FAC 09-01

Reclamation Manual
Directives and Standards

Subject: Cost Estimating

Purpose: To set forth the Bureau of Reclamation’s requirements for cost estimating
and ensure all cost estimates required by Reclamation’s mission are
effectively prepared and properly used. The benefits to Reclamation
include improved quality and consistency of cost estimates, the
facilitation of corporate oversight for these projects to support successful
project accomplishment, improved ability to maintain credibility with
water and power users and other customers, and otherwise sustain
Reclamation’s credibility.

Authority: Reclamation Act of 1902 as amended, Reclamation Safety of Dams Act

of 1978 as amended, and specific authorizing legislation; Federal
Acquisition Regulation (FAR) 48 CFR 36.203.

Approving Official: Deputy Commissioner, Operations

Contact: Director, Technical Service Center (TSC) (86-68000)

1. Introduction. This Directive and Standard (D&S) supports the requirements of

Reclamation Manual (RM) Policy, Cost Estimating (FAC P09) and addresses the
development and use of cost estimates.

2. Applicability. All Reclamation employees who prepare construction cost estimates (CCEs)
on behalf of Reclamation must comply with and implement the requirements of this D&S
and the associated policy document for cost estimating, FAC P09. These requirements
apply to all Reclamation program activities, Reclamation force account work, and services
for non-Reclamation clients as appropriate, but may not be germane to projects accepted
and administered by contract under Public Law 93-638 (refer to RM D&S, Requirements for
Execution and Administration of Indian Self-Determination and Education Assistance Act
(Pub. L. 93-638, as amended) Contracts and Annual Funding Agreements (AFAs)
(NIA 10-01) for further direction). Various levels of cost estimates are required as a project
progresses through development phases such as planning (determining costs within an
authorized project), congressional authorization and appropriations, construction, and into
operation. Refer to RM D&S, Instructions on Budgeting for Construction – Estimates,
Schedules, and Supporting Documents (BGT 01-04) for how cost estimating supports
Reclamation’s construction program.

A. This D&S addresses six levels of cost estimates officially recognized and used to
support Reclamations programs and projects; these are:

(1) Preliminary

(2) Appraisal

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(3) Feasibility

(4) Percent [%] Final Design (post–authorization)

(5) Prevalidation of Funds (Prevalidation)

(6) Independent Government Cost Estimate (IGCE)

B. Cost estimates are typically developed in the chronological order shown above, and
each supersedes the previous one. They differ in degree of detail, refinement, use, and
confidence, and are dependent upon the amount of certainty contained in the available
engineering and geological data, and other factors (e.g., environmental considerations,
land acquisitions costs, and procurements methods) known at the time of preparation of
the cost estimates.

C. The sequencing of the various levels of cost estimates is standard; however, the
timeframe for these cost estimates within the various project stages may vary
depending on the project and its objectives. Because of program requirements and
management decisions, some levels of estimates may not be required. Refer to
Appendix A for a graphical presentation of various stages of a Reclamation project and
the associated levels of cost estimates.

3. Management and Oversight.

A. The following functional roles related to cost estimating are to be maintained as

indicated below:

(1) The Deputy Commissioner, Operations or their designee will provide oversight of
the Reclamation-wide cost estimating Policy, FAC P09, and the subsequent
D&Ss to ensure high quality cost estimates Reclamation-wide.

(2) Regional Director will designate appropriate staff to ensure cost estimates are
prepared in accordance with the associated Policy and D&S as well as other FAR
and acquisition requirements, update the project cost estimate (PCE) annually (if
appropriate), and maintain a chronological and comprehensive historical record of
all official cost estimates for their region

(3) The TSC will develop and promulgate all Reclamation-wide cost estimating
Policy/D&S/guidelines, prepare and publish Reclamations’ Construction Cost
Trends, prepare cost estimates and provide technical support to Reclamation and
non-Reclamation clients (as appropriate) such as:

(a) preparing or reviewing cost estimates and the designs upon which they are
based,

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(b) providing cost evaluation services for bid review and cost proposal analysis
and negotiation, and

(c) preparing plant account and property class assignment reports for CCEs.

4. Sequence of Development of Cost Estimates. Reclamation uses a variety of terminology

to describe the sequence of activities from inception through operation of a project. A
variety of cost estimates are prepared to support these activities throughout the life of a
project. In the most general terms, Reclamation defines the status of a project as being one
of the following: Planning, Construction, or Operation and Maintenance (O&M).

A. Within each status category, the project moves through various stages of development.
Six increasingly refined levels of costs estimates are produced as the project progresses
through these stages.

B. The following table identifies the official levels of estimates and displays where they
occur in the project development timeline. Appendix A presents this data graphically.

PROJECT STATUS PROJECT STAGE OFFICIAL LEVEL OF COST ESTIMATE

Preliminary

Planning Planning Appraisal

Feasibility

Percent [%] Final Design

Final Design
Prevalidation of Funds
Construction Solicitation Independent Government Cost Estimate [Award]

Independent Government Cost Estimate for

Construction
Contract Modifications

Operation and
Operations One or more of the previously identified estimates
Maintenance

C. The project stages and the cost estimates developed during that stage are described in
the following paragraphs:

(1) Planning. When a project is in Planning Status, it is considered to be at the

Planning Stage. Up to three levels of cost estimates may be produced during the
Planning Stage of a project; Preliminary is the lowest level estimate produced,
followed by an Appraisal and finished by a Feasibility. These estimates are
prepared per the request of project or program managers having the authority to
obligate funds. Congressional authorization is required to conduct a feasibility
study and prepare the feasibility level design and cost estimate for new
construction.

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(a) Preliminary Estimate. Preliminary cost estimates are prepared for studies
conducted at the very early stages of the planning process. They are
developed and produced to document a very preliminary analysis performed
to look at a given problem, need, or opportunity utilizing readily available
data. The estimates do not meet the criteria used for preparation of either
Appraisal or Feasibility cost estimates. While no minimum criteria or formal
standards exist for the development of the prices and costs associated with
this estimate level, sound estimating practices must be utilized in estimate
preparation. The estimates produced for these types of documents shall
identify and document at a minimum the items listed in RM D&S,
Representation and Referencing of Cost Estimates in Bureau of Reclamation
Documents Used for Planning, Design and Construction (FAC 09-03).

(b) Appraisal Estimate.

(i) Appraisal cost estimates are used in appraisal reports to determine

whether more detailed investigations of a potential project are justified.
These estimates may be prepared from cost graphs, simple sketches, or
rough general designs that use the available site-specific design data.
These estimates are intended to be used as an aid in selecting the most
economical plan by comparing alternative features such as dam types,
dam sites, canal or transmission line routes, and powerplant or pumping
plant capacities.

(ii) Appraisal cost estimates are not suitable for requesting project
authorization or construction fund appropriations from the Congress due
to the early stage of project development.

(c) Feasibility Estimate. Feasibility cost estimates are based on information

and data obtained during investigations for pre-authorization activity. These
investigations provide sufficient information to permit the preparation of
preliminary layouts and designs from which approximate quantities for each
kind, type, or class of material, equipment, or labor may be obtained. These
estimates are used to assist in the selection of a preferred plan, to determine
the economic feasibility of a project, and to support seeking construction
authorization from the Congress.

(i) A project feasibility study and feasibility-level cost estimate, which are
intended to support funding authorization for new construction, cannot
be conducted without authorization and appropriation of funds by the
Congress. This requirement is established in Section 8 of the Federal
Water Project Recreation Act of July 9, 1965 (Public Law 89-72). Once
the Congress appropriates funds for construction, typically at the
conclusion of the feasibility study, the planning status is complete.

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Certain feasibility-level cost estimates can be prepared for other

purposes without the need for specific authorizing legislation, e.g.,
Safety of Dams modifications and O&M work.

(ii) The CCE and PCE will be at the feasibility level when used in support
of the request for initial appropriated construction funds. Because
feasibility investigations become the basis for the congressional action
on the project, the total PCE must be adequate to support the funding of
feasibility studies, the construction authorization, and the appropriations
ceiling established for the project. For information on completing the
CCE and PCE, refer to RM D&S, Construction Cost Estimates and
Project Cost Estimates (FAC 09-02).

(iii) The CCE and PCE must be completed prior to project authorization. If
language is included in the authorizing legislation allowing indexing
during construction, updating of costs to compute a funding
authorization ceiling will be performed in accordance with RM D&S,
Updating Construction Appropriation Authorization Estimates
(BGT 05-01). Refer to Paragraphs 9 and 10 of this document for
direction on indexing or re-pricing of cost estimates in support of the
CCE.

(2) Construction. Construction status extends from project authorization to the

completion of construction during which final designs are prepared, supply and
construction specifications/solicitations are issued, contracts are awarded,
construction is completed, and the project is transferred to O&M status.

(a) Final Design Stage. Upon completion of the feasibility study, and after
authorization and appropriation of funds for construction, the final design
stage begins. Two levels of cost estimates are produced during the final
design stage of the project. These are the Percent [%] Final Design and the
Prevalidation. Percent [%] Final Design level estimates are produced as the
final design progresses through various percentage milestones of final
design, but all such estimates are considered to be Percent [%] Final Design
level estimates. A Prevalidation is produced at the end of the final design
stage just prior to issuance of a contract document.

(i) Percent [%] Final Design Estimates. 1 Percent [%] final design
estimates are estimates used to aid in the selection or refinement of the
preferred alternative or design, and to keep the Congress apprised of the
latest estimate of funding requirements prior to construction. They are
typically prepared after project authorization, during the early stages of

1
See “Final Design Process Guidelines” for definitions of final design milestones.

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Reclamation’s Final Design Process. These estimates are used in the

annual update of the CCEs in support of the requests for funds to initiate
and continue construction.

(ii) Prevalidation Estimates. Prevalidation estimates are provided to the

contracting officer (CO) to ensure that sufficient funds are available to
proceed with the solicitation, per the requirements of the Anti-
Deficiency Clause of the FAR. These estimates are prepared as early as
practicable before the issuance of a solicitation for each contract for
construction or construction-related supply items. Prevalidation
estimates are developed using the best available information including
technical specifications and drawings. Although the technical package
may be incomplete, it is essential that the prevalidation estimate be
prepared with as much diligence as available data and time permit. It is
permissible for the cost estimator to include an allowance for
unquantified requirements and procurement strategies, but not
construction contingencies (see Paragraph 5.E.(3)(b)), to ensure that
adequate funds are available. Prevalidation estimates shall provide the
estimated cost at award for performing specific work identified in the
bidding schedules of the solicitation for a particular supply, equipment,
or construction contract. When the construction duration and award
date or completion date are known, the prevalidation estimate shall
include an allocation of contract earnings by fiscal year. Prevalidation
estimates do not include non-contract costs or other projects costs not
directly associated with the upcoming solicitation. Information
regarding the use, development, confidentiality, handling, and release of
Prevalidation estimates are presented in Paragraph 7.

(b) Solicitation Stage. IGCEs are prepared to establish the estimated cost of
performing specific work called for in the bidding schedules of the
solicitation for a particular supply, equipment, or construction contract.
These estimates are prepared from final contractual and technical
specifications (including all amendments) and detailed drawings. They are
used to assess whether bids submitted by the offerors are fair, reasonable,
and acceptable.

(i) IGCEs are based upon completed designs and specifications as

published in the solicitation including quantities of each kind and class
of labor, materials, and equipment required.

(ii) IGCEs are prepared after careful review of the solicitation, including
specifications and drawings as well as any other pertinent information
including all published amendments. The IGCEs will be used for:

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(aa) assessing the acceptability of bids and proposals for contract

award; and

(bb) purposes of analyses or negotiation for obtaining a fair and

reasonable price for both competitive and noncompetitive
negotiated contracts.

(iii) Reclamation practice is to prepare an IGCE for each construction and

construction-related supply contract action estimated to exceed the
threshold set forth in FAR 48 CFR 36.203(a). IGCEs may be prepared
for contract actions below the threshold at the COs discretion. IGCEs
will be prepared in as much detail as though the government were
competing for the award.

(iv) Details regarding the use, development, confidentiality, handling, and

release of IGCEs are presented in Paragraph 7.

(c) Construction Stage. Cost estimates are prepared to define contract

modifications and change orders. The cost thresholds for determining a
required IGCE preparation are the same as the solicitation stage. IGCEs for
contract modifications may be prepared for contract actions below the
threshold at the COs discretion. Refer to Paragraph 8 for information
regarding the preparation and handling of these estimates.

(3) Operation and Maintenance. When a project has moved into O&M Status, it is
considered to be at the Operations Stage. Cost estimates produced during the
Operations Stage of a project will follow the sequence of levels previously noted
as maintenance activities are planned, designed, and constructed.

(a) The PCE encompasses what is generally considered new construction and
other project costs and is closed out when the features are completed and
placed in a condition for satisfactory operation. The estimate will not be
reopened to include costs of minor additions, retirements, replacement,
reconstruction, abandonment, maintenance, or similar work that normally
takes place during O&M.

(b) It may be decided to do major additions or improvements in connection with

a completed feature while the project as a whole is still in the construction
status. Where a lapse in construction has occurred, it is preferable not to
change the estimate for the completed property, but to establish a new
identified property to facilitate scheduling and budgeting. For information
relative to plant accounts and property class related to cost classification,
refer to the Cost Estimating Handbook.

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(i) Estimates for Project Upgrades. Estimates for rehabilitation work on

old projects or structures, or for reconstruction must be kept separate
from estimates for new construction and be clearly labeled.

(ii) Estimates for Operation and Maintenance. Following construction

when a project has entered the Operations Stage, estimates are prepared
annually for operations, maintenance, replacements, and additions.
Refer to RM D&S, Instructions on Budgeting for Operation and
Maintenance – Estimates, Schedules, and Supporting Documents
(BGT 01-05) for more information on the required estimates.

5. Key Elements of Cost Estimates. The following are key elements and fundamental
considerations in the preparation of cost estimates. Examples of a typical cost estimate
worksheet are contained in the Cost Estimating Handbook.

A. Pay Items.

(1) Pay items as used in estimates and in the bidding schedules of solicitations consist
of abbreviated descriptions of the elements of work for which payments or
charges to accounts are to be made. The pay items represent the most logical and
practical breakdown of the proposed scope of work into separate and distinct
classes of work.

(2) See the Cost Estimating Handbook for a listing of standard pay items for typical
features in Reclamation, including major and minor items of work.

B. Quantities. In preparing estimates, the quantities for the various pay items are
represented by a number and a unit of measure such as pounds, cubic yards, or another
unit that most appropriately represents the measurement for the particular pay item of
work.

C. Unit Prices. Unit prices include the various cost components for labor, materials, and
equipment necessary to perform the work designated in the various pay items for the
proposed scope of work. Current unit prices shall be used in all estimates, except in
those instances where actual contract bid prices are available (for the CCE only). Each
estimate shall be dated and reflect the price level (e.g., Jan/Apr/Jul/Oct and calendar
year) of the unit price data used therein. As an example, an estimate completed in
February 2005 reflects a price level of January 2005. Unit prices are not to be
increased to cover contingencies.

D. Field Data. The individuals responsible for collecting and providing design data
required by design staff (RM D&S, Design Activities (FAC 03-03)) shall also transmit
or provide any pertinent field data that might influence the cost estimate. Field data
shall include all information which may have a direct influence on the unit prices;
examples of this include duration of working season, climatic conditions, danger from

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floods and other hazards, topographic conditions, geology of site, access limitations,
staging constraints, records of foundation explorations, nature and location of aggregate
deposits and sources of other building materials, kind of terrain over which materials
must be hauled, labor market, housing accommodations, utility interferences, right-of-
way constraints, operational outages, special taxes, local regulations which may impact
production and costs, and addressing public relations requirements.

E. Special Allowances. 2

(1) Design Contingencies.

(a) This special allowance category for design contingencies is intended to

account for three types of uncertainties inherent as a project advances from
the planning stage through final design, which directly affects the estimated
cost of a project. These include: (i) unlisted items, (ii) design and scope
changes, and (iii) cost estimating refinements. In light of these uncertainties,
preliminary, appraisal, feasibility, and percent final design estimates shall
contain a percentage allowance shown as a separate line item to account for
the cost of these minor items of work. The allowance for design
contingencies represents the amount required to achieve comparability
between these estimates prepared during the earlier stages of the project and
the Prevalidation estimate or IGCE.

(i) Unlisted items include minor items required to construct a project for
which it is not practical to develop designs and quantities during early
stages of a project.

(ii) Design and scope changes are intended to cover minor design
refinements which are not practical to anticipate early in the project but
typically arise as the project advances through final design. These are
typically associated with:

(aa) minor design changes to reflect additional site-specific design data

collected as the project progresses,

(bb) minor design changes as the level of design advances,

(cc) minor changes in project requirements, and

(dd) minor quantity variations.

2
See the Cost Estimating Handbook for further information on each of these Special Allowances.

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(iii) Cost estimating refinements are intended to cover minor cost

considerations which are not practical to anticipate early in the project
but typically arise as the project advances through final design. These
are typically associated with:

(aa) minor changes to unit prices to reflect additional site-specific cost

data collected as the project progresses,

(bb) minor price adjustments, and

(cc) minor escalation increases (above those projected).

(b) Professional judgment is to be used in assigning reasonable percentage

allowances for design contingencies, but in general, the less refined the
estimate, the higher the percentages used. The availability and quality of
applicable design data and the magnitude of the work items that may be
affected by deficient design data as well as the risk associated with a
changing design or scope of work, shall be considered when establishing the
percentage allowance to be used for the design contingencies. It is
impractical to establish a fixed set of contingency factors. The allowance for
design contingency normally ranges from 2 to 20 percent of the subtotal of
all listed pay items. Allowances for design contingency will rarely be
included in Prevalidation cost estimates and shall not be included in IGCEs.

(2) Allowance for Procurement Strategies.

(a) A line item allowance for procurement strategies (considerations) may be

included in preliminary, appraisal, feasibility, percent final design, and
Prevalidation cost estimates to account for additional costs when solicitations
will be advertised and awarded under other than full and open competition.
These include solicitations that will be set aside under socio-economic
programs, along with solicitations that may limit competition or allow award
to other than the lowest bid or proposal. Examples of these practices
include: Hub-zone, 8(a) competitive and negotiated procurement, small
business set aside, or Request for Proposal where award may be based on
technical considerations.

(b) The magnitude of this allowance, whether it is either a percentage of the

priced items or an absolute maximum dollar adjustment, shall be at the
discretion of and determined by the regional director or delegate. This
determination will be verified by the area offices, with support from the
TSC, with special consideration of their knowledge of local factors such as
project size, project complexity, and available qualified competition to
complete the work. This allowance can be incorporated by the region or by
the estimator. If it is to be incorporated by the estimator, the estimator must

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be informed by the project office of the need for this allowance and its
characteristics in order that a special line item can be added to the estimates
being prepared.

(3) Construction Contingencies.

(a) Preliminary, appraisal, feasibility, and percent [%] final design estimates
shall include a percentage allowance for construction contingencies as a
separate item to cover minor differences in actual and estimated quantities,
unforeseeable difficulties at the site, changed site conditions, possible minor
changes in plans, and other uncertainties. Estimated quantities or unit prices
are not to be increased as a means for including construction contingencies.
The allowance used will be based on engineering judgment of the major pay
items in the estimate, reliability of the data, adequacy of the projected
quantities, and general knowledge of site conditions. The allowance will
vary inversely with the certainty of the engineering and geological
information and data. It is impractical to establish a fixed set of contingency
factors. The allowance for construction contingency normally ranges from
20 to 25 percent of the subtotal of all listed pay items including the
allowance for design contingencies and allowance for procurement
strategies.

(b) Allowances for construction contingencies shall not be included in

Prevalidation cost estimates or IGCEs.

F. Contract Cost. Refer to Paragraph 15.F. in this document for the definition of contract
cost. As more refined levels of designs are performed, a higher degree of confidence is
obtained for this line item.

G. Field Cost. Refer to Paragraph 15.J. in this document for the definition of field cost.
As more refined levels of designs are performed, a higher degree of confidence is
obtained for this line item.

H. Non-Contract Costs. Those offices with the responsibility for completion and
maintenance of the CCE shall include costs typically referred to as “non-contract”
costs. Non-contract costs refer to the costs of work or services provided in support of
the project, some of which can be expensed against a specific plant account, and other
work which is of such a broad non-specific nature that it can only be attributed to the
project as a whole. These latter costs are also referred to as “distributive costs.”

(1) Distributive cost items include but are not limited to facilitating services,
investigations, design and specifications, construction management,
environmental compliance, and archeological considerations. Refer to FAC 09-
02 for further information as to how these costs are to be formatted and shown
within the CCE.

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(2) The project manager typically has the responsibility of ensuring that all non-
contract costs are recorded into the CCE and PCE.

I. Feature Construction Cost. This value only appears on individual estimate

worksheets and pertains to summed costs for a singular feature of construction. Refer to
Paragraph 15.I. in this document for the definition of feature construction cost.

J. Total Construction Cost. This value generally only appears in the CCE and PCE.
Refer to Paragraph 15.N. in this document for the definition of total construction cost.

K. Escalations.

(1) For projects that are to be developed over an extended period of time, or at some
distant time in the future, it is prudent that some consideration of the time value of
money be incorporated.

(2) Escalation for two distinct periods of time must be considered. First, the time
from when the estimate is prepared until notice to proceed, and second, the
duration of the construction contract. Depending on the nature of the authorizing
legislation, one of the following approaches shall be used to account for
escalation:

(a) For cost estimates being prepared for projects with written legislative
language to accommodate escalation prior to construction, as shown in BGT
05-01, the estimator shall account for escalation that may occur during
construction. These levels of estimates shall be prepared at the current price
level.

(b) For cost estimates (primarily preliminary, appraisal, feasibility, and percent
final design) being prepared for projects which have not or will not include
the legislative language discussed above, escalation for both periods noted
above shall be included (e.g., Safety of Dams construction projects and
O&M projects).

(3) For cost estimates at the Prevalidation and the IGCE levels, the unit pricing or
detailed pricing will consider escalation (i.e., escalation would be included in
each unit price) for the construction duration.

L. Rounding. For preliminary, appraisal, feasibility, and percent [%] final design level
cost estimates, the contract cost, field cost, and construction cost line items are rounded
to nominal values per the rounding guidelines contained in the Cost Estimating
Handbook. These nominal values are within 2.5 percent of the actual calculated values.

6. Special Studies. Special studies address a variety of activities that are required to make
responsible resource management decisions; they are primarily used to both assist future

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planning efforts and provide specialized information that contributes to the decision-making
process. These reports are not used to propose to or request from the Congress an action or
decision, but can be used to document information requested by the Congress. Depending
on the intended use of the conclusions of the special study, estimates produced for these
studies shall be completed to the appropriate level as defined in Paragraph 4 of this
document.

7. Use, Requesting, Developing, and Handling Procedures for Prevalidation of Funds

Cost Estimates and Independent Government Cost Estimates. Both the Prevalidation
and the IGCE are sensitive documents in the procurement process. They both have limited
access and knowledge stipulations, and they are critical in ensuring adequate funding for the
award and assessing the reasonableness of the proposals or bids received. Because of this,
special care and consideration are required during their preparation and handling.

A. General.

(1) Estimators shall be kept informed and involved in the total acquisition process.
The project manager shall determine the likelihood of a noncompetitive
procurement during the planning status. The CO, project manager, or designated
responsible party must inform the cost estimator during the final design stage and
prior to final design completion (see Appendix A), what procurement strategy and
process will be followed (i.e., competitive procurements (sealed bid), negotiated
procurements (contracts with the Small Business Administration under
Section 8(a) of the Small Business Act)), sole source procurements, and
modifications to existing contracts for the purpose of providing the cost estimate
with an appropriate amount of detail.

(2) The intended uses of these cost estimates are as follows:

(a) Prevalidation Cost Estimate. The Prevalidation cost estimate is intended to

identify the funds required to be set aside for contract cost prior to issuing
the solicitation. This cost estimate shall be used by appropriate personnel for
use in preparation of the requisition.

(b) Independent Government Cost Estimate.

(i) The IGCE is prepared to reflect the “fair and reasonable” cost of the
scope of work as might be expected from bidding in “full and open
competition.” No specific allowances for contractor inefficiencies or
inexperience as a result of noncompetitive procurements are to be
included in the IGCE. This practice permits the CO to measure the cost
differences as a result of a noncompetitive procurement without
influencing their decision for award.

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(ii) The estimator will be available to assist the CO in conducting technical

and/or cost analyses of contractor cost proposals and in preparing for
and conducting negotiations as a member on the negotiation team.

B. Requesting Specific Estimates.

(1) Preliminary, Appraisal, Feasibility, and Percent Final Design Cost

Estimates. These estimates can be requested by anyone within Reclamation
having the authority to obligate labor resources, typically program or project
managers.

(2) Prevalidation Cost Estimate. Typically, this estimate is completed at

approximately the same time as the technical specifications and drawings are
finalized (SpecB). The person responsible for preparing the requisition and the
CO must ensure that the Prevalidation cost estimate is requested and subsequently
completed.

(3) Independent Government Cost Estimate. The CO or the project manager is

responsible for notifying the estimator of the need for an IGCE. The CO shall
provide the published specifications, any amendments, and any other pertinent
information to the cost estimator. If the CO determines that an acquisition will be
administered as a negotiated procurement, or if a contract modification is
required, the CO must notify the estimator as soon as possible that a detailed
estimate will be needed and the date it is required.

C. Developing the Cost Estimates. The two techniques commonly used to develop the
Prevalidation cost estimate and IGCE, unit price (historical) estimating and detailed
estimating, are described in the Cost Estimating Handbook. It is more efficient for the
estimator to use the same methodology to develop both estimates, which makes it
essential that the estimator be fully informed of the acquisition process and any project
issues that will influence the development of accurate pricing.

D. Handling.

(1) Prevalidations and IGCEs are sensitive documents with restrictions regarding
their availability and distribution. The Prevalidation is not to be disclosed prior to
bid opening to any person without a need to know without the approval and
facilitation of the CO. IGCEs are not to be publicly disclosed prior to bid
opening although they may be used administratively, before bid opening, to
project the effect of an award on the total estimated project cost, and on project
appropriation and repayment ceilings.

(2) Details of the content, format, and distribution procedures applicable to

Prevalidations and IGCEs are presented in the Cost Estimating Handbook.

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8. Independent Government Cost Estimates for Contract Modifications.

A. General. IGCEs for contract modifications shall be detailed estimates. In some

instances, the detail of the estimates (i.e., estimates required for issuance of change
orders) shall be commensurate with the information provided. The detailed
information contained in IGCEs for contract modifications is an essential tool to assist
the CO or designated responsible party in negotiating a fair and reasonable price. As
soon as it is determined, the CO shall notify the estimator if and when an IGCE will be
required for the contract modification and identify the scope of the modification.

B. Handling. IGCEs for contract modifications require special handling considerations

similar to those afforded Prevalidations or IGCEs (Award). Refer to the Cost
Estimating Handbook for details regarding handling procedures.

C. Special Considerations.

(1) IGCEs for contract modifications differ significantly from ones developed for
new contracts, due to the effects that existing requirements may have on the work
added and/or deleted by the modification, and due to the effects that the
modification may have on existing requirements. Refer to the Cost Estimating
Handbook for discretionary items to be considered by the estimator.

(2) The CO shall provide pertinent information to assist the cost estimator in
preparing the IGCE for the contract modification. In addition, the award
contractor’s general and administrative expenses allowance and any established
profit percentages must be provided by the CO, if known, to the cost estimator for
use in developing the IGCE.

9. Revisions or Updates to Cost Estimates. Because the development of projects from

inception to transfer into O&M status can take many years, numerous updates of the various
cost estimates may be needed to ensure the estimates reflect current market conditions. Two
primary alternatives exist for updating the cost estimates to the most current period of time;
these are indexing the elements of the cost estimate or its overall summation using
Reclamation’s Construction Cost Trends (CCT) or re-estimating the entire estimate with
current labor and materials pricing data. When considering the two alternatives, cost
indexes shall not be applied to estimates over 5 years old. IGCEs shall not be indexed.

A. Cost Indexes. Cost indexes provide a means of measuring changes in construction

cost relative to time. They provide a rapid means of determining the current cost of
construction of various properties based on previous estimates. The study and use of
cost indexes, together with the consideration of trends in costs of labor and materials,
will enable an estimator to compare the costs for any year with those of another year.

(1) Cost indexes for construction are updated and published quarterly by the
Estimating Services Group (86-68170) and published on the Internet at

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https://www.usbr.gov/tsc/techreferences/mands/cct.html for use throughout

Reclamation. The indexes are prepared for the major features involved in
Reclamation construction work, including but not limited to earth dams, concrete
dams, pumping plant structures, pumping plant equipment, canals, laterals,
conduits, powerplant structures, turbines and generators, and transmission lines.
These indexes are particularly useful in preliminary, appraisal and feasibility
estimates to roughly convert the estimated cost of features as of a given date to
another date.

(2) Details of the process that may be used to generate the CCT indexes are described
in the Cost Estimating Handbook. Also shown in the handbook is an example of
the published cost trends data and a list of the property categories.

(3) The CCT index data is used by a second program in support of the Construction
Ceiling Appropriation. Information related to updating construction
appropriation authorization estimates can be found in BGT 05-01.

(4) This second program is also capable of generating projected CCT index numbers
by using the projected inflation numbers published by the Office of Management
and Budget. These projected indexes can be calculated for up to a 4-year period
from the current CCT quarter. The standard practice is to restrict access to the
projected indexes to internal use only.

B. Re-Pricing.

(1) Re-pricing (re-estimating) is the most accurate method for determining current
construction bid values for a specific project. The index values within the CCT
are intended to reflect the change in dollar value for construction work. Because
of a number of significant considerations, this is not the same as determining the
current bid value for similar construction at a specific location. The two
alternatives are not comparable for several reasons which are:

(a) Source. Unit prices are developed for specific construction work taking into
account many factors such as local material prices, local wage rates, and
economic conditions. Cost indexes are based on historical indicators, which
may not show local variations in costs nor reflect uncertainty and
competition. Thus, in any given area, the indexed value may not show the
local trend in costs.

(b) Inflation. Because of the methods used to develop cost indexes, the index
values will lag actual price escalations during periods of high inflation. The
current quarterly indexes of the CCT do not contain any consideration for
recent or projected adjustments that would be required during high
inflationary periods; thus, re-pricing is the much better approach to
determine accurate market values.

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(c) Technology. Changes in equipment, design, and construction techniques

continually affect the unit prices. Indexes do not contain any provision for
technology changes other than to alter the blend of parameters to more
closely model current construction practices. Thus, in a period of change in
construction practices and efficiencies, indexes will not immediately reflect
those changes.

(d) Legal. Laws that have been passed since the original estimate was produced
may require additional work or practices to be followed in construction pay
items. These current costs are added to bid prices and appear in unit prices
in estimates but cannot be accounted for in preparation of indexes which are
for general classes or features of work. As these requirements are added to
construction, the indexed value will fall farther behind the unit prices.

(2) Considering all of these factors causing indexed values to deviate from current
prices, cost estimates shall be re-priced at least once every 5 years rather than
risking an underestimate caused by indexing.

10. Updating Appropriation Authorization Estimates. All active projects in construction

status that are being funded through the Water and Related Resources appropriation are to
be considered in the appropriation ceiling updating and reporting process. Such
consideration will continue until final work is complete and a final ceiling statement is
prepared.

A. The amount authorized for each project is derived from the PCE contained in the
feasibility report that was submitted to support the authorizing legislation. Estimates
must include sufficient details on each of the project features to classify the field costs
according to available indexes for such items as land and rights, dams, canals, laterals,
etc.; and further determine the preauthorization cost and the percentage of non-contract
costs. Such an authorizing estimate and plant account cost classification is necessary to
complete the appropriation ceiling indexing process.

B. Refer to BGT 05-01 for the methodology required for calculating appropriation ceiling
adjustments.

11. Safety of Dams Cost Estimates. In support of the Dam Safety Program, cost estimates will
be prepared at various stages of planning through construction. The Dam Safety Office
prepares a Modification Report, which is used to seek authorization from the Congress for
construction of modifications to Reclamation facilities. The cost estimate that will be used
for the Modification Report will be at the feasibility level. Appraisal level cost estimates
will only be used during the scoping stages of the Corrective Action Study to identify which
alternative(s) will be estimated at the feasibility level.

A. In addition to the normal feasibility level cost estimates that are prepared, at least one
feasibility level cost estimate for each design alternative is required to consider risks

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that may affect construction costs of the project. These risks need to be defined for
such items as potential design changes, construction considerations, and any other
factors that may affect costs associated with construction contract. For example,
additional design data or refined analysis during final design may result in design
changes that affect costs. Additionally, constraints (environmental, local conditions,
facility operations, material sources, etc.) placed on a project during construction will
likely affect costs.

B. Refer to RM D&S, Bureau of Reclamation Dam Safety Program (FAC 06-01) and
Safety of Dams Modification Reports for Submission to the Congress (FAC 06-03) for
information regarding the cost estimate requirements of the Dam Safety Program.

12. Operation and Maintenance Estimates. Cost estimates are required during the budget
planning stages for most O&M activities, particularly major rehabilitation and replacement
(MR&R) items. During the budget planning stages, preliminary, appraisal, and feasibility
level cost estimates will be used for determining the required budget for construction,
supply, and services. Refer to BGT 01-05 for information regarding the required cost
estimates.

A. The first milestone or lowest level of budget planning that is typically encountered
would be at the 4 or more out year(s) budget. The project is not well defined at this
time and has not been incorporated in any Reclamation budget documents. Costs are
typically generated using experience from previous projects and may not be formally
prepared. The cost estimate that is prepared for this milestone is typically at a
preliminary estimate level. At this time, the appropriate office will be defining the
required MR&R project work to be performed at some time in the future.

B. The second milestone is at the current budget year plus 3 years for award of a
construction contract. This information is developed for use in budget planning
documentation required for Reclamation’s Budget Review Committee (BRC). The
cost estimate that is prepared for this milestone is at an appraisal level. Typically,
drawings, sketches, and/or general layouts are prepared for this level of cost estimate.
Sufficient backup materials along with the appraisal level cost estimates will be
provided to the BRC for their evaluation and review. Consideration must be given to
preparing feasibility level cost estimates (in lieu of appraisal) for projects or features
that either present unique requirements or are in excess of $10 million total
construction cost.

C. Higher priority MR&R items are typically designated for final design. At that time, the
construction, supply, or service contracts will follow the normal design process
providing appropriate cost estimates at the required milestones.

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13. Oversight and Review of Cost Estimates.

A. Internal Reviews. Cost estimates prepared within Reclamation will be reviewed per
the established policies and procedures of the offices preparing the estimates. It is
recommended that estimates be reviewed for a comprehensive inclusion of all known
required work items, accurate pay quantities, sound price development, and appropriate
special allowances. Special attention shall be given to major cost drivers, work items
having high levels of risk, and anticipated noncompetitive procurements. Refer to RM
D&S, Identifying Design, Cost Estimating, and Construction Projects for Which
Independent Oversight Review is Required, and Performing Those Reviews
(FAC 10-01) for information regarding independent reviews of Reclamation cost
estimates. The TSC is available to assist with these internal reviews.

B. Reviewing Cost Estimates Prepared by Third Parties (Non-Reclamation

Employees).

(1) Cost estimates for Reclamation projects and the designs upon which they are
based are sometimes prepared by entities outside of Reclamation (i.e.,
Architect/Engineer, Consultant, etc.). In such situations, the outside entity who
prepares these products is responsible for the technical adequacy of their designs
and the accuracy of the associated cost estimates.

(2) Information on Reclamation’s review of designs prepared by others is available in

FAC 03-03. Information on Reclamation’s review of cost estimates prepared by
others is as follows:

(a) For projects which meet the criteria for review by the DEC Oversight Office
(as outlined in FAC 10-01), the project design and cost estimate shall be
independently reviewed in accordance with the provisions of that D&S.

(b) The agreement with the outside entity whose estimate is to be reviewed in
accordance with the provisions of FAC 10-01 shall include provisions to
supply the following data to facilitate Reclamation’s review:

(i) Detailed design drawings, design data, quantity estimates, and quantity
estimate worksheets must be provided which clearly illustrate the nature
and scope of the project components.

(ii) All supporting information for estimate assumptions for the bid items
and unit prices that make up the cost estimate must be included. Lump
sums shall be broken down into component parts so that the reviewer(s)
can understand at the cost element level the work requirements
contained within.

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(iii) Major cost drivers in the cost estimate (defined as those project
components which make up significant percentage of the construction
cost) must be supported by full understanding of the development of the
unit prices and/or lump sums with price quotes (if available) or the cost
reference where the cost were obtained.

(c) Reclamation review of cost estimates prepared by others is also encouraged

for projects which do not meet the criteria in FAC 10-01 for independent
review but may be reviewed via a less formal process. In these cases, the
review materials noted above must be included as a required deliverable
from the outside entity producing the design and associated cost estimate.
The TSC is available for assistance with this type of review.

(d) Strong consideration will be given to preparation of a Prevalidation estimate

and an IGCE by government personnel on any project designed for
Reclamation by an outside entity. This would help preclude or limit any real
or perceived conflict of interest and to prevent any dissemination of secure
procurement information before bids are received.

14. Other Considerations.

A. Estimating Personnel (Estimator).

(1) Cost estimators are expected to have a full and open exchange of data regarding
the design, construction, and procurement methodologies applicable to the project
upon which they are working. This exchange of information benefits not only the
estimator but also the design staff and procurement officials. However, in the
actual preparation of the cost estimates, the estimating staff is expected to work
independently of the designers (if resources are available), procurement officials,
and potentially competing contractors, as possible, to eliminate any real or
perceived influence or conflict of interest in the preparation of the cost estimate.

(2) Cost estimators must receive appropriate training in cost estimating procedures;
be knowledgeable in construction methodologies and contracting procedures; and
be able to determine current cost conditions as they impact the development of
the CCEs.

B. Value Analysis. Value studies are used to quickly consider alternatives/proposals

against the baseline design. Information on Reclamation’s Value Program can be
found in RM Policy, Reclamation Value Program (CMP P05) and D&S, Reclamation
Value Program (CMP 06-01). Cost estimates are an integral part of a value study. A
value study will typically use a Feasibility or Percent Final Design cost estimate for the
baseline and is used as the basis in developing costs for the various value study
alternatives/proposals. Value study cost estimates are inherently less defined than the
baseline cost estimates as a result of the time constraints of the value study process.

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Therefore, the level of cost estimate generated for value study alternatives/proposals
will typically be no better than an appraisal level cost estimate. As a result, these cost
estimates shall not be used for any purpose other than evaluating costs for design and
construction alternatives/proposals relative to the baseline cost estimate. Should an
alternative/proposal be selected from this process, the design will need to be refined
and the cost estimate prepared with enough time, resources, and detail as appropriate.

15. Definitions.

A. Appropriation Ceiling. This is the maximum authorized allowable appropriation

expenditure for projects in construction status. The PCE, at the feasibility level, is
submitted to the Congress for approval and generally establishes the initial
appropriations ceiling. This limit is subject to allowable adjustments generated by cost
indexing as provided for in the authorizing legislation. Not all projects have a specific
authorized ceiling.

B. Authorized Project. A statutorily authorized project consisting of an assembly of chief

features and supporting assets required to provide the benefit(s) authorized into law by
Congress. Within Reclamation, some examples of authorized projects consisting of
groups of infrastructure and assets are the Central Arizona Project and the Central
Valley Project.

C. Bidders/Offerors. These descriptors refer to non-Reclamation entities that submit

offers of contractual obligation to perform specific work for an established financial
fee. These entities are not considered contractors until after actual award.

D. Construction Cost Estimate or CCE.

(1) The CCE consists of the costs of the construction of the physical features of the
project (i.e., contract costs), the land and rights, relocation of existing real
property, clearing and restoring lands, service facilities, investigations,
engineering (preparation of design and specifications, construction management,
and contract administration), and other general expenses. A CCE is first
developed in the planning stage of a project and maintained through subsequent
stages of the project completion. The costs included in the CCE at any stage of
the project will include a combination of actual expenditures for work completed
to date and estimated costs for all remaining work.

(2) A CCE will contain cost details such as listings of work item details required to
construct various features. These details may include work or materials
descriptions, units of measure, and unit pricing, along with line items for design
contingencies and construction contingencies. See Paragraph 5.E.(1) and (3) for
more information on design and construction contingencies.

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E. Construction Cost Trends or CCT. Cost indices for construction are updated and
published for use throughout Reclamation. The indices are prepared for the major
features involved in Reclamation construction work. These features are described in
the Cost Estimating Handbook, which contains discretionary guidance.

F. Contract Cost. The contract cost is intended to represent the estimated cost of the
contract at time of bid or award. This value will include allowances for design
contingencies and for procurement strategies, but not construction contingencies.

G. Cost Estimate. A cost estimate identifies the expected financial obligations, which
may be incurred for the development and support of various project features and
programs associated with Reclamation’s mission. The key elements of Reclamation’s
cost estimates are detailed in Paragraph 5.

H. Distributive Costs. Distributive costs refer to that portion of the non-contract costs
which is of such a broad non-specific nature that it can only be attributed to the project
as a whole. These costs are eventually proportionately allocated to specific plant
accounts and property classes. See Paragraph 5.H. of this document and FAC 09-02
for further discussions of distributive costs.

I. Feature Construction Cost. The construction cost associated with a unique feature on
a cost estimate worksheet is the sum of item costs and includes allowances for design
contingency, procurement strategy, construction contingency, and non-contract costs.
(NOTE: This term and associated definition is offered and applicable to use on the
typical Reclamation Cost Estimate Worksheet. It is not synonymous and must not be
confused with the Total Construction Cost as developed for a CCE and PCE as defined
elsewhere in this release.)

J. Field Cost. The field cost is an estimate of the capital costs of a feature or project from
award to construction closeout. The field cost equals the contract cost plus
construction contingencies. Construction contingencies are intended to account for
costs resulting from changes in designs and/or differing site conditions encountered
during construction. Non-contract costs are not included in this value.

K. Non-contract Costs. Non-contract costs refer to the costs of work or services provided
by Reclamation staff and/or service contractors in support of the project. See
Paragraph 5.H. of this document and FAC 09-02 for further discussions of non-contract
costs.

L. Program. A program is a group of projects managed in a coordinated way to obtain

benefits not available from managing them individually. Many programs include
elements of ongoing operations. In Reclamation, a program is usually a group of
projects, administered at a Reclamation-wide level, with parts delegated to the regions.
Reclamation programs do not have to be specifically authorized but must have a budget

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line item. Whereas a program’s timeframe may continue past any individual project,
each project usually results in a unique product. Examples of some Reclamation
programs are the Dam Safety Program and the Title 16 Program.

M. Project Cost Estimate or PCE.

(1) The PCE is a summary of the costs found in the CCE. Information on the PCE
does not extend below the plant account level of the identified property. It is used
in planning reports, in seeking congressional authorization, and in support of
requests for construction appropriations.

(2) After construction begins, PCEs are updated once annually (March/April), in
conjunction with updated CCEs, or as required, to support budget and program
schedules submitted for future fiscal years.

N. Total Construction Cost. For the purpose of completing the PCE, a total construction
cost is calculated for each property class attributable to the project. A total
construction cost consists of a sum of the construction cost for each feature within a
property class. In general, a construction cost is a sum of the total field costs plus non-
contract costs. Within the PCE, the summation of all the property class total
construction cost line items is equivalent to the total project cost.

O. Total Project Cost. For the purpose of completing the CCE and PCE, the total project
cost consists of the summation of the total construction cost values for the various
property classes within a project.

P. Uniform Classification of Accounts (Plant Accounting). This is a cost accounting

methodology used by Reclamation in which the various costs of a project are assigned
to specific property classes, identified properties, construction/plant accounts, and
account components.

16. Review Period. The originating office will review this release every 4 years.

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09/12/2019 321
Effective Date: Release No.

Ensure all employees needing this information are provided a copy of this release.

Reclamation Manual Release Number and Subject

FAC 09-01 Cost Estimating

Summary of Changes
Minor revisions include:
1. Minor wording revisions throughout the document
2. Added a definition for a new term “Feature Construction Cost"
3. Deleted the definition for “Cost Authority"
4. Rearranged sections moving “Sequence of Development of Cost Estimates” section prior to the section on “Key Elements of Cost Estimates” to
improve the readability of the document
5. Revised definition for “Authorized Project” per CMP TRMR-72 Authorized Project per request from Policy and Administration (Policy) Office
6. Revised RAX citations to MR&R references per request of the Policy Office
7. Deleted references to work done by contractors on Reclamation products
8. Updated website links in the document for current locations on the Cost Estimating website
9. Revised numerous titles of other referenced RM documents within the document
10. Reformatted this D&S document per the newly revised RM document formatting requirements. Moved the Definitions section towards the end
of the document. Added a section on the Review Period for future certification reviews for this document

NOTE: This Reclamation Manual release applies to all Reclamation employees. When an exclusive bargaining unit exists, changes to this
release may be subject to the provisions of collective bargaining agreements.

Filing instructions

Remove Sheets Insert Sheets

FAC 09-01 pp 1-22 FAC 09-01 pp 1-23
Appendix A p 1 Appendix A p 1

All Reclamation Manual releases are available at http://www.usbr.gov/recman/

Filed by: Date: