Cost Accounting: a Quantitative Look at Txdot Construction Projects
Introduction
Cost accounting is an integral part of estimating a new construction project and estimating a project’s cost is the most important step of all.
Estimating project costs is even mentioned in the Holy Bible:
"Suppose one of you wants to build a tower. Don 't you sit down and estimate the cost, to see if you have enough capital to complete it? If you don 't, then when you have laid the foundation but can 't finish, all the onlookers start making fun of you and say, `This is the man who began to build, but couldn 't finish! ' Luke 14:28-30 (Sterm, 1998)
The State of Texas has some of the best highways in the nation. The Texas
Department of Transportation (TXDOT) ensures this by spending roughly $6 to $7 billion dollars annually on new construction and maintenance projects throughout the state (Texas Department of Transportation, 2009). Most of this money is paid to outside contractors who bid on the jobs they would like to perform. Every contractors bid is an estimate of what they are willing to do a particular job for. Every contractor has its own way of estimating and that is the area I would like to focus on. I would like to determine the common cost accounting (estimating) procedures used by TXDOT contractors and how they could be used to setup a better, more uniform cost accounting (estimating) system? If a uniform system is used the bids will be more competitive and TXDOT could save millions of dollars every year. At the end of fiscal year 2009 TXDOT had about $10 million dollars set aside for possible claims that contractors were placing because they had not estimated or bid properly. There was one case in
3
2009 where a contractor withdrew their winning bid after they had been awarded a contract because of an estimating error on their part which led to major delays of the project (Wear, 2009). These claims and delays caused by estimating errors have a significant effect on TXDOT’s financial statements as well as its
Cost accounting is an integral part of estimating a new construction project and estimating a project’s cost is the most important step of all.
Estimating project costs is even mentioned in the Holy Bible:
"Suppose one of you wants to build a tower. Don 't you sit down and estimate the cost, to see if you have enough capital to complete it? If you don 't, then when you have laid the foundation but can 't finish, all the onlookers start making fun of you and say, `This is the man who began to build, but couldn 't finish! ' Luke 14:28-30 (Sterm, 1998)
The State of Texas has some of the best highways in the nation. The Texas
Department of Transportation (TXDOT) ensures this by spending roughly $6 to $7 billion dollars annually on new construction and maintenance projects throughout the state (Texas Department of Transportation, 2009). Most of this money is paid to outside contractors who bid on the jobs they would like to perform. Every contractors bid is an estimate of what they are willing to do a particular job for. Every contractor has its own way of estimating and that is the area I would like to focus on. I would like to determine the common cost accounting (estimating) procedures used by TXDOT contractors and how they could be used to setup a better, more uniform cost accounting (estimating) system? If a uniform system is used the bids will be more competitive and TXDOT could save millions of dollars every year. At the end of fiscal year 2009 TXDOT had about $10 million dollars set aside for possible claims that contractors were placing because they had not estimated or bid properly. There was one case in
3
2009 where a contractor withdrew their winning bid after they had been awarded a contract because of an estimating error on their part which led to major delays of the project (Wear, 2009). These claims and delays caused by estimating errors have a significant effect on TXDOT’s financial statements as well as its
References: Ciraci, D. M., & Polat, D. D. (2009). Accuracy Levels of Early Cost Estimates, in Light of Estimate Aims Harbuck, R. H. (2009 ). Life Cycle Cost Analysis for Transportation Projects. AACE International Projects , RISK.05.1-RISK.05.13. Lazarczyk, J. A. (2009). Project Audit- Joint Engineer and Accountant Team Approach. AACE Intenational Transactions , OWN.05.1-OWN.05.7. Mark A. Marek, P. (2009, May 1). PS&E Preparation Manual . Texas. Martinez, A. A., Migliaccio, D. G., Zandbergen, D. P., & Zhang, S. (2009). Assessment of Methods for Adjusting Construction Cost Estimates by Geographical Location McDowell, K. (2009). Effective Project History Collection and Retrieval- Back to Basics. AACE International Transactions , EST.07.1-EST.07.6. Nalewaik, A. A., & Witt, J. (2009). Challenges to Reporting Project Costs and Risks to Owner Decisionmakers Sterm, D. H. (1998). Complete Jewish Bible. Jewish New Testament Publications, Inc. Texas Department of Transportation. (n.d.). Online Manuals. Retrieved October 31, 2010, from TXDOT: http://onlinemanuals.txdot.gov/manuals/index.html Texas Department of Transportation. (2009). Operating Budget for Fiscal Year 2010. Austin. Texas Department of Transportation. (2004, June 1). STANDARD SPECIFICATIONS FOR CONSTRUCTION AND MAINTENANCE OF HIGHWAYS, STREETS, AND BRIDGES Top Contractor List Breakout Rankings - Building/Market Sectors. (2010). Retrieved Ocober 30th, 2010, from Texas Construction: Trost, S. M., & Oberlender, G. D. (2001). Predicting Accuracy of Early Cost Estimates Based on Estimate Quality Trost, S. M., & Oberlender, G. D. (2003). Predicting Accuracy of Early Cost Estimates Using Factor Analysis and Multivariate Regression United States Government Accountability Office. (2010). Actions Needed to Develop High- Quality Cost Estimates for Construction and Environmental Cleanup Projects. Wear, B. (2009, November 19). I-35/Ben White flyover project delayed. The Statesman . Austin, Texas. Wyandt, R. S. (2009). A Case for Third Party Project Controls. AACE International Transactions , OWN.06.1-OWN.06.9.