Whilst there are many methods to compile an estimate, we will discuss the three main techniques below.

1. Activity Schedule – with this method, every item on the programme will be priced as an individually activity, forming a cost loaded programme. Generally speaking, you will start early activities such as site investigation, site mobilisation and removal of obstructions. These activities will have a set of resources attached will be quantified and priced. These activities will lead on to a step by step scope of works. From site mobilisation, to excavation, to installation, to demobilisation and everything in between. This is commonly used for standardised activities such as highways and housing development where activities are known and pre-defined.
2. Bill of Quantities – within this method, the works are broken down into quantities and a rate compiled of resources such as labour, plant, materials and subcontract are assigned to each item. Every item is usually subsequent to the following item. When one is complete, the other item commences, however the quantities within each item is driving factor i.e. more kerbs installed will result increase to the value of the scheme. Although the quantities will increase or decrease, the rate will remain consistent. This is because the per unit rate is broken down on a first principle basis. This method is commonly used when the quantities are subject to change and the rate is consistent.
3. First Principle – within this technique, we break the cost down to the basic elements, i.e. labour, plant / equipment, materials, subcontractors, preliminary costs, overheads and margin. Within this method, we will quantify materials in terms of usage and requirements, labour in terms of durations and number of operatives, plant / equipment in terms of duration, subcontractors are procured and their costs are included as lump sums etc. Within the NEC, these costs are known as defined costs. Addition to these costs, you will add consideration to preliminary costs such as welfare, site set up, temporary works, traffic management and staff. Then you will add insurances and company overheads. Finally, you will add a mark up fee percentage, and this will become the basis of your estimate. This method is commonly used for non-standard activities such as replacing a sign post or painting a wall.

Within the NEC form of contract for example, method one above is recognised as Main Option A Lump Sum with Activity Schedule. Method two above is recognised as Main Option B Lump Sum with Bill of Quantities. Finally, method three above is recognised as Main Option E Cost Reimbursable.

The above methods are most commonly used across all contracts as they create a costing structure and define costs. These are later reconciled when actual costs are realised. However, other methods are also adopted which can be considered which include but not limited to:

Market value including inflation

Open negotiation

Self valuation / worth

Competitive tendering (discounts applied)