Cost Databases

Should You Use A Cost Database?

 

There are some companies who produce and sell construction "cost databases". A construction cost database is a list of every conceivable cost item that can go in to a construction project - including materials and labor. Construction estimators create estimates by referencing items in the cost database. The cost database is supposed to provide accurate costs for a very large number of items, and these costs are supposed to be different for each local area of the country (based on your zip code).

If you think that would be very difficult to do, you're right, and in fact the reality is that cost databases are not accurate. It would be one thing to assemble a list of all the costs that could go into construction projects for a single location (and then constantly update those as prices change), but how would you do that for every local area in the country (or Canada)? Impossible, right?

Well, the way they do it is they only create a single cost database for a single area, and then they use the US government's cost of living by zip code index to adjust the costs. This is where the inaccuracy comes in. There are a number of reasons why the government's localized cost of living index is not accurate, but one of them is because it is mainly based on the assumption that areas of higher population density have higher costs, and areas of lower population density have lower costs. There are endless of examples of where this is not true, in fact the opposite is true. Consider Vail Colorado, or Carmel California. Or Alaska, or Hawaii.

So, if construction databases are not accurate, why do they exist? There are a few reasons...

1) There is one cost database (National Estimator) that some residential contractors use not because it provides accurate costs, but because it allows them to assemble a list of estimate items, total them, and print it out. It also provides a reference list that helps contractors not forget to add all of the things that go into specific types of construction projects.

2) Another cost database (RS Means) is used in bidding for large commercial or government construction projects because the agencies or organizations requesting bids require that the bids be based on the RS Means cost database so that when they compare the bids, they know that the only difference will be the individual contractor's markup. 

3) Insurance claims adjustment. There is one estimating program ("Xactimate") that has been adopted as the standard for insurance claims adjustment. Insurance claims adjustment means how much the insurance company will pay to repair damage to a home or building. Xactimate is a CAD based estimating program that comes with a cost database. Xactimate has established a relationship with the insurance industry in which the insurance industry provides Xactimate with the costs it will pay for insurance claims. It used to be that when a home owner filed a claim to repair damage to their home, the insurance company had to send someone to inspect the property and do the homework to figure out how much it would cost to do the repair, and how much of that the insurance company will cover. Now all they have to do is have a contractor use Xactimate to create the estimate, and that gives them the amount that they will cover. Contractors who use Xactimate know that the numbers are not what it will cost to do the job, it's just the number the insurance company will cover. So why do contractors use Xactimate? Because insurance companies require them to in order to do insurance claims restoration work.

So, what does Smart Contractor do about all this?

1) Smart Contractor allows you to import estimates from National Estimator. So contractors can create estimates in National Estimator, export them, and import them into Smart Contractor.

2) Smart Contractor can be purchased with the RS Means cost database integrated into it, so contractors can create estimates in Smart Contractor by pulling items and costs from the RS Means cost database.

3) Smart Contractor can import estimates from Xactimate. This used to be easier until the most recent version of Xactimate. Previous versions allowed users to export estimates so they could be imported into other programs like Smart Contractor, but the ability to export from Xactimate was removed for some reason. Now, to import from Xactimate, it is necessary to print estimates to a PDF file and then import from that. It's an extra step, but it can be done.

4)... and most importantly, Smart Contractor has been designed around the idea that the most accurate cost data available is in your previous jobs. Smart Contractor captures actual cost data for jobs and makes it very easy to "recycle" the actual costs into estimated costs for new jobs. Smart Contractor also allows you to build a database of products used in construction (on the fly, as you use them in estimates). The program can easily update the product costs by emailing spreadsheets to your suppliers so they can enter their prices and email it back. You can then import their quoted prices to automatically update your product price database.

There are two elements behind the reason a contractor's most accurate costs come from their previous jobs. The obvious one is that those costs will be accurate for the local area. But the other, very important reason is that every contractor does construction a little differently in terms of what construction methods, materials, and systems they use, what work they do in-house, what work they subcontract out, and which subcontractors they use. Each of these elements have a significant affect on the costs that go into a job, and the way an estimate has to be assembled to accurately represent them. This is why Smart Contractor's approach to estimating that allows you to create your own estimate templates, and/or copy from previous jobs to recycle costs, is the best.

This is a lot to digest, but the simple answer is, no you don't want a cost database because cost databases are not accurate. Contractors with experience with cost databases agree with this. So what you want is a program that makes it easy to accumulate, update, and re-use your own costs. You've come to the right place!

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