The cost of a contract is estimated prior to publicly advertising the opportunity to vendors. The cost estimate and the terms of reference are typically used to obtain the necessary approval and/or financing to initiate the pre-award phase of the procurement. Ministry contract cost estimates usually do not include applicable taxes (i.e. GST & PST).
Use the criteria below to create a cost estimate to complete this task.
Contract cost estimates are normally based on historical cost data for similar work, as well as knowledge of market rates for particular types of service. Such estimates are often calculated on the basis of unit costs for various components of the assignment. These estimates should include both the total estimated fees, and where applicable, all estimated reimbursable expenses.
Cost factors to be considered may include the following, for both initial costs and any ongoing costs that may apply:
- Labour, which can be calculated as follows:
- Using the project requirements, estimate the number of person-days to complete each activity;
- Multiply the person-days times the expected daily fee rate for the level of expertise required; and
- Add estimates of out-of-pocket expenses that cannot be billed separately as an expense to the Province;
- Direct project supervision;
- Expenses that can be separately billed to the Province (e.g. travel expenses such as accommodation, meals, air fare, mileage etc.);
- Equipment and supplies;
- Mobilization and demobilization;
- Estimated overhead (~15%);
- Estimated profit margin (~5%, depending on the sector);
- Applicable taxes that the contractor pays exclusive of the taxes charged as a separate line item on their invoices (e.g. taxes payable on supplies purchased for the project); and
- Contingency (~5 to 10%).
A cost estimate should be put in the context of the local marketplace. If there is a large demand for the services needed, this may result in a shortage of qualified, available and interested vendors; therefore prices are likely to be higher than could be expected in a normal or "balanced" marketplace. Assess the marketplace to determine vendor supply and demand by:
- Discussing the situation with other contract expense authorities who may have similar services under contract;
- Issuing a Request for Expression of Interest to determine how many vendors might be interested in the opportunity; and
- Reviewing various media to determine the number of opportunities currently being advertised for similar services.
A project cost estimate is "reasonable" when the results are what would be expected given a balanced market in the location where the services are being acquired. Consider the following options where market demand is higher than what is typical:
- Postpone the contract until the market becomes more balanced;
- Find an alternative means by which to accomplish the work/service; or
- In addition to using BC Bid, contact the ministry-specific Government Communications and Public Engagement unit to discuss potential stakeholder outreach and advertising options.
Compare the contract cost estimate to the available funds. Consider the following options where the cost estimate is in excess of the available funds.
- Review the project to determine if it can be scaled back or completed in phases, so that the amount of work is commensurate with the funds available.
- If that isn't possible, assess the project priority. If it is a high priority, assess what other lower priority projects may be cancelled, postponed or reduced in scope, in order to make more funds available for this project.
- Proceed with a request for approval seeking additional funds.