Home Page Select Topics A-H then Contracts in left hand menu; this brings you to the ODOT Procurement Office Intranet Home Page Click on Procurement Forms in left hand menu Click on View button next to Personal Services (PSK) Forms and Templates Click on PSK Compensation Related Forms Click on Breakdown of Costs Template Instructions link in the description for Breakdown of Costs Template (BOC) Print Instructions for Completing Breakdown of Costs Form on ledger-sized paper

Tasks Task numbers and task names must correspond with those in the negotiated Statement of Work Internal cost estimate must be broken down by task and should be broken down by subtask for adequate comparison and cost analysis of consultants estimate Consultants estimate must be broken down by tasks and subtasks per contract requirement Cost breakdown for contingency tasks must be broken down separately Instructions for completing the Breakdown of Costs form Task numbers and task names are entered into the Task # and name column on the left hand side of the Breakdown of Costs form [Relates to comment box #5 on Instructions for Completing Breakdown of Costs Form.] Slide 18

The job classifications on the Breakdown of Costs must match the job classifications listed on consultants approved billing rate schedule thats in the Contract, Work Order Contract, or Price Agreement Job classifications to be used for each task should be discussed and agreed to with the consultant during negotiations of the Statement of Work Instructions for completing the Breakdown of Costs form Job classifications are entered into the Job Classifications (Individual) sections of the Breakdown of Costs form Job classifications are entered separately for the prime consultant and each subconsultant assigned to the contract [Relates to comment box #2 on Instructions for Completing Breakdown of Costs Form.] Job Classifications Slide 19

Labor Hours Estimate the number of hours that each job classification will require to complete each task ODOT estimates labor hours based on: Review and input from ODOT subject matter and technical experts Breakdown of costs from previous contracts for the same types of services Reports from MS Project Server Estimating Tool Instructions for completing the Breakdown of Costs form Enter estimated number of labor hours for each job classification for each subtask Subtotals for each task will calculate automatically [Relates to comment box #6 on Instructions for Completing Breakdown of Costs Form.] Slide 20

Other Direct Costs Estimate the amount of travel that is reasonably needed to complete each task Prepare a detailed cost breakdown of estimated travel expense based on reimbursement rates that comply with the requirements in the Contract or Price Agreement short term travel per DAS Travel Policy # PO# PO long term travel per Contract or Price Agreement Instructions for completing the Breakdown of Costs form Document detailed estimate of other direct costs on an Expense Detail worksheet of the Breakdown of Costs form Enter the total amount per task or subtask into the Direct Expenses column in the Calculation Section of the Breakdown of Costs form Direct Expenses are entered separately for the prime consultant and each subconsultant assigned to the contract [Relates to comment box #14 on Instructions for Completing Breakdown of Costs Form.] Travel Related Slide 21

Other Direct Costs Estimate actual expense for items such as equipment rentals, lab tests, photocopy, printing, communications and other non-labor project related expenses that are NOT included in overhead Some consultants have a separate rate schedule for Other Direct Costs (ODC) See next slide for information about where to find rate schedules ODOT can negotiate lower rates than those listed on a consultants ODC rate schedule Instructions for completing the Breakdown of Costs form Document detailed estimate of other direct costs on an Expense Detail worksheet of the Breakdown of Costs form Enter the total amount per task or subtask into the Direct Expenses column in the Calculation Section of the Breakdown of Costs form Direct Expenses are entered separately for the prime consultant and each subconsultant assigned to the contract [Relates to comment box #14 on Instructions for Completing Breakdown of Costs Form.] Miscellaneous Slide 22

Slide 23 Billing Rates Schedules Each consultant will have either of the following two types of billing rates: Escalated Salary Rates (ESR) or Negotiated Billing Rates (NBR) To obtain appropriate rate schedules to use in an internal cost estimate: New Project Specific Contracts – use currently approved billing rates schedules posted at \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR or contact the ODOT Procurement Office \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR New Work Order Contracts - refer to the Agreement to Agree (ATA) or Price Agreement (PA) rates workbooks located at \\Scdata2\opobillingratedata\acceptedrates\Workbooks or contact the ODOT Procurement Office\\Scdata2\opobillingratedata\acceptedrates\Workbooks Overhead and FCCM rates – \\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates (When you open the file, choose update and continue on pop up screens) or contact the ODOT Procurement Office\\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates Rate schedules for Other Direct Costs (optional) – \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR or contact the ODOT Procurement Office \\Scdata2\opobillingratedata\acceptedrates\Firm_ESR_NBR Amendments to existing WOCs/contracts - refer to the WOC/contract rate schedules located at \\Scdata2\opobillingratedata\acceptedrates\Workbooks or contact the ODOT Procurement Office \\Scdata2\opobillingratedata\acceptedrates\Workbooks

Components of Escalated Salary Rates Direct Salary Rate Overhead and FCCM Profit Rate Escalation Slide 24

Direct Salary Rates Escalated Salary Rate Schedule (ESR) lists average and maximum salary rates which are derived from the actual salary rates of consultants staff. ODOT project managers and consultants should use average rates in their cost estimates (contract requires this for consultants estimate, unless approved otherwise by Agency), or negotiate to use actual rates for staff. Avoid using maximum rates. OPO adds up to 4.5% to the salary rates for annual escalation. For estimating purposes, use the escalated salary rates for the current year. Instructions for completing the Breakdown of Costs form The direct escalated salary rates for the current year are entered into the Direct Salary Rate (Avg, Actual, Max) Current Year sections of the Breakdown of Costs form Direct Salary Rate (Avg, Actual, Max) Current Year are entered separately for the prime consultant and each subconsultant assigned to the contract [Relates to comment box #3 on Instructions for Completing Breakdown of Costs Form.] Slide 25

How Rates Impact Estimate Following is an illustration of the difference in cost resulting from using the maximum direct salary rate instead of the average direct salary rate Maximum vs. AverageAdditional Amount Direct salary costs $47.50 vs. $37.50 $10 Escalation costs $2.14 vs. $ Overhead costs $74.46 vs. $58.79 $15.67 Profit costs $9.93 vs. $7.84 $2.09 FCCM 30 cents vs. 24 cents.06 Burdened Billing Rates $ (maximum) vs. $ (average) Using the maximum rate instead of the average rate adds $28.27 more per labor hour to the estimated costs Escalation based on 4.5% Overhead based on 150% Profit based on 8% FCCM based on.60% Slide 26

Overhead and FCCM Current overhead and FCCM rates are posted at \\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates OHRates.xls file (When you open the file, choose update and continue on the pop up screens) \\Scdata2\opobillingratedata\acceptedrates\AcceptedOverheadRates Contact OPO Billing Rate Action Team (BRAT) for: Review, negotiation and approval of overhead rates for new consultants Review, negotiation and approval of updated overhead rates for existing consultants Submit requests for BRAT assistance by to ODOT Billing Rate Updates Facilities Capital Cost of Money (FCCM) is a separate component from overhead Profit is calculated on overhead, but not calculated on FCCM Instructions for completing the Breakdown of Costs form The current overhead and FCCM rates are entered into the Multipliers sections on the Breakdown of Costs form. For subconsultants with Negotiated Billing Rates, enter 0 (zero). Enter Overhead and FCCM rates separately for the prime consultant and each subconsultant assigned to the contract [Relates to comment box #12 on Instructions for Completing Breakdown of Costs Form.] Slide 27

Profit ODOT scores several profit factors on the Profit (Fee) Worksheet to determine an initial profit rate that is reasonable for a specific contract ODOT negotiates the profit rate with the prime consultant The final negotiated profit rate is applied to the prime consultant and all subconsultants assigned to the contract, except for those with Negotiated Billing Rates (profit and overhead are not added to Negotiated Billing Rates) The final negotiated profit rate may vary from the initial profit rate on ODOTs Worksheet; document reasons for the rate adjustments in the Record of Negotiations Instructions for completing the Breakdown of Costs form Final negotiated profit rate is entered in the Multipliers section for the prime consultant. The same Profit rate will automatically carry over for all the subconsultants. For subconsultants with Negotiated Billing Rates, change the rate to 0 (zero). [Relates to comment box #13 on Instructions for Completing Breakdown of Costs Form.] Slide 28

Rate Escalation Older contracts may not allow rate escalation. Consult with the ODOT Procurement Team Lead or OPO Billing Rate Action Team (See slide 11 for contact information) For multi-year contracts, specify percent of work to be completed each year on the Breakdown of Costs form. This information is used to calculate and add appropriate salary escalation into the labor estimate. Instructions for completing the Breakdown of Costs form The allocation of work for multi-year contracts is entered in the Multipliers section of the Breakdown of Costs form for the prime consultant The allocation automatically carries over to all subconsultants assigned to the contract, however adjustments can be made to the Multipliers sections for subconsultants [Relates to comment box #10 on Instructions for Completing Breakdown of Costs Form.] Slide 29

Direct Salary Rates Overhead & FCCM Other Direct Costs Labor Hours Rate Escalation Profit Job Classifications Tasks All the Components of an Internal Cost Estimate Using Escalated Salary Rates Slide 30

Other Direct Costs Labor Hours Negotiated Billing Rates Job Classifications Tasks All the Components of an Internal Cost Estimate Using Negotiated Billing Rates Profit Overhead and FCCM Rate Escalation Direct Salary Rates Slide 31

Negotiated Billing Rates Negotiated billing rates are fully burdened hourly rates which include direct labor, indirect costs (overhead) and profit Do not add salary escalation, overhead, FCCM, or profit to Negotiated Billing Rates Consultant must negotiate increases of their Negotiated Billing Rates with the ODOT Procurement Office Instructions for completing the Breakdown of Costs form Enter zero into all the fields in the Multipliers section for consultants with Negotiated Billing Rates [Relates to comment box #11 on Instructions for Completing Breakdown of Costs Form.] Enter zeros in the Direct Salary Rate for Current Year section for consultants with Negotiated Billing Rates [Relates to comment box #3 on Instructions for Completing Breakdown of Costs Form.] Enter the negotiated billing rates in the Annualized Direct Salary Rate section for consultants with Negotiated Billing Rates [Relates to comment box #4 on Instructions for Completing Breakdown of Costs Form.] Slide 32

Slide 33 Totals and Subtotals The Breakdown of Costs form includes: A Calculation Section for prime and each subconsultant Project Summary for total costs of the whole contract The Project Summary includes: Total Non-Contingency Total Cost: the not-to-exceed amount for the Cost portion of Cost Plus Fixed Fee contracts Profit: the estimated profit used as a basis for negotiating the Fee portion of Cost Plus Fixed Fee contracts Cost + Profit: the estimated total for all non-contingency tasks Total Contingency Cost + Profit: the estimated total for all contingency tasks Total Non-Contingency + Contingency Cost + Profit: the estimated total for the contract

Tutorial Summary – Part 1 ODOT is required to complete an internal cost estimate prior to receiving consultants price proposal for all contracts not awarded on the basis of low bid, including: Architectural, Engineering and Land Surveying (A&E) and Related Services contracts Other contracts awarded on other than low bid Amendments that add cost ODOT must complete a cost analysis of what services should cost including a detailed analysis of consultants breakdown of estimated hours and costs compared to ODOTs internal estimate. A Pre-negotiation Plan must be prepared following cost analysis and prior to negotiation. Consultants have billing rate schedules for either Escalated Direct Salary Rates or Negotiated Billing Rates Escalated Direct Salary Rates are hourly billing rates that includes Direct Salary Rate, escalation, overhead, FCCM and profit. Negotiated Billing Rates are fully burdened hourly billing rates. Rate escalation, overhead, FCCM and profit are not added. Slide 34

Tutorial Summary - Part 2 Breakdown of Costs (BOC) form is an optional tool for preparing and documenting ODOTs internal cost estimate. Its a good business practice to require the consultant to prepare their cost proposal using the BOC form. Profit (Fee) Worksheet is a required form for determining an initial profit rate that is fair and reasonable for the project. The final profit rate is negotiated with the consultant. MS Project Server Estimating Tool is a database that runs estimating reports for A&E and most Related Services based either on RMS Project Templates, or templates from ODOT Projects that have been published. These reports can be used as a resource when estimating labor hours for tasks and milestones. Subject matter experts and technical experts are generally a Project Managers best resources for estimating labor hours and project costs for a specific project. Slide 35

Slide 36 Questions? ODOT Negotiations Guide For additional information regarding internal estimates, negotiation process and required forms, see the Negotiation chapter of ODOTs Procurement Manual available at the following link: If you have questions or comments related to this tutorial, please contact: Mary Wandell Procurement Training Specialist

Slide 37 Certificate of Completion To obtain a Certificate of Completion for this tutorial: 1)Use this link to access the test form.test form 2)Print the test form. 3)Answer the test questions correctly and fill out your contact information on the test form. 4)Fax or the completed test form to Mary Wandell, Procurement Training Coordinator at

Slide 38 Acknowledgements I would like to thank the following people for their assistance in developing this tutorial: Chaye Bookey, ODOT Procurement Office Greg French, Technical Services Branch, Project Delivery Unit Mike Jenkins, ODOT Procurement Office Cindy Musgrove, ODOT Procurement Office Kim Rice, ODOT Procurement Office Pam Schwarz, ODOT Procurement Office