Cost Accounting: a Quantitative Look at Txdot Construction Projects

Topics: Costs, Cost, Project management Pages: 12 (3691 words) Published: October 15, 2011
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 ability to gain future State and Federal appropriations. TXDOT has many manuals for its employees that tell them how to plan estimates and input them into their system but has very few actually estimating instructions for the contractors who do the bulk of their work (Texas Department of Transportation). TXDOT estimates are composed of many different bid items, or items that are to be completed for the estimate. Each bid item is assigned a number that represents a certain category of work to be performed by the contractor. A description of the work to be accomplished under a bid item is available in the Texas Department of Transportation’s (TxDOT) Standard Specifications for Construction and Maintenance of Highways, Streets, and Bridges (otherwise known as the Spec Book) for standard specification items (Mark A. Marek, 2009). This Spec Book is virtually the only thing that a contractor has to go by when planning an estimate and it was lasted updated in 2004 (Texas Department of Transportation, 2004). It does not mention anything about estimation only what is involved in and how to perform each item. It is my belief that if a uniform cost accounting (estimation) plan was put into effect for all contractors doing work for TXDOT then TXDOT would save a lot of time and money trying to sort out problems with contractors estimates. With my research I 4

will work to find the common cost accounting (estimating) procedures used by the top contractors that do work for TXDOT and determine if a uniform system is possible. If one is not possible at least we may have an idea of where some of these companies are going wrong and where improvements can be made within the TXDOT system to help prevent them from happening in other contracts.

Literature Review
Finding information directly related to TXDOT cost accounting was a difficult tasks as I found no studies of TXDOT in my searches so far. The literature I did find has all dealt with the cost accounting and estimating and ways people have sought to improve...

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