Cost estimating

A subdivision is a business before it is a neighborhood. The developer must know what it will cost to turn raw land into serviced lots, and must know it early, before buying the land and long before the design is finished. Cost estimates are revised at every stage: a rough figure for the feasibility study, a better one for the planning application, a detailed one for the tender, and finally the contractor's bid and the actual cost. The surveyor contributes more than might be expected, because most quantities in a subdivision estimate are measured from the design surfaces and alignments that the survey team builds. This lesson follows the Coulee Ridge estimate from the first guess to the phase 1 servicing estimate.

Estimates through the life of a project

Estimates are classified by how much design they rest on and how accurate they are expected to be. An order-of-magnitude estimate at feasibility, based on cost per lot or per hectare from similar projects, may be off by a third or more. A preliminary estimate based on a concept layout and servicing study is better, perhaps within a quarter. A detailed estimate based on the final design drawings, with measured quantities and current unit prices, should be within about a tenth. The bids received at tender then set the real construction price. The cost engineering profession commonly uses five numbered estimate classes, from class 5 at concept to class 1 at bid. Whatever the labels, each estimate must state what it is based on and how accurate it is likely to be.

What costs go into a subdivision

Hard costs are the physical works: clearing and stripping, grading, sanitary and storm sewers, water mains, service connections, the pond and outfall, curbs, gutters, sidewalks, road base and asphalt, street lights, landscaping and park development, fencing and signs. Shallow utilities may be built by the utility companies with a contribution from the developer. Soft costs include engineering design and inspection, surveying, geotechnical and environmental studies, planning and legal fees, application fees, insurance, marketing and sales commissions, and the interest on borrowed money while the work is under way. Then come the charges paid to the municipality: impact fees, and in some places fees for parks or inspections.

The land itself and the developer's overhead and profit complete the picture. For a feasibility decision, the question is whether the expected lot sales cover all of these with an acceptable margin. For the city, the important numbers are the cost of the works it will take over and the securities it holds to guarantee them.

Quantities

Quantities are measured from the design. Lengths of pipe, curb and sidewalk come from the alignments; areas of pavement and topsoil from the road and lot polygons; volumes of earthwork from comparing the design surface with the existing terrain model and the stripped surface; numbers of manholes, catch basins, hydrants, valves, services and lights from the drawings. Leah's design model produces most of these directly, and Theo writes them to a quantity sheet for Sunil. Measuring quantities from the model rather than scaling drawings by hand saves time and avoids errors, but the quantities are only as good as the model: a surface that omits the pond or the topsoil depth will give a wrong earthwork quantity.

Each quantity is measured the way it will be paid. Pipe is usually measured along its centerline between manhole centers and priced including excavation, bedding and backfill to a stated depth range; deeper pipe costs more per meter. Pavement is priced per unit area for a specified structure. Earthwork may be paid by volume measured in place or in trucks, and the difference, caused by bulking and compaction, must be clear in the contract. Estimators who ignore these rules produce numbers that cannot be compared with bids.

Unit prices

Unit prices come from recent tenders in the region, adjusted for size, depth, soil conditions, season and market conditions; from published cost guides; and from contractors' informal advice. They change with fuel, materials and labor costs and with how busy contractors are. A small project or a remote site pays more per unit than a large one close to the city. The prices in the Coulee Ridge estimate are illustrative course values chosen to be plausible for a prairie city, not quotations.

# Servicing cost estimate for Phase 1 (118 lots), unit prices illustrative
items = [
    ("site grading and topsoil", 79800, "yd3", 5.00),
    ("sanitary main 8-inch", 4860, "ft", 180.0),
    ("water main 8-inch", 5090, "ft", 190.0),
    ("storm sewer 12-36 inch", 4330, "ft", 245.0),
    ("service connections", 118, "each", 4600.0),
    ("detention pond (phase share)", 1, "lump", 700000.0),
    ("curb, gutter and sidewalk", 9510, "ft", 58.0),
    ("street base and asphalt", 15790, "yd2", 48.0),
    ("street lights", 34, "each", 5800.0),
    ("landscaping and park", 1, "lump", 280000.0),
]
sub = 0.0
for name, qty, unit, price in items:
    cost = qty * price; sub += cost
    print(f"{name:30} {qty:8,.0f} {unit:5} x {price:9,.2f} = {cost:12,.0f}")
cont = 0.15 * sub
eng = 0.10 * (sub + cont)
total = sub + cont + eng
print(f"{'construction subtotal':30} {sub:41,.0f}")
print(f"{'contingency 15 %':30} {cont:41,.0f}")
print(f"{'engineering and surveys 10 %':30} {eng:41,.0f}")
print(f"{'servicing total':30} {total:41,.0f}")
levy = 118 * 6900
print(f"{'impact fees (118 lots)':30} {levy:41,.0f}")
lots = 118
print(f"cost per lot: servicing {total / lots:,.0f}, with impact fees {(total + levy) / lots:,.0f} dollars")

site grading and topsoil         79,800 yd3   x      5.00 =      399,000
sanitary main 8-inch              4,860 ft    x    180.00 =      874,800
water main 8-inch                 5,090 ft    x    190.00 =      967,100
storm sewer 12-36 inch            4,330 ft    x    245.00 =    1,060,850
service connections                 118 each  x  4,600.00 =      542,800
detention pond (phase share)          1 lump  x 700,000.00 =      700,000
curb, gutter and sidewalk         9,510 ft    x     58.00 =      551,580
street base and asphalt          15,790 yd2   x     48.00 =      757,920
street lights                        34 each  x  5,800.00 =      197,200
landscaping and park                  1 lump  x 280,000.00 =      280,000
construction subtotal                                          6,331,250
contingency 15 %                                                 949,688
engineering and surveys 10 %                                     728,094
servicing total                                                8,009,031
impact fees (118 lots)                                           814,200
cost per lot: servicing 67,873, with impact fees 74,773 dollars

The construction subtotal for phase 1 is about 6.3 million dollars. Adding a 15 percent contingency and 10 percent for engineering and surveys brings the servicing total to about 8.0 million, or about 68,000 dollars per lot. Impact fees of 6,900 dollars per lot add about 0.8 million, so the full cost of servicing and municipal charges is about 75,000 dollars per lot, before land, financing, marketing and profit.

The buried pipes, sanitary, water and storm, make up about 40 percent of construction cost, which is why the servicing concept and pipe depths matter so much to the budget. A decision in lesson 8 to avoid a lift station, or in lesson 6 to raise two streets and save imported fill, shows up directly here.

Contingency and risk

A contingency covers costs that are certain to arise but cannot yet be identified: design details not yet drawn, small quantity changes, minor unforeseen conditions. It is larger early in a project, when less is known, and shrinks as design advances. It is not meant to cover large known risks, which should be estimated separately. At Coulee Ridge the known risks include the depth of the perched groundwater near the coulee, which could require dewatering of the sanitary trench; the condition of the gravel road that must be upgraded; and the pipeline crossing, whose cost depends on the operator's requirements. Sunil prices each of these as a separate allowance with a probability, so that Dana can see which ones matter.

A useful way to show estimate risk is a range rather than a single number, for example by simulating the estimate many times with each uncertain quantity and price drawn from a plausible range. The result is a distribution of total cost from which the developer can pick a budget with, say, an 80 percent chance of not being exceeded. Even a simple low, likely and high estimate for each major item is far better than a single figure presented as certain.

Timing, escalation and financing

An estimate prepared this year for work that will be built in two or three years must allow for price changes in between. Construction cost indices published by statistics agencies and industry groups show how costs have moved, and estimators apply an escalation allowance to later phases. At Coulee Ridge the phase 2 and phase 3 estimates carry escalation of a few percent a year as a course assumption. Financing adds its own cost: the developer borrows to buy the land and build the services, and pays interest until lot sales repay the loan. On a large subdivision, financing can add several thousand dollars per lot, and it grows quickly if approvals or sales are slower than planned.

Some costs are also front-loaded in ways that per-lot averages hide. The pond, the outfall, the collector road and the trunk water main are built in phase 1 but serve all three phases. The phase 1 estimate therefore carries a share of these shared works larger than its share of lots, and the phase 1 cost per lot is higher than the average for the whole project. Dana's lender wants to see both numbers, because phase 1 sales must carry the early costs.

Securities and agreements

Under the improvements agreement, the city requires the developer either to complete the improvements before the final plat is approved or to provide a financial guarantee, such as a letter of credit, bond or escrow, for the cost of the unfinished work, usually with a margin over the engineer's estimate. The guarantee is released in stages as the work is completed and accepted, and a portion is often held through a warranty period. An estimate that is too low leaves the city exposed; one that is too high ties up the developer's credit.

This residual approach, working back from sale price to what the land is worth, is how developers decide what to offer for land. It ignores timing, which lesson 12 adds. Dana's option price for Coulee Ridge is 4.4 million dollars, inside the residual value but not by a wide margin once financing is counted.

Coulee Geomatics: measuring for payment

Once construction starts, the survey crew measures the work for monthly progress payments: meters of pipe laid, manholes completed, volumes of earth moved, areas of base and asphalt placed. These measurements are compared with the estimate every month, and Sunil reports to Dana where quantities are running over. Halfway through phase 1, Grant's measurements show that the topsoil is thicker than the boreholes suggested, so stripping and stockpiling are about 16,000 yd³ over the estimate; the surplus topsoil will be used in the park and sold, and the contingency absorbs the extra handling. Without accurate, timely measurement, overruns are found only when the money is gone.