Research, Development, and Technology

Turner-Fairbank Highway Research Center

6300 Georgetown Pike

McLean, VA 22101-2296

PUBLICATION NO. FHWA-HRT-22-075 JULY 2022

Assessment of Federal Highway 

Administration Highway Project Cost 

Estimation Tools
FOREWORD

Estimating project costs can be a major challenge for transportation agency personnel. Cost 

estimates typically must be developed over multiple points during a project’s development, any 

time between the initiation of a project and the completion of construction. The research project 

described in this final report provides an essential step in simplifying such a complex process by 

detailing what practices are often used and have proven effective in cost estimating. The 

researchers interviewed subject matter experts and conducted a literature review to develop a 

series of flowcharts and checklists to aid in developing and overseeing cost estimates. The 

findings presented in this report shed new light on the practices used to conduct cost estimate 

review and program oversight. Research of this kind will benefit agencies across the Nation. 

This report describes the best practices used in developing cost estimates and provides guidance 

for overseeing the development of such estimates. It serves as a line of communication among 

different State and Federal agencies involved in the creation and oversight of cost estimates. 

Private parties, such as contractors and consultants, can also benefit from the product of this 

research.

Cheryl Allen Richter, Ph.D., P.E. 

Director, Office of Infrastructure

Research and Development

Notice

This document is disseminated under the sponsorship of the U.S. Department of Transportation 

in the interest of information exchange. The U.S. Government assumes no liability for the use of 

the information contained in this document. This report does not constitute a standard, 

specification, or regulation. 

The U.S. Government does not endorse products or manufacturers. Trademarks or 

manufacturers’ names appear in this report only because they are considered essential to the 

objective of the document. 

Quality Assurance Statement

The Federal Highway Administration (FHWA) provides high-quality information to serve 

Government, industry, and the public in a manner that promotes public understanding. Standards 

and policies are used to ensure and maximize the quality, objectivity, utility, and integrity of its 

information. FHWA periodically reviews quality issues and adjusts its programs and processes to 

ensure continuous quality improvement. 

Recommended citation: Federal Highway Administration, Assessment of Federal Highway 

Administration Highway Project Cost Estimation Tools (Washington, DC: 2022) 

https://doi.org/10.21949/1521882. 
TECHNICAL REPORT DOCUMENTATION PAGE

1. Report No.

FHWA-HRT-22-075

2. Government Accession No. 3. Recipient’s Catalog No.

4. Title and Subtitle

Assessment of Federal Highway Administration Highway 

Project Cost Estimation Tools

5. Report Date

July 2022 

6. Performing Organization Code:

7. Author(s) 

Guillermo Nevett (ORCID: 0000-0003-4967-7015) and

Paul M. Goodrum

8. Performing Organization Report No.

9. Performing Organization Name and Address

Engineering & Software Consultants, Inc.

14123 Robert Paris Court, Chantilly, VA 20151

10. Work Unit No.

11. Contract or Grant No.

DTFH6117D00005/693JJ318F000053

12. Sponsoring Agency Name and Address

Federal Highway Administration

Office of Infrastructure Research and Development

6300 Georgetown Pike

Mclean, Virginia 22101

13. Type of Report and Period Covered

Final Report; February 2019–February 2021

14. Sponsoring Agency Code

HRDI-20

15. Supplementary Notes

The Contracting Officer’s Representative was Matthew R. Corrigan (HRDI-20; ORCID: 0000-0002-1230-8462).

16. Abstract

Transportation agencies are charged with developing and delivering highway construction and maintenance 

programs that enhance the safety, mobility, and economic competitiveness of communities. While the design and 

construction of these projects are vital, accurate estimates of project costs during the multiple developmental stages 

are incredibly important in both developing the agency’s project budget as the project advances and verifying that 

contractor bids represent fair market value during award. This report describes the best practices used in 

developing cost estimates and provides guidance for overseeing the development of such estimates. Through a 

series of interviews with subject matter experts and an extensive literature review, the researchers gathered best 

practices and challenges in creating and overseeing cost estimates. The final products of this report are a series of 

flowcharts and checklists designed to aid agency personnel in overseeing cost estimates at a program and project 

level and aid in developing and overseeing cost estimates at multiple stages of projects and programs.

17. Key Words

Cost estimate, highway, transportation, Federal 

Highway Administration, State transportation 

agency, Federal Lands Highway, cost estimate 

oversight, National Environmental Policy Act, State 

Transportation Improvement Program

18. Distribution Statement

No restrictions. This document is available to the public 

through the National Technical Information Service, 

Springfield, VA 22161.

http://www.ntis.gov

19. Security Classif. (of this report) 

Unclassified

20. Security Classif. (of this page) 

Unclassified

21. No. of Pages

152

22. Price

N/A

Form DOT F 1700.7 (8-72) Reproduction of completed pages authorized
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iii

TABLE OF CONTENTS

CHAPTER 1. INTRODUCTION ................................................................................................ 1

Project Background ................................................................................................................ 1

Project Objective ..................................................................................................................... 2

Report Overview ..................................................................................................................... 3

CHAPTER 2. RESEARCH METHODOLOGY........................................................................ 5

Literature Review ................................................................................................................... 5

Data Collection ........................................................................................................................ 5

First Round of Interviews ................................................................................................... 5

Identified Best Practices In Cost Estimate Development and Cost Estimate Oversight 14

Practice A: Applying the Pareto Principle ........................................................................ 15

Practice B: Comparing Historical Projects ....................................................................... 16

Practice C: Monitoring and Updating Cost Estimates ...................................................... 19

Practice D: Identifying Factors that Influence Projects Cost ............................................ 19

Practice E: Analyzing Cost Estimates ............................................................................... 20

Second Round of Interviews ............................................................................................. 23

Summary ................................................................................................................................ 27

CHAPTER 3. OVERSIGHT CHECKLISTS AND PROCESSES ......................................... 29

Oversight Checklists ............................................................................................................. 29

Final Checklist ....................................................................................................................... 32

Cost Oversight Processes ...................................................................................................... 35

Project-Level Oversight Process ....................................................................................... 36

Project-Level Oversight Process—STA and DO Perspectives ......................................... 36

CHAPTER 4. CONCLUSION ................................................................................................... 41

APPENDIX A—FIRST-ROUND INTERVIEW STRUCTURED INTERVIEW 

DOCUMENT—STA ................................................................................................................... 43

Introduction ........................................................................................................................... 43

Project’s Primary Objectives ............................................................................................... 43

Project’s Secondary Objectives ........................................................................................... 43

Identification ......................................................................................................................... 43

Approaches Used in Cost Estimates .................................................................................... 44

Efficacy................................................................................................................................... 45

Challenges .............................................................................................................................. 45

Cost Performance Measures ................................................................................................ 46

Cost Estimate Development ................................................................................................. 47

Estimate Oversight................................................................................................................ 48

Post-Bid Practices ................................................................................................................. 49

Wrap-Up ................................................................................................................................ 50

APPENDIX B—FIRST-ROUND INTERVIEW—STAS RESPONSES COMPILED ........ 51

Identification ......................................................................................................................... 51

Approaches Used in Cost Estimates .................................................................................... 52

Efficacy................................................................................................................................... 55

Challenges .............................................................................................................................. 58
iv

Cost Performance Measures ................................................................................................ 61

Cost Estimate Development ................................................................................................. 64

Estimate Oversight................................................................................................................ 71

Post-Bid Practices ................................................................................................................. 71

APPENDIX C—FIRST ROUND OF INTERVIEWS STRUCTURED INTERVIEW 

DOCUMENT—FHWA DO ....................................................................................................... 75

Introduction ........................................................................................................................... 75

Project’s Primary Objectives ............................................................................................... 75

Project’s Secondary Objectives ........................................................................................... 75

Identification ......................................................................................................................... 75

Approaches Used in Cost Estimates .................................................................................... 76

Efficacy................................................................................................................................... 77

Challenges .............................................................................................................................. 77

Cost Performance Measures ................................................................................................ 78

Estimate Oversight................................................................................................................ 79

Post-Bid Practices ................................................................................................................. 81

Wrap-Up ................................................................................................................................ 81

APPENDIX D—FIRST ROUND OF INTERVIEWS—DO RESPONSES COMPILED .... 83

Identification ......................................................................................................................... 83

Approaches Used in Cost Estimates .................................................................................... 84

Efficacy................................................................................................................................... 87

Challenges .............................................................................................................................. 89

Cost Performance Measures ................................................................................................ 91

Cost Estimate Oversight ....................................................................................................... 95

Post-Bid Practices ............................................................................................................... 104

Wrap-Up .............................................................................................................................. 107

APPENDIX E—FOLLOWUP INTERVIEW ........................................................................ 109

REFERENCES .......................................................................................................................... 143
v 

LIST OF FIGURES

Figure 1. Equation. Min-max normalization................................................................................... 7

Figure 2. Chart. WisDOT’s filters for obtaining historical data for similar projects.................... 17

Figure 3. Screenshot. Sample data from historical data................................................................ 18

Figure 4. Flowchart. Project-level oversight process—STA perspective (Nevett, Goodrum, 

and Corrigan 2022). ............................................................................................................. 37

Figure 5. Flowchart. Project-level oversight process—DO perspective (Nevett, Goodrum, 

and Corrigan 2022). ............................................................................................................. 38

Figure 6. Flowchart. Project-level oversight process—FLH perspective (Nevett, Goodrum, 

and Corrigan 2022). ............................................................................................................. 40
vi 

LIST OF TABLES

Table 1. Ranking of the level of familiarity for DOs and FLH. ..................................................... 6

Table 2. Ranking of the level of familiarity for STAs. ................................................................... 6

Table 3. Perception of efficacy of the estimating methods............................................................. 8

Table 4. Perception of the knowledge and involvement of the counterpart. .................................. 9

Table 5. Summary of how challenging it is to develop/oversee cost estimates............................ 11

Table 6. Sample from WisDOT’s esd-template (WisDOT n.d.). ................................................. 15

Table 7. Competition analysis....................................................................................................... 23

Table 8. Responses for familiarity and usefulness of the Pareto principle. .................................. 24

Table 9. Responses for familiarity and usefulness of historical project comparison.................... 24

Table 10. Responses for familiarity and usefulness of monitoring and updating cost 

estimates. ............................................................................................................................. 25

Table 11. Responses for familiarity and usefulness of knowledge of factors that influence 

projects cost. ........................................................................................................................ 25

Table 12. Responses for familiarity and usefulness of procedures for analyzing a cost 

estimate................................................................................................................................ 26

Table 13. Responses for familiarity and usefulness of estimate development oversight. ............ 27

Table 14. Rank of practices by perceived usefulness. .................................................................. 27

Table 15. Rank of practices by familiarity. ................................................................................... 27

Table 16. Oversight checklist keep percentage—guidance items. ............................................... 29

Table 17. Oversight checklist keep percentage—uncertainty items. ............................................ 30

Table 18. Oversight checklist keep percentage—construction items. .......................................... 30

Table 19. Oversight checklist keep percentage—finance items. .................................................. 30

Table 20. Oversight checklist keep percentage—nonconstruction items. .................................... 31

Table 21. Oversight checklist keep percentage—regulation items. .............................................. 31

Table 22. Oversight checklist keep percentage—risk items. ........................................................ 32

Table 23. Final oversight checklist—guidance items. .................................................................. 33

Table 24. Final oversight checklist—uncertainty items. .............................................................. 33

Table 25. Final oversight checklist—construction items.............................................................. 33

Table 26. Final oversight checklist—finance items. ..................................................................... 34

Table 27. Final oversight checklist—nonconstruction items. ....................................................... 34

Table 28. Oversight checklist—regulation items.......................................................................... 34

Table 29. Final oversight checklist—risk items. .......................................................................... 35

Table 30. Scale from 1–10. ........................................................................................................... 44

Table 31. Scale from 1–10. ........................................................................................................... 45

Table 32. Scale from 1–10. ........................................................................................................... 46

Table 33. Cost estimate oversight checklist. ................................................................................. 49

Table 34. Historical bid-based method. ........................................................................................ 52

Table 35. Cost-based method. ....................................................................................................... 53

Table 36. Conceptual estimation................................................................................................... 53

Table 37. Risk-based estimation. .................................................................................................. 53

Table 38. Combination of historical and cost-based method. ....................................................... 54

Table 39. Other practice................................................................................................................ 54

Table 40. Confidence in cost estimates agency develops. ............................................................ 55

Table 41. Confidence in cost estimate methods used. .................................................................. 55
vii 

Table 42. Developed cost estimates are on target. ........................................................................ 55

Table 43. Confidence in DO cost estimate oversight. .................................................................. 56

Table 44. DOs cost estimation support. ........................................................................................ 56

Table 45. DOs knowledge of agency cost estimation procedures. ............................................... 57

Table 46. FHWA and agency performance measures aligned. ..................................................... 57

Table 47. DOs stay updated on current cost estimation practices. ............................................... 58

Table 48. Accuracy. ...................................................................................................................... 59

Table 49. Effort required. .............................................................................................................. 60

Table 50. Reliability...................................................................................................................... 60

Table 51. Experience required to develop estimates. ................................................................... 60

Table 52. Estimating technology available. .................................................................................. 61

Table 53. Cost estimate review checklist. ..................................................................................... 71

Table 54. Scale from 1–10. ........................................................................................................... 76

Table 55. Scale from 1–10. ........................................................................................................... 77

Table 56. Scale from 1–10. ........................................................................................................... 78

Table 57. Cost estimate review checklist. ..................................................................................... 80

Table 58. Historical bid-based method. ........................................................................................ 85

Table 59. Cost-based method. ....................................................................................................... 85

Table 60. Conceptual estimation................................................................................................... 86

Table 61. Risk-based estimation. .................................................................................................. 86

Table 62. Combination of historical and cost-based method. ....................................................... 87

Table 63. Other practices. ............................................................................................................. 87

Table 64. Confidence in cost estimates agency develops. ............................................................ 88

Table 65. Confidence in cost estimate methods used. .................................................................. 88

Table 66. STAs develop accurate estimates. ................................................................................ 88

Table 67. STAs are knowledgeable about cost estimation procedures. ........................................ 89

Table 68. STAs keep cost estimation procedures updated. .......................................................... 89

Table 69. Reliability of the estimates. .......................................................................................... 91

Table 70. Experience of individuals within the other agency that developed the estimates. ....... 91

Table 71. Available technology to develop estimates. ................................................................. 91

Table 72. Cost estimate review checklist.................................................................................... 103
viii

LIST OF ABBREVIATIONS

CFR Code of Federal Regulations 

CM/GC construction manager/general contractor 

DB design-build

DBB design-bid-build

DO division offices 

DOT department of transportation

EE engineer’s estimate

FAHP Federal-aid Highway Program

FFPR final field plan review 

FHWA Federal Highway Administration

FLH Office of Federal Lands Highway

FLHP Federal Lands Highway Program 

NEPA National Environmental Policy Act

NHCCI National Highway Construction Cost Index 

NHS National Highway System 

PM project manager

PODI project of division interest

PS&E plans, specifications, and estimates 

ROW right-of-way

STA State transportation agency 

STIP Statewide Transportation Improvement Program 
1 

CHAPTER 1. INTRODUCTION

PROJECT BACKGROUND

Transportation agencies are charged with developing and delivering highway construction and 

maintenance programs that enhance the safety, mobility, and economic competitiveness of 

communities. While the design and construction of these projects are vital, accurate estimates of 

project costs during the multiple developmental stages are incredibly important in both 

developing the agency’s project budget as the project advances and verifying that contractor bids 

represent fair market value during award. Having consistent and reliable cost estimates provides 

agencies with numerous benefits when making financial decisions and providing oversight 

related to estimating project funds, conducting benefit-cost analysis to prioritize projects, 

determining the funds needed to deliver projects, obligating funds for specific project phases, 

and determining the basis for cashflow requirements over time.

Cost estimating establishes the basis for significant project decisions, establishes a baseline cost 

to help measure project success, and communicates the project’s status to internal and external 

stakeholders. For the Federal Highway Administration (FHWA), accurate and effective cost 

estimating is critical during the National Environmental Policy Act (NEPA) process and the 

development of the initial financial plan for major projects (House of Representatives 2020a). 

The ability to develop reasonable and defensible cost estimates is also important in maintaining 

public trust and confidence during a project.

Cost estimate methods typically fall within five different approaches (Molenaar, Anderson, and 

Schexnayder 2013): 

1. Historical bid-based estimation—uses a bid-history database to estimate unit bid costs for 

major items. Based on the historical averages, FHWA can use the estimated quantities of a 

proposed project to develop a target price. Much of this approach’s accuracy relies on the 

quantity and level of detail in the bid-history database. 

2. Conceptual estimation—is usually performed during the early planning and scope 

development stage and typically uses primary project parameters (e.g., project location, 

length, type of project, scope details, design parameters, site characteristics, and broad design 

assumption) to develop a cost estimate.

3. Risk-based estimation—involves developing probable costs for project components and the 

project as a whole, based on identified quantities, costs, and contingencies developed from a 

list of identified uncertainties from both opportunities and threats and their potential impact 

on the project. 

4. Cost-based estimation—involves estimating the cost for items of work based on the cost of 

each component of a project, considering the associated labor, equipment, and materials 

costs. The method also involves adding a reasonable amount for a contractor’s overhead and 

profit. The process mimics the method that a contractor uses for preparing a bid-day estimate.

When prepared with the proper skill, experience, and effort, cost-based estimates are usually 

considered the most accurate of the five methods. 
2 

5. Combination of historical and cost-based estimation—involves estimating the cost for items 

of work based on the cost of each component of a project and considering the associated 

labor, equipment, and materials costs, based on historical bid items of past projects. The 

method also involves adding a reasonable amount for a contractor’s overhead and profit. The 

process involves developing cost estimates for each project (like the cost-based method). 

However, it uses a bid-history database instead of cost estimates from material suppliers and 

historical production rates that are typically used in a cost-based method. 

Familiarity with these methods is an important aspect of helping provide oversight for other 

agencies that conduct cost estimates required by FHWA (FHWA 2018). 

PROJECT OBJECTIVE

The primary objective of this task order was to identify what, when, why, and how FHWA and 

the Office of Federal Lands Highway (FLH) oversee and/or develop costs estimations for 

transportation construction projects. FHWA will use this information to provide more consistent 

oversight of project cost estimates by State transportation agencies (STAs). 

FHWA’s program is delivered through two main administrative areas: the Federal-Aid Highway 

Program (FAHP) and the Federal Lands Transportation Program and Tribal Transportation 

Program.

The FAHP provides Federal financial resources and technical assistance to State and local 

governments for constructing, preserving, and improving the National Highway System (NHS), a 

163,000-mi network that carries approximately 45 percent of the Nation’s highway traffic. The 

program also provides resources for an additional 1 million mi of urban and rural roads that are 

not on the NHS but are eligible for FAHP assistance (Earsom et al. 2010). The FAHP is 

administered by the FHWA division offices (DOs) in each State, Puerto Rico, and the District of 

Columbia. 

The Federal Lands Highway Program (FLHP) provides financial resources and technical 

assistance for a coordinated program of public roads that service the transportation needs of 

Federal and Indian lands. The program provides funding for public roads and highways within 

federally owned lands and Tribal lands that are not a State or local government responsibility.

The FLHP is subdivided into seven core areas: U.S. National Parks Service, U.S. Fish and 

Wildlife Service, U.S. Department of Agriculture Forest Service, U.S. Bureau of Land 

Management, U.S. Army Corps of Engineers, U.S. Bureau of Reclamation, and independent 

Federal agencies with natural resource and land management responsibilities (House of 

Representatives 2020b). One of the major factors associated with the program’s success is 

FHWA’s strong relationship with Federal, State, local, and Tribal partners. The FLHP is 

administered by FLH headquarters and three DOs. 
3 

REPORT OVERVIEW

This report presents the relevant findings related to cost estimate and cost estimate oversight for 

transportation construction projects, both by FHWA DOs and STAs. The report includes four 

sections. Chapter 1 provides the research background. Chapter 2 describes the research 

methodology used to process diagrams and checklists designed to help DOs and FLH provide 

cost estimation oversight. Chapter 3 presents the process diagrams and checklists. Finally, the 

appendices include the surveys used by the research team.

5 

CHAPTER 2. RESEARCH METHODOLOGY

This project used a qualitative research method in which the two major components were an 

extensive literature review and interviews with subject matter experts. The literature review was 

instrumental in developing the questionnaires used in the interviews. The research panel selected 

and later contacted the subject matter experts. The following sections describe the literature 

review and data collection process. 

LITERATURE REVIEW

The research team conducted a literature review to compile the most common practices for cost 

estimating and cost estimate development oversight for transportation agencies. A portion of the 

literature used for the development of the project was obtained from extensive internet research. 

Additionally, multiple agencies from different States, including FHWA Federal-aid DOs and 

STAs, provided guidelines and documentation on how to create, document, review, and oversee 

cost estimates.

DATA COLLECTION

Once the researchers gathered relevant information from the literature review, they created the 

survey for the first of two rounds of structured interviews (appendix A and appendix C). They

distributed the survey to the previously selected subject matter experts from DOs, STAs, and 

FLH. The participants were selected because of their experience, roles, and responsibilities in the 

cost estimate development and oversight processes in their respective agencies.

The experts were asked to review the survey, which was completed during a videoconference 

interview conducted by the researchers. These interviews were then used to determine the most 

useful cost estimate development and oversight methods. 

The purpose of the first round of interviews was twofold. First, the interviews were conducted to 

validate the cost estimate development and oversight practices found in the literature. Second, 

the interviewees played a key role in contributing information about practices used in their States 

as well as practices that they had seen used in other agencies. After the first round of interviews, 

the researchers compiled a list of best practices for the second round of interviews along with 

diagrams describing the cost estimate oversight processes.

The purpose of the second round of interviews was to validate the practices obtained during the 

first round of interviews. After the second round of interviews, the researchers developed a final 

list of practices and multiple diagrams to include in the final report.

First Round of Interviews

In total, eight DOs, six STAs, and one FLH office participated in the first round of interviews. 

The interviews consisted of a series of questions related to the participant’s knowledge of 

approaches used in cost estimation, efficacy of the methods, perception of counterparts’ 

knowledge in cost estimation (i.e., what do STAs think of the DOs and vice versa), challenges, 
6 

cost performance measures, cost estimate development, estimate oversight, and post-bid 

practices. Copies of the interview guides are provided in appendices A and C. 

This report identifies States using unique capital letters to protect the interviewees’ privacy. If 

experts from a DO and STA from the same State were interviewed, they are presented as X-DO 

and X-STA, respectively. Compiled transcripts of the interviews can be found in the appendices: 

appendix B includes the compiled transcripts from STA interviews, and appendix D includes the 

compiled transcripts from DO interviews.

Response to Approaches

In the first interviews, the agencies were asked how familiar they are with the different cost 

estimating methods, including the historical bid-based method, cost-based method, conceptual 

estimation, risk-based approach, and a combination of historical bid-based and cost-based 

methods. 

The agencies’ overall familiarity with the different methods varied depending on what they use 

the most. Overall, the agencies are more familiar with (i.e., most commonly use) the historical 

bid-based method, especially DOs and STAs. Next, DOs and FLH were familiar with a 

combination historical and cost-based and conceptual estimation, while STAs were familiar with

conceptual estimation and a combination of historical and cost-based. DOs and FLH were least 

familiar with risk-based and cost-based methods, while STAs followed a similar trend of being 

least familiar with cost-based and risk-based methods. Table 1 and table 2 present a ranking of 

the familiarity of the aforementioned methods for DOs and STAs, respectively.

Table 1. Ranking of the level of familiarity for DOs and FLH.

Method Ranking

Historical bid-based 1

Combination of historical and cost-based 2

Conceptual estimation 3

Risk-based 4

Cost-based 5

Table 2. Ranking of the level of familiarity for STAs. 

Method Ranking

Historical bid-based 1

Conceptual estimation 2

Combination of historical and cost-based 3

Cost-based 4

Risk-based 5

For the next set of questions, it is important to define what a min-max normalization is. This type 

of normalization uses the minimum and maximum scores obtained in a set of questions and 

converts them to the original range to show the new normalized values (figure 1). This method is 

used for consistency among questions answered.
7 

Figure 1. Equation. Min-max normalization. 

Where:

A′ = normalized score value. 

A = original score value. 

[C,D] = range of the original conversion. 

For example, if the range used is [1,10] and the minimum and maximum for a respondent are 

6.5 and 8, respectively, then the normalized values for 6.5 and 8 are 1 and 10, respectively 

(Saranya and Manikandan 2013). 

Additionally, the responses to the next questions include blank cells. The blank cells mean that 

no interview was conducted for that agency. For example, in table 3, State A’s DO did not 

participate in the interviews, whereas State A’s STA did participate.

Response to Efficacy

Regarding the efficacy of the cost estimating methods, the overall perception, both from DOs 

and STAs, is quite similar. The general idea is that estimates have room for improvement, but 

they serve as benchmarks for comparison. In this section of the interviews, the interviewees were 

asked about three subjects: confidence in the cost estimates, confidence about estimating 

methods, and accuracy of the estimates developed. Table 3 summarizes the questions asked 

about the efficacy of the cost estimates and the methods used to develop them. This question 

summarizes the responses for questions 1–3 on page 55. 
8 

Table 3. Perception of efficacy of the estimating methods. 

State DOs STAs

A — 3.0

B — 8.4

C 7.8 6.7

D 4.0 6.3

E 7.8 3.8

F — 5.7

G 7.8 —

H 7.4 —

I 7.0 —

J — —

K 9.3 —

L — 5

—No data.

Note: The scale was from 1 to 10, where 1 is low perception of 

efficacy and 10 is high perception of efficacy. Min-max 

normalization was used to make equivalent comparison between 

the responses from individuals from DOs and STAs. 

Response to Perceptions

When it comes to how agencies perceive their counterparts, the interpretations differ depending 

on whether a DO or an STA is asked and depending on the State the agency represents. The 

comments described both positive and negative interactions. While the sample is not big enough 

to support any statistical analyses, the perception seems to be polarized. The low scores observed 

in table 4 result from the lack of communication between some STAs and their respective DOs.

This question summarizes the responses to questions 4–8 on pages 56–58. 
9 

Table 4. Perception of the knowledge and involvement of the counterpart. 

State

DOs Perception of 

STAs

STAs Perception 

of DOs

A — 5.8 

B — 9.6 

C 1.0 7.5 

D 2.0 7.3 

E 8.5 2.6 

F — 6.8 

G 7.0 — 

H 9.0 — 

I 8.9 — 

J 9.4 — 

K 8.5 — 

L — N/A

—No data

N/A = not applicable.

Note: The scale was from 1 to 10, where 1 is a low perception of knowledge 

and involvement and 10 is a high perception of knowledge and involvement.

Min-max normalization was used to make equivalent the responses from 

different individuals. STAs are DOs counterparts and vice-versa. 

Comments received about the perceptions are included in the following section to help illustrate 

the source of some of these differences. 

State A 

A-STA

“We do not have a daily oversight. We have to give them [FHWA] a report of how we’ve 

done over a year, so it’s an annual report. I’m not sure what happens to that or what’s 

done about that.” 

State B 

B-STA

“We do not have that much interaction with them [FHWA], but whenever we talk, the 

interactions are good. This happens so very seldom.” 

State C 

C-DO

“Before we start, let me save you some time. We are not involved at all with estimates. 

We only help them [STA] with new estimating strategies or if they need approvals.”
10 

C-STA

“The only person I’ve talked to in FHWA that I’ve really talked to that is super interested 

in what we’re doing is [person from FHWA headquarters]. That’s the only contact I have 

with estimating on a regular basis.”

Q: So, you do not talk to C-DO?

A: “Not a lot. I’ve tried to send stuff over to them [FHWA], and they say ‘No, no, no.’”

State E 

E-STA

“We do not get any support from them [FHWA]. We have asked for information and 

recommendations, and we’ve had no response. We’ve sat with them [FHWA] in person, 

they say they’ll get us what we need, and then there’s no followup. We now talk directly 

to an FHWA committee that I am part of, and that is the only way we get oversight. We 

also go to other States instead of our DO.”

E-DO

“If they [STA] want to fully reject a bid, they have to check in with us.” 

“We have monthly contact, at least. They [STA] like to check and make sure.” 

State J 

J-DO

“FHWA is trying to take a step back and let STAs run the show.” 

“J-STA is a leader in cost estimating. We learn from them.”

Response to Challenges

The interviews identified the following challenges experienced by the participating STAs when 

developing cost estimates: 

• Time available to develop estimates. 

• New bid item estimations (especially for States using the historical bid-based approach). 

• Staff shortages. 

• Lump-sum items. 

Likewise, the most common challenges for overseeing cost estimates among the DOs 

interviewed for the study included:

• Lack of early-stage involvement. 
11 

• Limited access to available software systems. 

• Rework required for shelved projects. 

• Quantity of bid items. 

• Package to the bidder lacks details (e.g., no locations). 

• Lump-sum items.

Table 5 summarizes the responses from the STAs and DOs about how challenging it is to 

develop and oversee cost estimates. When asked about the challenges of working with the DOs, 

the STAs reported communication—or lack thereof—was the biggest challenge. Some STAs 

also mentioned that the DOs are understaffed, which makes it harder to work with them. This 

question summarizes the responses to questions 4–7 on pages 59 and 60. 

Table 5. Summary of how challenging it is to develop/oversee cost estimates. 

State

DOs Response STAs Response

Value Value

A — 6.6 

B — 5.8 

C 7.2 6.4 

D 5.3 7.1 

E 6.7 3.3 

F — 5.0 

G 6.7 — 

H 8.8 — 

I 8.0 — 

J 8.8 — 

K 8.3 — 

L — 5 

—No data.

Note: The scale was from 1 to 10, where 1 is not challenging at all and 10 

is highly challenging. Min-max normalization was used to make equivalent 

the responses from different individuals. STAs are DOs counterparts and 

vice-versa.

Response to Cost Performance and Competition Measures

For the performance measures, four respondents (one STA and three DOs) use State 

Transportation Improvement Program (STIP) performance measures. In contrast, all respondents 

from STAs, DOs, and FLH use plans, specifications, and estimates (PS&E) performance 

measures. All the interviewees stated that their agencies use the cost performance and 

competition measure stipulated in the FHWA guide (low bid to be within +/−10 percent of the 

PS&E estimate for 50 percent of all projects) (FHWA 2020). On top of the +/−10 percent

stipulated by FHWA, 50 percent of the respondents compare the PS&E to the low bid. 

An interesting concern brought up by an STA is that they do not like to use the phrase 

“performance measures.”
12 

“...we’re trying not to chase the contractor’s bid. We’re trying to determine what 

something should really cost. We want to see the difference between the bids and the 

engineer’s estimate [EE]. These are not really measures; these are indicators.”

Two agencies also use other measures. For example, B-STA uses the low bid within −25 percent 

+10 percent of the PS&E, but if the project is less than $500,000, they use −25 percent/ 

+15 percent. Alternatively, E-STA compares the original bid to the final cost.

Regarding competition, none of the interviewees stated that their agency rejects bids for lack of 

competition. However, when the number of bidders is low, the bids are reviewed more 

thoroughly. Similarly, if the low bid is too far from the EE, the bids are not automatically 

rejected, but the bids are reviewed to see if the differences are justified. If that is the case, some 

STAs (three out of six) are allowed to award the bid, whereas one agency mentioned that they 

have to verify the funding available for the difference. Usually, the threshold for a bid to be too 

high is 110 percent of the EE, and that mostly applies to design-bid-build (DBB) projects. For 

other contracting methods (e.g., design-build (DB)), one agency mentioned that it requires at 

least three bidders to award a project.

Response to Cost Estimate Development

Generally, STAs update estimates on a timely basis once the projects go into the STIP estimate. 

Most States update estimates annually, but some do it every 6 mo (as the guidance suggests). 

E-STA said it found that not everyone meets the 6-mo goal (according to their internal STA 

guidance), but those that use it achieve better results. 

STAs prepare estimates for each milestone of a project. Agencies have different milestone 

classifications, but the most common stages are 30 percent, 60 percent, 90 percent (draft PS&E), 

and final PS&E. Unlike the majority of STAs interviewed, F-STA uses 95 percent for its draft 

PS&E. B-STA mentioned that it requires a minimum of three estimates, but the standard is eight 

estimates. Most STAs (four out of six) mentioned that they require an annual estimate during the 

preliminary phases (once the project enters the STIP) and then one estimate per milestone.

A concern brought up by both STAs and DOs is that their counterparts seem to be overwhelmed 

with work or are understaffed. One STA, in particular, mentioned that neighboring States with 

smaller programs have significantly larger teams.

Response to Contingency and Risk 

Regarding Contingency from State to State and from project to project, four out of six STAs 

interviewed use percentages that decrease as the project estimate advances toward the final 

PS&E. The percentages used for each stage vary from State to State, ranging from 40 percent in 

the early planning stages to 5 percent for the final PS&E. The highest contingency percentage for 

the early stages was 40 percent, and the lowest percentage for the early stages was 25 percent. 

However, all the States that use the percentage approach use 5 percent for the final PS&E. The 

remaining two STAs use one of two approaches. One uses contingency on items that are hard to 

quantify, and the other one sets aside money once the project is let. (It is unclear how they 

determine the amount.) 
13 

When it comes to risk, one STA sees it as a contingency. Those that do not see it as contingency 

have different approaches that vary in complexity. One STA tries to find projects with similar 

risks and copy the risks to the new projects. One agency uses a risk registry, which is a tool that 

allows people involved in the project to document and manage risks as well as actions to mitigate 

the risks identified for all their projects. Five out of six agencies use probabilistic risk approaches 

for larger projects and alternative delivery methods (i.e., DB and construction manager/general 

contractor (CM/GC)). Finally, three agencies use a combination of risk registries and 

probabilistic approaches (for smaller and larger projects, respectively). Generally, the more 

complex risk approaches are used for larger projects. B-STA mentioned that for very large 

projects (greater than $500 million), they hire consultants to perform a risk assessment. 

However, one agency in particular—I-STA—said that they do not track risk because “[Risk] is 

embedded in the historical bid prices.” 

Response to Price Tracking

The research team asked the STAs whether they contact vendors and suppliers to inquire about 

prices. All of the STAs interviewed contact vendors. However, they have different approaches, 

as follows: 

• A-STA routinely contacts vendors and suppliers about prices. 

• B-STA has consultants inquire about prices. 

• C-STA gets quotes but stated that it is difficult to get information without revealing key 

aspects of a project. 

• D-STA asks for prices mostly on alternative project delivery contracts. 

• E-STA only requests prices for unique items. 

• F-STA asks for general pricing information, not on a project-to-project basis.

E-STA pointed out that the price variation was more significant when it was linked to location 

than when it depended on the supplier or type of material. For example, one STA said, “We 

found out that the asphalt prices vary $3–5 per unit depending on the type of mix, but the 

variation was about $20 per unit depending on the location.” 

In dealing with location-related prices, two agencies said that they could conduct site visits to 

identify vendors and labor costs, but two other agencies indicated that they do not have enough 

personnel or are too centralized to conduct site visits. Nevertheless, 83 percent of the STAs 

interviewed are adjusting for individual project conditions, such as location, traffic, terrain, 

season, accessibility, and project size. The remaining 17 percent said that these adjustments are 

unnecessary because they are inherent in historical bid prices.

Response to Cost Indexes

All interviewed STAs use some type of cost index, and 83 percent of them have at least one kind

of in-house developed index, whether it is a fuel index, asphalt index, or a cost index. The cost 

indexes do not necessarily follow the same methodology as the National Highway Construction 

Cost Index (NHCCI) (FHWA 2021). Those that do not mimic the NHCCI mentioned that they 

follow the methodology developed by other States.
14 

Response Bidding and Post-Bid Practices

The research team asked the agencies about the information that is publicly available about the 

EE when it comes to bidding and post-bid practices. 

During the advertising period, the information available in the EE differs from State to State. For 

instance, 83 percent of the STAs provide information about the project’s size, whether by 

publishing a range of the EE, a price category into which the project is expected to fall, an exact 

number (not the EE), or the exact EE, along with the other documents. One interviewee pointed 

out that providing the exact EE “Is very unusual.” All the State agencies interviewed said that the 

information they release is available online. The remaining 17 percent of the interviewed STAs 

do not provide information about the size of a project before advertising the bid. 

The information provided by the DOs interviewed is similar to what the STAs provide. Only one 

of the States said that their STA does not publish anything. In contrast, the other seven said that 

their respective STAs provide information about the size of the project, whether by providing an 

exact number or a price range of the EE. On the other hand, for a minority of projects, FLH 

provides a range of project sizes, based on the EE, in private meetings. 

One STA mentioned that it is illegal in their State to release the EE, even after the bid is 

awarded. For those States where releasing the EE is legal, two STAs do not publish it at all, one 

STA publishes only the total (i.e., with no detailed breakdown), and two STAs and FLH publish 

it in detail (i.e., with a detailed breakdown. However, one of the STAs that does not publish the 

EE mentioned that if someone challenges it, the STA would have to release it because there is no 

law or regulation protecting it. This same agency pointed out that they have no recollection of 

having a request for the release of the EE.

The research team also asked about changes to the estimate during the advertising period, 

discounting addenda or quantity changes. Only two STAs responded positively to this question. 

One adjusts for fuel price changes, and the other said that if the bids come in very different from 

the EE, they will look at the prices and may revise the bids at that point. Currently, more than 

50 percent of the States reject all bids and potentially reach out to bidders. The States might also 

reevaluate if they have to use force account work, which is work for which the payment falls 

under a cost plus system, for supplemental agreements, or for claims obtained through a judicial 

procedure (Jorge and Herbsman 1989). 

IDENTIFIED BEST PRACTICES IN COST ESTIMATE DEVELOPMENT AND COST 

ESTIMATE OVERSIGHT

After completing the first round of interviews, the team developed an interim report containing a 

compilation of the common practices for cost estimate analysis and oversight. As mentioned 

earlier, these practices were found in the literature review as well as in the guidelines provided 

by the interviewees. The common practices identified are as follows: 

• Practice A: Applying the Pareto principle. 

• Practice B: Comparing historical projects.

• Practice C: Monitoring and updating cost estimates. 
15 

• Practice D: Identifying factors that influence project cost. 

• Practice E: Analyzing cost estimates. 

Each of the aforementioned practices is described in the following section. 

Practice A: Applying the Pareto Principle

One of the most common practices among the interviewed States (both STAs and DOs) is when 

using the Pareto principle—also known as the 80/20 rule—for reviewing cost estimates. The 

principle states that 80 percent of a project’s associated cost can be explained by 20 percent of 

the items. In this way, States encourage estimators to identify which bid items comprise 

80 percent of the estimates, so they can focus on these items while conducting estimate reviews 

(as shown in table 6, extracted from the Wisconsin Department of Transportation’s (WisDOT’s) 

esd-template) (WisDOT n.d.). Nonetheless, this practice must complement other practices to 

avoid mathematically or materially unbalanced bids. For example, the California Department of 

Transportation (Caltrans) states the following in their “Cost Estimating On-The-Job Training,” 

“Remember never use single low bid data point, it could be from an unbalanced low bid1

.” This 

practice is recommended for checking bid unit prices to ensure that the low bid unit price is not 

unbalanced.

Table 6. Sample from WisDOT’s esd-template (WisDOT n.d.). 

ITEM LEVEL DOCUMENTATION

Significant Items List—Top 20 percent of items out of total contract costs and lump sum 

items

Enter item documentation or list significant items with attachment containing 

documentation

Nonsignificant Items Summary—Summary of estimating methodology 

Enter text.

Estimate Review Summary

Consultant Reviewer(s):

Region Reviewer(s):

© WisDOT.

In table 6, the first field, “Significant Items List” refers to the items to be checked, which should 

comprise 80 percent of the estimate, according to the Pareto principle. The second field, 

“Nonsignificant Item Summary,” describes the approach used to create the estimate. Finally, the 

third field, “Estimate Review Summary,” is where comments that had a direct impact on unit 

prices should be written. This section should not include iterations of comments between the 

review and design teams; the final decision should be enough. A typical list of items that 

comprise 80 percent of the estimate includes excavation, embankment, pavements, drainage, 

structural steel, and structural concrete. However, it is important to note that this list will vary 

depending on the type of project (Pennsylvania Department of Transportation 2018). 

1

Caltrans. 2018. “Cost Estimating On-The-Job Training.” Presentation.
16 

Practice B: Comparing Historical Projects 

Another commonly recommended practice for estimate oversight is to check prices for existing 

projects with similar conditions (e.g., location, size, type of project, material type). This 

comparison helps the reviewer find relevant historical data to complete their oversight or to 

develop the cost estimate of new projects. WisDOT (2022) developed a spreadsheet used to 

compare projects with historical data using nine different filters (figure 2). In this tool, the user 

selects the characteristics of the project to be analyzed. These characteristics will filter similar 

projects, extracted from an existing database of more than 1,000 executed projects, so that the 

historical data used in the comparison are more relevant and accurate.

This tool also helps identify the relevant items for the Pareto principle. After selecting the filters, 

the results (figure 3) show the relevant item classes and their percentage relative to the project. It 

also shows the average number of bidders for the filtered options (WisDOT n.d.). 
17 

© WisDOT.

Asph Surf = asphalt surface; Brg = bridge; CIR = circumference; Gen Const = general construction; Inc = incomplete; NC = north central; 

NE = northeast; NW = north west; SE = southeast; SHRM = State highway rehabilitation-maintenance; SW = south west; sth = State highway; 

TWN RD = town road; USH = U.S. Highway. 

Figure 2. Chart. WisDOT’s filters for obtaining historical data for similar projects. 
18 

© WisDOT.

SP Vs = special provisions. 

Figure 3. Screenshot. Sample data from historical data. 
19 

Practice C: Monitoring and Updating Cost Estimates

Project cost estimates must be kept current. After developing the initial cost estimate, most STAs 

use the following updates to ensure that the project cost estimates are current: 

• Annual updates: Estimates should be updated once a year to reflect any changes in the 

quantities or scope of the estimate. Estimates should also be updated with current unit 

costs for the bid items included in the estimate.

• Programming cycle: Each programming cycle should require an updated estimate to be 

used as a benchmark for the next programming cycle. 

• Significant changes in project costs: If a project has substantial changes in scope, size, 

risks, or other factors that might represent a significant change in the project cost, a new 

estimate should be prepared to accommodate said costs.

• PS&E expiration: Once a project reaches the final PS&E estimate, the costs must be 

updated every 3 mo to reflect current market conditions.

Knowing these updates are being performed would help conduct oversight of a cost estimation 

program. 

Practice D: Identifying Factors that Influence Projects Cost

Cost oversight reviewers and estimators should keep in mind the factors that influence project 

cost. Following are some of the factors that must be considered when providing cost oversight or 

developing an estimate:

• Direct costs to the contractor:

o Materials: Consumables that will become part of the project.

o Labor: People in charge of executing the work. 

o Equipment: Tools and machines necessary to execute the work.

• Overhead and other indirect costs: Administration, management, and some major pieces 

of equipment used across multiple tasks (e.g., cranes).

• Profit: Margin gained by the contractor as a result of completing the project.

• Direct cost price trends: Behavior of market prices and their impact on materials and 

labor costs. 

• Average prices from recent lettings: Prices of similar items in recent lettings. If recent 

prices have increased or decreased, new prices will likely behave similarly.

• Competition: Historical projects and literature show that competition influences project 

costs. Usually, the fewer bidders there are, the farther away from the EE the actual cost.
20 

• Characteristics of the work that may impact the overall or unit costs:

o Type: Whether it is paving, bridge construction, repairs, reconstruction, and so on. 

o Size: The dollar value associated with the project might impact the prices due to 

economies of scale.

o Location: If the project is far from material or labor sources, the prices will likely 

increase as a consequence of hauling or labor per diem. 

o Project accessibility: Similar to location, long haul distances or road qualities 

affect project prices.

o Staging area locations and their accessibility to the project’s location: Same 

effects of location and accessibility.

o Necessary restrictions (restricted work hours and/or tight time frames to complete 

the project): These restrictions affect the duration of projects. Additionally, 

nonordinary work shifts tend to be more expensive. 

o Special construction problems: Special problems require special solutions, which 

tend to be expensive. 

o Traffic: Traffic affects how the project can be conducted and poses additional 

safety risks.

• Specialized work: Nontraditional work that is not repetitive in nature tends to have 

different prices than linear work (e.g., paving project). Following is a list of specialized 

work: 

o Signs and traffic control devices.

o Lighting, buildings, rest areas, and so on. 

o Landscaping. 

o Railroads. 

o Utilities. 

o Bridges, walls, and other structures. 

Practice E: Analyzing Cost Estimates 

Using a standardized process for analyzing cost estimates provides consistency across an agency.

The following is a list of procedures and considerations for evaluating a cost estimate based on 

interviews and documents obtained from interviewees (Vermont Agency of Transportation 

(VTrans) 2018; VTrans 2019): 
21 

1. Project parameters. 

As mentioned in the previous sections, it is important to identify the following characteristics 

before analyzing a cost estimate. These first steps ensure that the prices used for the cost estimate 

are as aligned with the reality of the project as possible. 

a. Identify work type. 

b. Identify highway type. 

c. Identify urban/rural type. 

d. Identify season. 

e. Identify county. 

f. Identify region. 

g. Identify terrain type. 

2. Major cost deviations analysis for reasonableness and unbalancing.

a. Items to be analyzed are selected. Using the Pareto principle, 20 percent of the items 

that comprise roughly 80 percent of the estimate are selected to be analyzed. 

i. The acceptable deviation, in dollars, for a single item is determined.

Typically, the deviation is 1 percent of the contract total low bid or the 

total contract estimate (whichever is lower). This deviation is the 

maximum allowable for any particular item for the estimate being 

analyzed. In other words, no item should deviate more than 1 percent of 

the low bid or total contract amount. 

ii. The items where the actual difference of the extended low bid amount 

(quantity multiplied by unit price) is higher or lower than the extended 

estimate amount by more than the acceptable deviation as determined in 

a.i) are identified.

iii. An acceptable level of cost variance is determined. 

An acceptable level is considered to be 80 percent of the sum of the 

absolute value of the difference of the extended low bid amount minus the 

extended estimate amount for all pay items in the contract. Using the 

absolute values ensures that all variances will be analyzed whether high or 

low. This method provides a better analysis of projects with an overall low 

bid that is reasonably close to the estimate but with individual pay items 

with high variance between the extended low bid amount and the extended 

estimate amount.

iv. The sum of the absolute value of the difference of the extended low bid 

amount compared to the extended estimate amount for the items identified 

in item a.ii is compared to the acceptable level of the cost variance as 

determined in a.iii to determine if a reasonable analysis level has been 

met.
22 

If the sum of the absolute values of the difference of the extended low bid 

amount minus the extended estimate amount for the identified pay items is 

not greater than, or reasonably close to, the acceptable level of the cost 

variance, then the acceptable deviation from a.i is adjusted up or down to 

add to the identified item list until the acceptable level is met.

b. A detailed analysis is performed on the selected items. The analysis can include 

quantity checks, estimated price checks, specifications review, bidder questioning, 

low bid relation to second and third bids, bid comparison to similar projects, and 

other methods. The intent is to determine the reasonableness of the bid and if it is

unbalanced. 

3. Unit price deviation analysis for unbalancing. 

a. Identify the items where the low bid unit price exceeds the estimated unit price.

As a starting point, analyze items where the low bid unit price exceeds the 

estimated unit price by 25 percent or more.

b. Identify the items where the low bid unit price is lower than the estimated unit 

price. As a starting point, analyze items where the low bid unit price is lower than 

75 percent of the estimate.

c. If an item has been analyzed as part of step 2 (major cost deviations analysis for 

reasonableness and unbalancing), no additional analysis is needed. 

d. If an item has not been analyzed as part of step 2, perform an estimate and 

quantity check to determine if unbalancing is present. 

e. Additional considerations may include the number of bidders, bids from second 

and third bidders, project urgency, and market conditions. 

4. Competition analysis. 

a. Identify the EE.

b. Identify the number of bidders. 

c. Identify the range of bids.

i. If the number of bids and corresponding bid amounts are classified as 

adequate competition per table 7, no further analysis is required for 

step 4.c. 
23 

Table 7. Competition analysis.

Number of Competitive Bids*

Competition May Be Considered Adequate 

When the Low Bid Does Not Exceed

5 120 percent of EE

4 115 percent of EE

3 110 percent of EE

2 105 percent of EE

1 EE

*Range = low bid + 20 percent.

ii. If the number of bids and corresponding bid amounts fall outside of the 

classification of adequate competition per table 7, justification regarding 

why the contract should be executed is required and should consider the 

following:

1. Safety of the traveling public. 

2. Emergency work and/or situations. 

3. Analysis of bid history on similar (scope and/or geography and/or 

cost) projects—identifying whether improved competition would 

be anticipated if the project were re-let.

5. Documentation of results and recommendations. Documentation of the analysis is in the form 

of a memo to contract administration.

a. The documentation will include a narrative of general observations, the number of 

bidders, range of bids, acceptable deviation used, any findings from step 2 of the 

analysis, and a summary statement of what the analysis found.

b. The documentation will include a detailed narrative for each pay item analyzed in 

steps 2 and 3. 

c. The documentation will include the results of the analysis in step 4. 

d. The documentation will contain a recommendation for the award or rejection of 

the bid. 

Second Round of Interviews 

After conducting the first round of interviews and writing up the interim report, the research 

team met to review the report and evaluate the next steps. They decided to conduct a second 

round of interviews to evaluate the subject matter experts’ views on the identified best practices 

for cost estimate oversight, cost estimate oversight checklist, and process diagrams developed for 

cost estimate oversight at a project and program level. The followup interview document can be 

found in appendix E. 
24 

Responses for Identified Best Practices for Cost Estimate Oversight

The researchers asked the interviewees to rank their familiarity with each of the six practices 

described previously on a score from 1 to 10. The interviewees were also asked to provide a 

separate score for how useful they considered each practice to be. For both questions, 1 is the 

lowest, and 10 is the highest for their respective characteristics. The responses are summarized in 

table 8 through table 13. 

Practice A: Applying the Pareto Principle

A project cost review can be governed by the principle that 80 percent of a project’s associated 

cost can be explained by 20 percent of the items. 

Table 8. Responses for familiarity and usefulness of the Pareto principle. 

State Familiarity Usefulness

A 1 6

B 1 1

C 10 10

D 10 1

E 10 7

F 10 10

G 10 10

H 1 6

Median score 10 6

Practice B: Comparing Historical Projects 

This practice compares the proposed cost to historical costs of previous projects. 

Table 9. Responses for familiarity and usefulness of historical project comparison. 

State Familiarity Usefulness

A 10 10

B 10 10

C 10 10

D 10 1

E 1 10

F 10 5

G 10 10

H 5.5 1

Median score 10 10
25 

Practice C: Monitoring and Updating Cost Estimates 

This practice ensures the estimated project costs are kept updated and current throughout the 

project development process. 

Table 10. Responses for familiarity and usefulness of monitoring and updating cost 

estimates. 

State Familiarity Usefulness

A 1 1

B 9 8

C 10 10

D 1 1

E 1 1

F 10 7

G 10 10

H 10 10

Median score 9 8

Practice D: Identifying Factors that Influence Project Cost 

Cost oversight reviewers and estimators should be familiar with how different project 

characteristics influence costs. 

Table 11. Responses for familiarity and usefulness of knowledge of factors that influence 

projects cost. 

State Familiarity Usefulness

A 6 6

B 10 8

C 1 1

D 10 10

E 1 10

F 10 10

G 3 10

H 6 10

Median score 6 10
26 

Practice E: Analyzing Cost Estimate Procedures

This practice applies industry-recognized procedures to analyze a project estimate. 

Table 12. Responses for familiarity and usefulness of procedures for analyzing a cost 

estimate. 

State Familiarity Usefulness

A 1 10

B 8 6

C 3 10

D 10 4

E 1 7

F 1 1

G 1 1

H 1 1

Median score 1 7

Developing Estimate Oversight

This additional practice refers to how different DOs currently conduct the oversight process for 

STA programs and projects. On September 25, 2020, FHWA’s Office of Stewardship, Oversight, 

and Management issued the revised FHWA Risk-based Project Involvement Guidance (FHWA

2020). Although FHWA had been implementing risk-based stewardship and oversight 

procedures for several years, the revised guidance provides an updated process and procedures.

The new guidance requires DOs to document their risk-based project oversight procedures in 

their stewardship agreements. FHWA DOs will continue to perform reviews of State department 

of transportation (DOT) programs on a risk basis. DOs will also use risk assessments to develop 

their oversight procedures for project activities. Thus, FHWA’s involvement in a State’s 

estimating program and project-specific estimates will be determined by the DO’s risk 

assessment procedures. Table 13 through table 15 summarize the interviewees’ responses 

regarding their familiarity and usefulness of estimate development oversight practices.
27 

Table 13. Responses for familiarity and usefulness of estimate development oversight. 

State Familiarity Usefulness

A 1 3

B 7 1

C 10 3

D 10 1

E 0 7

F 1 1

G 6 4

H 1 1

Median score: 4 2

Table 14. Rank of practices by perceived usefulness. 

Practice Usefulness

Knowledge of factors that most influence a project 1

Historical project comparison 2

Pareto principle 3

Monitoring and updating cost estimates 4

Procedures for analyzing cost estimates 5

Estimate development oversight 6

Table 15. Rank of practices by familiarity. 

Practice Familiarity

Historical project comparison 1

Pareto principle 2

Monitoring and updating cost estimates 3

Knowledge of factors that influence project cost 4

Estimate development oversight 5

Procedures for analyzing cost estimates 6

From the preceding tables, it is clear that knowledge of factors that influence project cost, Pareto 

principle, and historical project comparison are instrumental in providing a good level of 

oversight and usually are used in conjunction. For example, if a historical project comparison is 

being used to compare a cost estimate with a complete project, it is convenient to select the 

20 percent of items that comprise roughly 80 percent of the estimate (Pareto principle). For this 

20 percent of items, it is important to have knowledge of factors that influence project cost. 

SUMMARY

Through a literature review and two rounds of interviews, five specific cost oversight practices 

were identified and defined. Interview participants were asked to rate each practice in terms of 
28 

their familiarity and usefulness in providing cost estimate oversight. These five practices, listed 

in order from their most to least useful, are as follows: 

• Practice D: Identifying factors that influence project cost (knowing how different project 

characteristics influence project costs). 

• Practice B: Comparing historical projects (comparing proposed cost to historical costs of 

previous projects). 

• Practice A: Pareto principle (a project cost review governed by the principle that 

80 percent of a project’s associated cost can be explained by 20 percent of the items). 

• Practice C: Monitoring and updating cost estimates (ensuring the estimated project costs 

are kept updated and current throughout the project development process). 

• Practice E: Analyzing cost estimate procedures (applying industry-recognized procedures 

to analyze a project estimate). 
29 

CHAPTER 3. OVERSIGHT CHECKLISTS AND PROCESSES

To research team developed a series of process diagrams to help illustrate how the cost oversight 

practices fit into a cost estimation oversight program as well as the cost estimation oversight for 

a single project. The oversight provided by the FHWA Federal-aid DOs can be divided into two 

approaches, program-level oversight and project-level oversight. Additionally, FLH has a unique 

way of operating. FLH develops its own estimates and does not receive oversight from another 

agency. In this regard, the program-level oversight applies only to interactions between STAs 

and their respective DOs. Figure 4 through figure 6 depict each of these oversight scenarios.

OVERSIGHT CHECKLISTS

This section describes the research team’s process for finalizing the checklist compiled during 

the interim report review. This checklist was part of the followup interviews with DOs, STAs, 

and FLH. The interviewees were asked whether the items on the checklist were appropriate. 

During the process, several questions were identified as redundant or unnecessary. This process 

reduced the number of items on the checklist without sacrificing its exhaustive nature. This 

reduction kept the items to the minimum number necessary to avoid overcomplicating the 

checklist while including critical aspects of a cost estimate oversight. 

The researchers asked the interviewees whether each item was worth keeping (“keep”) or not 

(“drop”). The team removed any item at or below a 50-percent keep rate. Table 16 through 

table 21 include the results from the interviews. The final checklists can be found in the next 

section.

Table 16. Oversight checklist keep percentage—guidance items. 

Guidance Items

Keep

(percent) 

Has the purpose of the estimate been defined? 63 

Has the estimating method been identified? 75 

Is the estimating method available for review? 75 

Is the estimate written down and available? 100 

Have allowances and factors been validated and are appropriate for the level of 

the estimate?

88 

Is the oversight team knowledgeable about the estimating method used? 75 

Has the estimate been prepared using a typical cost model (e.g., bid item 

codes)?

63 

Has the basis of the estimate been completed/updated with an explanation of 

changes?

88

Is a basis of estimate document available? 75 

Has the estimate been independently validated? 100 

Have all spreadsheet formulas been reviewed and totals been cross checked? 50 

Note: These items are used to inquire about general aspects of a cost estimate. They are related to the general 

purpose of the estimate and not to specific items of an estimate.
30 

Table 17. Oversight checklist keep percentage—uncertainty items. 

Uncertainty Items

Yes

(percent) 

Was a risk assessment conducted to identify, analyze, and evaluate risks? 88 

Is the estimate adjusted for inflation to year-of-expenditure dollars for each 

element of the project?

63 

Is project complexity considered in the estimate? 88 

Does the process include risk-based assessments of unknown and all uncertain 

costs?

88 

Are risk contingencies sufficiently removed from unit bid item prices in the base 

cost estimate?

88 

Note: These items refer to the unknowns (known unknowns and unknown unknowns) of the estimate and their 

respective assessments.

Table 18. Oversight checklist keep percentage—construction items. 

Construction Items

Yes

(percent) 

Are the estimate of unit prices reasonable for the areas, times, and characteristics 

of the work to be done? 

100 

Have incentive/disincentive or escalation clauses been considered in determining 

the estimated unit costs?

75 

Have all costs and durations been checked for conformity between amounts of 

work (item quantities) with the schedule durations to determine correctness?

100 

Is the estimate consistent with the project scope? 88 

Does the estimate include all initial preliminary engineering costs and final design 

costs?

38 

Does the estimate include construction administration? 50 

Are the unit costs of the estimate aligned with the costs used by the agency? 50 

Is a haul road restoration item provided? 50 

Note: These items are associated with the quantities and elements related to the physical execution of the projects.

Table 19. Oversight checklist keep percentage—finance items. 

Finance Items

Yes

(percent) 

Is force account work adequately justified? 63 

Is salvage credit shown (if applicable)? 63 

Does the estimate include a management reserve? Is this value sufficient for the 

project?

50 

Does the estimate include a public outreach cost? 38 

Are market conditions being taken into consideration? 88 
31 

Table 20. Oversight checklist keep percentage—nonconstruction items. 

Nonconstruction Items

Yes

(percent) 

Are utility and railroad force account work covered? 75 

Does the estimate include all right-of-way (ROW) and administrative costs? 75 

Does the estimate include all transportation system management/transportation 

demand management costs?

75 

Is nonparticipating work shown? 88 

Note: These items are not part of the physical execution of the project but should be considered part of the estimates.

Table 21. Oversight checklist keep percentage—regulation items. 

Regulation Items—Analyzing Bids 

Yes

(percent) 

Is the estimate materially balanced? 88 

Is the estimate mathematically balanced? 88 

Is a noncollusion statement included? 88 

Note: These items refer to the general quality and adherence to regulations of the estimate (letting). 

For the questions related to risk-based oversight (table 22), the consensus was that these items 

were relevant for projects that the DOs deem appropriate to oversee based on risk factors. 

However, the perception varies from State to State, primarily because of the size of each 

program. The FHWA guidelines define large projects as those with an EE of $500 million or 

more (FHWA 2020). However, the DOs of several smaller States said that, for them, high-risk 

projects are those of $10 million or more, and one of those States has not had a project exceeding 

$60 million. Additionally, the DOs highlighted that a project needing oversight was not 

necessarily a large project; States are more interested in the public impact of the project, the 

project visibility, and the risks involved. 

Along with the information provided previously, it is imperative for each State to have clear 

specifications of what makes a project worthy of oversight.
32 

Table 22. Oversight checklist keep percentage—risk items. 

For Risk-Based Estimates

Yes

(percent) 

Is the risk assessment process documented and available? 100 

If a consultant produced the risk assessment, what process is the consultant 

following, and are they willing to share the model they used to produce the final 

results?

100 

Did the State hold a risk workshop to provide input to the final results? If so, is a 

risk workshop final report available?

88 

What is the date on the risk workshop report compared to the date when the 

estimate was last updated?

88 

Did the staff responsible for developing the risk registry have the right level of 

subject matter experts attending to develop a robust risk register? If so, were 

subject matter experts in attendance representing design, ROW, roadway, 

structure, environment, permitting, utilities, lighting, etc.? 

75 

Did the staff responsible for developing the risk registry identify minor risks or 

significant risks to project cost and schedule?

100 

What risks were identified as most significant in terms of driving cost and 

schedule completion?

100 

Is a project risk tornado diagram available? 75 

Were the risks in the risk register ranked? 100 

Did the staff responsible for developing the risk registry use the risk expected 

value cost impact, schedule impact, etc.?

88 

If risks are ranked by expected value, how are low-probability, high-impact risk 

events addressed?

88 

How were the project budget and completion date determined from the probability 

cost and schedule forecast curves?

88 

Does the State have a reliability level to establish budget and schedule 

completion? How was this level determined?

88 

For the risk workshop forecast curves, are the curves wide or narrow? 75 

How does the State account for market conditions in the risk assessment model? 100 

Note: These items are relevant for projects not developed using conventional estimating methods and involving high 

risks. 

FINAL CHECKLIST

After going through the second round of interviews and receiving input from the subject matter 

experts, the research team compiled the most relevant questions into a checklist with a 

manageable number of items. The final checklist, with differentiation between the different 

categories that resulted from the development process, is shown in table 23 through table 29. 
33 

Table 23. Final oversight checklist—guidance items. 

Guidance Items Yes No N/A

Has the purpose of the estimate been defined? — — —

Has the estimating method been identified? — — —

Is the estimating method available for review? — — —

Is the estimate written down and available? — — —

Have allowances and factors been validated and are appropriate for the 

estimate level?

— — —

Is the oversight team knowledgeable about the estimating method used? — — —

Was the estimate prepared using a typical cost model (e.g., bid item 

codes)?

— — —

Has the basis of estimate been completed/updated with an explanation of 

changes?

— — —

Is a basis of estimate document available? — — —

Has the estimate been independently validated? — — —

—No data.

Note: These items are used to inquire about general aspects of a cost estimate. They are related to the general 

purpose of the estimate and not to specific items in an estimate.

Table 24. Final oversight checklist—uncertainty items. 

Uncertainty Items Yes No N/A

Was a risk assessment conducted to identify, analyze, and evaluate risks? — — —

Is the estimate adjusted for inflation to the year of expenditure dollars for 

each element of the project?

— — —

Is project complexity considered in the estimate? — — —

Does the process include risk-based assessments of all unknown and 

uncertain costs?

— — —

Are risk contingencies sufficiently removed from unit bid item prices in 

the base cost estimate?

— — —

—No data.

Note: These items refer to the unknowns (known unknowns and unknown unknowns) of the estimate and their 

respective assessments.

Table 25. Final oversight checklist—construction items. 

Construction Items Yes No N/A

Are unit price estimates reasonable for the areas, times, and 

characteristics of the work to be done?

— — —

Have incentive/disincentive or escalation clauses been considered in 

determining the estimated unit costs?

— — —

Have all costs and durations been checked for conformity between 

amounts of work (item quantities) with the schedule durations to 

determine correctness?

— — —

Is the estimate consistent with the project scope? — — —

—No data.

Note: These items are associated with the quantities and elements related to the physical execution of the projects.
34 

Table 26. Final oversight checklist—finance items. 

Finance Items Yes No N/A

Is force account work adequately justified? — — — 

Is salvage credit shown (if applicable)? — — — 

Are market conditions being taken into consideration? — — — 

—No data.

Table 27. Final oversight checklist—nonconstruction items. 

Nonconstruction Items Yes No N/A

Are utility and railroad force account work covered? — — — 

Does the estimate include all ROW and administrative costs? — — — 

Does the estimate include all transportation system 

management/transportation demand management costs?

— — — 

Is nonparticipating work shown? — — — 

—No data.

Note: These items are not part of the physical execution of the project but should be considered part of the estimates.

Table 28. Oversight checklist—regulation items.

Regulation Items—Analyzing Bids Yes No N/A

Is the estimate materially balanced? — — — 

Is the estimate mathematically balanced? — — — 

Is a noncollusion statement included? — — — 

—No data.

Note: These items refer to the general quality and adherence to regulations of the estimate (letting). 

Table 28 is only for projects meeting at least one of the following criteria: 

• Large project per State standards. 

• High-visibility project. 

• High-risk project.

A large project, per State standards, is a project whose size represents a significant portion of the 

State program’s budget. There should not be a dollar value attached to this definition because a 

small project for a large program could represent almost the entire annual budget for a small

program. For example, the annual budget for some States does not exceed $500 million for the 

whole program. Rather, a relative number is necessary to meet each specific agency’s “large 

project” oversight threshold.
35 

Table 29. Final oversight checklist—risk items. 

For Risk-Based Estimates Yes No N/A

Is the risk assessment process documented and available? — — —

If a consultant produced the risk assessment, what process is the 

consultant following, and are they willing to share the model they used to 

produce the final results?

— — —

Did the State hold a risk workshop to provide input on the results? If so, 

is a risk workshop final report available?

— — —

What is the date on the risk workshop report compared to the date the 

estimate was last updated?

— — —

Did the staff responsible for developing the risk registry have the right 

level of subject matter experts attending to develop a robust risk register? 

If so, were subject matter experts in attendance representing design, 

ROW, roadway, structure, environment, permitting, utilities, lighting, 

etc.?

— — —

Did the staff responsible for developing the risk registry identify minor 

or significant risks to project cost and schedule?

— — —

What risks were identified as most significant in terms of driving cost 

and schedule completion?

— — —

Is a project risk tornado diagram available? — — —

Were the risks in the risk register ranked? — — —

Did the staff responsible for developing the risk registry use the risk 

expected value cost impact, schedule impact, etc.?

— — —

If risks are ranked by expected value, how are low-probability, highimpact risk events addressed?— — —

How were the project budget and completion date determined from the 

probability cost and schedule forecast curves?

— — —

Does the State have a reliability level to establish a budget and schedule 

completion? How was this level determined?

— — —

For the risk workshop forecast curves, are the curves wide or narrow? — — —

How does the State account for market conditions in the risk assessment 

model?

— — —

—No data.

Note: These items are relevant for projects not developed using conventional estimating methods and involving high 

risks. 

COST OVERSIGHT PROCESSES

The oversight provided by the FHWA Federal-aid DOs can be divided into two approaches: 

program-level oversight and project-level oversight. FLH has a unique way of operating because 

they develop their own estimates but do not receive oversight from another agency. In this 

regard, the program-level oversight applies only to interactions between STAs and their 

respective DOs. The researchers developed a series of oversight process diagrams to help 

illustrate how the cost oversight practices and checklists can be used in a cost estimation 

oversight program as well as a single project. The following diagrams depict each of the 

scenarios described previously. 
36 

Project-Level Oversight Process

There are different perspectives to consider for the project-level oversight process. Since the 

STAs and DOs use different internal processes, the research team created different diagrams for 

the same process as viewed by STAs and DOs. Additionally, since FLH operates as a hybrid 

between STAs and DOs by creating their own estimates but only receives internal oversight 

instead of oversight from a DO, there is also a diagram that describes the FLH process.

Overall, the process has to meet several milestones regardless of which perspective is 

considered. These milestones are described as follows: 

1. The initial cost estimate should reflect anticipated preliminary engineering, reimbursable 

utility, right-of-way (ROW), construction, and other costs.

2. The initial cost estimate approval must be followed by the project manager (PM) requesting 

estimates from the ROW and utilities offices.

3. The preliminary field plan review must include all updated cost estimates, including ROW 

and utilities, and design phase leader approval (Georgia DOT 2012, 2013, 2020). 

Project-Level Oversight Process—STA and DO Perspectives 

The diagrams in figure 4 and figure 5 show the project-level oversight process from an STA 

perspective and the DO perspective, respectively. The STA perspective diagram depicts the 

interfacing between FHWA Federal-aid DOs and STAs for project-related activities selected by 

the DO risk assessment. The described process only happens for projects in which the DOs 

provide oversight. Usually, these projects are considered major projects (FHWA 2018). The DO 

perspective diagram shows what would interest someone from a DO providing oversight to an 

STA. These and the other cost oversight diagrams were presented in an FHWA national webinar, 

which is available online at https://connectdot.connectsolutions.com/pyif2h64b2ei/ (Nevett, 

Goodrum, and Corrigan 2022).
37 

Source: FHWA.

CE = construction cost estimate; CS = consultant; DPL = design phase leader; ES = STA office of engineering services; FFPR = final field plan review. 

Figure 4. Flowchart. Project-level oversight process—STA perspective (Nevett, Goodrum, and Corrigan 2022). 
38 

Source: FHWA.

Note: The STA should prepare an initial cost estimate prior to adding the project to the STIP.

Figure 5. Flowchart. Project-level oversight process—DO perspective (Nevett, Goodrum, and Corrigan 2022). 
39 

Project-Level Oversight Process—FLH Perspective

Figure 6 represents the internal oversight process that an FLH project goes through in its 

lifecycle to improve the accuracy of the cost estimate. Because FLH does not receive oversight 

from other agencies, all the interfacing described happens internally. Otherwise, the process is 

similar to that of STAs.

In general, there are six major milestones in the FLH oversight process:

1. Scoping cost estimate (0–30 percent): A Class C cost estimate is conducted. 

2. Preliminary cost estimate (30 percent): The initial estimate should reflect anticipated 

preliminary engineering, reimbursable utility, ROW, construction, and other costs.

3. Intermediate cost estimate (50 percent): This milestone is not used in eastern Federal lands. 

For this milestone, minor items are included to verify the major items in the preliminary cost 

estimate.

4. Plan-in-hand cost estimate (70 percent): Pay items for every work item in the project are 

developed. 

5. Final design cost estimate (95 percent): The PS&E must include all updated cost estimates, 

including ROW, utilities, and design phase leader approval. The chief engineer revises this 

estimate and approves it for submission. Pay items are defined for all work specified in the 

contract.

6. Sign-off cost estimate: The FLH office incorporates final recommendations and ensures all 

necessary permits are completed and addressed in the PS&E.
40 

Source: FHWA.

Figure 6. Flowchart. Project-level oversight process—FLH perspective (Nevett, Goodrum, and Corrigan 2022). 
41 

CHAPTER 4. CONCLUSION

The overall intention of the research was to analyze the benefits, complexities, similarities, and 

differences in the roles FHWA provides for cost estimate reviews. The researchers successfully 

identified and ranked a series of five practices used to oversee the cost estimation process. The 

researchers developed and validated a set of tools, including an oversight checklist and multiple 

process diagrams. These tools are useful for providing oversight for a single project cost 

estimate. However, the researchers went further and used the research project to integrate the 

tools into a comprehensive cost estimation oversight program to maximize their benefits.

43 

APPENDIX A—FIRST-ROUND INTERVIEW STRUCTURED INTERVIEW 

DOCUMENT—STA

INTRODUCTION

[Provide an overview of the project for the benefit of the respondent.] 

PROJECT’S PRIMARY OBJECTIVES

This task order’s primary objective was to identify what, when, why, and how FHWA and the 

STAs develop costs estimations. FHWA will use this information to provide more consistent 

oversight of project cost estimates by STAs. For this research, FLH includes projects on Federal 

lands managed by the U.S. Bureau of Land Management, U.S. Fish and Wildlife Service, U.S. 

National Park Service, and the U.S. Forest Service.

PROJECT’S SECONDARY OBJECTIVES

The project’s secondary objectives were as follows:

• Identify what type of projects these agencies provide cost estimates for, including types 

of projects defined by function (e.g., roadway and bridge), size, and complexity. 

• Identify when the agencies develop project cost estimates, including by which phase of a 

project and the frequency with which a project cost estimate is updated. 

• Identify why the agencies develop project cost estimates, including factors relating to risk 

and location that may trigger FHWA to develop a project cost estimate.

• Identify how the agencies develop project cost estimates. Do aspects related to what, 

when, and why influence when the historical bid-based model, the cost-based model, the 

risk-based estimation model, or the parametric time estimation model are used to develop 

a project cost estimation model?

IDENTIFICATION

The interviewer asked the interviewee for the following information:

1. What is your name? [This is a confidential interview, only the data analyst will read this 

answer.] 

2. What is the name of your agency? 

3. What is your job title and role in the agency? 

4. How many overall years of experience do you have? 

5. How many years of experience do you have with the agency? 

6. How many years of experience do you have in your current position? 

7. How many years of estimating experience do you have? 

8. Do you develop your own cost estimates? 

9. Do you provide oversight on cost estimates developed by other agencies (e.g., consultants)? 
44 

APPROACHES USED IN COST ESTIMATES 

On a scale from 1 to 10, where 1 is strongly unfamiliar and 10 is strongly familiar (table 30), 

please indicate your level of familiarity with each of the following cost estimation methods. 

Table 30. Scale from 1–10. 

1 2 3 4 5 6 7 8 9 10 

Historical bid-based method. 

Using the historical bid-based approach, FHWA and STAs usually use a bid-history database to 

estimate unit bid costs for major items. Based on the historical averages, FHWA can use the 

estimated quantities of a proposed project to develop a target price. This approach’s accuracy

depends on the quantity and level of detail of the bid-history database.

10. Cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs. The method also 

involves adding a reasonable amount for a contractor’s overhead and profit. The process mimics 

the same method that a contractor uses for preparing a bid-day estimate. When prepared with the 

proper skill, experience, and effort, cost-based estimates are usually considered the most accurate 

of the five methods. 

11. Conceptual estimation. 

Typically performed during the early planning and scope development stage, conceptual cost 

estimates usually use primary project parameters (e.g., project location, length, type of project, 

scope details, design parameters, site characteristics, and broad design assumption) to develop a 

cost estimate.

12. Risk-based estimation. 

Risk-based estimation involves developing probabilistic costs for a project and its components 

based on identified known quantities, costs, and contingencies developed from a list of identified 

uncertainties from both opportunities and threats and their potential impact on the project.

13. Combination of historical and cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs based on historical 

bid items of past projects. The method also involves adding a reasonable amount for a 

contractor’s overhead and profit. The process involves developing cost estimates for each project 

(like the cost-based method), but it uses a bid-history database instead of cost estimates from 

material suppliers and historical production rates, which are typically used in a cost-based 

method. When prepared with the proper skill, experience, and effort, cost-based estimates are 

usually considered the most accurate of the five methods. 
45 

14. Other practice. 

EFFICACY

On a scale from 1 to 10, where 1 is strongly disagree, 10 is strongly agree, and N/A is not 

applicable (table 31), please answer the following statements:

Table 31. Scale from 1–10. 

N/A 1 2 3 4 5 6 7 8 9 10 

1. I feel confident about the cost estimates developed by this agency. 

2. I feel confident about the methods used to estimate cost. 

3. The cost estimates developed here are always on target. 

4. I feel confident about the oversight provided by the FHWA DOs for cost estimation.

5. The FHWA DOs provide good support on cost estimation. 

6. The FHWA DOs are knowledgeable about the cost estimation procedures used in this 

agency. 

7. The performance measures developed by FHWA (e.g., comparison of the EE with the low 

bid) are aligned with the performance measures developed by this agency. 

8. The FHWA DOs stay updated about the current practices used for cost estimation. 

CHALLENGES

1. What are the biggest challenges encountered when developing a cost estimate?

2. What are the biggest challenges when working with FHWA on cost estimation? 

3. Does the State have an estimating section? Which other portions of the agency become 

involved in preparing, checking, or approving the cost estimates?

[Insert answer]
46 

On a scale of 1 to 10, where 1 is the lowest, 10 is the highest, and N/A is not applicable 

(table 32), please rate the following aspects of the cost estimates developed in-house: 

Table 32. Scale from 1–10. 

N/A 1 2 3 4 5 6 7 8 9 10 

4. Accuracy. 

5. Effort required to develop the estimate (1 indicates low effort and 10 extremely high effort). 

6. Reliability (1 indicates extremely unreliable and 10 extremely reliable). 

7. Experience required to develop the estimates (number of years of experience required). 

8. Technology available to develop the estimates (1 indicates all manual and 10 highly 

automated). 

COST PERFORMANCE MEASURES

1. During your oversight of other agencies’ cost estimating programs, do you use any of the 

following performance measures?

a. STIP cost estimating performance measures (yes or no). 

i. Initial STIP cost estimate versus 60 percent design cost estimate. (The initial 

STIP cost estimate comes approximately 4 yr from the letting of the project.

During the 4 yr, additional design is completed, and a new estimate is created.

These two estimates are then compared to find their percent difference.) 

ii. Final STIP cost estimate versus low bid. (The final STIP cost estimate occurs 

when more design and scope are known but before the final EE. This estimate 

is compared to low bid amounts to find a percent difference.) 

iii. Initial STIP cost estimate versus final STIP cost estimate. (This measure

compares the initial STIP estimate to the final STIP estimate to find the 

percent difference.) 

iv. Other?

b. PS&E performance measures (yes or no). 

i. PS&E estimate versus low bid. 

ii. Low bid to be within +/−10 percent of the PS&E estimate for 50 percent of all 

projects let. 

iii. Low bid to be within +/−7 percent of the PS&E estimate for 50 percent of all 

projects let. 
47 

iv. Low bid to be within −15 percent to +5 percent of the PS&E estimate for 

50 percent of all projects let. 

v. Within −25 percent/+10 percent, or −25 percent/+15 percent if it’s a smaller 

proposal. 

vi. PS&E estimate versus final construction costs. (This measure compares the 

final engineer’s PS&E estimate to the final construction costs when the 

project is complete.) 

vii. PS&E estimate versus STIP estimate. (This measure compares the STIP 

program estimate to the PS&E estimate.)Competition measures (yes or no).

i. Number of bidders and mean unit prices. (This measure examines the number 

of bidders per project and the associated mean unit prices.) 

ii. Average number of bidders (This measure examines the number of bidders on 

average for all projects in a specific period.) 

iii. Average number of bidders by size of contract. (This measure examines the 

number of bidders based on the contract amount. It could also be refined to 

types of work.) 

iv. PS&E versus the low bid, segregated by the number of bidders. (This measure

compares the PS&E to the project’s low bid in the case of one, two, three, 

four, or more bidders.) 

COST ESTIMATE DEVELOPMENT

1. How often are the developed project estimates updated?

2. How many times does an estimate have to be prepared for each project? 

3. How far in advance of the letting date is the EE prepared? 

4. Briefly describe the personnel resources available within your agency for preparing 

estimates, and note any workload changes versus personnel available over the past 3 yr. 

5. What methods does your agency use to identify and incorporate anticipated changes in 

the cost of labor, equipment, and material? 

6. How does your agency keep track of inflation or cost indices? Does the agency have inhouse developed indices? 

7. Does your agency consider upcoming labor negotiations in the process? 

8. Does your agency contact material suppliers for anticipated material costs?

9. Does your agency make adjustments for individual project conditions? In what way?
48 

10. What other factors does your agency use to adjust the primary basis to determine the 

estimated prices for the project?

11. How often does your agency revise the estimate during the advertising period? 

Discounting addenda and quantity changes, what are the usual reasons for revising 

estimated prices?

12. Is every estimate in your agency routinely evaluated by anyone other than the preparer? If 

so, when? 

13. If possible, describe how often further study and/or revision is desirable but not 

accomplished due to workload restrictions. 

14. What approaches does your agency use for project contingency? 

15. What approaches does your agency use for risk?

16. Do you use any formally documented estimating guidance procedures (e.g., checklists)?

17. If so, how often are they updated, or when were they last updated? 

ESTIMATE OVERSIGHT

1. Table 33 is a typical checklist for conducting a cost estimate review. Which of the following 

factors do you check when conducting a review? 
49 

Table 33. Cost estimate oversight checklist.

Yes Factor 

— Estimate is escalated to year of expenditure dollars for each element of the 

project.

— Process includes risk-based assessments of all unknown and uncertain costs. 

— Estimate is well documented.

— Estimate has been prepared using a typical cost model (e.g., code of 

accounts). 

— Estimate has been independently validated. 

— Estimate is consistent with the project scope.

— Estimate includes all initial preliminary engineering costs and final design 

costs.

— Estimate includes all ROW and administrative costs.

— Estimate includes all third-party (e.g., utility, railroad) costs.

— Estimate includes all TDM/TSM costs.

— Estimate includes all construction costs.

— Estimate includes construction contingencies. 

— Estimate includes construction administration.

— Estimate includes public outreach cost.

— Estimate includes a management reserve.

— For planning or conceptual estimates, consideration was given to expressing 

the estimate as a range.

— For projects under design, estimates include a design contingency at each 

stage of design.

— The unit costs are aligned with the costs used by the agency. 

—Empty cell for the respondent to check. 

TDM/TSM = Transportation Demand Management/Transportation System Management. 

2. Are there other factors not listed that you typically check when conducting a review? 

In addition to the factors listed in the table, there are a number of cost estimating practices an 

agency may use to develop accurate estimates.

POST-BID PRACTICES

1. Are there any State laws or regulations in effect regarding the release or protection of the 

EE? 

2. Are there any State laws or administrative regulations in effect to determine whether a 

contract award is proper, based on estimate overrun, competition, or other factors?

3. Is any information released publicly that may indicate the actual or approximate value of the 

estimate prior to opening bids? If so, when and where is it published?

4. Is the EE published in detail, or is only the total cost provided? 
50 

5. In the case of poor competition or excessive difference between the estimate and the low bid 

or best value, does the contracting agency contact the bidders and nonbidders who examined 

proposal forms?

6. Are there any “ground rules” for adjusting estimates after receiving bids? Is such action taken 

on its own merits, or may it be prompted by pressure to award an excessive bid?

WRAP-UP 

Does your agency have any documentation that you follow to develop and/or provide oversight 

on cost estimates that you can share?
51 

APPENDIX B—FIRST-ROUND INTERVIEW—STAS RESPONSES COMPILED

Note that the responses throughout appendix B and appendix D are listed in the order the 

interviews were conducted. 

IDENTIFICATION

[Provide an overview of the project for the benefit of the respondent.] 

1. Overall years of experience:

• A-STA—25+.

• B-STA—25. 

• D-STA—35. 

• C-STA—35+.

• E-STA—10. 

• F-STA—11. 

2. Years of experience with the agency:

• A-STA—9+.

• D-STA—29. 

• B-STA—6. 

• C-STA—35+.

• E-STA—4.5. 

• F-STA—11. 

3. Years of experience in your current position: 

• A-STA—1. 

• B-STA—5. 

• D-STA—19. 

• C-STA—9. 

• E-STA—4.5. 

• F-STA—2. 

4. Years of experience in estimating:

• A-STA—Most of past years 1+.

• B-STA—10. 

• D-STA—19. 

• C-STA—17. 

• E-STA—4.5. 

• F-STA—6. 
52 

5. Do you develop your own cost estimates? 

• A-STA—Yes. 

• B-STA—“Yes. The official estimate is B-STA’s responsibility.” 

• D-STA—Yes.

• C-STA—“Yes (DBB are all in-house, CM/GC, consultants).” 

• E-STA—“Depends on who the designer is. Yes.” 

• F-STA—Yes.

6. Do you provide oversight on cost estimates developed by other agencies (e.g., consultants)?

• A-STA—“Some estimates are developed by consultants, but A-STA is responsible for 

the final estimate.” 

• B-STA—“Some districts fully rely on consultants up until the very end.” 

• D-STA—Yes.

• C-STA—Yes.

• E-STA—Yes.

• F-STA—“Yes. Specs but not estimate.” 

APPROACHES USED IN COST ESTIMATES 

On a scale from 1 to 10, where 1 is strongly unfamiliar and 10 is strongly familiar, please 

indicate your level of familiarity with each of the following cost estimation methods (table 34

through table 39). 

1. Historical bid-based method. 

Using the historical bid-based approach, FHWA and STAs usually use a bid-history database to 

estimate unit bid costs for major items. Based on the historical averages, FHWA can use the 

estimated quantities of a proposed project to develop a target price. Much of the accuracy of this 

approach is based on the quantity and level of detail of the bid-history database.

Table 34. Historical bid-based method.

Agency Raw Score Normalized Score

A-STA 10 10.0 

B-STA 9 10.0 

C-STA 9 10.0 

D-STA 10 10.0 

E-STA 10 10.0 

F-STA 9.5 9.4 

2. Cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs. This method also 

involves adding a reasonable amount for a contractor’s overhead and profit. The process mimics 
53 

the method that a contractor uses to prepare a bid-day estimate. When prepared with the proper 

skill, experience, and effort, cost-based estimates are usually the most accurate of the five

methods. 

Table 35. Cost-based method.

Agency Raw Score Normalized Score

A-STA 5 1.0 

B-STA 7 7.4 

C-STA 9 10.0 

D-STA 8 6.7 

E-STA 3 3.0 

F-STA 4.5 2.9 

3. Conceptual estimation. 

Typically performed during the early planning and scope development, conceptual cost estimates 

usually use primary project parameters (e.g., project location, length, type of project, scope 

details, design parameters, site characteristics, and broad design assumption) to develop a cost 

estimate.

Table 36. Conceptual estimation.

Agency Raw Score Normalized Score

A-STA 7.5 5.5 

B-STA 9 10.0 

C-STA 8.5 9.2 

D-STA 9 8.4 

E-STA 8 8.0 

F-STA 9 8.7 

4. Risk-based estimation. 

This method involves developing probabilistic costs for the project and its components based on 

identified known quantities, costs, and contingencies developed from a list of identified 

uncertainties from both opportunities and threats and their potential impact on the project.

Table 37. Risk-based estimation.

Agency Raw Score Normalized Score

A-STA 5 1.0 

B-STA 7 7.4 

C-STA* 7.5 7.5 

D-STA 5 1.8 

E-STA 2 2.0 

F-STA 8 7.4 *

C-STA—“We have a risk registry for all the projects. 

We find the probability and the cost so that we can set aside 

the contingency.” 
54 

5. Combination of historical and cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs, based on historical 

bid items of past projects. The method also involves adding a reasonable amount for a 

contractor’s overhead and profit. The process involves developing cost estimates for each project 

(like the cost-based method), but it utilizes a bid-history database instead of cost estimates from 

material suppliers and historical production rates that are typically used in a cost-based method. 

When prepared with the proper skill, experience, and effort, cost-based estimates are usually 

considered the most accurate of the five methods. 

Table 38. Combination of historical and cost-based method.

Agency Raw Score Normalized Score

A-STA 9.5 9.1 

B-STA 8 8.7 

C-STA* 9 10.0 

D-STA 8 6.7 

E-STA 3 3.0 

F-STA 6 4.9 *

C-STA—“We mostly do this.” 

6. Other practice. 

Table 39. Other practice.

Agency Raw Score Normalized Score

A-STA 5 1.0 

B-STA — — 

C-STA —- — 

D-STA — — 

E-STA — — 

F-STA — — 

—No data.

A-STA is starting to use @RiskTM to develop estimates using Monte Carlo simulations for 

each item and a range of the final cost (Palisade n.d.). 
55 

EFFICACY

On a scale from 1 to 10, where 1 is strongly disagree and 10 is strongly agree, please answer the 

following statements:

1. I feel confident about the cost estimates developed by this agency (table 40). 

Table 40. Confidence in cost estimates agency develops.

Agency Raw Score Normalized Score

A-STA 6.5 3.7 

B-STA 8 8.7 

C-STA* 6 5.1 

D-STA 8 6.7 

E-STA 3 3.0 

F-STA 8 7.4 *

C-STA—“As a benchmark, I feel confident.” 

2. I feel confident about the methods used to estimate cost table 41). 

Table 41. Confidence in cost estimate methods used.

Agency Raw Score Normalized Score

A-STA 6 2.8 

B-STA 7 7.4 

C-STA 9 10.0 

D-STA 9 8.4 

E-STA 6 6.0 

F-STA 7 6.1 

3. The cost estimates developed here are always on target (table 42). 

Table 42. Developed cost estimates are on target.

Agency Raw Score Normalized Score

A-STA* 7 4.6 

B-STA 7 7.4 

C-STA 6 5.1 

D-STA 5 1.8 

E-STA 5 5.0 

F-STA 5 3.6 *

A-STA—“Seven, provided we have enough bidders.” 
56 

4. I feel confident about the oversight provided by the FHWA DOs for cost estimation

(table 43). 

Table 43. Confidence in DO cost estimate oversight.

Agency Raw Score Normalized Score

A-STA* 5 1.0 

B-STA** 9 10.0 

C-STA† N/A — 

D-STA 9 8.4 

E-STA†† 1 1.0 

F-STA N/A — 

—No data. *

A-STA—“We don’t have a daily oversight. We have to give them a report of 

how we’ve done over a year, so it’s an annual report, so I’m not sure what 

happens to that or what’s done about that.” **B-STA—“We don’t have that much interaction with them, but whenever we 

talk, the interactions are good. This happens so very seldom.” 

†

C-STA—“The only person I’ve talked to in FHWA, that I’ve really talked to, 

that is super interested in what we’re doing is [person within agency]. That’s the 

only contact I have with estimating on a regular basis.” 

Q: “So you don’t talk to your DO?” 

A: “Not a lot. I’ve tried to send stuff over to them, and they say, ‘No, no, no.’” ††E-STA—“We don’t get any support from them. We have asked for information 

and recommendations, and we’ve had no response. We’ve sat with them in 

person; they say they’ll get us what we need, and then there’s no followup. We 

now talk directly to an FHWA committee that I am now part of, and that is the 

only way we get oversight. We also go to other States instead of our DO.” 

5. The FHWA DOs provide good support on cost estimation (table 44). 

Table 44. DOs cost estimation support.

Agency Raw Score Normalized Score

A-STA* — — 

B-STA 9 10.0 

C-STA — — 

D-STA** 8 6.7 

E-STA 1 1.0 

F-STA N/A — 

—No data. *

A-STA—“I haven’t had any contact with them. I have not talked to FHWA. I 

talk to other States. I contact them with my questions.” **D-STA—“We don’t necessarily reach out to them a lot, but they’ll let us know 

if they think we’re not right. Our division staff is really good.”
57 

6. The FHWA DOs are knowledgeable about cost estimation procedures used in this agency 

(table 45). 

Table 45. DOs knowledge of agency cost estimation procedures.

Agency Raw Score Normalized Score

A-STA — — 

B-STA 9 10.0 

C-STA — — 

D-STA 9 8.4 

E-STA 1 1.0 

F-STA N/A — 

—No data.

7. The performance measures developed by FHWA (e.g., comparison of the EE with the low 

bid) are aligned with the performance measures developed by this agency (table 46). 

Table 46. FHWA and agency performance measures aligned.

Agency Raw Score Normalized Score

A-STA* 10 10.0 

B-STA 9 10.0 

C-STA** 9 10.0 

D-STA 10 10.0 

E-STA 5 5.0 

F-STA 10 10.0 *

A-STA—“They’ve given us guidance, and our guidance matches what they’ve 

told us to do. I don’t necessarily agree with the metrics 100 percent. They say 

that overall, for the year, our cost estimates have to be +/−3 percent for actual 

awarded projects. If we don’t have any estimates that are under the low bid, we 

will never be below the 3 percent. In my opinion, this should be between 

2-5 percent. We should be between the first and second bidder.” **C-STA—“We don’t like the idea that we are measuring our estimates. We like 

the idea that we’re measuring the contractor’s bid to contractor’s bid because 

we’re trying not to chase the contractor’s bid. We’re trying to determine what 

something should really cost. We want to see the difference between the bids and 

the EE. These are not really measures; they are indicators.” 
58 

8. The FHWA DOs stay updated about the current practices used for cost estimation (table 47). 

Table 47. DOs stay updated on current cost estimation practices.

Agency Raw Score Normalized Score

A-STA — — 

B-STA 9 10.0 

C-STA — — 

D-STA 9 8.4 

E-STA* — — 

F-STA — — 

—No data. *

E-STA—“I have no idea; I have no communication.” 

CHALLENGES

1. What are the biggest challenges encountered when developing a cost estimate?

• A-STA—“New items that we don’t have historical data on.”

• B-STA—“Knowing the scope and the particulars of a project. Special circumstances or 

characteristics of a project.” 

• D-STA—“Our biggest challenge is consistency. Right now, we don’t have estimating 

staff. People develop estimates differently, even when using the same methods.” 

• C-STA—“Time. We don’t get a lot of time to prepare the EE. Because we’re a 

centralized office, it’s almost impossible to do field visits, and that creates challenges.

Tendency to try to use lumpsum pay items.” 

• E-STA—“Designers usually don’t have the time to do a good job developing an estimate. 

Because of this lack of time, this is usually delegated to the engineer with less 

experience, and then the reviewers don’t have time to go over the estimates.” 

• F-STA—“Getting within the +/−10 percent and being able to predict the economy. Also, 

labor shortages.” 

2. What are the biggest challenges when working with FHWA on cost estimation? 

• A-STA—N/A. 

• B-STA—“We don’t work with them very often, so I guess knowing what resources they 

have to assist us with cost estimation.”

• D-STA—“They are really knowledgeable and easy to work with. Communicating the 

basis of the estimates might be the biggest challenge.” 

• C-STA—“No challenges because we don’t really work together. Communication.” 
59 

• E-STA—“FHWA seems to be busier; they have fewer and fewer people, and they have 

more tasks that they need to perform. These [circumstances] make it hard to work with 

them. There are plenty of openings in our regional offices here.” 

• F-STA—N/A.

3. Does the State have an estimating section? Which other portions of the agency become 

involved in preparing, checking, or approving the cost estimates?

• A-STA—“Preliminary: Designers/maintenance. Estimating: Final.” 

• B-STA—“PMs, planning group, and finance group.” 

• D-STA—“Technically, we have an estimating section (I am it, though). Estimates are 

done by the designers (in-house or consultants). Prepared by a lead designer, and final 

approval is done by the PM. I provide tools and methodologies to develop these 

estimates.” 

• C-STA—“Districts and bridge prepare the 20-yr plan and STIP, and update the estimates 

yearly; materials and bridge lifecycle cost analyses; risk handles what might affect the 

overall program or special proposed items; the final EE happens in this office; and 

finally, a group in the construction office handles change orders.” 

• E-STA—“Our statewide estimating section is me. We do have other portions involved, 

quality assurance engineers. I also lean on them to get assistance.” 

• F-STA—“We have an estimation section. Project engineers prepare the estimates. 

Approval depends on project cost but ultimately goes up to management to prepare the 

estimates.” 

On a scale of 1 to 10, where 1 is the lowest and 10 is the highest, please rate the following 

aspects of the cost estimates developed in house: 

4. Accuracy (table 48). 

Table 48. Accuracy.

Agency Raw Score Normalized Score

A-STA* 8 6.4 

B-STA 7 7.4 

C-STA 6 5.1 

D-STA 5 1.8 

E-STA 5 5.0 

F-STA 5 3.6 *

A-STA—“Provided that we have enough bidders, 8.”
60 

5. Effort required to develop the estimate (1 indicates low effort and 10 extremely high effort) 

(table 49). 

Table 49. Effort required.

Agency Raw Score Normalized Score

A-STA 7 4.6 

B-STA 6 6.1 

C-STA 7 6.7 

D-STA 4.5 1.0 

E-STA 4 4.0 

F-STA 6 4.9 

6. Reliability (1 indicates extremely unreliable and 10 extremely reliable) (table 50). 

Table 50. Reliability.

Agency Raw Score Normalized Score

A-STA* 8 6.4 

B-STA 7 7.4 

C-STA 7 6.7 

D-STA 7 5.1 

E-STA 3 3.0 

F-STA** 6 4.9 *

A-STA—“Provided we have enough bidders, 8.” **F-STA—“We don’t always get our estimates aligned with the low bid.”

7. Experience required to develop the estimates (number of years of experience required)

(table 51). 

Table 51. Experience required to develop estimates.

Agency Raw Score Normalized Score

A-STA 6 2.8 

B-STA 2 1.0 

C-STA 3.5 1.0 

D-STA 9 8.4 

E-STA 2 2.0 

F-STA 3 1.0 
61 

8. Technology available to develop the estimates (1 indicates all manual and 10 highly 

automated) (table 52). 

Table 52. Estimating technology available. 

Agency Raw Score Normalized Score

A-STA 5.5 1.9 

B-STA* 8 8.7 

C-STA 8 8.4 

D-STA 8 6.7 

E-STA 4 4.0 

F-STA 5 3.6 *

B-STA—“We developed software in-house to develop estimates.”

COST PERFORMANCE MEASURES

1. During your oversight of other agencies’ cost estimating programs, do you use any of the 

following performance measures?

a. STIP cost estimating performance measures (yes or no): 

• A-STA—No. 

• B-STA—Yes.

• D-STA—No. 

• C-STA—“I don’t know. We have a system called CHIMES (Capital Highway 

Information Management Enterprise System). They keep track of estimates that are 

prepared every year after they go into the STIP (total project cost).” 

• E-STA—No.

• F-STA—No.

b. Initial STIP cost estimate versus 60 percent design cost estimate. (The initial STIP cost 

estimate comes approximately 4 yr from the letting of the project. During the 4 yr, 

additional design is completed, and a new estimate is created. These two estimates are 

then compared to find their percent difference.) 

• A-STA—“We have not done that, but we’re attempting to do that currently. The way 

we measure this is whether the staff asks for more money. The estimate developed for 

the STIP used to be developed with knowledge, experience, and a rule of thumb. 

Nothing was done on paper.” 

• B-STA—“We use this one.” 
62 

c. Final STIP cost estimate versus the low bid. (The final STIP cost estimate occurs when 

more design and scope is known but before the final EE. This estimate is compared to 

low bid amounts to find a percent difference.) 

B-STA—“We use this one as well.”

d. Initial STIP cost estimate versus final STIP cost estimate. (This measure is a comparison 

of the initial STIP estimate to the final STIP estimate to find the percent difference.) 

B-STA—“To my knowledge, we don’t use this one.” 

e. Other. 

2. PS&E performance measures (yes or no). 

a. PS&E estimate versus low bid: 

• A-STA—Yes.

• B-STA—Yes.

• E-STA—Yes.

• F-STA—Yes.

b. Low bid to be within +/−10 percent of the PS&E estimate for 50 percent of all projects 

let: 

• A-STA—“We use this one.” 

• D-STA—“We use this one.” 

• C-STA—“We use this; we follow the Federal Highway guidance on this.” 

• E-STA—“Letting estimate for this measure. This is pretty much all we use.” 

• F-STA—“This one.” 

c. Low bid to be within +/−7 percent of the PS&E estimate for 50 percent of all projects let. 

d. Low bid to be within −15 percent to +5 percent of the PS&E estimate for 50 percent of 

all projects let. 

e. Other: 

• B-STA—−25 percent/+10 percent, or if it’s a smaller proposal, −25 percent/ 

+15 percent. Small projects <$500,000. 

• E-STA—“Original bid to final cost.” 

f. PS&E estimate versus final construction costs. (This measure compares the final 

engineer’s PS&E estimate to the final construction costs when the project is complete.) 

• B-STA—“We have the numbers, but we don’t use them.” 
63 

• D-STA—“Not formally, but we believe we should. Our staffing does not allow it.” 

• C-STA—“I think they probably do, but I don’t know if this actually goes into 

CHIMES.” 

g. PS&E estimate versus STIP estimate. (This measure compares the STIP program 

estimate to the PS&E estimate.) 

• D-STA—“Not formally, but we believe we should. Our staffing does not allow it.” 

• B-STA—“We have the numbers, but we don’t use them.” 

• F-STA—No. 

3. Competition measures (yes or no): 

• B-STA—Yes.

• A-STA—Yes.

• F-STA—“I don’t think we do (for structures). There is a whole separate unit in 

charge of contract awards.” 

a. Number of bidders and mean unit prices. (This measure examines the number of bidders 

per project and the associated mean unit prices). 

• A-STA—Yes.

• D-STA—“Not formally, but we believe we should. If asked, we can provide this 

information.” 

• C-STA—“Not something we’re doing right now, but something we’d like to do 

(same for next three questions).” 

b. Average number of bidders. (This measure examines the number of bidders on average 

for all projects in a specific period.) 

• A-STA—“Yes, monthly.” 

• B-STA—Yes.

• D-STA—“Not formally, but we believe we should. If asked, we can provide this 

information.” 

• E-STA—“We do this. We’ve found use for this programwide. When the program 

drastically increases, the average number of bidders decreases.” 

• C-STA—“Same as previous.” 
64 

c. Average number of bidders by size of contract. (This measure estimates the number of 

bidders based on the contract amount. This estimate could also be refined to types of 

work.) 

• A-STA—“Yes, monthly.” 

• D-STA—“Not formally, but we believe we should. If asked, we can provide this 

information.” 

d. PS&E versus the low bid, segregated by the number of bidders. (This measure compares

the PS&E to the low project bid in the case of one, two, three, four, or more bidders.) 

• A-STA—“Yes, monthly. Maybe not formally, but I present it every month (internal, 

not public).” 

• D-STA—“Not formally, but we believe we should. If asked, we can provide this 

information.” 

COST ESTIMATE DEVELOPMENT

1. How often are the developed project estimates updated?

• A-STA—“We would like to have an FIR (field initial review) estimate. We want to have 

a FOR (final office review) that has to do with plans and specs, and then a final EE at

advertising.” 

• B-STA—“Every 6 mo if they are in our 5-yr work program.”

• D-STA—“On a general basis, at least annually. Fast-track projects might go faster. We 

do it at each milestone (preliminary plans, final plans, contract plans, semifinal, 

precontract). 

• C-STA—“Once they go into the STIP, every year.” 

• E-STA—“Every 6 mo, according to the guidance. Most people don’t follow this. 

However, we found that those that do have better accuracy.”

• F-STA—“Ideally, annually. But that does not always happen. After the preliminary 

design is 30 percent, 60 percent, 90 percent. Typically, more than one per year.” 

2. How many times does an estimate have to be prepared per project?

• A-STA—“We would like it to be a minimum of three times (times change depending on 

the PM).

• B-STA—“Minimum is three, but the standard is eight.” 

• D-STA—“One with each milestone.” 
65 

• C-STA—“It’s a 4-yr STIP (4), then they prepare an estimate before it’s turned in (1), and 

the PS&E (1), so six total. These don’t include the 20-yr plan from the pavement 

management system.” 

• E-STA—“Scoping, 30 percent, 60 percent, 90 percent (draft PS&E), PS&E, and final 

before letting (based upon addenda and stuff).” 

• F-STA—At each phase: 30 percent, 60 percent, 95 percent (draft PS&E), final PS&E. 

During preliminary phases, annually.” 

3. How far in advance of the letting date is the EE prepared? 

• A-STA—“Right up until advertising, which is usually 2 w prior. Standard of 2 w to 

provide an estimate (turnaround time).” 

• B-STA—“60–90 d before letting, but we finish it 2 d before the letting.” 

• D-STA—“EEs are our final design estimate. We do estimates for contract plans and 

PS&E estimates roughly 4 w before advertisement (7 w before letting). We don’t do a 

true EE that mimics a bid once it’s advertised (before a letting).” 

• C-STA—“We want to have them prepared before the project is advertised. (Projects are 

advertised between 3 and 5 w, depending on project size).” 

• E-STA—“3–5 mo before letting.” 

4. Briefly describe the personnel resources available for preparing estimates and note any 

workload changes versus personnel available over the past 3 yr. 

• A-STA—“Five individuals in the department, and the workload varies. Constant 

increase, and it goes in waves.” 

• B-STA—“We have had a lot of turnover, but we have pretty much the same amount of 

people working with us.” 

• D-STA—“It’s only me. There used to be someone else that retired and has not been 

replaced (within the last 3 yr).” 

• C-STA—“We have about five people in-house and teams of consultants. We’ve 

increased the personnel over the last 3 yr.” 

• E-STA—“Designer is in charge of preparing estimates and everything. Our local program 

has drastically decreased. Now plans are coming not up to date and with reduced 

quality.” 

• F-STA—“We have about 20 people in the structures, and workload is very high over the 

last year. We have to work a lot of overtime.” 
66 

5. What methods does your agency use to identify and incorporate anticipated changes in the 

cost of labor, equipment, and material? 

• A-STA—“We do analysis of the bids that we are getting and try to figure out the reasons 

for variation (increase or decrease).” 

• B-STA—“We have a consultant in charge of this, contacting contractors and materials 

suppliers without revealing their trade secrets. For our cost-based templates, we update 

them every 6 mo, and we look at all these costs.” 

• D-STA—“Not many. We don’t have any statewide indexes. If cement prices are going 

up, we know why. It’s more of a vague approach than a formal index (news and current 

trends). Most of our steel manufacturers are from out of State.” 

• C-STA—“We update costs yearly. For labor, we select a region in the software. For 

equipment, we can adjust when we do the site visits. For materials, we get quotes and oil 

prices. These prices are inflated.” 

• E-STA—“We currently don’t track this. We contact steel suppliers. We have a fuel 

index.” 

• F-STA—“We have a bridge cost index that sometimes indicates trends. Mostly we look 

at historical cost, so we look behind. We occasionally contact industry and suppliers to 

ask questions. We also talk to construction to find where to place the cranes and such.” 

6. How does your agency keep track of inflation or cost indices? Does the agency have in-house 

developed indices?

• A-STA—“Colorado Construction Cost Index every quarter, similar to NHCCI. (They 

follow their example).” 

• B-STA—“We have an in-house developed index. The finance people are in charge of 

this. We compare it to the NHCCI. Our index needs some tweaking/help. It is quite 

volatile.” 

• D-STA—“We don’t have our own index, but we refer to the NHCCI. We don’t 

incorporate them too much into our estimating.” 

• C-STA—“We have our construction cost index, and we have prices that represent prices 

for the commodities that we use as indicators. Our economist takes these and develops 

our cost index.” 

• E-STA—“WisDOT construction cost index (very similar to Ohio’s).” 

• F-STA—“Bridges index and highway cost index.” 

7. Does your agency consider upcoming labor negotiations considered in the process? 
67 

• B-STA—N/A.

• D-STA—N/A.

• C-STA—N/A.

• E-STA—N/A.

• F-STA—No.

8. Does your agency contact material suppliers for anticipated material costs?

• A-STA—“Yes. Concrete, asphalt, riprap, road base, steel (maybe), prefab, lighting. 

Asphalt is the most volatile, along with technology.” 

• B-STA—“We have the consultants in charge of this, as mentioned in 6.5.” 

• D-STA—“Once in a while, mostly on projects that use alternative design (e.g., 

CM/GC).” 

• C-STA—“We get quotes.” 

• E-STA—“Only for unique items.” 

• F-STA—“Not for a project-to-project basis, but for general info.” 

9. Does your agency make adjustments for individual project conditions? In what way?

• A-STA—“Yes. Location, regions, time of year, accessibility, source availability.” 

• B-STA—“Yes. We have estimators in the districts that develop their estimates. They 

have the task to adjust for project conditions (location, accessibility, contractors, material 

plants, etc.).” 

• D-STA—“Yes. Maybe not consistently, but we’ll look at the bid history for different 

items and adjust for conditions such as location and terrain.” 

• C-STA—“Distance, traffic control, weather, labor prices (by location), size of the 

project.” 

• E-STA—“Unfortunately, no (except the mentioned asphalt price tracking).” 

• F-STA—“Locations, etc.” 

10. What other factors does your agency use to adjust the primary basis to determine the 

estimated prices for the project?

• B-STA—N/A. 

• D-STA—“Time of year of the letting and anticipating completion dates of the projects.” 
68 

• C-STA—“Competition but try not to use this so much. In the end, that might be a 

justification.” 

• E-STA—“None. We have some tools that help us find similar past projects.” 

• F-STA—“Traffic and environmental constraints, as well as geometry constraints.” 

11. How often does your agency revise the estimate during the advertising period? Discounting 

addenda and quantity changes, what are the usual reasons for revising estimated prices?

• A-STA—“Yes. If we get new info on some price that we’ve missed. Market price 

conditions.” 

• B-STA—“We usually just revise the estimate once, just to review if we have more 

current historical bids or tariffs affecting the estimate.” 

• D-STA—“Not a practice.” 

• C-STA—“For typos. We get a lot of pushback on this, so it is not a common practice 

here.” 

• E-STA—“No. It’s a big no-no.” 

• F-STA—“Never.” 

12. Is every estimate routinely evaluated by anyone other than the preparer in your agency? If so, 

when? 

• A-STA—“QC controls for every project.” 

• B-STA—“We do a high-level review every year.” 

• D-STA—“We’ll review and evaluate the estimates (right now, it’s on a request basis 

because we’re short-staffed).” 

• C-STA—“We have some peer review going on, especially when we have something new 

that we’ve built (like a cost sheet). Some spot checks happen too.” 

• E-STA—“It should be reviewed by the PM at all stages and by me at the PS&E.” 

• F-STA—“At least one reviewer and each project need an estimate certification.” 

13. If possible, describe how often further study and/or revision is desirable but not 

accomplished due to workload restrictions. 

• F-STA—“That’s a tough one because we don’t do the estimating.” 

• D-STA—“Only when there is something unique that we need to look at.” 
69 

• C-STA—“Sometimes we have to work on incomplete plans. There are a lot of projects, 

and we cannot review them all.” 

• E-STA—“I am usually reminiscent about how Minnesota and Ohio have more people 

than we do, based on the program size. That helps them better review estimates and 

perform better collusion analyses. (We don’t have that in the State because I don’t have 

time to do it).” 

• F-STA—“We can’t always update the estimates annually based on our workload.” 

14. What approaches does your agency use for project contingency? 

• A-STA—“In the planning phase, percentage (set percentage that has been evaluated).” 

• B-STA—“We follow the guidelines from AASHTO [American Association of State 

Highway and Transportation Officials] for cost estimating, but we don’t force anyone to 

have these contingencies (Molenaar, Anderson, and Schexnayder 2013). If they don’t feel 

like they need them, they don’t need to have them.” 

• D-STA—“Straight-up percentages. Depending on what milestone we’re at, it’ll range 

from 5 percent up to 25 percent. At the time of advertising, it is always 5 percent.” 

• C-STA—“We set aside money once the project is let. We also create a contingency 

estimate based on incentives. Early estimates are based on risk registry/Monte Carlo.” 

• E-STA—“We call them allowance items for items that are hard to quantify.” 

• F-STA—“Early, 40 percent, planning, 25 percent, and it goes down to 5 percent

depending on the project.” 

15. What approaches does your agency use for risk?

• A-STA—“Contingency. With larger projects, there is more involved.” 

• B-STA—“We have a consultant-developed tool for risk in smaller projects. We 

absolutely comply with the FHWA major projects cost and risk assessment. For smaller 

projects, It is not standard throughout the State; it is left to the district to determine their 

risks or whether to hold workshops.” 

• D-STA—“If we find that there’s a risk in something on a typical DBB project, we will up 

the estimates. We would double the estimates for the risky items. On CM/GC, we use risk 

items. We’ll include a pool of money to do the job if the risk is encountered. If it’s not 

encountered, the money is not paid.” 

• C-STA—“Each project is supposed to have a risk registry (not all have it). We also do 

Monte Carlo for larger projects. We don’t always have time to do this.” 

• E-STA—“Essentially, all we can do is try to find projects with similar risks.” 
70 

• F-STA—“There’s currently an effort to start quantifying to separate the risks from 

general contingency. We have a risk registry, but we don’t always assign a dollar to the 

risks. We use a probabilistic cost estimate using Monte Carlo simulations.” 

16. Do you use any formally documented estimating guidance procedures (e.g., checklists)?

• A-STA—“No. Most people have been in the unit for a minimum of 8 yr.” 

• B-STA—“We don’t have a State guideline.” 

• D-STA—“We have some. Not necessarily checklists. We have a [collaboration] site for 

exchanging info with the designers.” 

• C-STA—“We have cost sheets and spreadsheets used to guide people through estimating. 

We also have a manual that might be really old, but it is really good.” 

• E-STA—“We used to have a documentation checklist, but these items are covered in the 

template (sent via email).” 

• F-STA—Yes.

17. If so, how often are they updated, or when were they last updated? 

C-STA—“We try to update them every year.” 
71 

ESTIMATE OVERSIGHT

1. Table 53 is a typical checklist for conducting a cost estimate review. Which of the following 

factors do you check when conducting a review? 

Table 53. Cost estimate review checklist.

Yes Factor 

— Estimate is escalated to year of expenditure dollars for each element of the 

project.

— Process includes risk-based assessments of unknown and all uncertain costs.

— Estimate is well documented. 

— Estimate has been prepared using a typical cost model (e.g., code of accounts) 

— Estimate has been independently validated. 

— Estimate is consistent with the project scope.

— Estimate includes all initial preliminary engineering costs and final design 

costs.

— Estimate includes all ROW and administrative costs.

— Estimate includes all third party (e.g., utility, railroad) costs.

— Estimate includes all TDM/TSM costs.

— Estimate includes all construction costs.

— Estimate includes construction contingencies. 

— Estimate includes construction administration.

— Estimate includes public outreach cost.

— Estimate includes a management reserve.

— For planning or conceptual estimates, consideration was given to expressing 

the estimate as a range.

— For projects under design, estimates include a design contingency at each 

stage of design.

— The unit costs are aligned with the costs used by the agency 

—Empty cell for respondent to check. 

2. Are there other factors not listed that you typically check when not conducting a review?

• C-STA—“Environmental mitigation. If we’re going to use consultants, we have to 

consider them.” 

• E-STA—“We verify that the correct estimating tools are used, project characteristics 

checked; we thoroughly check the most significant items (using the 20-80 rule) with a 

tool we have.” 

• F-STA—“Biggest thing we check is project constraints in project-specific requirements.” 

POST-BID PRACTICES

1. Are there any State laws or regulations in effect regarding the release or protection of the 

EE? 
72 

• A-STA—“We release the bid tabs with the EE (can’t be released until after the bid has 

been awarded).” 

• B-STA—Yes.

• D-STA—“There are no laws, but we don’t release them. But if someone challenges us, 

we’d probably have to release them. When we are creating the annual budget, projects are 

there with their estimated costs. However, it’s the overall cost (design, construction, etc.), 

no EE.” 

• C-STA—“There actually are. EE is not available after [the project is] awarded. We just 

publish unit prices.” 

• E-STA—“Our EE is always confidential, before and after award.” 

• F-STA—“We release the totals, but not the details.” 

2. Are there any State laws or administrative regulations in effect to determine whether a 

contract award is proper, based on estimate overrun, competition, or other factors? 

• A-STA—“We have in-State laws [and] procedures to follow if the bids are too high 

(State law) or too low (internal) compared to EEs. If there are items that are grossly 

misrepresented, we can reject the low bid and move to the next bidder. (e.g., they adjust 

bid amounts just to meet the estimate).” 

• B-STA—“No. We have internal procedures but not a State law. We look at the number of 

bidders [and] thresholds.” 

• D-STA—“No. There are not rules for automatic award or reject if it’s within or outside of 

certain parameters, respectively.” 

• C-STA—“There’s not too much there. We try to control that the bid doesn’t become 

materially unbalanced. If the bid is off, and they can justify, it is still awarded.” 

• E-STA—“We don’t have laws, but if a bid is 15 percent over the estimate, they want to 

review that project. Not laws but practices. If [there] is a single bidder and [the bid] is 

15 percent over, they’ll scrutinize it.” 

• F-STA—“We check that they’re not mathematically or materially unbalanced. They are 

also working in bid collusion detection. Not sure about the number of bidders, but we do 

have a State commission, who we have to ask for more money if bids are more than 

20 percent over.” 

3. Is any information released publicly that may indicate the actual or approximate value of the 

estimate prior to opening bids? If so, when and where is it published?

• A-STA—“Not before award.” 
73 

• B-STA—“We have an advertised estimate at the time of advertisement. It is an EE at the 

time of advertising.” 

• D-STA—“There is a category assigned to each project, which is descriptive of project 

size or complexity.” 

• C-STA—“We provide one number that is available publicly, but it’s not an exact value.” 

• E-STA—“We do have a master contract schedule that provides estimate ranges for each 

project. It is online.” 

• F-STA—“We release the EE total, along with the rest of the project documents. I realize 

this is very unusual.” 

4. Is the EE published to the public in detail, or is only the total cost provided?

• A-STA—“In detail.” 

• B-STA—“Only the total.” 

• D-STA—“EE is never published.” 

• E-STA—“Total estimate ranges (based on FHWA guidance).” 

• F-STA—No.

5. In the case of poor competition or excessive difference between the estimate and the low bid 

or best value, does the contracting agency contact the bidders and nonbidders who checked 

out proposal forms?

• A-STA—“We built it into a spreadsheet. We upload the low bid into the spreadsheet and 

compare low bid versus EE and low bid versus other bidders. The number of bidders and 

the project size affect the procedures to follow in this flowchart.” 

• B-STA—Yes.

• D-STA—“We do—in my opinion, not enough. Especially if there’s five or six plan 

holders and only one bid. More when there are nonobvious things than when it is 

obvious. We ask for justification of their numbers. It is on a project-to-project basis.” 

• C-STA—“We only contact the low bidder. If the prices are high, we ask [them] to tell us 

why. Then we consider whether it is appropriate or not.” 

• E-STA—“Yes, to ask why they didn’t bid.” 

• F-STA—“Typically contact low bid, especially when there are items that were way 

higher than what we estimated.” 
74 

6. Are there any “ground rules” for adjusting estimates after receiving bids? Is such action taken 

on its own merits, or may it be prompted by pressure to award an excessive bid?

• A-STA—“No. The EEs can be adjusted up until the bid opening. If anything, it is 

rejected and re-bid.” 

• B-STA—“We very rarely adjust our estimates, but if we do, [it] is because we missed 

something crucial in the plan or [noticed] typos. Otherwise, we cannot adjust the 

estimate. If we have the money, and it makes sense, we can just award it.” 

• D-STA—“If there is something that we notice upon receiving the bids, typos (writing 10 

instead of 100, or similar mistakes).” 

• C-STA—“Only typos and things of that nature.” 

• E-STA—“We never do. I know a State that does.” 

• F-STA—No.
75 

APPENDIX C—FIRST ROUND OF INTERVIEWS STRUCTURED INTERVIEW 

DOCUMENT—FHWA DO

INTRODUCTION

[Provide an overview of the project for the benefit of the respondent.] 

PROJECT’S PRIMARY OBJECTIVES

The primary objective of this task order was to identify what, when, why, and how FHWA and 

FLH develop costs estimations. FHWA will use this information to provide more consistent 

oversight of project cost estimates by STAs. For the purpose of the research, FLH includes the 

U.S. Bureau of Land Management, U.S. Fish and Wildlife Service, U.S. National Park Service, 

and the U.S. Forest Service.

PROJECT’S SECONDARY OBJECTIVES

The project’s secondary objectives were as follows:

• Identify what type of projects these agencies provide cost estimates for, including types 

of projects defined by function (e.g., roadway and bridge), size, and complexity. 

• Identify when the agencies develop project cost estimates, including by which phase of a 

project and the frequency with which a project cost estimate is updated. 

• Identify why the agencies develop project cost estimates, including factors relating to risk 

and location that may trigger FHWA to develop a project cost estimate.

• Identify how the agencies develop project cost estimates. Do aspects related to what, 

when, and why influence when the historical bid-based model, the cost-based model, the 

risk-based estimation model, or the parametric time estimation model are used to develop 

a project cost estimation model?

IDENTIFICATION

1. Name. [This is a confidential interview, only the data analyst will read this answer.] 

2. Name of your agency. 

3. Your job title and role in the agency. 

4. Overall years of experience. 

5. Years of experience with the agency. 

6. Years of experience in your current position:

7. Years of experience in estimating. 

8. Do you provide oversight on cost estimates developed by other agencies (e.g., STA or 

consultants)? 
76 

APPROACHES USED IN COST ESTIMATES 

On a scale from 1 to 10, where 1 is strongly unfamiliar and 10 is strongly familiar (table 54), 

please indicate your level of familiarity with each of the following cost estimation methods. 

Table 54. Scale from 1–10. 

1 2 3 4 5 6 7 8 9 10 

1. Historical bid-based method. 

This method involves using the historical bid-based approach. FHWA and STAs usually use a 

bid-history database to estimate unit bid costs for major items. Based on the historical averages, 

FHWA can use the estimated quantities of a proposed project to develop a target price. Much of 

the accuracy of this approach is based on the quantity and level of detail of the bid-history 

database.

2. Cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs. The method also 

involves adding a reasonable amount for a contractor’s overhead and profit. The process mimics 

the same method that a contractor uses for preparing a bid-day estimate. When prepared with the 

proper skill, experience, and effort, cost-based estimates are usually considered the most accurate 

of the five methods. 

3. Conceptual estimation. 

Typically performed during the early planning and scope development, conceptual cost estimates 

typically use primary project parameters (e.g., project location, length, type of project, scope 

details, design parameters, site characteristics, and broad design assumption) to develop a cost 

estimate.

4. Risk-based estimation. 

Risk-based estimation involves developing probabilistic cost for a project and its components 

based on identified known quantities, costs, and contingencies developed from a list of identified 

uncertainties from both opportunities and threats and their potential impact on the project.

5. Combination of historical and cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs based on historical 

bid items of past projects. The method also involves adding a reasonable amount for a 

contractor’s overhead and profit. The process involves the development of cost estimates for

each project (like the cost-based method), but it uses a bid-history database instead of cost 

estimates from material suppliers and historical production rates, which are typically used in a 

cost-based method When prepared with the proper skill, experience, and effort, cost-based 

estimates are usually considered the most accurate of the five methods. 
77 

6. Other practice. 

EFFICACY

On a scale from 1 to 10, where 1 is strongly disagree, 10 is strongly agree, and N/A is not 

applicable (table 55), please answer the following statements:

Table 55. Scale from 1–10. 

N/A 1 2 3 4 5 6 7 8 9 10 

1. I feel confident about the cost estimates developed by this agency. 

2. I feel confident about the methods used to estimate cost. 

3. The cost estimates developed here are always on target. 

4. The STAs develop accurate estimates. 

5. The STAs are knowledgeable about cost estimation procedures. 

6. The STAs keep cost estimation procedures updated. 

7. The STAs use outdated techniques of cost estimation. 

CHALLENGES

1. Which other portions of your office become involved in checking the cost estimates? 

2. What are the biggest challenges encountered when overseeing a cost estimate?

3. What are the biggest challenges for providing oversight to STAs on cost estimation 

programs? 

On a scale of 1 to 10, where 1 is the worst, 10 is the best, and N/A is not applicable (table 56), 

please rank the following aspects of the cost estimates you oversee being developed by other 

agencies:

[Insert answer]
78 

Table 56. Scale from 1–10. 

N/A 1 2 3 4 5 6 7 8 9 10 

4. Accuracy of the estimates (i.e., do the EEs typically reflect the low bid). 

5. Reliability of the estimates (i.e., is there consistency between the EE and the low bid). 

6. Experience of individuals within the other agency that developed the estimates. 

7. Technology available within the other agency to develop the estimates. 

COST PERFORMANCE MEASURES

1. During your oversight of other agencies’ cost estimating programs, do you use any of the 

following performance measures?

a. STIP cost estimating performance measures. 

i. Initial STIP cost estimate versus 60 percent design cost estimate. (The initial 

STIP cost estimate comes approximately 4 yr from the letting of the project.

During the 4 yr, additional design is completed, and a new estimate is created.

These two estimates are then compared to find their percent difference). 

ii. Final STIP cost estimate versus low bid. (The final STIP cost estimate occurs 

when more design and scope is known but before the final EE. This estimate 

is compared to low bid amounts to find a percent difference.) 

iii. Initial STIP cost estimate versus final STIP cost estimate. (This measure is a 

comparison of the initial STIP estimate to the final STIP estimate to find the 

percent difference.)

iv. Other?

b. PS&E performance measures. 

i. PS&E estimate versus low bid. 

ii. Low bid to be within +/−10 percent of the PS&E estimate for 50 percent of all 

projects let. 

iii. Low bid to be within +/−7 percent of the PS&E estimate for 50 percent of all 

projects let. 

iv. Low bid to be within −15 percent to +5 percent of the PS&E estimate for 

50 percent of all projects let. 
79 

v. PS&E estimate versus final construction costs. (This measure compares the 

final engineer’s PS&E estimate to the final construction costs when the 

project is complete.) 

vi. PS&E estimate versus STIP estimate. (This measure compares the STIP 

program estimate to the PS&E estimate.) 

c. Competition measures. 

i. Number of bidders and mean unit prices. (This measure examines the number 

of bidders per project and the associated mean unit prices.) 

ii. Average number of bidders. (This measure examines the number of bidders on 

average for all projects in a specific period.) 

iii. Average number of bidders by size of contract. (This measure examines the 

number of bidders based on the contract amount. It could also be refined to 

types of work.) 

iv. PS&E versus low bid, segregated by the number of bidders. (This measure

compares the PS&E to the project’s low bid in the case of one, two, three, 

four, or more bidders.) 

ESTIMATE OVERSIGHT

1. Briefly describe the personnel resources available within your agency for preparing estimates 

and note any workload changes versus personnel available over the past 3 yr. 

2. What methods does your agency use to identify and incorporate anticipated changes in cost 

of labor, equipment, and material?

3. How does your agency keep track of inflation or cost indices? Does the agency have in-house 

developed indices?

4. Does your agency consider upcoming labor negotiations in the process? 

5. Does your agency contact material suppliers for anticipated material costs?

6. Does your agency make adjustments for individual project conditions? In what way?

7. What other factors does your agency use to adjust the primary basis to determine the 

estimated prices for the project?

8. How often does your agency revise estimates during the advertising period? Discounting 

addenda and quantity changes, what are the usual reasons for revising estimated prices?

9. Is every estimate in your agency routinely evaluated by anyone other than the preparer? If so, 

when? 
80 

10. If possible, describe how often further study and/or revision is desirable but not 

accomplished due to workload restrictions. 

11. What approaches does your agency use for project contingency? 

12. What approaches does your agency use for risk?

13. Do you use any formally documented estimating guidance procedures (e.g., checklists)? 

14. If so, how often are they updated, or when were they last updated (referring to the guides)? 

15. How often are cost estimations reviewed on a project, and does the frequency vary based on 

project size, type, or other project characteristics? 

16. Table 57 is a typical checklist for conducting a cost estimate review. Which of the following 

factors do you check when conducting a review? 

Table 57. Cost estimate review checklist. 

Yes Factor 

— Estimate is escalated to year of expenditure dollars for each element of the 

project.

— Process includes risk-based assessments for all unknown and uncertain costs. 

— Estimate is well documented.

— Estimate has been prepared using a typical cost model (e.g., code of 

accounts). 

— Estimate has been independently validated. 

— Estimate is consistent with the project scope.

— Estimate includes all initial preliminary engineering costs and final design 

costs.

— Estimate includes all ROW and administrative costs.

— Estimate includes all third party (e.g., utility, railroad) costs.

— Estimate includes all TDM/TSM costs.

— Estimate includes all construction costs.

— Estimate includes construction contingencies. 

— Estimate includes construction administration.

— Estimate includes public outreach cost.

— Estimate includes a management reserve.

— For planning or conceptual estimates, consideration was given to expressing 

the estimate as a range.

— For projects under design, estimates include a design contingency at each 

stage of design.

—Empty cell for respondents to check. 

17. Are there other factors not listed that you typically check when conducting a review (e.g., bid 

ethics, front-end loading, possibility of collusion)? 
81 

POST-BID PRACTICES

1. Are there any State laws or regulations in effect regarding the release or protection of the 

EE? 

2. Are there any State laws or administrative regulations in effect to determine whether a 

contract award is proper, based on estimate overrun, competition, or other factors? 

3. Is any information released publicly that may indicate the actual or approximate value of the 

estimate prior to opening bids? If so, when and where is it published?

4. Is the EE published in detail, or is only the total cost provided? 

5. Are there any written procedures for evaluating bids within your agency? 

6. In the case of poor competition or excessive difference between the estimate and the low bid 

or best value, does the contracting agency contact the bidders and nonbidders who examined 

proposal forms?

7. Are there any “ground rules” for adjusting estimates after receiving bids? Is such action taken 

on its own merits, or may it be prompted by pressure to award an excessive bid?

WRAP-UP 

1. Does your agency have any documentation that you follow to develop and/or provide 

oversight on cost estimates that you can share?

2. Is there anything you believe we should have asked about that we did not cover during this 

interview?

83 

APPENDIX D—FIRST ROUND OF INTERVIEWS—DO RESPONSES COMPILED

IDENTIFICATION

1. Overall years of experience:

• E-DO—20+. 

• D-DO—20. 

• H-DO—35+. 

• C-DO—30+. 

• I-DO—30+. 

• J-DO—35+. 

• K-DO—22. 

• G-DO—25. 

2. Years of experience with the agency:

• E-DO—18+.

• D-DO—18. 

• H-DO—20+.

• C-DO—30+.

• I-DO—20. 

• J-DO—20+.

• K-DO—14. 

• G-DO—3. 

3. Years of experience in your current position: 

• E-DO—9. 

• D-DO—2. 

• H-DO—3. 

• C-DO—9. 

• I-DO—9. 

• J-DO—12. 

• K-DO—2. 

• G-DO—1. 

4. Years of experience in estimating:

• E-DO—18+.

• D-DO—20 

• H-DO—25+.

• C-DO—19. 

• I-DO—9. 

• J-DO—20+.
84 

• K-DO—10. 

• G-DO—25. 

5. Do you provide oversight on cost estimates developed by other agencies (e.g., STA or 

consultants)? 

• E-DO—“Yes. E-STA is our primary. They have consultants that develop estimates. Any 

comments we have are through E-STA.” 

• D-DO—“Technically, we have the ability to provide oversight on any of the projects. 

However, we use a risk-based approach in our project involvement and have been 

involved throughout the entire span of projects. Our involvement changes depending on 

the scope and scale of the projects. Currently, we have 600-plus active projects on 

State D with Federal funds on it. Obviously, we can’t provide oversight on everything 

with an office of four people.” 

• H-DO—“We do. FHWA recently changed how we provide oversight. All the DOs have a 

stewardship oversight agreement. Now we provide oversight on projects that are 

determined to be projects of division interest. Based on risk, we determine which projects 

are going to receive oversight, specific to the areas that we deem need oversight. It all 

depends on the information that we know about the project and the risk in it.” 

• C-DO—“Not on a project-by-project basis. Our oversight is provided on a risk-based 

approach. If we identify that something is not right on an estimate area, we would 

identify that as a division DOT high risk. We would conduct a process review, or we 

would go and do spot checks on several projects to validate whether there is a risk or not. 

If it’s not a risk, then it’s good to go. If there is actually a risk, we would then find ways 

to mitigate it, address it, bring our concerns forward to the DOT, and have it fixed. If they 

ask for technical assistance to improve their practices, we would provide such assistance 

in a stewardship sense.”

• I-DO—Yes. 

• J-DO—“Very limited these days. We don’t consider cost estimates as a high risk. We 

mostly do it for major projects.” 

• K-DO—Yes. 

• G-DO—Yes. 

APPROACHES USED IN COST ESTIMATES 

On a scale from 1 to 10, where 1 is strongly unfamiliar and 10 is strongly familiar, please 

indicate your level of familiarity with each of the following cost estimation methods (table 58

through table 63). 
85 

1. Historical bid-based method. 

Using the historical bid-based approach, STAs usually use a bid-history database to estimate unit 

bid costs for major items. Based on the historical averages, FHWA can use the estimated 

quantities of a proposed project to develop a target price. Much of the accuracy of this approach 

is based on the quantity and level of detail of the bid-history database.

Table 58. Historical bid-based method.

Agency Value Min-Max 

E-DO 9 8.5 

G-DO 9 10.0 

D-DO 10 10.0 

H-DO 10 10.0 

C-DO 10 10.0 

I-DO 10 10.0 

J-DO 10 10.0 

K-DO 10 10.0 

Min-max = minimum to maximum.

2. Cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs. This method also 

involves adding a reasonable amount for a contractor’s overhead and profit. The process mimics 

the method that a contractor uses to prepare a bid-day estimate. When prepared with the proper 

skill, experience, and effort, cost-based estimates are usually the most accurate of the five

methods. 

Table 59. Cost-based method.

Agency Value Min-Max 

E-DO 7 5.5 

G-DO 9 10.0 

D-DO 7 5.5 

H-DO 4.5 1.8 

C-DO 9 7.4 

I-DO 2 1.0 

J-DO 9 8.9 

K-DO 9 8.9 

3. Conceptual estimation. 

Typically performed during the early planning and scope development, conceptual cost estimates 

usually use primary project parameters (e.g., project location, length, type of project, scope 
86 

details, design parameters, site characteristics, and broad design assumption) to develop a cost 

estimate.

Table 60. Conceptual estimation.

Agency Value Min-Max 

E-DO 8 7.0 

G-DO 7 6.4 

D-DO 7 5.5 

H-DO 7 5.5 

C-DO 10 10.0 

I-DO 10 10.0 

J-DO 9 8.9 

K-DO 9 8.9 

4. Risk-based estimation. 

This method involves developing probabilistic costs for the project and its components based on 

identified known quantities, costs, and contingencies developed from a list of identified 

uncertainties from both opportunities and threats and their potential impact on the project.

Table 61. Risk-based estimation.

Agency Value Min-Max 

E-DO 10 10.0 

G-DO 4 1.0 

D-DO 7 5.5 

H-DO 4 1.0 

C-DO 10 10.0 

I-DO 5 4.4 

J-DO 8.5 8.3 

K-DO 10 10.0 

5. Combination of historical and cost-based method. 

This method involves estimating the cost for items of work based on the cost of each component 

of a project, considering the associated labor, equipment, and materials costs, based on historical 

bid items of past projects. The method also involves adding a reasonable amount for a 

contractor’s overhead and profit. The process involves developing cost estimates for each project 

(like the cost-based method), but it utilizes a bid-history database instead of cost estimates from 

material suppliers and historical production rates that are typically used in a cost-based method. 

When prepared with the proper skill, experience, and effort, cost-based estimates are usually 

considered the most accurate of the five methods. 
87 

Table 62. Combination of historical and cost-based method.

Agency Value Min-Max 

E-DO 8.5 7.8 

G-DO 9 10.0 

D-DO 8 7.0 

H-DO 7 5.5 

C-DO 10 10.0 

I-DO 7.5 7.2 

J-DO 9.5 9.4 

K-DO 10 10.0 

6. Other practice. 

Table 63. Other practices.

Agency Value Min-Max 

E-DO — —

G-DO — —

D-DO — —

H-DO — —

C-DO — —

I-DO — — 

J-DO 7.5 7.2 

K-DO — —

—No data.

EFFICACY

On a scale from 1 to 10, where 1 is strongly disagree and 10 is strongly agree, please answer the 

following statements:

1. I feel confident about the cost estimates developed by this agency (table 64). 

N/A
88 

Table 64. Confidence in cost estimates agency develops.

Agency Value Min-Max 

E-DO 8 7.0 

G-DO 8 8.2 

D-DO 6 4.0 

H-DO 7.5 6.3 

C-DO 7 2.3 

I-DO 8 7.8 

J-DO — —

K-DO 9 8.9 

—No data.

2. I feel confident about the methods used to estimate cost (table 65). 

Table 65. Confidence in cost estimate methods used.

Agency Value Min-Max 

E-DO 9 8.5 

G-DO 9 10.0 

D-DO 6 4.0 

H-DO 9 8.5 

C-DO 10 10.0 

I-DO 8 7.8 

J-DO — —

K-DO 10 10.0 

—No data.

3. The STAs develop accurate estimates (table 66). 

Table 66. STAs develop accurate estimates.

Agency Value Min-Max 

E-DO 9 8.5 

G-DO 7 6.4 

D-DO 5 2.5 

H-DO 8 7.0 

C-DO 6.5 1.0 

I-DO 8 7.8 

J-DO 8.5 8.3 

K-DO 8 7.8 
89 

4. The STAs are knowledgeable about cost estimation procedures (table 67). 

Table 67. STAs are knowledgeable about cost estimation procedures.

Agency Value Min-Max 

E-DO 9 8.5 

G-DO 8 8.2 

D-DO 5 2.5 

H-DO 10 10.0 

C-DO 6.5 1.0 

I-DO 9 8.9 

J-DO 10 10.0 

K-DO 9 8.9 

5. The STAs keep cost estimation procedures updated (table 68). 

Table 68. STAs keep cost estimation procedures updated.

Agency Value Min-Max 

E-DO 9 8.5 

G-DO 7 6.4 

D-DO 4 1.0 

H-DO 10 10.0 

C-DO — —

I-DO 10 10.0 

J-DO 10 10.0 

K-DO 9 8.9 

—No data.

CHALLENGES

1. Which other portions of your office become involved in checking the cost estimates? 

• E-DO—“Just the engineers.” 

• D-DO—“Mainly engineering and planning.” 

• H-DO—“For construction and design cost estimates, if it’s a PODI (project of division 

interest). If it’s a project during design, we can look at the estimate for the design, and 

then we have a checklist to assist people in checking what the consultants did and what 

the State is providing to us. For construction, we have a checklist to help review prior to 

advertising. Every DO might have different checklists for different things.” 

• I-DO—“That would be with the transportation engineers.” 
90 

• J-DO —“Planning, environment, ROW, financial, field ops., value engineering.”

• K-DO—“It’s only my team.” 

• G-DO—“Engineers and planners.”

6. What are the biggest challenges encountered when overseeing a cost estimate?

• E-DO—“They use too many bid items, so it is hard to check. We can only check the big 

ones. Programming of projects. Budgeting and programming process. They put estimates 

on the shelf (for funding purposes), and when it’s time to bid, there is a lot of rework 

required to update plans (e.g., utility relocation, changes in the jobsite).” 

• D-DO—“The fact that we are not involved in the entire project on a day-to-day scale. We 

don’t have access to all the programs (e.g., estimator), which would be helpful.”

• H-DO—“Package that goes out to bidder does not give locations; it just gives quantities. 

The bidders are coming up with quantities based on no location, whereas previously, the 

packages would include locations. Without locations, it is harder to check costs.” 

• I-DO—“Routinely, there are not many major challenges. Sometimes there may be 

projects where we know there might be some additional risk factors or additions that 

might account for potential changes in the cost estimates.” 

• J-DO—“Changing environment. Sometimes estimates are too high, depending on market 

conditions and the contractor’s hunger. A lot of projects start simultaneously, and this 

influences material shortages. Construction season goes from April to October (summer 

heat is an issue). Projects are put out to bid in the fall because contractors are not 

performing too much work. It is believed that contractors won’t bid high because they’re 

already busy. For our division, since J-STA is the leader in cost estimates, it’s not a 

challenge. We learn from them.” 

• K-DO—“Innovative delivery estimates/use of consultants. K-STA has some oversight for 

the consultant-developed estimates.” 

• G-DO—“Not having all the details that we need to make an evaluation of whether it was 

an appropriate cost estimate. For example, rural versus urban, number of contractors, [bid 

item quantities].” 

On a scale of 1 to 10, where 1 is the worst and 10 is the best, please rank the following aspects of 

the cost estimates you oversee that are developed by other agencies: 

7. Reliability of the estimates (i.e., is there consistency between the EE and the low bid) 

(table 69). 
91 

Table 69. Reliability of the estimates.

Agency Value Min-Max 

E-DO 8 7.0 

G-DO 6 4.6 

D-DO 6 4.0 

H-DO 8 7.0 

C-DO 6.5 1.0 

I-DO 8 7.8 

J-DO 9 8.9 

K-DO 9 8.9 

8. Experience of individuals within the other agency that developed the estimates (table 70). 

Table 70. Experience of individuals within the other agency that developed the estimates.

Agency Value Min-Max 

E-DO 8 7.0 

G-DO 6 4.6 

D-DO 5 2.5 

H-DO 9 8.5 

C-DO 7.5 3.6 

I-DO 7 6.6 

J-DO 9 8.9 

K-DO 9 8.9 

9. Technology available within the other agency to develop the estimates (table 71). 

Table 71. Available technology to develop estimates. 

Agency Value Min-Max 

E-DO 4 1.0 

G-DO 8 8.2 

D-DO 5 2.5 

H-DO 9.5 9.3 

C-DO 7.5 3.6 

I-DO 9 8.9 

J-DO 8.5 8.3 

K-DO 7 6.6 

COST PERFORMANCE MEASURES

1. During your oversight of other agencies’ cost estimating programs, do you use any of the 

following performance measures?
92 

a. STIP cost estimating performance measures. 

• E-DO—“In our major projects, we have an STIP reference, but it is a very high-level 

overview. Our primary duties are to see how it compares to the CFR [Code of Federal 

Regulations]. We don’t have the resources to go any deeper than that.” 

• D-DO—“No STIP performance measures. One of the reasons is because the STIP in 

State D is really broadline items, and unless it’s bigger projects, it’s very hard to 

compare.” 

• H-DO—“Initially, when the project is put in the STIP and planning, the estimate is 

very general. As it moves along in design, the State has a CTP (consolidated 

transportation program) That helps them put info into the STIP. This is updated 

yearly, so it helps them program based on the State dollars and transportation 

dollars.” 

• C-DO—“I do not know. It is known by the planners and not by the engineers.”

• G-DO—“Nothing here.”

b. Initial STIP cost estimate versus 60 percent design cost estimate. (The initial STIP cost 

estimate comes approximately 4 yr from the letting of the project. During the 4 yr, 

additional design is completed, and a new estimate is created. These two estimates are 

then compared to find their percent difference.) 

• E-DO—“They use the 60 percent as the STIP, but I don’t know if there’s a 

measurement for it.” 

• I-DO—No.

• J-DO—“We don’t. I don’t know if J-STA does (I am pretty sure they don’t). They are 

very State-legislative driven. They try to make the project match the budget and not 

the other way around.” 

• K-DO—No.

c. Final STIP cost estimate versus the low bid. (The final STIP cost estimate occurs when 

more design and scope are known but before the final EE. This estimate is compared to 

low bid amounts to find a percent difference.) 

• I-DO—Yes.

• J-DO—“The most we would do is when we authorize construction funding, we want 

to make sure that the construction authorization is within 30 percent of the STIP.” 

d. Initial STIP cost estimate versus final STIP cost estimate. (This measure is a comparison 

of the initial STIP estimate to the final STIP estimate to find the percent difference.) 
93 

• C-DO—“There’s not a measurement, but there is a check with the estimate versus the 

STIP. Then they have to make an amendment prior to award, prior to advertising. 

They’re checking that at 90 percent in PS&E to make sure the STIP is in line with 

estimates.” 

• J-DO—“We don’t. Our planning side might, but I don’t think they do.” 

e. Other. 

2. PS&E performance measures. 

• H-DO—“We just started this stewardship program. We don’t have a full year yet.” 

• C-DO—“Yes. The biggest dragging force here is they don’t set the scope early on in 

the project, and they allow the scope creep to keep increasing the cost. They keep 

adding scope and things they miss, and when it goes out on the street, the contractor 

keeps adding more. This [process] keeps dragging all prices up, and that’s why most 

of them are significantly over.”

• K-DO—“PS&E are based on the initial estimate and are updated a couple of weeks 

before letting (4 w approximately). PS&E transforms into the EE.” 

• G-DO—Yes. 

a. PS&E estimate versus low bid. 

• H-DO—“+10 percent/−15 percent for the EE. If it’s outside this range, they need to 

have a justification.” 

• C-DO—Yes.

• J-DO—“J-STA does that, and they share the numbers with us.” 

b. Low bid to be within +/−10 percent of the PS&E estimate for 50 percent of all projects 

let. 

• E-DO—“We use this one. They have been fairly close over time.” 

• D-DO—“This one is the only one they track. They started to compare each phase of 

the design to the final bid.” 

• C-DO—“Try to, but not meeting it.”

• I-DO—“Only this one.” 

• K-DO—“We want to see them within 10 percent. If they are over 10 percent, they 

cannot be recommended for award. There are ways to make sure we’re not 

overpaying.”
94 

• G-DO—“We use this one.” 

c. Low bid to be within +/−7 percent of the PS&E estimate for 50 percent of all projects let. 

C-DO—“Not meeting this one either.”

d. Low bid to be within −15 percent to +5 percent of the PS&E estimate for 50 percent of 

all projects let. 

C-DO—“Not meeting this one either.”

e. PS&E estimate versus final construction costs. (This measure compares the final 

engineer’s PS&E estimate to the final construction costs when the project is complete.) 

• C-DO—“I do not know if they measure this. It is not an important measure to the 

DOT. They started measuring it now that they have time. It’s new as of roughly one 

year ago.” 

• E-DO—“We would compare whatever is let to the final construction cost.” 

f. PS&E estimate versus STIP estimate. (This measure compares the STIP program 

estimate to the PS&E estimate.) 

C-DO—“I can’t give you an answer on that one. They talk about it, and preletting is 

informally checking. It’s informal.” 

3. Competition measures. 

a. Number of bidders and mean unit prices. (This measure examines the number of bidders 

per project and the associated mean unit prices.) 

• E-DO—“We get the results and bid tabs for the three lower bidders.” 

• H-DO—No.

• C-DO—“We do not, but the DOT tracks all of that. They have all the statistics for 

this.” 

• I-DO—“Yes. They pretty much follow what our guidance document says on that.” 

• J-DO—“On occasion. If we see something that is questionable, or if we are doing a 

review. J-STA does a letting every Wednesday. We review unique projects or 

projects that are too high.” 

• K-DO—“If we see something strange with a unit price, we compare with second, 

third, or fourth bidders.” 
95 

• G-DO—“Numbers of bidders, yes. If the bids are varying a lot from the EE, then they 

look at the mean unit prices.” 

b. Average number of bidders. (This measure examines the number of bidders on average 

for all projects in a specific period.) 

• E-DO—“No. We’ve seen projects with just one bidder, but we still have to award it. 

Sometimes they (E-STA) can’t move forward because the one bidder is out of the 

ordinary.” 

• D-DO—“I don’t think they look at this a lot. The information is there, but they don’t 

use it. We do have this information, and the report on this is done annually, I 

believe.” 

• H-DO—“If there’s only two bidders, the low bidder has to be within 105 percent of 

the EE, per the documents sent to us by [FHWA].” 

• C-DO—“Average number of bidders does not matter to the DOT. That said, that’s a 

statement made on DBB. When we get into innovative contracts (e.g., DB, CM/GC), 

it does matter, meaning you want no less than three (every State is a little bit different 

with their regulations).

“Bid averaging method is not allowed in the [United States], but it works well in 

Europe. This is something to keep in mind.” 

• I-DO—“This is also part of the analysis. Number bids, difference between estimate 

and low bid, and range of bids.” 

• J-DO—“On occasion. If we see something that is questionable, or if we are doing a 

review. J-STA does a letting every Wednesday. We review unique projects or 

projects that are too high.” 

• K-DO—“We have between 3 and 10 bidders per project. Some of the larger projects 

might have two bidders.” 

• G-DO—“If they only have a few bidders, they evaluate the estimate to see if they 

make sense.” 

COST ESTIMATE OVERSIGHT

1. Briefly describe the personnel resources available within your agency for preparing estimates 

and note any workload changes versus personnel available over the past 3 yr. 

• E-DO—“It has been pretty stable. It is important for the State DOT.” 

• D-DO—“The resources they have are AASHTOWare® Project EstimationTM and 

AASHTOWare ProjectTM BAMS/DSSTM (AASHTO n.d.a; AASHTO n.d.b.). They only 

have one person that reviews all the estimates. Agencies become leaner and leaner. This 
96 

(estimating) has become a side thought. About 40 percent of their projects are estimated 

by consultants. They also have a senior estimator that deals with all the State projects and 

gets involved a lot in CM/GC. I would say it’s a pretty lean [organization].” 

• H-DO—“I have not noticed anything. What we do notice is that, since the new governor 

is here, they are getting more money in their tax revenue, and they planned for that. Now 

that the money flow is slowing down, they’re already saying that there will be fewer 

projects. So that is what has happened related to this.” 

• I-DO—“I have not noticed any changes. They use a lot of consultants, so any needs are 

covered by the consultants. I would say the resources are adequate.” 

• J-DO—“We’ve had people come and go, but our team is pretty well-resourced. We can 

always go ask our resource center for help.” 

• K-DO—“We have five engineers in my team, and most of them have been together for 

the past 6 yr. We pick projects based on risk (price, location, traffic, low cost, 

environmental, political, influence). We don’t view every minor detail, just the projects 

we choose to oversee. There is a sample that we pick for every district, but in monthly 

meetings, we review every project as an aggregate. We can pick the projects that we want 

to review.” 

• G-DO—“They seem to have adequate personnel. In my year here, I haven’t seen a lot of 

turnover.” 

10. What methods does your agency use to identify and incorporate anticipated changes in cost 

of labor, equipment, and material?

• E-DO—“They do. Recently, the market has heated up, which has made them adjust the 

estimates because of that. We have not seen any issues with material or equipment.” 

• D-DO—“There is a 5 percent contingency on DBB and 10 percent on DB. It depends on 

the project manager. There is not a lot of consistency between groups.” 

• H-DO—“I know in the past they had a price adjustment for asphalt mix, for concrete 

strength. It is in the specs and has been there for years. They just recently added steel 

adjustment. Forced account work is in their specs. Usually, work is based on unit price 

that they bid. If something is added to the contract, and they can’t negotiate, they do it by 

force accounted work, which includes labor, material, and equipment. But the specs don’t 

have anything about adjusting them.” 

• I-DO—“Not anything systematic, but I think that when they see dramatic price 

fluctuations in steel, asphalt, or portland cement, they try to address the increases in the 

bid cost.” 

• J-DO—“If there’s something like that, we reach out to other divisions and see if they 

have something happening of that nature.” 
97 

• K-DO—“They rely on people in every district (in the field); they talk to providers; they 

provide feedback on availability of materials and equipment; they report to us any market 

condition changes. For example, labor cost can affect a lot [in] the Atlanta metro area, but 

not as much [as in] the rest of the State. Market prices of commodities and word of mouth 

(talking to contractors). Additionally, we have monthly meetings to discuss EEs for every 

project, and a week after the meetings, we do the bid reviews. We are not voting 

members, but we participate enough. Prelet meetings are 1 to2 h, and postlet meetings are 

2 to 3 h. If we need additional analysis, we will break it apart.” 

• G-DO—“They have price escalation clauses built into their contracts for materials, 

especially for items like asphalt.” 

11. How does your agency keep track of inflation or cost indices? Does the agency have in-house 

developed indices?

• E-DO—“They subscribed to a service that provides insights (market by market and 

region by region inflation factors).”

• D-DO—“They have a fuel index. It is only updated about every 5 yr.” 

• H-DO—“They have a bid price index that gets updated every 6 mo that can be found on 

their website. This is for unit cost of items that were installed within the last 6 mo. Every 

month they get new indexes for asphalt, and they use those indexes. For construction, 

they do account for inflation, but I don’t know how they keep track of it.” 

• I-DO—“I don’t know if they do it internally. They used to submit bid data to FHWA, and 

that was tracked by FHWA years ago. They have a pretty good electronic system, so they 

can access the data and run a lot of reports if they want to.” 

• J-DO—“We try to keep nationwide indices (such as gas index), but not in our office. For 

inflation, [it] depends on the stage of the project.” 

• K-DO—“Since their estimates are cost based, this is embedded when they develop an 

estimate.” 

• G-DO—“They keep track of all the prices used on the project and regularly update them. 

They have an in-house developed index.” 

12. Does your agency consider upcoming labor negotiations in the process? 

• E-DO—“Unions have decreased their influence lately, but some contractors may be 

inclined to subscribe to unions.” 

• D-DO—N/A. 

• H-DO—N/A. 
98 

• I-DO—N/A. 

• J-DO—“This is more J-STA; we rely on them to tell us. They definitely consider that in 

their estimates.” 

• K-DO—N/A. 

• G-DO—N/A. 

13. Does your agency contact material suppliers for anticipated material costs?

• E-DO—“It is pretty rare. I remember it happened once. General inquiry about availability 

and not cost.”

• D-DO—“Sometimes with CM/GC (mostly the CM), they are heavily involved with 

material suppliers and larger projects.” 

• H-DO—“I hope so, but I don’t know.” 

• I-DO—“Same as [question] 2.” 

• J-DO—“J-STA will, especially if they know about a specific issue.” 

• K-DO—“Yes.” 

• G-DO—“They might contact them after a bid is put out if there are big price 

fluctuations.” 

14. Does your agency make adjustments for individual project conditions? In what way?

• E-DO—“They do regionalize the estimates. I believe they can break it down to the 

county level.” 

• D-DO—“I hope they would, but I have no idea. Other than risk registry and contingency, 

I don’t know.” 

• H-DO—“I am not aware of that (for weather/seasons). I don’t know if project 

characteristics are taken into account for the estimates. Some environmental issues are 

taken into account and written into the contracts, so the contracts are bid accordingly.” 

• I-DO—“This is reflected in historical data.” 

• J-DO—“J-STA does (e.g., anything in the downtown area would be nighttime, and they 

adjust for that).” 

• K-DO—“They take into consideration distance from the projects to quarries, plants, and 

so forth. They go into very specific details about every project (distance, speed, number 

of trips, etc.).” 
99 

• G-DO—“Yes. They take the basis, average prices, and adjust those for particular project 

conditions.” 

15. What other factors does your agency use to adjust the primary basis to determine the 

estimated prices for the project?

• E-DO—“They may have to do more investigation for environmental factors. Steel 

procurement to slack the steel prices. The State buys and provides to the contactor.” 

• D-DO—“Small quantity versus large quantity project risk (risk registry for each project). 

They initially tried to do it for every project, but they only ended up doing it for larger 

projects.” 

• I-DO—“Larger projects (over $100 million or anything that requires financial plans) 

they’ll do a year of expenditure type of thing to the midpoint of construction.” 

• J-DO—In (State capital), there are more cranes than ever (for private development), so 

this is an example of something to consider. Eastern side has less resources available. 

Federal-aid projects would also be higher. J-STA has been tasked to do practical design 

by State legislation.” 

• K-DO—“Competition (players in the area). They know who the bidders, suppliers, and 

contractors are, so they adjust the prices accordingly.” 

• G-DO—“Volume of work, area (zone), contractors available in the area.” 

16. How often does your agency revise estimates during the advertising period? Discounting 

addenda and quantity changes, what are the usual reasons for revising estimated prices?

• E-DO—“We do fuel cost adjustments.” 

• D-DO—“I don’t think it’s revised during advertising unless there’s an addendum.” 

• I-DO—“Only quantity changes or addenda. Open Q&A process with the contractors in 

their electronic systems, so they’d see any changes in variations of quantities.” 

• J-DO—“Never.” 

• K-DO—“This is not typical. They have done it when they have found something specific 

with an item of material. There are no adjustments within the 4-w period.” 

• G-DO—“If the bids come in very different from the EE, they will look at the prices and 

may revise the bids at that point.” 

17. Is every estimate in your agency routinely evaluated by anyone other than the preparer? If so, 

when? 

• E-DO—“Region develops the estimates, and central office checks them.”
100 

• D-DO—“The senior estimator. The ‘when’ depends on the project. ‘When he has time 

(chuckles).’ Before advertising, definitely.” 

• H-DO—“If H-STA does it, I am not aware of it.” 

• J-DO—“They have a couple of different sets of eyes looking at this, but I am unsure of 

who and when.” 

• I-DO—“I-STA is a rather decentralized organization. They’re set up by district offices. 

Each district office has a contract management group that is responsible for advertising. 

They typically will review the estimate prepared by the PM.” 

• K-DO—“People in the district provide some of the information and verify the design. 

Estimators in the office make the main estimates, and then they go to their supervisors for 

the final check. I only deal with the chief estimator.” 

• G-DO—“Not that I know of.” 

18. If possible, describe how often further study and/or revision is desirable but not 

accomplished due to workload restrictions.

• E-DO—“I have not seen that happen.” 

• D-DO—“All the time. I’d say, at a minimum, annually. He’s a busy dude.” 

• H-DO—“I have never seen this.” 

• I-DO—“Very rare instance.” 

• J-DO—“I don’t know. I don’t think they throw those out very often.” 

• K-DO—“I don’t have enough information to answer this.” 

• G-DO—“I have not seen that being an issue.” 

19. What approaches does your agency use for project contingency? 

• E-DO—“As the design moves further along, the contingency goes lower and lower: 

30, 60, 90 checks.” 

• D-DO—“Standard is 5 percent for DBB and can go up to 20 percent, depending on the 

project. For instance, ‘rock ledge, when you don’t really know what you’re getting into.’” 

• H-DO—“20 percent to 40 percent during planning, and this decreases as the project 

evolves, until PS&E, where there is no contingency at all.” 
101 

• I-DO—“At the PS&E stage, they don’t do contingency. They have various percentage 

contingency for the project development process that reduces as the project evolves. As it 

goes out for advertising, there is no contingency in the estimate.” 

• J-DO—“In planning stages, they have a more inflated contingency, and this lowers as it 

gets closer to the EEs.” 

• K-DO—“Cost-based estimation; they don’t do contingencies. 

“On DB projects, they usually do 10–15 percent. They only add a contingency to DB 

projects.” 

• G-DO—“I know they have some contingency, but I am not sure how they do it. I think 

it’s a contingency overall, and they add it to the estimate.” 

20. What approaches does your agency use for risk?

• E-DO—“Risk assessment for major projects (>$500 million).” 

• D-DO—“Risk registry. They try to address risk by delivery method (e.g., using DB and 

CM/GC).” 

• H-DO—“I don’t know what their approach is.” 

• C-DO—“RBSO (Risk Based Stewardship and Oversight).”

• I-DO—“Major projects use a risk-based approach. In this method, we strip the percentage 

contingencies out as we put in the risks and their magnitudes. On any individual project, 

if they are aware of risk factors that affect the cost, they would address it. There is not 

something systematic. The vast majority of the projects are pretty vanilla.” 

• J-DO—“Depending on the size of the project, the risk analysis changes. In the process, 

they have different amounts of risks they are willing to accept. They have a very 

thorough approach for risks and opportunities.” 

• K-DO—“They look at urban, suburban, or rural conditions. They also look at the 

competition.” 

• G-DO—“If they see items that will increase the risk of the project, they will adjust the 

price accordingly, and the estimate will increase.” 

21. Do you use any formally documented estimating guidance procedures (e.g., checklists)?

• J-DO—“We do on major projects (>$500 million).” 

• E-DO—“We have developed standard operating procedures. There is a checklist 

associated [with] the procedures.” 
102 

• D-DO—“We only have the FHWA guidelines (FHWA 2020) for preparing estimates.” 

• H-DO—“The State highway agency has a cost estimating manual.” 

• I-DO—“We do have a cost estimating manual, and I do believe there are some checklists 

in there.” 

• K-DO—“FHWA guide (FHWA 2020).” 

• G-DO—“Not that I know of.” 

22. If so, how often are they updated, or when were they last updated (referring to the guides)? 

• E-DO—“They were updated within the last year. We are trying to finish the PS&E 

checklist. It will be integrated within a new software (Masterworks Cloud software)” 

(Aurigo® n.d.). 

• D-DO—“Last updated January 2004.” 

• I-DO—“I am sure it is every year or on a needed basis (whatever happens first).” 

• J-DO—“They are not updated often.” 

23. How often are cost estimations reviewed on a project, and does the frequency vary based on 

project size, type, or other project characteristic?

• E-DO—“Multiple times. At least two cost estimate reviews (one before the 

environmental reports and one before the letting).”

• D-DO—“It varies depending on the project, the project manager, and the type of project.

They don’t have an SOP [standard operating procedure] for the estimating process.” 

• H-DO—“Estimates are looked at and updated yearly because it’s based on the money 

that they’re getting from the State, so they have to budget for the projects that are going 

to move forward and the ones that are not.” 

• I-DO—“They have established project developing procedures: 

o “Initial scoping cost estimates. 

o “30 percent design (design field view cost). 

o “Final design office meeting (90 percent) completion. 

o “Final PS&E cost estimates. 

o “On larger projects, they might do interim updates. 
103 

o “Major project categories follow a different path completely; basically, they 

send a team out, and they develop these estimates.

o “The cost estimate reviews are sometimes done by consultants too, based on 

workload. It varies when they’re required, but typically we’re talking about a 

minimum of two (Pre-NEPA and Preconstruction).” 

• J-DO—“For major projects, we do it often. Ad hoc on every other project.”

24. Table 72 is a typical checklist for conducting a cost estimate review. Which of the following 

factors do you check when conducting a review? 

Table 72. Cost estimate review checklist.

Yes Factor 

— Estimate is escalated to year of expenditure dollars for each element of the 

project.

— Process includes risk-based assessments for all unknown and uncertain costs. 

— Estimate is well documented.

— Estimate has been prepared using a typical cost model (e.g., code of 

accounts). 

— Estimate has been independently validated. 

— Estimate is consistent with the project scope.

— Estimate includes all initial preliminary engineering costs and final design 

costs.

— Estimate includes all ROW and administrative costs.

— Estimate includes all third party (e.g., utility, railroad) costs.

— Estimate includes all TDM/TSM costs.

— Estimate includes all construction costs.

— Estimate includes construction contingencies. 

— Estimate includes construction administration.

— Estimate includes public outreach cost.

— Estimate includes a management reserve.

— For planning or conceptual estimates, consideration was given to expressing 

the estimate as a range.

— For projects under design, estimates include a design contingency at each 

stage of design.

—Empty cell for respondent to check.

25. Are there other factors not listed that you typically check when conducting a review (e.g., bid 

ethics, front-end loading, possibility of collusion)? 

• E-DO—“The [State] DOT does a good job controlling these.” 

• C-DO—“At the program level, if we identify a risk in this area, we will conduct a process 

review or spot check to validate if the risk is there or not.” 
104 

POST-BID PRACTICES

1. Are there any State laws or regulations in effect regarding the release or protection of the 

EE? 

• E-DO—“They do not publish the EEs. It is that way, and we don’t know the reason.” 

• D-DO—“There are no laws, regulations, or policies, but the standard practice is that it’s 

not published or released. To date, there have been no challenges to this. For the 

advertising process, they publish a range (different levels).” 

• H-DO—“They don’t release them unless there is a specific request, but this is only done 

after award.”

• C-DO—“Yes; 90 percent and farther [sic] is confidential until award.”

• I-DO—“They provide a range; they do not release the actual estimate.” 

• J-DO—“I don’t know if it is a law or not, but J-STA doesn’t release until the bid has 

been announced.” 

• K-DO—“It is confidential. EEs are never released, not even an estimated cost.” 

• G-DO—“I believe the EE is not released.” 

2. Are there any State laws or administrative regulations in effect to determine whether a 

contract award is proper, based on estimate overrun, competition, or other factors? 

• E-DO—“Not that we are aware of.” 

• D-DO—“Only those of the 23 CFR (House of Representatives 2020b).” 

• H-DO—“I am not aware. I don’t know anything other than what I told you before.” 

• C-DO—“I don’t know if it’s a State law or administrative requirement for them. They do 

bid analyses, but I don’t know that it’s based on State statutes.” 

• I-DO—“I don’t think there’s anything legislatively. They pretty much follow the 

guidance. They go through the analysis and determine whether they should expect better 

bids or not.” 

• J-DO—“I don’t think there is anything that stops them from doing this.” 

• K-DO—“10 percent is a trigger for review. They want to be under 10 percent. That is the 

threshold. There are no similar considerations related to competition. We (K-STA) want 

to be as close to the EE as possible.” 
105 

• G-DO—“They have a committee that looks at all bids that come in. Every other week, 

they revise them to make sure that contracts are awarded properly. The committee makes 

the recommendation whether to award to the low bidder—or otherwise—or reject the 

bids. Then another person will review that and agree or disagree.” 

3. Is any information released publicly that may indicate the actual or approximate value of the 

estimate prior to opening bids? If so, when and where is it published?

• E-DO—“Overall project during NEPA. In terms of total project cost.” 

• D-DO—“There is a range published, so contractors know the approximate size.” 

• H-DO—“They publish a range during the advertising period. STIP is online. If the 

project has its own page, it specifies something with Federal funding. If a project’s EE is 

$50 million, I expect the STIP to be higher than this because we have to include the cost 

of inspection and such. This information is available online. We need to make sure that 

the estimate that we are authorizing Federal funds [for] is actually available.” 

• C-DO—“They put a number out there to show how big the project is (the STIP is public). 

Contractors only want to know how big it is. 

• I-DO—“They publish a range when the project is actually (electronically) advertised 

through the system.” 

• J-DO—“Range beforehand and actual value after. Arkansas doesn’t release it at all.” 

• G-DO—“I do not think they publish anything that gives information about this. The STIP 

is the only information available ahead of time.” 

4. Is the EE published in detail, or is only the total cost provided? 

• I-DO—“Nothing is published in detail.” 

• J-DO—“At some point, they will post the bid tabs.” 

5. Are there any written procedures for evaluating bids within your agency? 

• E-DO—“They have documented certain policies that are built into their software now.”

• D-DO—“Yes; will be provided.” 

• H-DO—“I am not aware that they do.” 

• C-DO—No.

• I-DO—“There is a guide.” 
106 

• J-DO—“They have a process that depends on what the project is. They run it through 

several groups, and this is laid down in the process. (They have a process).”

• K-DO—“EE is not published, but the awarded bid is published.” 

• G-DO—“I don’t know.” 

6. In the case of poor competition or excessive difference between the estimate and the low bid 

or best value, does the contracting agency contact the bidders and nonbidders who examined 

proposal forms?

• E-DO—“Informally, they try to do that. They have a mechanism in which they can ask 

them, ‘What happened to this?’ We ask the State E Transportation Builders Association.” 

• D-DO—“They more likely reject all bids and, potentially, reach out to bidders. They’ll 

reevaluate maybe if they have to use ‘force account work’ or something, depending on 

the size of the project.” 

• H-DO—“They do contact them sometimes.” 

• C-DO—Yes. 

• I-DO—“Yes. They contact plan holders that did not bid if they see inadequate 

competition to find out why they did not bid.” 

• J-DO—“Yes. Even recently, they had a weird thing happen, and they sent a letter for the 

contractors to review.” 

• K-DO—“They might ask what happened.” 

• G-DO—“If there is a huge difference, they will contact the low bidders and other bidders 

to try to determine if there’s any basis for that.” 

7. Are there any “ground rules” for adjusting estimates after receiving bids? Is such action taken 

on its own merits, or may it be prompted by pressure to award an excessive bid?

• E-DO—“They can’t make any adjustments. They are not allowed to negotiate or 

anything like that.”

• D-DO—“I hope not! I’ve never seen this. I have no idea.” 

• H-DO—“To my understanding, estimates are not adjusted after the advertising period.” 

• C-DO—“They would do an abstract on DB because ATCs (alternative technical 

concepts) change.” 

• I-DO—“There is no adjusting the EE after a project has been bid.” 
107 

• J-DO—“Most likely, they don’t rebid the projects; they can’t negotiate. This will only 

happen if there is a very obvious error on their end. They do have ground rules on some 

projects.” 

• K-DO—“I don’t know.” 

• G-DO—“I don’t know. They do adjust them if they believe it makes sense, but they 

detail why they believe it could be adjusted so people can have documentation about why 

they were adjusted.” 

WRAP-UP 

1. Does your agency have any documentation that you follow to develop and/or provide 

oversight on cost estimates that you can share? 

E-DO—“We have some procedures.”

2. Is there anything you believe we should have asked about that we did not cover during this 

interview?

• E-DO—“If they want to fully reject a bid, they have to check in with us. We have 

monthly contact, at least. They like to check and make sure. See what standard operating 

procedures exist in the division. We have a hub for the FHWA past reviews conducted by 

the DOs. We might find one that has cost estimates.” 

• D-DO—“We should try to talk to H-DO.” 

• H-DO—“What the division does [to provide] oversight? 

“We provide oversight at various moments of a project’s life. It is not continuous, but we 

do provide oversight. We provide oversight for the areas we are approving funds for (e.g., 

preliminary engineering funds, construction funds, utility funds). Mostly done for 

PODIs.” 

• J-DO—“FHWA is trying to take a step back and let STAs run the show.”

• K-DO—“Mathematical or material unbalance is something I personally check, based on 

my previous experience with DOTs.” 

• C-DO—“We are not involved at all with estimates. We only help them with new 

estimating strategies or if they need approvals.”

APPENDIX E—FOLLOW-UP INTERVIEW

FHWA TASK ORDER “ASSESSMENT OF FHWA HIGHWAY PROJECT COST 

ESTIMATION TOOLS” 

PREPARED BY:

GUILLERMO NEVETT, PHD 

PAUL M. GOODRUM, PE, PHD

SUBMITTED BY:

ENGINEERING & SOFTWARE CONSULTANTS, INC.

APRIL 2020 
TABLE OF CONTENTS

Section I – Introduction 3

PURPOSE ................................................................................................................................................................ 3

IDENTIFIED GOOD PRACTICES ON COST ESTIMATE DEVELOPMENT AND COST ESTIMATE 

OVERSIGHT........................................................................................................................................................... 3

PRACTICE: PARETO PRINCIPLE .................................................................................................................... 3

PRACTICE: HISTORICAL PROJECT COMPARISON .................................................................................. 4

PRACTICE: MONITORING AND UPDATING THE COST ESTIMATES ................................................... 4

PRACTICE: KNOWLEDGE OF FACTORS THAT INFLUENCE PROJECTS COST................................ 4

PRACTICE: PROCEDURES FOR ANALYZING A COST ESTIMATE........................................................ 5

PRACTICE: ESTIMATE DEVELOPMENT OVERSIGHT ............................................................................. 7

ESTIMATE DEVELOPMENT OVERSIGHT CHECKLIST............................................................................ 7

COST ESTIMATE OVERSIGHT PROCESS – PROJECT-LEVEL ................................................................ 8

Section II - Interview 9

PURPOSE ................................................................................................................................................................ 9

1. PRACTICES.................................................................................................................................................. 9

2. USAGE.........................................................................................................................................................11

3. INPUT ..........................................................................................................................................................12

4. COMMENTS...............................................................................................................................................19

Appendix 20

APPENDIX 1 – PARETO PRINCIPLE..............................................................................................................20

APPENDIX 2 – HISTORICAL PROJECT COMPARISON............................................................................21

APPENDIX 3 – HISTORICAL PROJECT COMPARISON (PART 2) ..........................................................22

APPENDIX 4 – PROCEDURES FOR ANALYZING A COST ESTIMATE EXAMPLE.............................23

APPENDIX 5 – LOW BID VS. EE PER NUMBER OF BIDDERS .................................................................27

APPENDIX 6 – SAMPLE COST ESTIMATE CHECKLIST ..........................................................................27

APPENDIX 8 – FINANCIAL PLAN CHECKLIST ..........................................................................................32
3

SECTION I – INTRODUCTION

PURPOSE

The purpose of this document is to provide enough background information for the reader to 

understand the current status of the research being conducted in the current project. This 

understanding is necessary for the requested follow-up interview with members of FHWA 

Federal Aid Division Offices (DOs) and State Transportation Agencies (STAs). It is important 

for the reader to read this document prior to attending the interview, as the contents of this guide 

provide the necessary background information for the questions to be asked during the interview. 

The interview process has the main objective of receiving feedback from the different 

participating agencies for the development of a cost estimate oversight guide. The guide that will 

be developed includes oversight for project-level cost estimates as well as program-level 

estimates oversight.

To achieve consistency and agreements across DOs and STAs, regarding the practices used for 

Cost Estimate oversight, the research team has conducted multiple interviews with agencies 

across 11 different states. The present document shows an aggregate of the best practices found 

in literature and obtained from interviews with different agencies. While described in detail 

below, a list of these practices includes Pareto Principle, Historical Project Comparison, 

Monitoring and Updating Cost Estimates, Knowledge of Factors that Influence Project Cost, 

Procedures for Analyzing Cost Estimates, and Estimate Development Oversight.

It also serves as a summary for a follow-up interview with agencies that participated in the first 

round of interviews. This process will aid in the objective of achieving consistency of the Cost 

Estimate Oversight process for project-level and program-level.

Identified Good Practices on Cost Estimate Development and Cost Estimate Oversight

Based on the first round of interviews and literature review, the team identified a number of good 

practices, both for cost estimate development and cost estimate oversight. Said practices were 

extracted from interviews and documents received from the agencies. Most of the practices 

mentioned below are related to the development of cost estimates. However, they can be used as 

checklist items when providing oversight. Before providing oversight for cost estimates, it is 

important to understand how to develop an estimate in the first place. Therefore, the final guide 

should include the best practices to develop estimates, so that whoever has the responsibility to 

provide oversight can do it in a well-informed manner.

Practice: Pareto Principle

One of the most common practices among the interviewed states (both, STAs and DOs) when 

uses the Pareto Principle – also known as the 80/20 – for reviewing cost estimates. The Principle 

states that 80% of a project’s associated cost can be explained by 20% of the items. In this way, 

states encourage estimators to identify which bid items comprise 80% of the estimates, so that 

they can focus on these items while conducting estimate reviews (see Appendix 1, extracted 

from WisDOT’s ‘esd-template’). Nonetheless, this practice has to be complemented with other 

practices to avoid issues with mathematically or materially unbalanced bids. For example, 
4 

Caltrans states this on their ‘Cost Estimating On-The-Job Training’: “Remember never use single 

low bid data point, it could be from an unbalanced low bid”. This practice is recommended for 

checking bid unit prices to ensure that the low bid unit price is not unbalanced. 

Practice: Historical Project Comparison

Another common recommended practice for estimate development is to check for existing 

projects with similar conditions (e.g., location, size, type of project, material type, etc.). This 

helps the estimator find relevant historical data to complete/develop the cost estimates for new 

projects. WisDOT developed an excel spreadsheet used to compare projects with historical data 

using 9 different filters (Appendix 2). In this tool, the user selects the characteristics of the 

project to be analyzed. These characteristics will filter similar projects, extracted from an 

existing database of over 1000 executed projects so that the historical data used is more relevant 

and accurate.

This tool also helps identify the relevant items for the Pareto Principle. After selecting the filters, 

the results (Appendix 3) show the relevant items classes, along with their percentage relative to 

the project. It also shows average number of bidders for the filtered options.

Practice: Monitoring and Updating the Cost Estimates

Project cost estimates should be kept current. After the development of the initial estimate, the 

following updates are recommended to be submitted. 

• Annual updates: Cost estimates should stay current. This means that the estimates should 

be updated once a year. If quantities or scope of the estimate have changed, then these 

have to be reflected in the annual estimate. Otherwise, estimates should be updated with 

current unit costs for the bid items present in the estimate.

• Programming cycle: Each programming cycle should require an updated estimate. This 

update would provide an estimate to be used as a benchmark for the next programming 

cycle.

• Significant changes in project costs: If a project has significant changes in scope, size, 

risks, or other factors that might represent a significant change in the project cost, a new 

estimate should be prepared to accommodate for said costs.

• Expiration of the PS&E: Once a project reaches the final PS&E estimate, the costs should 

be kept updated every three months. 

Practice: Knowledge of Factors that Influence Projects Cost

Estimators should keep in mind the factors that influence projects cost. Some of these factors, 

that should be considered when developing an estimate include, but are not limited to: 

• Direct cost to the contractor:

o Materials 

o Labor 
5 

o Equipment 

• Overhead and other indirect cost 

• Profit 

• Direct cost price trends 

• Average prices from recent lettings 

• Characteristics of the work: 

o Type 

o Size 

o Complexity 

o Location 

o Accessibility 

o Staging 

o Necessary restrictions (restricted work hours and/or tight time frames to 

complete the project)

o Special construction problems

o Traffic

o Other related factor affecting the cost of the project

• Experience and judgement of the Estimating Staff. 

• Specialized Work:

o Signs and Traffic Control Devices 

o Lighting, Buildings, Rest Areas, etc.

o Landscaping 

o Railroads

o Utilities

o Bridges, Walls, and other Structures

• Competition

• Inflation

• Market Conditions 

• Material Availability

Practice: Procedures for Analyzing a Cost Estimate.

The following is a list of procedures and considerations when evaluating a cost estimate. The list 

should be helpful to FHWA personnel when reviewing STAs estimates and should also be 

helpful for DOs when analyzing bids. 

Identify the purpose of the Estimate 

Identifying the purpose of the estimate is critical to determine the level of detail of the estimate 

and the methodology used for developing the estimate. 

Identify Project Parameters

As mentioned in the previous sections, it is important to identify the following characteristics 

before analyzing a cost estimate. These first steps ensure that the prices used for the cost estimate 

are as aligned with the reality of the project as possible.
6 

a. Identify Work Type 

b. Identify Highway Type 

c. Identify Urban/Rural Type

d. Identify Season 

e. Identify County 

f. Identify Region

g. Identify Terrain Type 

Major Cost Deviations Analysis for Reasonableness and Unbalancing (Vermont Agency 

of Transportation 2018):

a. Items to be analyzed are selected. Using the Pareto Principle, 20% of the items 

that comprise roughly 80% of the estimate are selected to be analyzed.

i. The acceptable deviation, in dollars, for a single item is determined. 

Typically, this is 1% of the contract total low bid or the contract total 

estimate (whichever is lower). This is the maximum allowable deviation 

for any particular item for the estimate being analyzed. In other words, no 

item should deviate more than 1% of the low bid or total contract amount. 

ii. The items where the actual difference of the extended low bid amount 

(quantity multiplied by unit price) is above or below the extended estimate 

amount by more than the acceptable deviation as determined in i) above 

are identified.

iii. An acceptable level of cost variance is determined. 

b. An acceptable level is considered to be 80% of the sum of the absolute value of 

the difference of extended low bid amount minus the extended estimate amount 

for all pay items in the contract. Using the absolute values ensures that all 

variance will be analyzed whether it is high or low. This method provides for 

better analysis of projects that have an overall low bid that is reasonably close to 

the estimate but have individual pay items with high variance between the 

extended low bid amount and the extended estimate amount. 

i. The sum the absolute value of the difference of extended low bid amount 

minus the extended estimate amount for the items identified in ii above is 

compared to the acceptable level of the cost variance as determined in iii 

above to determine if a reasonable analysis level has been met.

ii. If the sum of the absolute values of the difference of extended low bid 

amount minus the extended estimate amount for the identified pay items is 

not greater than, or reasonably close to, the acceptable level of the cost 

variance then the acceptable deviation from i above is adjusted up or down 

to add to the identified item list until the acceptable level is met.

c. A detailed analysis is performed on the selected items. The analysis can include 

quantity checks, estimated price checks, review of specifications, questioning of 

bidder, relation of low bid to second and third bids, comparison of bids to similar 

projects, and other methods. The intent is to determine reasonableness of the bid 

and if unbalancing is present. 

Unit price deviation analysis for unbalancing: 
7 

a. Identify the items where the low bid unit price exceeds the estimate unit price. A 

starting point of items to analyze is those items where the low bid unit price 

exceeds the estimate unit price by 25% or more.

b. Identify the items where the low bid unit price is lower than the estimate unit 

price. A starting point of items to analyze is those items where the low bid unit 

price is lower than 75% of the estimate.

c. If an item has been analyzed as part of step 2, no additional analysis is needed. 

d. If an item has not been analyzed as part of step 2, perform an estimate check and 

quantity check to determine if unbalancing is present. 

e. Additional consideration can include number of bidders, bids of second and third 

bidder, project urgency, and market conditions. 

An example of this process and more details can be found in Appendix 4 and the original source 

(Vermont Agency of Transportation 2018)

Competition Analysis

a. Identify the Engineer’s Estimate (EE).

b. Identify the number of bidders. This consideration will help determine whether 

the bids are within an acceptable range. Figure 3 shows an example of how 

CalTrans uses this information to compare bids with the EE.

c. Identify the range of bids. 

d. Analysis of bid history on similar (scope and/or geography and/or cost) projects – 

identifying whether improved competition would be anticipated if the project 

were re-let.

Documentation of results and recommendations 

a. Documentation of the analysis is in the form of a memo to Contract 

Administration. 

i. The Documentation should include a narrative of general observations, 

number of bidders, range of bids, what acceptable deviation was used, any 

findings from Step 2 of the analysis, and a summary statement of what the 

analysis found. 

ii. The Documentation should include a detailed narrative for each pay item 

analyzed in Steps 2 and 3.

iii. The Documentation should include the results of the analysis in Step 4. 

iv. The Documentation should contain a recommendation as to award or 

rejection of the bid.

Practice: Estimate Development Oversight

The following list is a compilation of relevant practices collected for cost estimate oversight 

procedures. 

Estimate Development Oversight Checklist

Appendix 6 shows checklist lists relevant items that should be considered when providing 

oversight for a cost estimate. These items were collected from documentation provided by 
8 

several states. The following list is only a draft, and as will be discussed in the next section, part 

of the intent of Task 4 is to further develop the list with input from different FHWA Division 

Offices. 

Cost Estimate Oversight Process – Project-level

Appendix 7 shows flowchart is a sample diagrammatic representation, developed by the current 

research team, of the cost oversight process for an individual project from the FHWA Federalaid Division Office’s perspective. The diagram is intended to identify typical timing of DO 

reviews and will eventually include references to specific practices (some mentioned prior in this 

report and other to be identified through further interviews) along with suggested timing of each 

practice. For the final deliverable, the current research team will develop a similar diagram to 

depict the process from a program-level perspective. The reason for having two separate 

diagrams is that project-level oversight and program-level oversight, even when similar in 

nature, are different processes.
9 

SECTION II - INTERVIEW

PURPOSE

Having read Section I, the interviewee should have enough clarity to answer the questions 

provided in this follow-up interview, which are related to the methods used to provide oversight 

for cost estimates at a project-level as well as at a program-level. The methods described were 

obtained from the first round of interview, in which you, and other members form other agencies. 

The agencies interviewed in the first round of interviews were State transportation Agencies 

(STAs) and FHWA Federal Aid Division Offices (DOs) from 11 states, as well as a Federal 

Lands (FL) office.

Based on the first round of interviews and literature review, the team identified a number of good 

practices, both for cost estimate development and cost estimate oversight. Said practices were 

extracted from interviews and documents received from the agencies. Most of the practices 

mentioned below are related to the development of cost estimates. However, they can be used as 

checklist items when providing oversight. Before providing oversight for cost estimates, it is 

important to understand how to develop an estimate in the first place. Therefore, the final guide 

should include the best practices to develop estimates, so that whoever has the responsibility to 

provide oversight can do it in a well-informed manner.

Practices

[On a scale from 1 to 10, where 1 is low and 10 is high, please grade your familiarity with the 

following practices, as well as your perception of how useful the practices are.]

a. Pareto Principle. The Principle states that 80% of a project’s associated cost can 

be explained by 20% of the items. 

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with the 

Pareto Principle

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness – on a scale from 1 to 10, where 1 not useful at all and 10 is 

the most useful, please indicate the usefulness of the Pareto Principle in 

providing oversight for cost estimates. N/A – not applicable in terms of 

you having no familiarity or experience with using the Pareto Principle. 

N/A 1 2 3 4 5 6 7 8 9 10 

b. Historical Project Comparison. This practice is used to compare the project 

being estimated to other projects with similar conditions (size, location, etc.) 
10 

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with the 

Historical Project Comparison practice.

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness - on a scale from 1 to 10, where 1 not useful at all and 10 is the 

most useful, please indicate the usefulness of the Historical Project 

Comparison in providing oversight for cost estimates. N/A – not 

applicable in terms of you having no familiarity or experience with using 

the Historical Project Comparison practice.

N/A 1 2 3 4 5 6 7 8 9 10 

c. Monitoring and Updating the Cost Estimates. This practice is used to keep the 

cost estimate up to date relative to changes in design, quantities, market 

conditions, and other factors that might affect the estimate. 

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with 

Monitoring and Updating the Cost Estimates.

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness - on a scale from 1 to 10, where 1 not useful at all and 10 is the 

most useful, please indicate the usefulness of the Monitoring and 

Updating the Cost Estimates in providing oversight for cost estimates. 

N/A – not applicable in terms of you having no familiarity or experience 

with using the Monitoring and Updating the Cost Estimates. 

N/A 1 2 3 4 5 6 7 8 9 10 

d. Knowledge of Factors that Influence Projects Cost. Estimators use this practice 

to know which are the factors that influence projects cost. This is relevant for 

questions in section 1.3. 

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with the 

Knowledge of Factors that Influence Projects Cost

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness - on a scale from 1 to 10, where 1 not useful at all and 10 is the 

most useful, please indicate the usefulness of the Knowledge of Factors 

that Influence Projects Cost in providing oversight for cost estimates. 
11 

N/A – not applicable in terms of you having no familiarity or experience 

with using the Knowledge of Factors that Influence Projects Cost. 

N/A 1 2 3 4 5 6 7 8 9 10 

e. Procedures for Analyzing a Cost Estimate. This practice relates to standard 

procedures used to evaluate cost estimates.

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with the 

Procedures for Analyzing a Cost Estimate

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness - on a scale from 1 to 10, where 1 not useful at all and 10 is the 

most useful, please indicate the usefulness of the Procedures for 

Analyzing a Cost Estimate in providing oversight for cost estimates. N/A 

– not applicable in terms of you having no familiarity or experience with 

using the Procedures for Analyzing a Cost Estimate. 

N/A 1 2 3 4 5 6 7 8 9 10 

f. Estimate Development Oversight. This practice is used to provide oversight to 

cost estimates being developed. 

i. Familiarity- on a scale from 1 to 10, where 1 is strongly unfamiliar and 10 

is strongly familiar, please indicate your level of familiarity with the 

Estimate Development Oversight

1 2 3 4 5 6 7 8 9 10 

ii. Usefulness - on a scale from 1 to 10, where 1 not useful at all and 10 is the 

most useful, please indicate the usefulness of the Estimate Development 

Oversight in providing oversight for cost estimates. N/A – not applicable 

in terms of you having no familiarity or experience with using the 

Estimate Development Oversight. 

N/A 1 2 3 4 5 6 7 8 9 10 

Usage

If you have used any of the following practices in the past, please describe your lessons learned 

on how it can be used effectively. 

a. Pareto Principle

b. Historical Project Comparison
12 

c. Monitoring and Updating the Cost Estimates 

d. Knowledge of Factors that Influence Project Costs

e. Procedures for Analyzing a Cost Estimate

f. Estimate Development Oversight

Input 

Below is a draft of a cost estimate checklist that could be used to help review a project’s cost 

estimate. It was developed based on existing checklists from different state transportation 

agencies and FHWA division offices. To help improve the efficiency of the checklist, can you 

state whether or not each element is instrumental in a cost estimate checklist. 

a. Sample Cost Estimating Checklist

Guidance Items. These items are used to inquire about general 

aspects of a cost estimate. They are related general purpose of 

the estimate and not to specific items of an estimate.

Y/N

Has the purpose of the estimate been defined? - 

Estimating method is identified. - 

The estimating method is available for review - 

Estimate is written down and available. - 

Allowances and factors have been validated and are appropriate for 

the level of estimate.

- 

Oversight team is knowledgeable about the estimating method used. - 

Estimate has been prepared using a typical cost model (e.g. bid item 

codes)

- 

Has the basis of estimate been completed / updated with explanation 

of changes? 

- 

Is a basis of estimate document available? - 

Estimate has been independently validated. - 

Have all spreadsheet formulas been reviewed and totals been crosschecked?- 
13 

Uncertainty Items. These items refer to the unknowns (known 

unknowns and unknown unknowns) of the estimate and their 

respective assessments.

Y/N

A risk assessment was conducted to identify, analyze, and evaluate 

risks

- 

Estimate is adjusted for inflation to year of expenditure dollars for 

each element of the project.

- 

Project complexity is considered in the estimate. - 

Process includes risk-based assessments of unknown and all 

uncertain costs.

- 

Risk contingencies are sufficiently removed from unit bid item prices 

in the base cost estimate

- 

Construction Items. These items are associated to the quantities 

and elements related to the physical execution of the projects.

Y/N

Estimate of unit prices are reasonable for the areas, times, and 

characteristics of the work to be done

- 

All unit costs have been validated by professional judgment and/or 

historical cost information.

- 

Incentive/disincentive or escalation clauses have been considered in 

determining the estimated unit costs

- 

All costs and durations have been checked for conformity between 

amounts of work (item quantities) with the schedule durations to 

determine correctness. 

- 

Estimate is consistent with project scope. - 

Estimate includes all initial preliminary engineering costs and final 

design costs. 

- 

Estimate includes construction administration. - 

The unit costs of the estimate are aligned with the costs used by the 

agency

- 

Haul road restoration item provided - 

Finance Items Y/N

Force account work is adequately justified - 

Salvage credit* shown (if applicable) - 

Estimate includes a management reserve. Is this value sufficient for 

the given project? 

- 

Estimate includes public outreach cost. - 

Market conditions are being taken into consideration. - 

* Benefits on the value of capital equipment at the end of the period being analyzed.
14 

Non-Construction Items. These items refer to items that are not 

part of the physical execution of the project but that should be 

considered part of the estimates.

Y/N

Utility and railroad force account work covered - 

Estimate includes all right-of-way and administrative costs. - 

Estimate includes all third party (e.g. utility, railroad) costs. - 

Estimate includes all Transportation System 

Management/Transportation Demand Management costs.

- 

Nonparticipating work shown - 

Regulation Items - Analyzing Bids. These items refer to the 

general quality and adherence to regulations of the estimate.

Y/N

The Estimate is Materially Balanced - 

The Estimate is Mathematically Balanced - 

Non-collusion statement included - 

For Risk-Based Estimates. These items are relevant for projects 

not developed using conventional estimating methods and that 

involve high risks. 

Y/N

Is the risk assessment process documented and available? - 

If a consultant produced the risk assessment, what process is the 

consultant following and are they willing to share the model they 

used to produce the final results? 

- 

Did the state hold a risk workshop to provide input to the results? If 

so, is a risk workshop final report available? 

- 

What is the date on the risk workshop report compared to the date 

the estimate was last updated?

- 

Did the group have the right level of subject matter experts attending 

to develop a robust risk register? If so, were subject matter experts 

in attendance representing Design, ROW, Roadway CN, Structure, 

Environment, Permitting, Utilities, Lighting, etc? 

- 

Did the group identify minor risks or did they identify significant 

risks to project cost and schedule? 

- 

What risks were identified as most significant in terms of driving 

cost and schedule completion?

- 

Do you have a project risk tornado diagram available? - 

Were the risks in the risk register ranked? - 

Did they used risk expected value, by cost impact, by schedule 

impact, etc.? 

- 

If risks are ranked by expected value how are low probability, high 

impact risk events addressed?

- 
15 

For Risk-Based Estimates. These items are relevant for projects 

not developed using conventional estimating methods and that 

involve high risks. 

Y/N

How was the project budget and completion date determined from 

the probability cost and schedule forecast curves?

- 

Does the state have a reliability level to establish budget and 

schedule completion? How was this level determined? 

- 

For the risk workshop forecast curves, are they wide curves or 

narrow curves?

- 

How does the state account for market conditions in the risk 

assessment model?

- 

Note to the curves: Provide backing analysis for each of the phases.

b. Cost Estimate Oversight at a Project-level

This flowchart is a sample diagrammatic representation of the cost oversight process for an 

individual project from the FHWA Federal-aid Division Office’s perspective. The diagram is 

intended to identify typical timing of DO reviews and will eventually include references to 

specific practices (some mentioned prior in this report and other to be identified through further 

interviews) along with suggested timing of each practice. 

Can you answer the following questions? 

i. Do you follow any similar project review process? If so, how does it 

compare?

ii. Are there missing steps that you think should be added? 

iii. Are there proposed steps that you think are redundant or unnecessary?
16

A preliminary diagram was included here. For the actual diagram, refer to page 37 in the main report. 
17

c. Cost Estimate Oversight at a Program-level

This flowchart is a sample diagrammatic representation of the cost oversight process for a whole 

STA Program the FHWA Federal-aid Division Office’s perspective. The diagram is intended to 

identify typical timing of DOs reviews and will eventually include references to specific 

practices (some mentioned prior in this report and other to be identified through further 

interviews) along with suggested timing of each practice. 

Can you answer the following questions? 

i. Do you follow any similar project review process? If so, how does it 

compare?

ii. Are there missing steps that you think should be added? 

iii. Are there proposed steps that you think are redundant or unnecessary? 
18

The Financial Plan Checklist is shown in Appendix 8.
19

Comments

In this section we would like to ask about specific practices that your agency might use that were 

no included in this interview as well as any additional questions or comments you might have for 

the research team.
20

APPENDIX

Appendix 1 – Pareto Principle

 Table 1. Capture from WisDOT’s esd-template

ITEM LEVEL DOCUMENTATION

Significant Items List – Top 20% of items out of total contract costs and lump sum items

Click here to enter item documentation or list significant items with attachment 

containing documentation

Non-Significant Items Summary – Summary of estimating Methodology 

Click here to enter text.

Estimate Review Summary

Consultant Reviewer(s):

Region Reviewer(s):

In the above, the first field ‘Significant Items List’ refers to the items to be checked, which 

should comprise 80% of the estimate, according to the pareto principle. The second field ‘NonSignificant Item Summary’ describes the approach used to create the estimate. Finally, the third 

field ‘Estimate Review Summary’ is where comments that had a direct impact on unit prices 

should be written. This section should not include iterations of comments between the review 

and design teams. Instead, just the final decision should be enough. 
21 

Appendix 2 – Historical Project Comparison 
22 

Appendix 3 – Historical Project Comparison (part 2)
23 

Appendix 4 – Procedures for Analyzing a Cost Estimate Example

GENERAL OBSERVATIONS: 

Engineer’s Estimate: $1,919,815.94 

Low Bid: $1,578,986.55 

Difference: -$340,829.39 or 17.75 % 

The subject project was estimated at $1,919,815.94. There were a total of six bidders, 

three bids were lower than the engineer’s estimate and three bids were higher than the 

engineer’s estimate. These bids ranged from $1,578,986.55 to $2,257,110.00. 

[Statement regarding the number of bidders and the corresponding range of bids is 

required.] 

For the purposes of this bid analysis, only the construction items that were overbid or 

underbid by $15,789.87 or more in cost between the engineer’s estimate and the low bid 

price were analyzed. This amount ($15,789.87) represents 1.00% of the low bid price. 

The low bid unit prices not included in this range were reviewed and no outliers were 

present, meaning that these items of lesser dollar amounts can be considered 

insignificant. [Statement explaining how construction items were chosen for analysis is 

required. The majority of Highway, Safety & Design projects will utilize the 1.00% of 

low bid price procedure described above, however an alternate threshold may be applied 

based on specific project characteristics. Review of low bid unit prices outside of this 

range should be performed. Any construction items that vary significantly should be 

analyzed and the calculated quantities verified. If these additional items are included in 

the bid analysis, justification for their selection should be provided with each individual 

construction item.] 

As indicated and discussed in the attached sheets, several unit bid prices varied from the 

engineer’s estimate, yet this analysis has failed to reveal any unbalancing of low bid unit 

prices by the Contractor and therefore recommend that this bid be accepted. [Provide a 

summary statement that explains the general result of the bid analysis with a 

recommendation for acceptance or denial. The statement above is an adequate sample 

and should be used in place of the common “reveal any clear cut advantage for the 

Contractor with an equally corresponding disadvantage to the State.” Note that a bid may 

be accepted even if it is determined that it is unbalanced if it is the best course of action 

and any potential overrun would not create a situation where the low bidder was no 

longer the low bidder.] 

________________________________________________________________________ 

Item Number: 201.15 

Estimated Quantity: 7000 CM 

Item Description: Common Excavation 
24 

Estimate Extended Unit 

Price Estimate

Low Bid Unit 

Price

Extended Low 

Bid

Low Bid 

Difference

$13.65 $95,550.00 $7.85 $54,950.00 -$40,600.00 

[Item number, item description, quantity, estimate unit price, extended estimate, low bid 

unit price, extended low bid, and low bid difference are all required. Low bids that are 

less than the engineer’s estimate shall be notated with a “-“, and those that are higher than 

the engineer’s estimate shall be notated with a “+” in the low bid difference column.]

Description: The low bid unit price is lower than the regression price (estimate unit 

price) for this construction item. While the low bid unit price is on the lower side it does 

fall within the range of the bid trend for projects of similar size and is consistent with the 

second and fourth low bidders, as well as with past bids submitted by J. Hutchins, Inc. 

[Comparison to other received bids, similar projects, and/or contractor bid history should 

be performed and described. The Quality Assurance Unit is available to assist, as 

necessary, to obtain this information.] The listed quantity of 7000 CM has been verified. 

[For items carrying units of measure other than LS a statement indicating that the 

estimated quantities have been verified is required.] Recommend acceptance of low bid 

unit price. [If it is determined that an error in the engineer’s estimate was made, it should 

be stated and explained.] 

[Other considerations should be listed under “Description” on a project specific basis. 

These considerations include but are not limited to; geographic location of the bidders, 

potential for savings if the project is re-advertised, presence of front-loading or unbalanced bids, variance from a construction item’s “normal” installation, and any unique 

project characteristics that could influence the low bid unit price.]
25 

Response letter to the bid analysis:

Dear 

has completed the bid analysis for the 

project. Included below is the bid analysis. A tabulation of all the bids is also attached. 

The bids were opened on March 8, 2010 and there were a total of ten bids received. The 

bid total of the low bid was $108,875.00 and the second low bid was $1 19,961.50. The 

engineer's estimate was $137,257.54 (not including a 10% contingency). 

The low bid of $108,875.00, which was submitted by , 

represents 79.32% of the engineer's estimate. The second lowest bid from had 

mathematical errors in their bid tabulation but did not change their ranking or affect the 

low bid price. The high bid $191,695.30, submitted by , did not include a 

non-collusion affidavit in their submittal and therefore was considered a non-responsive 

bid. 

For the low bid from , 12 of the 32 unit prices were higher than the 

engineer's estimate. Seven of these 12 higher unit prices were less than 130% of the 

engineer's estimated unit prices. For all but I of these 7 items, the difference between the 

estimate item total and the bid item total was less than $300.00. While only 104% of the 

engineer's estimate, Item 616.210 Vertical Granite Curb was $963.00 more than the 

estimate item total and had a unit cost of $31.00. Out of all the responsive bidders, 8 of 9 

had higher unit pricing than the estimate and these unit costs ranged from $30.00 to 

$39.00. The engineer's estimate was $29.93. Only the Engineers Construction bid had a 

lower unit price at $29.00. 

There were 4 unit prices that were more than 130% of the engineer's estimate in the low 

bid. Item 646.310 Crosswalk Marking was nearly double the estimate at per unit. 

Because the project only requires 55 If, the overage is only $275.45 and not significant. 

The 156% overage for Item 646.400 Durable 4" White Line was also insignificant 

because it resulted in a $198.00 difference in the amount total.

Two remaining items in the low bid that were over the engineer's estimate unit prices 

were Item per CY, the unit price for Item 203.150 Common Excavation on the low bid 

was 218% over the engineer's estimate. The low bidder's total cost for this item is 

$3,272.50 more than the estimate. All nine of the responsive bidders, including the low 

bidder, had a unit price higher than the engineer's estimate Of $5.05 a CY. These unit 

prices ranged from $7.00 to $20.00 a CY. 

For Item 406.250 Bituminous Concrete Pavement, the low bidder had a unit of $150.00 a 

TON which is 158% over the engineer's estimate. All nine of the responsive bidders, 

including the low bidder, had a unit price higher than the engineer's estimate of $94.94. 

Only the , ranked 7th lowest bid overall, had a lower unit price for this 

item. The 6th lowest bid overall, , had the same unit price as the low 

bidder. 
26 

The remaining 20 unit prices were either the same or less than the engineer's estimated 

unit prices. has reviewed all of these bid unit prices and compared 

these bid unit prices to the engineer's estimate. There were two unit prices from the low 

bidder that were significantly below the engineer's estimate. The low bid unit price for 

Item 618.100 Portland Cement Concrete Sidewalk 5 inch ($42.00 per S Y) was 58% of 

the engineer's estimate. All 8 of the other responsive bids had a unit price for this item 

lower than the estimate with 6 of these bids under the low bidder. The low bidder was 

$12,000.00 under the engineer's estimate for Item 635.110 Mobilizations/l)emobilization. 

This is a lump sum item and will not over-run. 

Based on this analysis, there does not seem to be any unbalanced unit prices that appear 

to give the bidder an unfair advantage. Also the plans and item quantities seem to be in 

order and the chances of significant item quantity over-runs are small.

 is currently on the prequalification list. As a result of 

this bid analysis, we are recommending that the project should be awarded to the low 

bidder, . for the amount of $108,875.00. The low bid offers no 

advantage to the contractor or disadvantage to the town. 

Please feel free to call if you have any questions or would like any additional 

information. If the bid analysis and our recommendation are acceptable, please sign in the 

space provided below. This will authorize the to proceed with 

signing a contract with for the amount of $108,875.00. 

Sincerely,
27 

Appendix 5 – Low Bid vs. EE per Number of Bidders (Source: FHWA)

Data source: CalTrans on 14,188 projects from 1993 until 2018 (Updated 2019)

Appendix 6 – Sample Cost Estimate Checklist

Guidance Items Yes No N/A

Has the purpose of the estimate been defined? - - -

Estimating method is identified. - - -

The estimating method is available for review - - -

Estimate is written down and available. - - -

Allowances and factors have been validated and are appropriate for the 

level of estimate.

- - -

Oversight team is knowledgeable about the estimating method used. - - -

Estimate has been prepared using a typical cost model (e.g. bid item 

codes)

- - -

Has the basis of estimate been completed / updated with explanation of 

changes?

- - -

Is a basis of estimate document available? - - -

Estimate has been independently validated. - - -

Have all spreadsheet formulas have been reviewed and totals have been 

cross-checked?

- - -

Allowances and factors have been validated and are appropriate for the 

level of estimate.

- - -
28 

Uncertainty Items Yes No N/A

A risk assessment was conducted to identify, analyze, and evaluate risks - - - 

Estimate is adjusted for inflation to year of expenditure dollars for each 

element of the project.

- - - 

Project complexity is considered in the estimate. - - - 

Process includes risk-based assessments of unknown and all uncertain 

costs.

- - - 

Risk contingencies are sufficiently removed from unit bid item prices in 

the base cost estimate

- - - 

For deterministic estimates, does the estimate include a contingency to 

account for project risks?

- - - 

Construction Items Yes No N/A

Estimate of unit prices are reasonable for the areas, times, and 

characteristics of the work to be done

- - - 

All unit costs have been validated by professional judgment and/or 

historical cost information.

- - - 

Incentive/disincentive or escalation clauses have been considered in 

determining the estimated unit costs

- - - 

All costs and durations have been checked for conformity between 

amounts of work (item quantities) with the schedule durations to 

determine correctness. 

- - - 

Estimate is consistent with project scope. - - - 

Estimate includes all initial preliminary engineering costs and final 

design costs. 

- - - 

Estimate includes all construction costs from project bidding to the 

completion of the project construction. 

- - - 

Estimate includes construction contingencies for unforeseen scenarios. - - - 

Estimate includes construction administration. - - - 

The unit costs of the estimate are aligned with the costs used by the 

agency

- - - 

Haul road restoration item provided - - - 
29 

Finance Items Yes No N/A

Force account work is adequately justified - - - 

Salvage credit* shown (if applicable) - - - 

Estimate includes a management reserve. Is this value sufficient for the 

given project? 

- - - 

Estimate includes public outreach cost. - - - 

Market conditions are being taken into consideration. - - - 

* Benefits on the value of capital equipment at the end of the period being analyzed.

Non-Construction Items Yes No N/A

Utility and railroad force account work covered - - - 

Estimate includes all right-of-way and administrative costs. - - - 

Estimate includes all third party (e.g. utility, railroad) costs. - - - 

Estimate includes all Transportation System 

Management/Transportation Demand Management costs.

- - - 

Nonparticipating work shown - - - 

Regulation Items - Analyzing Bids Yes No N/A

The Estimate is Materially Balanced - - - 

The Estimate is Mathematically Balanced - - - 

Non-collusion statement included - - - 
30 

For Risk-Based Estimates Yes No N/A

Is the risk assessment process documented and available? - - - 

If a consultant produced the risk assessment, what process is the 

consultant following and are they willing to share the model they used to 

produce the final results?

- - - 

Did the state hold a risk workshop to provide input to the results? If so, 

is a risk workshop final report available? 

- - - 

What is the date on the risk workshop report compared to the date the 

estimate was last updated?

- - - 

Did the group have the right level of subject matter experts attending to 

develop a robust risk register? If so, were subject matter experts in 

attendance representing Design, ROW, Roadway CN, Structure, 

Environment, Permitting, Utilities, Lighting, etc? 

- - - 

Did the group identify minor risks or did they identify significant risks 

to project cost and schedule?

- - - 

What risks were identified as most significant in terms of driving cost 

and schedule completion? 

- - - 

Do you have a project risk tornado diagram available? - - - 

Were the risks in the risk register ranked? - - - 

Did they used risk expected value, by cost impact, by schedule impact, 

etc.?

- - - 

If risks are ranked by expected value how are low probability, high 

impact risk events addressed?

- - - 

How was the project budget and completion date determined from the 

probability cost and schedule forecast curves? 

- - - 

Does the state have a reliability level to establish budget and schedule 

completion? How was this level determined?

- - - 

For the risk workshop forecast curves, are they wide curves or narrow 

curves?

- - - 

How does the state account for market conditions in the risk assessment 

model? 

- - - 
31 

Appendix 7 – Cost Estimate Oversight Process - Project-level

A preliminary diagram was included here. For the actual diagram, refer to page 38 in the main report. 
32 

Appendix 8 – Financial Plan Checklist

FINANCIAL PLAN CHECKLIST 

Project Name: ______________________________________________________________ 

1. Project Description 

a. Narrative description of project scope 

b. Map 

c. Date of NEPA Decision Document(s) (month/year) 

d. Documentation of Operationally Independent and Non-Concurrent Construction (OINCC) 

determinations, if applicable 

e. If a phasing plan is presented, include detail description of the funded phase 

2. Schedule 

a. Present current schedule including major milestones 

b. Compare with Initial Financial Plan (IFP) and prior Annual Update (AU) schedule 

c. Clearly identify estimated completion date (Month/Year) 

d. If a phasing plan is presented, include anticipated schedule (Month/Year) for the funded phase 

3. Project Cost 

a. Provide a total cost estimate for the full project 

b. Provide a breakdown of cost by project component (contract, section, phase, etc.) 

c. Provide a breakdown of cost by activity (feasibility studies, preliminary engineering, 

environmental assessment, right-of-way acquisition, construction, construction engineering and 

inspection, project management, contingencies, ITS activities, etc.). 

d. All costs should be expressed on a year-of-expenditure basis and should include a narrative 

describing assumptions used to arrive at such estimates 

e. IFP cost should equal at least the 70% percentile cost amount from the most recent Cost 

Estimate Review (CER) 

f. Compare current estimated cost with IFP and prior AU estimated cost 

g. If a phasing plan is presented, include the cost estimate and breakdown of cost the funded 

phase 
33 

4. Project Funds 

a. Provide all funding sources 

b. Show dedicated and anticipated funds separately 

c. Identify project listing in TIP/STIP and fiscally constrained Metropolitan Long Range 

Transportation Plan 

d. Show Federal funds and State and/or local funds separately 

e. Address potential unanticipated changes in expected funding 

f. Include information for special funding techniques such as advance construction, if applicable 

g. If a phasing plan is presented, funding should only be shown for the funded phase 

5. Financing Issues 

a. Identify the type of financing proposed 

b. Estimate interest rates and associated fees 

c. Estimate the total financing costs associated with the project 

d. If a phasing plan is presented, financing costs should only be shown for the funded phase 

143 

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