Bill of Quantities and Cost Estimation
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Bill of Quantities (BOQ) and Cost Estimation
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Using a BOQ - Bill of Quantities
Tendering is an important step in construction projects, since it allows the comparison of several offers under equal terms. Hiring the first contractor who submits an offer may be tempting when a project has a tight deadline. However, consulting engineers do not recommend this, since other options may offer a better quality or a lower price. During the tendering process, project owners issue a Bill of Quantities (BOQ) to the bidding contractors. The BOQ is a document that breaks down the project scope by work items and quantities, ensuring that all contractors quote the same amounts of work.
The BOQ continues to be useful when all contractors have submitted their offers and a winner has been chosen. The BOQ is useful as a tracking tool during the construction process, and it can be combined with the project schedule for cost planning:
- When creating a progress report, the completed work can be input as partial quantities in the BOQ spreadsheet.
- Since there is already a unit price for each item, the spreadsheet will automatically calculate the monetary value of the completed work.
- By comparing each report with the previous one, the contractor can calculate interim payments.
- If the contract terms include an advance payment and a quality retainage, they are normally deducted as percentages from each interim payment. For example, if the advance payment was 10% and the retainage is 5%, there is a 15% deduction from every interim payment.
At the end of the project, the BOQ can be filled with the actual work quantities to check discrepancies with the original quantities. This results in additional payment for the contractor if the actual work is more than planned, but the contractor may also owe money to the owner for items where the actual work was less. Consider that some contract types do not allow this; in fixed-price contracts or construction management at risk, for example, the construction firm assumes any additional expenses while keeping the savings achieved.
Who Prepares the BOQ in a Construction Project?
The Bill of Quantities is normally prepared by a cost consultant or quantity surveyor, a role that is often assumed by the engineering firm in charge of design. This way, the scope and quantity of work are determined by a neutral party, and bidding contractors compete under equal conditions. Large companies with an internal engineering staff often create their own BOQs.
The design firm and the cost consultant can be different companies, but delegating both tasks to the same engineering firm is more efficient. When two separate companies are involved, the cost consultant must first get familiarized with the project documents, requiring more coordination and communication.
What Does a BOQ Include?
The document format of a BOQ can change from project to project, but it will generally include an itemized list of the work required: architectural, structural, mechanical, electrical, communications, plumbing, fire protection, etc. The BOQ also includes the following information:
- The quantity of work for each list item and the measurement unit. For example, a painting task may be specified for an area of 200 square feet. When measurement units are impractical, work quantities are described as global tasks (e.g. general cleaning) or based on the number of items installed (e.g. 100 LED lamps).
- The unit price of each item, which is calculated by each of the bidding contractors. The unit price must consider all costs involved: materials, labor, equipment, overhead and the contractor’s profit.
- The total price of each list item, which is calculated by multiplying the amount of work and the unit price.
As previously mentioned, the list items in a BOQ are classified by areas like HVAC installations and fire protection systems. All items in each category are added into subtotal prices, and these are added to get the total price of the project. The main advantage of the BOQ is itemizing materials and labor, making these costs easier to manage. Quoting a project without work items is confusing, especially when large amounts of materials are involved.
The BOQ should use a clear language when describing each work item, since the document is also read by professionals from non-technical fields. If additional information is needed for one of the line items in the BOQ, the construction drawings and technical specifications are available for reference. In other words, there is no need to include all the technical information about each line item in the BOQ.
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Advantages of Using a BOQ in Construction Projects
Using a BOQ is a standard practice in construction projects, since it brings many advantages during the tendering process:
- Simplicity: A BOQ standardizes the offers of bidding contractors, making them easier to analyze and compare. Offers with different items for the same project are much more difficult to compare.
- Fairness: The scope and quantities of work are determined by a neutral party, which means that contractors compete under equal conditions. Hiring one of the contractors to produce the BOQ would not be fair, since that contractor gains an advantage in terms of information and time.
- Speed: The bidding contractors can prepare their offers faster when a BOQ is available. Otherwise, each contractor would have to break down the project by items, and calculate the work quantities of each item.
- Accuracy: Since the work quantities and measurements units are predetermined, calculation errors are less likely.
Contractors compete with each other during the tendering process, but the lowest bid will not necessarily win. Before tendering, the cost consultant calculates a project budget on behalf of the project owner. This budget is not shared with contractors, and it serves as a reference when comparing their offers. A bidding contractor may be disqualified for presenting an offer with an unreasonably low price (lowballing).
A BOQ can also help detect possible errors in contractors bids through comparison. For example, if one contractor prices a specific item much higher or lower than other participants, a calculation error is likely.
- This often occurs when there are differences in measurement units.
- For instance, if a roof installation is priced per square foot and a contractor calculates the price per square meter, the price will become 10.76 times higher than intended.
- Errors like these are unlikely when working with qualified contractors. However, the BOQ makes these errors evident when they occur.
- If the BOQ itself has an error, it will generally be noticed by one of the contractors. In this case, the BOQ is returned to the client for correction, and sent again to all bidders.
As previously mentioned, the BOQ is still useful after choosing the contractor and starting construction. Building projects normally have an upfront payment, interim payments and a final account. Since the BOQ has an itemized list of project activities, it can be used for a quick calculation of interim payments based on the completed work.
The BOQ is also a useful planning tool, since it can be used to estimate how the project costs will be distributed over time. Typically, the project schedule uses a Gantt chart where the scope is also broken down by areas. Cost information from the BOQ can be combined with time information from the Gantt chart, to create a cost schedule. The project owner and the contractor can use this to plan expenses, making sure the funds are available when needed, avoiding project delays.
If there are any change orders during the construction process, the BOQ can also be used to calculate their cost. Since all work activities are already itemized, the cost of a change order can be calculated from the additional work quantities and the existing unit prices.
Calculating Work Quantities in the BOQ
Traditionally, BOQs have been calculated by construction estimators, who use the project drawings and technical specifications. This process was first carried out with manual drawings, and it became digital with the development of 2D drafting software.
Many project documents can now be generated automatically with Building Information Modeling (BIM), and this includes the BOQ. In addition, if there are any design modifications after the BOQ is created, it can be updated automatically as well. BIM software can speed up the tendering process by generating the BOQ automatically, as soon as the design is completed.
The BOQ is created when the project design is complete: starting earlier is not efficient, since it would be necessary to update the BOQ with every design change. Some projects must be tendered with an incomplete design, or a design that still has pending changes. In these cases, the BOQ is called an approximate bill of quantities or a notional bill of quantities. Change orders can be expected in these cases, but the BOQ is still useful to request contractor offers under equal terms.
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Why Are BOQs Broken Down by Categories?
General contractors have the necessary expertise to manage construction projects. However, a single company will rarely have the technical personnel to complete a project by itself. Instead, the general contractor will normally hire subcontractors for specific areas of the project - HVAC, electrical installations, plumbing, fire protection, etc.
Generally, the BOQ also includes a preliminary work section: necessary activities to start the project, which cannot be classified among the categories just described. Some examples of preliminary work are site cleaning and setting up temporary offices. For remote projects where traveling to the site daily is not feasible, the preliminary works also include building temporary accommodations for the project personnel.
Since the items in the BOQ are separated by categories, the document can easily be divided into smaller BOQs for subcontractors. When the offers from all subcontractors have been received, the general contractor can put them together to complete the bid. In other words, the BOQ is also useful for the internal tendering carried out by each of the bidding contractors.
