Cost

Part 4

Cost of
construction labour
and equipment

Preparing the Detailed

Estimate

Review the bidding documents: The bond section should

include bid bond and performance bond forms and
requirements. Bonds are written documents that describe
the conditions and obligations related to the
owner/contractor agreement. A bid bond certifies that if a
contractor is awarded the bid within the time specified in the
invitation to bid, the contractor will enter into the contract
and will provide all other required bonds in a timely manner.
A performance bond guarantees the owner that within
agreement limits the contractor will perform all work in
accordance with the contracting document. Labour and
material bonds guarantee to the owner that the contractor
will pay in a timely fashion for supplied materials used by all
the subcontractors related to the project.

Review the drawings to visualize the building

size, height, shape, function, basements, and so
on.
Review structural drawings to get acquainted with
specified systems.
Review mechanical, electrical, fire extinguisher,
and security drawings.
----------------------------------------------------Start identifying work to be done by general
contractor and work to be done by subcontractors.

Read and study thoroughly the specifications for the work

to be done by the general contractor and those related
to any subcontracted work.
--------------------------------------Visit the project site and have with you the project
manager or field engineer.
Call a meeting with the personnel who will hold the
key supervisory positions. Establish with them the general
guidelines for quantities take off and pricing.
Develop a list of subcontractors.
---------------------------------------------

Develop a list of items to be considered for jobsite

overhead and general overhead that need to be
priced later.
Start the quantities take off for the category of
construction work selected to be done in house
Condense quantities from the work up sheet by
work category and transfer them to a summary
sheet for pricing.

Sources of Cost
Information

Cost information from published price books

Priced bills of quantities from previous projects.
Cost analysis and cost models produced inhouse.

Construction Labour
The construction industry, to which these
craftsmen belong, is one of the most labourintensive industries in the world. The labour cost
component of a building project often ranges
from 30 to 50%, and can be as high as 60% of the
overall project cost.

Labours production
rates (Productivity)

Construction productivity =
quantity of work produced / time duration

Productivity rates can be determined from

published sources such as Means Building
Construction Cost Data and Walkers Building
Estimators Reference Book.

Estimating work
duration

Work duration =
quantity of work / number of crews production rate

Having defined a duration of a given work, it means that the

planner have already defined the number of resources that will be
employed in a particular work. Knowing duration and resources
employed, it is simple to estimate the activity direct cost.
Then, the three elements of an activity: duration, cost, and
resources form what is called construction method. Some
activities can be performed using different construction methods.
Where, its method will have its own resources, cost and duration.

Basic principle for

estimating labour costs

Labour costs in construction are determined

by two factors: monetary and productivity. The
monetary factor is related to hourly wage rates,
wage premiums, insurance and taxes.
Total cost of labour = total work hour wage rate

Example
What is the duration of an exaction activity with a
quantity of 3000 m3 using an excavation crew consists
of an excavator with a production rate of 200
m3/day, a loader of 250 m3/day and 3-trucks of 150
m3/day?
Solution
- Using the excavator: Duration = 3000 / 200 = 15 days
- using the loader: duration = 3000 / 250 = 12 days
- using the 3-trucks: duration = 3000 / 150 = 20 days
- then, the activity duration is governed by the lowest
production rate = 20 days.

Take a breath

Construction
Equipment

Equipment could be classified based on their use

as specific use or general use.
Specific use equipment
Its usage is shorter term when compared to
general use equipment.

TRACTORS

LOADERS

SCRAPERS

COMPACTORS

General use equipment

These pieces of equipment are kept on the site
over a longer period of time, throughout almost
the entire construction phase.

CRANES

FORKLIFTS

AIR COMPRESSORS

LIGHT TOWERS

Factors influencing
equipment selection
Site conditions
The nature of the work
Equipment characteristics
Cost

Renting versus
purchasing equipment

The choice between purchase and rental usually depends on the

amount of time the equipment will be used in the contractors
operations.
There can be distinct advantages to renting equipment, including:
- No need to maintain a large inventory of specialized equipment.
- Continuous access to the newest and most efficient items of
available equipment.
- No need for equipment warehouse and storage facilities.
- Reduced need to employ maintenance staff and operate
facilities for their use.
- Equipment cost accounting is simpler when equipment is
rented.

Time-value of money
When you take engineering economics.

Equipment costs
Initial cost: the total cost required to purchase a
piece of equipment.
Investment cost: interest rates and rate of return
costs.
Depreciation: the decrease in market value of an
asset.
Operating costs: Maintenance and repair costs,
Fuel consumption, Lubricating oil consumption,
Cost of rubber tires, etc.

Break
End of part 4

Cost
Part 5

Estimating work
items costs, indirect
costs, mark-up and
contract pricing

Estimating Work Items

Cost

Swell and compaction factors: The soil to be excavated

is called bank measure, in its undisturbed condition, prior
to excavating or after being compacted in place.
Calculating truck requirements:
Number of required trucks = truck cycle time / loading time
Truck cycle time = loading time + going time + return time
+ dumping time
Loading time = truck capacity / production rate of loader
Truck capacity (bank measure) = truck capacity (loose) /
(1+swelling factor)

Waste factors: Allowance for waste and spillage

of this material can be made by increasing the
takeoff quantities or by raising the price by the
percentage factor considered necessary. The
values of waste factors usually lie between one
and 10 percent for different materials.

Estimating Indirect Cost

Site overheads
The estimated total jobsite overhead costs will become the baseline budget for jobsite overhead expenditure control.
These items might include:
- Jobsite personnel wages and fringe benefits;
- Jobsite personnel project-related travel expenses;
- Outside contracted engineering support (surveying, materials testing, etc.);
- General use equipment for the benefit of the general contractors and
subcontractors (cranes, hoists);
- Field buildings;
- Site utilities for the job duration;
- Horizontal structures (roads, parking, fences, and gates);
- Temporary environmental controls requirements;
- Winter and summer protection of completed works or works in progress;
- Related camp facilities for remote jobs;
- Jobsite production facilities (concrete batching plants, quarry, various shops);
- Protective aids for workers (gloves, hard hats, etc.) during construction and final cleanup of the project;
- Bonds, insurance, permits, and taxes required in the contract general conditions;
- Utilities needed for material storage;
- Cost of temporary site utilities.

General overheads
The company home office expenses cannot be chargeable most of the time to a single project. General overhead represents contractor fixed expenses.
A summary of the major categories is presented below:
- Non reimbursable salaries
- President
- Vice president
- Estimating group
- Human resource personnel
- Secretaries
- Payroll clerk
- Accounts payable clerks
- Total office non reimbursable salaries
- Benefits
- Office/shops rent
- Depreciation of capital expenditures
- Office utilities and communication
- Office supplies
- Office equipment (rented, if owned depreciated)
- Office maintenance
- Advertising/jobs procurement/public relations
- Associations and clubs dues
- Licenses and fees
- Donations/sponsored research
- Trade journals subscriptions and books
- Travel
- Entertainment
- Company sponsored training programs
- Accounting services
- Legal services
- Estimating and project management (not salaries)
- Consulting fees (legal, etc.)
- Home office vehicles, depreciation, operation expenses
- Insurance expenses
- Total anticipated home office expense
In general, main office expense ranges from 2.5 to 10% of annual construction billings.

Construction contingencies:
Contingency is that amount of money added to an estimate to cover the unforeseen
needs of the project, construction difficulties, or estimating accuracy.
- Unpredictable price escalation for materials, labour, and installed equipment for
projects with an estimated duration greater than 12 months;
- Project complexity;
- Incomplete working drawings at the time detail estimate is performed;
- Incomplete design in the fast-track or design-build contracting approach;
- Soft spots in the detail estimate due to possible estimating errors, to balance an
estimate that is biased low;
- Abnormal construction methods and start up requirements;
- Estimator personal concerns regarding project, unusual construction risk, and
difficulties to build;
- Unforeseen safety and environmental requirements;
- To provide a form of insurance that the contractor will stay within bid price.

Contractor/Subcontractor profit
Different kinds of profits are related to several
considerations, including the following:
- The firm must recoup sufficient profit for return on equity.
- The profit must be commensurate with industry averages.
- The profit must consider competitive bidding strategies.
- The profit must be as high as possible or what the
competitive market will bear, while commensurate with the
contractors risk.

Finalizing a Tender Price

Balanced bid (straight forward method)

The share of specific item=
Direct cost of this item/Total contract direct
cost*(total indirect cost + markup)

Example
Assume that the direct cost for an item (a) is LE 400,000 and
that item is included in a contract whose price is LE
3,500,000 and its total direct cost is LE 2,800,000. Calculate
the price for item (a) considering a balanced bid.
Bid price = direct cost + indirect cost + markup
Indirect cost + markup (for the whole contract)= Bid price - direct cost
3,500,000 - 2,800,000 = LE 700,000
Then, Indirect cost + markup for activity (a)=400,000/2,800,000*700,000
= LE 100,000
Then, price of activity a = its direct cost + indirect cost
= 400,000 + 100,000 = LE 500,000

Unbalanced bid (Loading of Rates)

The contract price is said to be unbalanced if the
contractor raises the prices on certain bid items
(usually the early items on the bill of quantities)
and decreases the prices on other items so that
the tender price remain the same. This
process is also called the loading of rates. The
contractor usually loads the prices of the first
items to ensure more cash at the beginning of
the contract and to reduce the negative cash
flow and accordingly reduces borrowing of money.

Example

Questions?