Estimating Principles 1405v2-2

8/17/2019 Estimating Principles 1405v2-2

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Contents

Aims and Learning outcomes

1. Contractor’s pricing: introduction

2. Definitions and terminology

3. Tendering policy 3.1 Firm’s mark-up target

4. Tendering procedure 4.1 Decision to tender4.2 Collection of information4.3 Preparation of estimate

4.4 The tender4.5 Action with tender results

5. Bidding strategy 5.1 Bidding patterns5.2 Probability of being lowest bidder5.3 Optimum bid5.4 Bidding strategy

6. Overheads 6.1 Break-even analysis

7. Profit 7.1 Profitability of contracts

8. Constituents of a rate 8.1 Labour8.2 Materials8.3 Plant8.4 Profit, general overheads and risk

(Continued)

© The College of Estate Management 2005

Paper 1405V2-2

Estimating principles


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Estimating principles Paper 1405 Page 2

9. Resources – Labour 9.1 All-in rate9.2 Working Rule Agreements9.3 Build-up of all-in rate for labour9.4 All-in labour rate items9.5 Incentive schemes and productivity agreements9.6 Production outputs

9.7 Factors affecting outputs by operatives9.8 Methods of establishing output data

10. Resources – Material 10.1 All-in rate10.2 Quantity of material for a unit rate10.3 Materials wastage10.4 Amounts of waste

11. Resources – Plant 11.1 Ownership of plant11.2 Hire of plant11.3 All-in rate11.4 Production output11.5 Transportation and maintenance

12. Project overheads

13. Subcontracting 13.1 Types of subcontractor13.2 Labour-only subcontractors

14. Demolitions and alterations 14.1 Demolitions14.2 Alterations14.3 Shoring

Aim

The aim of this paper is to explain the process undertaken by the contractor in detailin order to price tender documents.

Learning outcomes

After studying this paper you should be able to:

Identify the factors influencing the decision to tender.

State the extent of the information required to price the tender.

Understand the reasons for, and the adjustments made to, an estimate in orderto translate this to a tender sum.


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1 Contractor’s pricing: introduction

Because of the individual nature of projects in the construction industry, the functionof design and production have in the past generally been separated although in recentyears the concept of design and build discussed later in this paper has made inroadsinto the more traditional concept. A design team is appointed by the client and givesprofessional advice on a fee basis, the production process being carried out by acontractor on a profit basis.

It is part of the design team’s duties to select a contractor, and some form ofcompetitive selection is usually considered as the best method of obtaining value formoney for the client. The magnitude and complexity of the project will determine themethod of contractor selection, whether open to any contractor or from a selected list.Occasionally the design team will select and negotiate with a single contractor,perhaps due to the specialist nature of the construction.

The usual criterion for contractor selection is that of lowest monetary cost, althoughthe design team must be satisfied that the selected contractor has the resourcesnecessary to carry out the project.

To provide a basis for selection, the design team will have to ensure that all thecontractors are competing on the same information. This design information may bedocumented in the form of:

project drawingsspecificationbills of quantitiesschedules,

which are available to all competing contractors. It is then the duty of the contractorto predict the monetary payment they require to carry out the project. This monetaryfigure, together with time and other conditions, is known as the Tender, and for theselected contractor becomes the Contract Sum.

2 Definitions and terminology

For those who may not be fully conversant with the terminology used in theconstruction industry, definitions follow of the principal specialist terms used bymembers of the construction industry. For convenience of reference they are listed inalphabetical order.

AdjudicationThe action taken by management to convert an estimate into a tender.

All-in labour rateA compounded rate which includes payments to operatives and the costs whicharise directly from the employment of labour. Variable costs, such as travellingtime or abnormal overtime, are normally excluded.

All-in material rate

A rate which includes the cost of material delivered to site, waste, unloading,handling, storage and preparing for use.


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All-in mechanical plant rateA compounded rate which includes the costs originating from the ownership orhire of plant together with operating costs.

Approved contractorsThose who have demonstrated that they have the expertise, resources, ability anddesire to tender for a proposed project. Selection of such contractors is normally

by pre-selection procedures.Attendance

The labour, plant, materials or other facilities provided by the main contractor forthe benefit of the subcontractor and for which the subcontractor normally bears nocost.

BriefThe definition of a client’s building requirements.

BuildabilityThe extent to which the design of a building facilitates ease of construction,

subject to the overall requirements for the completed building.Consultants

The client’s advisers on design, cost and other matters. Such advisers may includeproject managers, architects, engineers, quantity surveyors, accountants, bankersor other experts relating to the client’s particular needs.

CostThe term ‘cost’, without qualification, means the estimated cost of the physicalproduction of work.

Note: ‘estimated cost’ must not be confused with ‘historical cost’; ‘historical cost’

is the cost of construction revealed only after the work has been executed.

Cost recordsRecords of historical cost and notes of the conditions prevailing when such costwas incurred.

Domestic subcontractorsSubcontractors selected and employed by the contractor.

Down timeThe period of time that plant is not operating. This may be due to breakdown,servicing time or inability to operate due to external factors.

EstimatingThe technical process of predicting cost of construction.

EstimatorA person carrying out the estimating function in a building organisation. Such aperson may be a specialist or may carry out the estimating function in conjunctionwith other functions, such as quantity surveying, general management etc.

Firm price contractA fixed price contract which does not allow for its prices to be adjusted forfluctuations.

Fixed price contractA price which is agreed and fixed before construction starts. It may or may not bea firm price contract.


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PrequalificationThe provision by a contractor of information as part of a preselection process.

PreselectionThe establishment of a list of contractors with suitable experience, resources,ability and desire to execute a project, bearing in mind the character, size, locationand timing of the project.

Prime cost (PC)When used in bills of quantities and specifications, prime cost means work to becarried out by nominated subcontractors or suppliers of materials and goods. Thecontractor may also be invited to carry out work covered by a PC sum in certaininstances.

Project overheadsThe cost of administering a project and providing general plant, site staff, facilitiesand site-based services and other items not included in all-in rates.

Provisional sum

A sum included in bills of quantities for work anticipated but insufficientlydesigned or detailed to permit descriptions and measurement in accordance withthe requirements of the Standard Method of Measurement (SMM).

Selective tenderingA method of selecting tenderers and obtaining tenders whereby the number ofcontractors invited to tender is limited to the inclusion of contractors who areconsidered suitable and able to carry out the work. This suitability is usuallydetermined by preselection procedures.

Select competitionThe endeavour to gain a contract against a limited number of competitors by the

submission of a tender.Standing plant

Plant retained on site which is not working but which the contractor is still liableto pay for.

TenderThe sum of money, time and other conditions required by the tenderers to carryout the specified building work.

TenderingA separate and subsequent commercial function based upon the estimate.

Tender documentsDocuments submitted for the information of tenderers.

Tender programmeThe initial version of the master construction programme prepared during thetendering period, to enable the main contractor to appreciate the important timeand resource considerations of the project, in terms suitable to the preparation andsubmission of his tender.

Tender timetableThe timetable for the preparation of the estimate, all necessary supporting actions

and for the subsequent conversion of the estimate into a tender and submission, bythe date stipulated in the tender documents.

Working Rule Agreement (WRA)National Working Rules for the building industry produced by the National JointCouncil for the building industry.


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Some of the factors considered by management in assessing the mark-up rate onindividual contracts will be:

risk

time of yeartype of construction

type of tender (fixed price etc)clientdesign teamcapital requirementssite conditions

current and anticipated work load of firm

location of project

prestige of project

placing in previous tender competitions

competition for this project.

The mark-up on estimated costs may be added either to the unit rates or as a separatetotal sum in the preliminaries or the final summary page. The more usual method,when a priced bill of quantities is required, is to add the mark-up to unit rates so thatany variations will include the margin.

4 Tendering procedure

In order that the tendering policy of the firm be maintained it is necessary that aprocedure for the preparation of all tenders be established. This will vary withdifferent contractors, depending on size and personnel, but a basis could follow thestages set out in the Chartered Institute of Building Code of Estimating Practice.

4.1 Decision to tenderA management decision based on the firm’s position at the time of invitation inrelation to:

production workload

future commitmentsmarketcapitalriskprestigeestimating workloadtime for preparation of tender.

The cost of tendering may be further consideration; this has been placed at between0.5 and 2.0 percent of the project costs ( Strategy of Contracting for Profit ,

W R Park).


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4.2 Collection of informationIf management decide to tender for the project, the estimating staff should assembleinformation about project costs. An accurate estimate can only be produced wheneach element is broken down into its simplest terms and the cost estimated on factualinformation.

Some of the factors required:

Time scale for tendering with key dates

Examination of contract documents

Assessment of client and design team

Enquiries to suppliers and subcontractors with a time scale

Site and locality visit

Discussion with site management, plant and planning departments

Evaluation of alternatives

Preparation of detailed construction method statement and pre-tenderprogramme, developed to include production outputs, gang sizes, plant details,etc.

4.3 Preparation of estimateHaving assembled all the information, the next task of the estimating staff is to buildup the cost of the unit rates. This requires the calculation of all-in rates for labour,plant, materials and extending these, using the production details from the pre-tenderprogramme. The cost of any on-site administration and services, known as ProjectOverheads, is also calculated. These net production costs, together with a projectappraisal report, are then submitted to management for adjudication.

4.4 The tenderThe management of the firm would consider the mark-up required on the estimatedproduction costs, to cover the firm’s overheads, profit and risk of the tender. Theseadditional costs included, the tender figure can then be determined and submitted.

4.5 Action with tender results

An analysis of tenders and a comparison of results should be completed for eachproject to provide a basis for future bidding strategy. With a successful tender, costinformation during the progress of the work and a final reconciliation of estimatedand final account costs should be made.


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FIGURE 1


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5 Bidding strategy

In a competitive tendering situation, the contracting firm is constantly facing thedilemma of submitting a high price for profit and the resulting shortage of work, withthat of a low price which wins contracts, but allows little profit margin. A biddingstrategy may be evolved for determining the optimum bid, which will be therelationship between maximum profit and the probability of being the lowesttenderer.

As a basis for this, it is necessary to analyse the bidding pattern of competitors andcompare these results with the firm’s own estimated production costs over a numberof contracts. A competitor’s bid could be obtained from the list of tender results and abidding pattern established.

5.1 Bidding patternsThe bidding pattern for a competitor may be shown graphically as follows:

From this frequency distribution diagram (histogram) it can be seen that, in relation tocontractor’s own estimated costs, this competitor showed a mark-up of up to 5percent in 5 percent of the jobs. Between 5 and 10 percent in 25 percent of jobs,between 10 and 15 percent in 40 percent of the jobs, 15–20 percent in 25 percent of

jobs and 20–25 percent in 5 percent of the jobs.

FIGURE 2


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5.2 Probability of being lowest bidderFrom the bid frequency distribution, a probability curve can be developed, showingthat as the mark-up increases the chance of being the lowest bidder decreases.

This probability curve shows that a bid at cost will underbid this competitor in every job. A mark-up of 5 percent would have a 0.95 chance of success as only 5 percent ofhis bids fell below this range. A mark-up of 10 percent would have a 0.70 probabilityas 30 percent of his bids were below this. The remaining points on the curve areplotted in the same way, a 25 percent mark-up having no chance of success as all thecompetitors’ bids were below this.

FIGURE 3


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5.3 Optimum bidThe optimum bid can be developed from the probability curve by comparing themark-up with the probability of being the lowest bidder.

The bidding curve gives the average long term profit resulting from any level ofmark-up when in competition with a contractor having these bidding characteristics.It shows that a bid at cost or at 25 percent mark-up will produce no profit probability.A bid at 5 percent will give a 4.75 profit probability (5 × 0.95). The optimum bidwould be a 10 percent mark-up as this gives a 7.0 profit probability (10 × 0.7) againstthis competitor.

5.4 Bidding strategyIn practice, because of contractors’ marketing policies, a contractor will find he is incompetition with a limited number of firms for any project in the locality. A biddingpattern could be worked out for his major competitors, each of whose patterns would

vary.

If he were able to identify the competition, an optimum bid could be ascertained bycombining the probability curves for the known competitors and developing a biddingcurve for this situation. The identification of competition could be discreetlyascertained in a number of ways, enquiries to suppliers and subcontractors forexample, and the number of competing firms from the guidance given in the Code ofProcedure for Selective Tendering.

FIGURE 4


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If some or all of the competitors were unknown, the concept of a typical competitor’sprobability and bidding curve could be established by forming a composite of allknown competitors; it does provide management with a guide to the mark-uppercentage.

It is also worth noting that the probability of being the lowest bidder will decrease asthe number of bidders increases. This is due to the rule that the probability of

simultaneous events is their individual probabilities multiplied together. For example,if the probability of under-bidding a single competitor were 0.50, this would be0.50 × 0.50 = 0.25 for two competitors, 0.503 = 0.125 for three competitors and soon. The effect of this is to decrease the optimum bid and it may be a worthwhileexercise to demonstrate this graphically.

6 Overheads

One of the items in the mark-up or margin is general overheads. These are the costs

entailed in administering the company and providing off-site services. They shouldnot be confused with project overheads which are the costs of administering a projectand providing on-site services. The allocation of general overhead costs to individualprojects and the company as a whole is decided by management as part of theirpolicy.

The general overheads will vary with individual firms, but a broad list may include:

rent, rates on office and yardfees, salaries, and wages for directors and office staffoffice equipment, stationery, postage, telephones, cars

office heating, lightinginsurances on office and staffinterest on capital borrowed.

Each contract must contribute towards these costs; the usual method of recovery is toexpress them in terms of a percentage of a previous year’s turnover. For example, iflast year’s turnover was £2,000,000 and the fixed costs £160,000, then:

As the cost of business and volume of trading fluctuate, a useful tool in ascertainingthe trading position of the firm is break even analysis. This analysis can illustrate therelationship of fixed and variable costs to turnover and can be used to check that thevolume of trading is sufficient to cover overheads.

160 000 × 100 = 8%

2 000 000


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6.1 Break-even analysis

The break-even point is that at which total income equals total cost. In the example, itwill be the point where the production costs added to the overhead costs of £76,000will equal the income.

Assuming that production costs are constant in relation to turnover, ratio ofproduction costs to turnover is:

Turnover of firm £500 000

Costs:

Production costs (variable costs) £407 000

Overheads (fixed costs) £76 000

Total costs £483 000

Before-tax profit £17 000

407 000 = 0.814 or 81.4%500 000

The volume of turnover to break-even = £76 000 + 81.4% of break-even turnover

∴ £76 000 = 100 – 81.4% of break-even turnover

= 18.6%

∴ Break-even turnover =£76 000

= £409 0000.186

Alternatively the formula Fixed cost × turnover may be usedTurnover – variable cost

=76 000 × 500 000

500 000 – 407 000

= £409 000


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This break-even analysis is often shown diagrammatically and indicates that at aturnover of below £409 000 a loss will occur.

Sometimes the break-even chart is shown in relation to firm’s operating capacityrather than sales, when a percentage of operating turnover is given as the break-evenpoint. In this case the units of the horizontal axis on the graph would be different, butthe method the same.

The chart can also be used to demonstrate the effect of varying the fixed costs or theamount of profit or mark-up on the break-even point, and it may be a worthwhileexercise to undertake this.

FIGURE 5


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7 Profit

It has been suggested in the introduction to this set of papers that the productionprocess is carried out by a contractor on a profit basis. Profit may be defined as thesurplus of total income over total expenditure. Thus profit is expressed in absolutemoney terms and means little, except to indicate that more has been received thanpaid out. Of much more value to management is the rate of making profit in relationto investment, which is known as profitability.

Profitability depends on three factors, the investment, the amount of profit and theduration, and may be illustrated by the examples of two contracts.

The profitability of the firm is the responsibility of management, who will set targetsas part of their tendering policy in relation to the capital employed and the turnover ofthe firm.

An indication as to whether profit is being recovered at the target rate in relation toturnover is a profit/volume chart. This is basically a break-even chart and the exampleon the opposite page shows a chart for the problem considered in the overheadssection of these papers.

Contract 1 Investment £10 000

Amount of profit £5 000

Duration 12 months

Profitability =Profit × 100

×12

Investment months duration

Contract 2 Investment £8 000

Amount of profit £6 000

Duration 18 months

Profitability =

6000 × 100×

12 = 50%

8000 18


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This chart is also sometimes shown as a percentage of the firm’s maximum turnoverinstead of amount of turnover.

Profit/volume chart

Turnover of firm £500 000

Costs

Production costs £407 000 Overheads £76 000

Total costs £483 000

Before-tax profit £17 000

FIGURE 6


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7.1 Profitability of contractsAs the turnover of a contracting firm is usually derived from individual contracts, theprofitability of each should be assessed. A diagrammatic illustration is given by anincome/expenditure chart.

On this chart the contractor’s investment in the contract is given by the area betweenthe curves. It can be seen that to increase the profitability of the contract, theinvestment may be reduced by obtaining a quicker return on income or delaying theexpenditure. The effects of a time delay in completion of the project may also bedemonstrated.

These techniques may be used by management in assessing the profit requirement.The inclusion of profit in a tender is generally as part of the mark-up. As described inthe section of these papers on tendering policy, the management of the firm decide ona mark-up target and adjust this for the risk on individual projects. This means thatwhile the mark-up target is calculated on the basis of a return capital, the mark-up isapplied to production costs or turnover.

FIGURE 7


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Contractors will use a sophisticated technique and produce cash flow forecasts foreach project on a monthly basis. A cash flow forecast is a statement of the estimatedcash receipts and payments projected over a future period. The forecast can give earlyindication of shortage or surplus of cash and gives time to:

Assess and arrange borrowing requirementsAdjust programmes of work to equalise borrowing and avoid peak demand

Implement credit control and monitor outstanding monies dueReduce or increase expenditureMove surplus funds to an interest-bearing accountCalculate future interest costs on monies borrowed.

The cash flow forecast does not necessarily give any indication of profit or lossalthough both profit and loss affect cash balances. The term ‘cash’ is not strictlyaccurate in that the cash flow forecast is concerned with the date on whichtransactions are debited or credited to the bank account. The date on which sales areinvoiced or expenses incurred and cheques received or paid out is therefore notrelevant.

The contractor’s credit arrangements will tend to result in a substantial delay inpayment and the weighted average delay has been calculated at 33.5 days (A Upson,Financial Management for Contractors ) and the equivalent average delay in monthlyvaluation payments is 36 days. Therefore both income and expenditure will fallwithin the same calendar month.

Cash flow forecasts can be prepared for a daily, weekly or monthly time interval butthe most common period used by contractors is monthly. The total receipts expectedin the month are compared with the anticipated expenditure. The forecasts, therefore,will indicate the average monthly overdraft or balance, but will not highlight theswing on the account:

Therefore, the swing on the bank account during the month could be from amaximum overdraft of £17,000 to a minimum of £9000 or alternatively from aminimum of £2000 to a maximum of £9000.

The aim of most contractors is to maintain a positive cash flow throughout the

contract period, thereby using little if any of their own capital. In fact some nationalcontractors fund other activities of their companies from surplus cash generated fromcontracts. This can be achieved in a variety of ways, including excellent creditfacilities, delaying payments, over-valuation of work in progress or front-end loading.Front-end loading is the practice at tender stage where the contractor, when pricingthe bill of quantities, adjusts the rates. This is achieved when profit and costs aretransferred from items occurring late in the contract programme and concentrated onearly site operations or ‘safe items’ in the preliminaries. The effect of suchadjustments is that, when the work in progress is valued in the early valuations on aproject, the contractor will receive enhanced payments. This overpayment will in duecourse be compensated by reduced payments at the end of the contract. Theaccumulative effect of such adjustments will of course be to substantially improve thecontractor’s cash flow, as overpayment will occur throughout virtually the wholecontract period.

Opening overdraftReceiptsExpenditureClosing overdraft

£10 000£8 000£7 000£9 000


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Where a contract is let on a fluctuating basis and increased costs are to be adjustedusing the NEDO formula, front-end loading will result in a substantial under-recoveryof increased costs. In these circumstances the contractor will be faced with a choicebetween improved cash flow and reduced profitability, pricing the bill of quantitiescorrectly or back-end loading to improve recovery of increased costs.

It is interesting to note that the average net profit of the majority of contractors is

approximately 2.5 percent on turnover, substantially less than that achieved by manyother types of business. The reason for this is partly explained by the low capitalcommitment required for contracts which are primarily funded or, as explainedabove, forward-funded by clients.

8 Constituents of a rate

A common presentation of design information is in the form of a bill of quantities,which is a measured schedule of finished work items. It is the task of the estimator to

predict the cost of construction for these items of finished work. An accurate costprediction can only take place when each item has been analysed into its simplestelement and the cost methodically estimated on the basis of factual information.

The analysis of the physical resources required for the project and the deployment ofthese resources will be the task of the planning department of the firm. Afterconsultation with other relevant departments, such as plant, costing, site management,etc and the evaluation of alternative construction methods and sequences, a detailedpre-tender programme will be prepared. The programme would be presented as anetwork or bar chart to show the deployment of resources to constructional elementson a time scale. The amount of detail developed would depend on the complexity ofthe project and the time available for preparation. It should show the detailed labour

and plant requirements for each operation and the production outputs anticipated forthese resources. A schedule of labour and plant requirements is sometimes preparedto amplify the programme.

The task of the estimator is to evaluate the cost of the resources from the programmeand to build up a unit rate for each finished work item. A fundamental principle isthat unit rates should be prepared net. Project overheads, which are the cost of on-siteservices, should be a separate consideration based on the pre-tender programme. Themark-up or margin for general overheads, profit and risk will be considered bymanagement at adjudication before tender submission.


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A unit rate based on this methodology will take into account methods of constructionand all circumstances which may affect the execution of work on the project. It willconsist of a prediction of the cost of the physical resources and a mark-up bymanagement. These physical resources are:

FIGURE 8


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FIGURE 9


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8.1 LabourThe cost of the labour element will be estimated in terms of an operative’s all-in rate,made up of wages and the costs incurred in labour employment, and the operative’sproduction output.

8.2 MaterialsThe cost of the materials element will be estimated in terms of an all-in rate for thematerial or component, and the quantity which has to be purchased.

8.3 PlantThe cost of the plant element will be estimated in terms of an all-in rate for theparticular item of plant and its operating output on the project and is normallyincluded in a tender by pricing in the Preliminaries section.

SMM7 requires separate items for value related costs (transport, erection,dismantling) and the time related costs (hire of plant).

8.4 Profit, general overheads and riskThe mark up for this element is decided by management in accordance with theirtendering policy. When all the unit rates are complete, the draft bills may be extendedand totalled.

9 Resources – Labour

The cost of labour element of a unit rate is estimated in terms of an all-in hourly ratefor the operatives and the production output.

9.1 All-in rateThis is cost of employment of labour, and is made up of the wages and emolumentspaid to operatives and the statutory and sundry costs incurred as a result ofemployment. To avoid the necessity of negotiating terms of employment withoperatives, a Working Rule Agreement is used as a basis.

9.2 Working Rule AgreementsThese agreements are administered by the National Joint Council for the BuildingIndustry which is representative of employers and operatives in the Industry. Wherereferences are made in this set of papers to Working Rules, they will be thosecontained in the National Agreement and a number of Regional Agreements are madegiving local variations. As the Council vary the rates and allowances from time totime, it is advisable that an up-to-date copy is available to you and that changes arenoted.


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The sections of the National Working Rules Agreement are:

1. Wages2. Working hours

a. Guaranteed weekly wagesb. Conditions of service and termination of employment

3. Extra payments4. Overtime and holidays5. Shift work and night work6. Travelling and lodging7. Trade Union recognition and procedures

Safety representatives

8. Sickness or injury payments

9. Grievances, disputes and differences

10. Register of employers

11. Death Benefit cover

While a detailed knowledge is not expected in this subject, an appreciation of thefinancial implications of the Rules is desirable.

9.3 Build-up of all-in rate for labourThe list of items given below may be used as an indication of the factors likely to beconsidered. The estimating policy of the firm may include other factors. In practicethe year is often used as a basic unit and an average hourly rate calculated from this.This will take into account seasonal variations, holidays and other interruptions. Forexamination and study purposes it is suggested that a weekly basis will suffice.

9.4 All-in labour rate items1 Direct costs

a. Basic current wage rate

b. Guaranteed minimum bonus

c. Site bonus plus rate (30 percent average – Department of Employment

statistics)d. Normal site overtime

2 Indirect costs

e. National Insurance (employers’ contribution)

f. Training Board levy

g. Holidays with pay (annual and public)

h. Allowance for inclement weather


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i. Death Benefit scheme

j. Sickness and injury pay

k. Employers’ liability insurance for injury to third party, persons and property

l. Severance pay and sundry costs – absenteeism, abortive National Insurance,etc

It is suggested that other cost considerations:

travelling allowance and faressubsistenceabnormal overtime

are considered with project overheads; and

supervision money and time by trade foremenextra payments under Working Rules

are considered with unit rate build-up.

As the contents of this list and the amounts shown in the example may fluctuate, youmust keep up to date with any changes. These are announced in the national andtechnical press.

9.5 Incentive schemes and productivity agreementsThese schemes, when used in the construction industry, are usually based on apredetermined sharing between the firm and operatives of the value of savings fromproduction output targets. This is usually ignored in estimating, on the basis that an

increase in operatives’ earnings is cancelled out by the extra productivity, the cost ofadministering the scheme being the firm’s share of the savings in production outputs.The general principles of operating the scheme are set out in the National WorkingRule Agreement to which further reference may be made.

9.6 Production outputsThe site production output for an operative will be provided on the pre-tenderprogramme for the particular project in question.

9.7 Factors affecting outputs by operatives1 Human variances

a. skill of operativeb. familiarity with operation (learning curve)c. equipment usedd. motivatione. human needsf. securityg. job satisfactionh. physiology


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2 External conditions

i. climate j. supervisionk. complexity of designl. site layout and organisation

m. overall mechanisation

9.8 Methods of establishing output dataThe method of establishing a production output will to some extent depend on thepurpose for which the data is required, whether for future estimating, establishing atarget for bonusing, or planning purposes.

Some methods are:

Standard data or historical data – direct feedback from previous contracts.

Synthetic data – outputs based on historical data with variations for knownconditions.

Analytical estimating – based on historical data with estimation for anticipatedconditions.

Time study – part of work study, carried out by timing site operations andadjudicating.

Activity sampling – a method of assessing productivity by checking theactivity on an operation at many random intervals.


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10 Resources – materials

As the design team is mainly responsible for the selection of type and quality of thematerials used on a project, the source of information as to description will be theproject specification. It will be the task of the contractor’s purchasing departments toobtain quotations for the current cost of the specified quality of materials fromsuppliers, at the most advantageous rate.

The cost of the materials element of a unit rate will then be estimated in terms of anall-in rate for the material and the quantity to be purchased.

10.1 All-in rateThis rate will comprise the costs involved in providing the material where required onsite. The factors involved in producing the cost will be:

1. The sum quoted by the supplier

2. Discounts allowed by the suppliera. bulk quantity ordersb. trade discounts or rebatesc. cash discounts for prompt payment of account

3. Transport to site:Any additional transport charges beyond quotation for delivering goods to site,for example, from suppliers’ works, rail head, yard, postage charges and thereturn or disposal of packaging.

4. Site handling and storage:Labour costs involved in unloading and storage of materials are usuallyincluded in a unit rate. Site distribution from storage is usually carried out bylabourers attending the craftsmen. Any special plant, equipment, storage andsecurity would be costed with project overheads due to the difficulty ofallocation to unit rates.

10.2 Quantity of material for a unit rateThe source of the amount of material will be the finished work measurements in theBills of Quantities. By convention, the measured amounts given are those as fixed inposition, with the exception of a small number of standard allowances. It will be theestimator’s task to calculate the quantity required, and to allow for wastage ofmaterials. The allowance for waste varies from firm to firm and may be onlyrealistically assessed from previous experience of similar production work. Thefirm’s policy with regard to purchasing and site management has an important effecton the wastage of materials.


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10.3 Materials wastage

1 Avoidable waste

a. design, ie lack of dimensional co-ordinationb. mistakes – ordering and usec. vandalism and theftd. carelessnesse. quality control and work rejectionf. misuse of materials – facing bricks as commons (substitution)g. incorrect storage.

Most of these factors can be avoided by more effective site management.

2 Unavoidable waste

a. cutting to length and size

b. applicationc. stockpiled. residuee. transit and breakages

Though c-d may in part be available if efficient management is applied.

10.4 Amounts of wasteRecent research has indicated that the common allowances given in text books andused in practice have been rather low. Indications are that wastage in the order ofabout 10 percent is an average over the range of traditional building materials. Theallowances indicated in the subsequent work sections are in line with this research.

11 Resources – Plant

The efficient use of plant in the construction industry can involve an understanding ofplant engineering and cost accountancy, which are outside the scope of this paper.Selection of an individual item is indicated on the pre-tender programme togetherwith the anticipated production output. The aim of this paper will be to give a generalappreciation of the basis of costing the common items of plant use.

11.1 Ownership of plantThere are two main considerations in deciding between ownership and hire of plant;these are the finance available and the volume of work for the machine. Plant is veryexpensive to buy, and if ownership is essential, hire-purchase or leasing for a fixedlong term period may be considered. The volume of work should be sufficient toprevent the machine being idle for long periods, either by being employed on thefirm’s own contracts or through public hire. Some firms who maintain a separateplant section debit contracts with a charge for plant supplied, irrespective of whetherplant is working or not. Site management will then have the incentive to use andreturn plant as quickly as possible.


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11.2 Hire of plantPlant is available for hire from specialist plant hire firms. The advantages to thecontractor are that plant can be obtained for the period necessary, without thedifficulty of finding work for idle plant. Skilled plant maintenance and administrationon the part of the contractor is not necessary and finance is not tied up. Onedisadvantage is that it is often more costly in the long term to hire than to own.

All items of mechanical plant should be estimated in terms of an all-in rate and aproduction output. In the case of hired plant, the standing cost will be comparable tothe hire charge.

11.3 All-in rateThis will be calculated as a standing cost and an operating cost.

The main factors in building up a rate will be:

Standing cost 1. Capital sum based on purchase price and operating life2. Return on capital3. Maintenance4. Tax and insurance

Operating cost 5. Operator’s emolument6. Fuel7. Consumable stores

Standing cost1 Capital sumVarious methods are available for the computation of this value, often depending onthe accounting system of the firm. Two common methods are shown, and others aredetailed in text books.

a. Straight line depreciation Assume a machine costs £8000 with a life expectancy of 4 years and is in operationfor 1500 hours per year.

Cost of machine £8000

Less scrap value £1200 £6800

Yearly cost =£6800

= £1700

4

Cost per hour =£1700

= £1.13

1500


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b. Writing down depreciation

When the machine is eventually sold the scrap value will presumably be the same asin the case of straight line depreciation and the accounting books will be adjustedaccordingly. The average depreciation per year will therefore be the same whichevermethod is used.

c. Working life The working life of plant will vary with its type, use and maintenance. In practice, afirm’s records would give a reasonable indication as to the working life of plant.Typical values for common items could be taken as:

Plant is not in constant use; repairs, weather conditions and periods between contractsreduce the number of operating hours. A typical operating rate may be taken as 1500hours per year. In practice this would be ascertained from plant records.

2 Interest on capitalIf the purchase price of the plant had been invested, a return in the form of interestwould have been received. This will be part of the cost of ownership of plant andincluded at current interest levels.

Purchase price £8000 Depreciation

initial writing down 60% £4800 £4800 value after 1st year £3200

writing down allowance 25% £800 £800 value after 2nd year £2400

writing down 25% £600 £600 value after 3rd year £1800

writing down 25% £450 £450 Book value £1350.00

Depreciation £6650

Concrete mixers 6–7 years Cranes 8–10 years

Dumper 3–4 years Excavating plant 5–7 years

Hoists 5–7 years Lorries 3–5 years


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3 MaintenanceThe policy of the firm with regard to maintenance will affect the cost. Plant recordswill indicate the average cost over the life of the plant.

Based on initial cost the average annual maintenance could be in the order of

The cost of a maintenance department of a firm could be considered as part of thegeneral overheads.

4 Tax and insuranceAny item of plant which uses a public road will require a motor vehicle licence and

all items of plant will require insurance. Road vehicles are usually insured againstthird party, fire and theft risks; and site plant, fire and theft risks only. The cost maybe assessed on the annual insurance premium, the motor vehicle licence charge andthe yearly operating hours.

Operating cost

5 Operator’s emolumentOperators of mechanical plant are classified as labourers with an additional skill orresponsibility. The monetary value of this is reflected in Working Rule 3, anddepends on the type of machine. Operators may be required by the Working Rule towork an extra hour a day at standard rate for starting up, refuelling and servicing theplant. Operating circumstances may require the employment of additional labour toassist the operator, for example, when using a dragline. This labour cost should beconsidered part of the all-in rate for the item of plant and included as a cost factor.

6 FuelPlant may be powered by electricity, petrol or diesel fuel, the consumption dependingon the size of the power unit and the time it is operated. A list of typical fuelconsumptions for a few items of plant is included with the production outputs in thenext section and others are given in text books. Accurate records compiled whenoperating the plant should be used in preference to published data.

7 Consumable storesThis item consisting of ropes, cables, lubrication and grease may be reasonablyassessed on the basis of a percentage of the fuel costs, 20–25 percent being typical.As in the case of fuel, plant records would be used in preference to this percentage.

Concrete mixers 10%

Cranes 20% Dumper 20% Excavating plant 25% Hoists 25% Lorries 15%


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11.4 Production outputThe production output for an item of plant will be provided on the pre-tenderprogramme for the particular project in question. Some of the factors which willaffect the output are:

quantity of workphysical condition of siteweather conditionscontinuous or intermittent workexperience of operatorssite management and organisation.

Typical outputs may be taken as:

Textbooks provide the source of information for outputs of other plant items. Inpractice cost records and the methods described earlier in connection withdetermining labour output would be employed.

11.5 Transportation and maintenanceBringing to and removing plant from site (transport, erection and dismantling ofplant) and maintaining plant on siteThis is to allow value related costs (transport, erection and dismantling) to beseparated from time related costs (hire, use and maintenance of plant). The valuerelated costs are not affected by the time that the plant spends on site or its output andwould give a false value if included in a unit rate.

These fixed and time related costs are required to be given as separate items in SMM7. However, it is not mandatory for them to be priced and many estimators willinclude the costs of plant which can be directly related to finished work in the unitrates. Examples would include excavation plant, concrete or mortar mixes and paintsprayers. General site plant such as dumpers, fork lifts, hoist and tower crane, may beincluded as a project overhead due to the difficulty of allocation.

Concrete mixer size output

m²/hr uel – litre/hr

m³ litre Rotary drum 3½ T - 0.10 -100 1.00 1.00 Batch mixer 5T - 0.14 -140 1.50 1.75

7T - 0.20 -200 2.00 2.00 10T - 0.28 -280 3.00 4.50

output - m³/hr Excavator size face shovel backacter fuel – litres/hr Tractor based ¼ m³ bucket 9.00 6.00 2.00


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EXAMPLE All-in cost of a cubic metre diesel tractor excavator

Standing cost £

1 Capital sum Purchase price £22 500Estimated life 5 years

Straight line depreciation = £22 5004500.00

5

2 Interest on capital, say simple interest at 10% 2250.00

3 Maintenance 25% of purchase price ÷ 5 1125.00

4 Insurance say, premium 1.25% 281.25

Annual standing cost £8156.25

Hourly standing cost ÷ 1500 = £5.44

Operating costs

5 Operator 1 / hours at £4.19 + 10p (WRA) 4.83

6 Fuel 2 litres at 70p 1.40

7 Consumable stores say 25% of fuel cost 0.35

Standing cost of machine 5.44

All-in hourly rate 12.02

EXAMPLE All-in cost of a 200 litre concrete mixer

Hire rate of mixer quoted at £48.00 per week

Standing cost

£48.00 = £1.2040

allow 80% utilisation £0.24Hourly standing cost £1.44

Operating cost

Operator 1 / hours at £4.10 + 5p (WRA) £4.672 labourers filling mixer 2 hours at £4.20 £8.40

Fuel 2 litres petrol at 80p £1.60Consumable stores say 25% of fuel costs £0.40

Standing cost of machine £1.44

All-in hourly rate £16.31

¼

18

18


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12 Project overheads

The project overheads are the cost of administering a project and providing thegeneral plant, facilities and site based services. They consist of the items whichcannot be satisfactorily allocated to individual unit rates of finished work. Themonetary value of these items must be estimated separately and this is generallyincluded as a lump sum against items in the Preliminaries Bill or the Summary.

The cost of some of the project overheads are time related and will be estimated interms of the contract period or length of time on site and the all-in rate for a unit oftime, the information on time being obtained from the pre-tender programme. Otherproject overheads are value related and estimated in terms of a percentage of workvalue and will not be able to be evaluated until after the adjudication process bymanagement.

The main groups of items to be considered for estimating purposes may be taken as

1. site staff2. cleaning site and removing rubbish3. site transportation4. mechanical plant5. non-mechanical plant6. site accommodation and telephone7. small plant and hand tools8. temporary services and reinstatement9. miscellaneous site items

10. welfare and safety provisions11. final clearance and handover

12. defects liability13. operatives’ transport, travelling and subsistence14. abnormal site overtime

Some of the factors involved in pricing this group of items are:

Site staffThis item will comprise the emoluments of all the labour not included in unit rates orgeneral overheads. It will be costed on the basis of their salary or wages, oncosts andallowances for the duration of their employment on the project. For simplification ofpricing a schedule may be used:

Clearing site and rubbishThis item would include the labour and plant for removing accumulating rubbish, andmaintaining site roads.

Site transportThis item would include the transport to and from the site of huts, mechanical plantand non-mechanical plant.

Site staff

weeklytotal

numberof weeksnumber

description salary oncosts allowances total


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Site mechanical plantThis item would include all items of mechanical plant not allocated to work sectionsitems or to unit rates, together with any costs of erection, dismantling and ancillarywork to ensure their efficient operation. It will be based on the all-in cost forindividual items of plant for their duration of employment on the project. Thisduration would be obtained from the pre-tender programme.

Non-mechanical plantThe item would comprise the cost of site huts and welfare accommodation on thebasis of their duration on the project, together with their erection, dismantling andmaintenance and provision of a telephone.

Site accommodationThe item would comprise the cost of site huts and welfare accommodation on thebasis of their duration on the project, together with their erection, dismantling andmaintenance and provision of a telephone.

Small plant and toolsThe item comprises the numerous items of small tools, such as shovels, picks etc, andthe value is often based on a percentage of the direct project labour costs, a typicalrate being 1 percent.

Temporary servicesComprising the on-site services for the project in the form of electricity, water for theworks and any temporary site roads, and security requirements. The individual itemsare estimated in terms of an all-in rate and duration from the programme.

Miscellaneous site items

The item would comprise of any sundry expenses, postage, stationery, fees etc,required for the site. The cost being usually based on historical data.

Welfare and safety provisionsThe item would include the costs of general site labour, first aid provisions safetyequipment and protective clothing. The cost again being usually based on historicaldata.

Final site clearance and defects liability costsThe costs of this item are related to the workmanship and site management of theproject. Historical data would again provide a good basis.

Operatives’ transport, travelling and overtimeThe costs involved in this item are related to the labour schedule for the project. It isconsidered that the costs involved can be more accurately estimated in relation to theproject, than in the all-in labour rate.

A comprehensive schedule of project overheads is developed as an Appendix to theCode of Estimating Practice to which reference should be made. Detailed build-up ofrates for project overheads are provided in most estimating text books, usually in thesection dealing with Preliminaries.


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13 Subcontracting

As the production process in the construction industry becomes more complex, thegeneral contractor requires an increasing number of specialists, giving problems ofphysical and financial control. It would mean the direct employment of a specialistwork force and plant for operations which would not be continuous. To avoid theseunnecessary costs, contractors tend to restrict themselves to a limited market

composed of the types of work best suited to their permanent labour force andequipment, and employ subcontractors for the other work sections. The advantages ofsubcontracting are that due to a limited specialisation, the labour and plant employedshould be suitable for the task, and give increased productivity and quality. It mayalso enable the main contractor to reduce his supervision and administration costs.The main disadvantages are the difficulties in programming and control.

Subcontractors are individuals or firms who enter into a legal contract with the maincontractor to complete an agreed part of the project. The aim of this paper is tooutline the financial implications of the employment of subcontractors on a project.

13.1 Types of subcontractorNominated subcontractorWhere the design team requires control in the selection of a specialist, they mayobtain tenders from selected specialists and include the value as a Prime Cost Sum inthe Bill of Quantities. The main contractor is instructed to enter into a subcontractwith the nominated firm and is allowed at 2½ percent cash discount for administrationcosts.

The design information should include sufficient detail to allow the value ofattendance on nominated subcontractors to be accurately estimated.

Allowances may be needed for:

unloading, storage and protection of materialsprovision of accommodation, plant, scaffolding and servicesdisposal of rubbish and packagingprotection of finished work during the progress of the project.

The costs involved in these items may be included as a lump sum or a percentageagainst a general item of attendance, or by making an addition to the projectoverheads. The main contractor may also require a monetary reward for the risk inco-ordinating the nominated subcontractor into his programme. The costs involvedare usually estimated on the basis of historical data.

Contractor’s own subcontractorsThe main contractor may employ his own or domestic subcontractors for specialistwork sections or to balance his resources in the short term. As the main contractor islikely to be familiar with the organisation of the subcontractor, the risk andattendance values may be reduced. The terms of the subcontractor’s quotation shouldbe examined to determine precisely what allowances have been made, and additionalitems which are expected to attract a cost should be covered in a similar way to thatof nominated subcontractors.

Traditionally, labour in the construction industry has been employed on a casual

basis. The location of a builder’s work is continuously changing and labour isfrequently engaged at the commencement of a project and laid off upon completion.


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In the construction industry, as in other industries, mechanisation and industrialisedsystems have had, and continue to have, an important impact in reducing demand forlabour. Work on site, however, even in the 1990s remains fairly labour-intensive. Aswell as changes in technique, market conditions at any particular time will, of course,affect the demand for labour. The economic recession has inevitably led to a fall inthe recruitment and training of skilled operatives, coupled with a loss of skilledtradesmen to other, less depressed industries.

The nature of the building industry does, however, generate a resourceful,independent and adaptable labour force, with an entrepreneurial spirit. This in turnhas led to systems of employment of labour which, while not unique, yet display ameasure of variety and flexibility rarely encountered in other industries. Althoughmany builders continue to use directly employed labour, a pronounced tendency hasdeveloped to employ labour on a subcontract basis, particularly in southern England.

The term ‘subcontractor’ may apply equally to a private or public company, anycorporate or public body, as well as any individual self-employed person orpartnership.

13.2 Labour-only subcontractorsLabour-only subcontractors supply their labour and, in addition, may provide smalltools and plant, but they will not be responsible for the provision of materials.Labour-only subcontractors may generally be viewed as a substitute for directlyemployed labour.

Concern has been expressed periodically by architects, trade unions, the ConstructionIndustry Training Board and both central and local government at the growth in useof labour-only subcontractors. This concern has been mainly concentrated on qualityof work, training, avoidance of payment of income tax or national insurance, andconditions of employment. It could be argued that to a large extent such fears are

unfounded or else that the difficulties have been overcome.

The growth of labour-only subcontracting has been of mutual benefit to bothemployers and employees. It should be emphasised, however, that one major reasonfor the growth in its use has been the effect in recent years of the additionallegislation bearing upon employment and the increased cost and risks of employingoperatives direct.

When examining the benefits and disadvantages of labour-only subcontracting to boththe builder and subcontractor, it will be apparent that the builder probably receivesthe greater benefit.

Where a labour-only subcontractor employs the workforce direct, operates the PAYEscheme and pays a set wage, the employee of the subcontractor is in a similar positionto the employee of the builder. The builder, however, will view such operatives assubcontractors.

Benefits to the subcontractorThe main incentive for building trade workers to go on their own and become labour-only subcontractors is the opportunity to increase their earnings. This increase comesfrom improved productivity, longer working hours, higher rates, or from a percentageof the earnings of labourers and craftsmen that they themselves employ. In additionthere will be tax advantages where it may prove possible, for example, for thesubcontractor to offset against income tax telephone charges, rates, heating andlighting, car or van expenses and the payment, say, to a member of the family for thepreparation of accounts.


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Many operatives also welcome the independence and freedom, within the limits setby the builder, to choose working hours and in certain circumstances to workunlimited overtime. There is an added freedom, to choose the location of work,although the cost of any travelling involved will usually be the responsibility of thesubcontractor.

Many labour-only subcontractors have grasped the opportunity to expand initially to a

labour and material subcontractor and subsequently to a general contractor.

Disadvantages to the subcontractorThe disadvantages faced by the labour-only subcontractor are numerous compared tothose of the directly employed operative. Not least are the risks transferred from thebuilder to the subcontractor. The subcontractor will also have an increasedadministrative burden in providing annual accounts for the Inland Revenue, preparingestimates and calculating and monitoring payments to employees irrespective ofwhether they are self-employed or engaged on PAYE scheme. It should be borne inmind that many labour-only subcontractors lack administrative and managementability and therefore find themselves in financial difficulties when employing labouror expanding their gang size.

The subcontractor is dependent on the builder for regular payment for the workcarried out. Occasionally the builder may raise minor maintenance problems to justifyhis failure to pay for work executed or to release retention. The subcontractor thenhas to make the difficult choice of continuing work in the hope of being paid, orwithdrawing his labour and reducing the probability of ultimate payment. Moreover,particularly with smaller firms, the builder may be unable to pay owing to cash flowproblems, receivership or bankruptcy.

Self-employed persons generally receive less help from the State in periods ofunemployment and sickness. Under the Social Security system no unemploymentbenefit is paid and entitlement to Supplementary Benefit will only arise when savingsare below a predetermined level. The DSS provide sick pay contributions to the self-employed, but at a lower level than that paid to an employed operative. Stateretirement pensions are also at a lower level.

Benefit to the builderGenerally, builders stand to gain in a number of ways from encouraging self-employment in the construction industry. As these factors are examined it isimportant to bear in mind that a major advantage to the builder is that the financialrisks of employing labour direct are transferred to the subcontractor.

1 Production costsWhen employing labour direct the builder is committed to pay his employees,irrespective of the quantity and quality of their output. The labour-only subcontractor,however, although occasionally employed on an hourly rate, will invariably beallocated work on a unit rate or lump sum basis and will only be paid for the actualwork produced. This will result in effective cost control for the builder.Responsibility for loss of earnings and production, due to inclement weather forexample, will rest with the subcontractor.

2 Overheads and administrationAdministration and overhead costs to the builder will be reduced for such items asNational Insurance contributions, holidays with pay, sick pay, tool money andredundancy payments. Theoretically the subcontractor should make provision forthese on-costs in the rates or daywork rate agreed with the builder, but frequently theprovision is inadequate.


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3 ContinuityLack of continuity of work for labour can occur on an individual project, between oneproject and the next, or as a result of changes in the location of construction activity.It is the responsibility of the subcontractor to overcome such problems by findingalternative employment during these periods, or by bearing the cost of theunemployment.

4 Transport costsThe subcontractor will be responsible for transporting his workforce to the site andfor any travelling time or expenses. In general, therefore, subcontract labour will tendto be more mobile than directly employed labour. However, the builder may beexpected to make some contribution towards travelling time and costs where he hasfailed to obtain suitable subcontract labour within the vicinity of the site and asubcontractor is requested to travel an excessive distance.

5 Quality controlIt is a commonly stated opinion that the quality of work produced by subcontractors isbelow the standard of that achieved by directly employed labour, particularly where

pride in workmanship is overshadowed by a potential increase in earnings. However,to a large extent the converse is true because:

there is a tendency for the more skilled tradesmen to prefer to work assubcontractors;

not only does the builder hold a retention of from 5 percent to 10percent, but also up to a week’s payment in hand, and the release ofeither will be subject to the subcontractor achieving a satisfactoryquality of work. The builder, therefore, has the ultimate control in thatno payment need be made for substandard work;

the sense of responsibility held by most subcontractors is such that theywill be concerned to retain their reputation as tradesmen, particularlybearing in mind the need for continuity of employment.

6 Reduced supervisionThe subcontractor is motivated by the need to maximise his earnings. Therefore, hewill take positive steps to establish the nature of the task, the material and plantrequirements, including the availability and proximity to the workplace, and thecontract programme and its impact on flow of work and future workload. Moreover,the subcontractor will probably develop the ability to work on his own initiative andwill ensure that management is positive, forward-thinking and alert. (Any weaknessin management is, therefore, more likely to be exposed by the use of subcontractlabour.)

7 Market conditionsCompetition between subcontractors may lead to lower rates, particularly when themarket is depressed. The opposite will also apply, of course, and labour-onlysubcontract rates are sometimes more related to market conditions than to the actualwork content. In times of boom, any high rates which by necessity are being paid onone site may, by discussion with other subcontractors in that trade, result in a demandfor similar increases on other sites.


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Disadvantages to the builderThe reliability of some subcontractors may be questionable. If they are able to‘overdraw’ on their payments, or to obtain improved rates on other sites, they maywithdraw their labour without notice. The builder can of course withhold anypayment or retention outstanding, but this will probably not offset the cost of delayand disturbance in locating an alternative subcontractor. Equally, programming ofwork may be more complicated, particularly where subcontract labour fails toconform to the contract programme, or labour is withdrawn.

Subcontract labour may be hard to obtain for certain types of work: for example,small works where both output and continuity are difficult to control. In such casesdirectly employed labour may be more versatile and adaptable.

Double or treble subletting of the work may occasionally occur either as a deliberatepolicy of the subcontractor, or where more work is acquired than can be coped with.In either case, the work will probably be relet at a lower rate, thus providing a profitor administration surcharge for the original subcontractor. The result of such practicemay often be that the actual operative working on site receives substantially less thanan economic rate for individual tasks, with resultant bad feeling and possibly badworkmanship.

The builder also runs the risk of facing contra-charges or requests for dayworkpayments for standing time, when materials or plant are not available.

The difficulties outlined above are overcome by the majority of builders in the termsand conditions under which labour-only subcontractors are employed.

14 Demolitions and alterations

14.1 DemolitionsThe general demolition of whole buildings, or complete parts of them, is work whichis best entrusted to firms which specialise in this field and which have experiencedmen and machinery for quickly and safely bringing them to the ground on a sub-contract basis. The factors that would influence their costs would be:

1. the age of the buildings

2. type of construction

3. risk to adjoining properties

4. the access

5. proximity to public streets

6. the extent to which it is practicable to use mechanical aids

7. the value of the salvaged materials recoverable.

For small incidental demolitions that the ordinary contractor may have to carry out inalteration work, a very rough guide is to assume that it takes about half the time topull something down that it takes to put it up. Only extensive practical experience andaccurate historical data can really provide the accurate estimate.


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14.2 AlterationsItems which fall under this heading are the most difficult of all to evaluate and call forconsiderable skill and knowledge on the part of the estimator. The computation of thequantity of materials required for an item will not present any special difficulty,provided it is appreciated that items of cutting away and corresponding making goodwill exceed in measurement the strict nominal finished size of opening given in thedescription. Taking for example an item of cutting and forming an opening in anexisting brick wall, the estimator will have to prepare a small bill of measurements ofthe amount of cutting away, quoining or squaring up of the jambs, the concrete lintel,the pinning up of the existing work over the lintel, any temporary supports requiredand other similar items involved.

The most difficult problem is the assessment of the labour and time involved byreason of situation and access problems. Operatives experienced in alteration workproduce better and swifter results than those who have been wholly engaged on newconstruction, but they are not always available. Experienced supervision is alsorequired to ensure the security and stability of the remaining work and to see that nocareless demolitions involving avoidable reinstatements are executed.

Of the many speculative factors involved, it may be mentioned by way of examplethat brickwork built in lime mortar is usually easier to demolish than that built in thestronger cement mixes; some brickwork ‘cuts up’ more readily than another quality;and a plaster wall covering may be so perished that large areas become detached fromthe vibration set up in cutting away. These factors cannot always be determined byinspection.

In occupied premises it is sometimes necessary to provide a temporary protection ofbarriers or screens to prevent accidental injury to the occupants and premises andallowance would be made for these in the item concerned. The sequence of the workand any unsocial hours for labour should also be considered.

14.3 ShoringShoring is highly skilled work. For construction and erection allow carpenter andlabourer 18 hours for each m³ of timber used. Allowance for bolts, iron dogs etc isrequired and also the bricklayer’s time of 0.5 hours for each needle hole.

Estimating Principles 1405v2-2

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