estimation and costing

Cost Estimating 1 Dr. Emad Elbeltagi

CHAPTER 1

INTRODUCTION

Cost is a major factor in most decisions regarding construction, and cost estimates are

prepared throughout the planning, design, and construction phases of a construction

project, different types of cost estimating from preliminary to detailed are conducted for

different purposes. All of these estimates are important because they invariably influence

the expenditure of major sums. However, estimates made in the early phases of a project

are particularly important because they affect the most basic decisions about a project. In

most cases, the final cost (or cost projections during construction) has been significantly

higher than the cost estimates prepared and released during initial planning, preliminary

engineering, final design, or even at the start of construction.

1.1 The Construction Project

A project is defined, whether it is in construction or not, by the following characteristics:

- A defined goal or objective.

- Specific tasks to be performed.

- A defined beginning and end.

- Resources being consumed.

The goal of construction project is to build something. What differentiate the construction

industry from other industries is that its projects are large, built on-site, and generally

unique. Time, money, labor, equipment, and, materials are all examples of the kinds of

resources that are consumed by the project.


Projects begin with a stated goal established by the owner and accomplished by the

project team. As the team begins to design, estimate, and plan out the project, the

members learn more about the project than was known when the goal was first

established. This often leads to a redefinition of the stated project goals.

1.2 Project Life-Cycle

The acquisition of a constructed facility usually represents a major capital investment,

whether its owner happens to be an individual, a private corporation or a public agency.

Since the commitment of resources for such an investment is motivated by market

demands or perceived needs, the facility is expected to satisfy certain objectives within

the constraints specified by the owner and relevant regulations.

From the perspective of an owner, the project life cycle for a constructed facility may be

illustrated schematically in Figure 1.1. A project is expected to meet market demands or

needs in a timely fashion. Various possibilities may be considered in the conceptual

planning stage, and the technological and economic feasibility of each alternative will be

assessed and compared in order to select the best possible project. The financing schemes

for the proposed alternatives must also be examined, and the project will be programmed

with respect to the timing for its completion and for available cash flows. After the scope

of the project is clearly defined, detailed engineering design will provide the blueprint for

construction, and the definitive cost estimate will serve as the baseline for cost control. In

the procurement and construction stage, the delivery of materials and the erection of the

project on site must be carefully planned and controlled. After the construction is

completed, there is usually a brief period of start-up of the constructed facility when it is

first occupied. Finally, the management of the facility is turned over to the owner for full

occupancy until the facility lives out its useful life and is designated for demolition or

conversion.

Of course, the stages of development in Figure 1.1 may not be strictly sequential. Some

of the stages require iteration, and others may be carried out in parallel or with

overlapping time frames, depending on the nature, size and urgency of the project.


Furthermore, an owner may have in-house capacities to handle the work in every stage of

the entire process. By examining the project life cycle from an owner's perspective we

can focus on the proper roles of various activities and participants in all stages regardless

of the contractual arrangements for different types of work.

Figure 1.1: Project life cycle

The project life cycle may be viewed as a process through which a project is

implemented from beginning to end. This process is often very complex; however, it can

be decomposed into several stages as indicated by the general outline in Figure 1.1. The

solutions at various stages are then integrated to obtain the final outcome. Although each

stage requires different expertise, it usually includes both technical and managerial

activities in the knowledge domain of the specialist. The owner may choose to

decompose the entire process into more or less stages based on the size and nature of the


project. Very often, the owner retains direct control of work in the planning stages, but

increasingly outside planners and financial experts are used as consultants because of the

complexities of projects. Since operation and maintenance of a facility will go on long

after the completion and acceptance of a project, it is usually treated as a separate

problem except in the consideration of the life cycle cost of a facility. All stages from

conceptual planning and feasibility studies to the acceptance of a facility for occupancy

may be broadly lumped together and referred to as the Design/Construct process, while

the procurement and construction alone are traditionally regarded as the province of the

construction industry.

There is no single best approach in organizing project management throughout a project's

life cycle. All organizational approaches have advantages and disadvantages, depending

on the knowledge of the owner in construction management as well as the type, size and

location of the project. It is important for the owner to be aware of the approach which is

most appropriate and beneficial for a particular project. In making choices, owners should

be concerned with the life cycle costs of constructed facilities rather than simply the

initial construction costs. Saving small amounts of money during construction may not be

worthwhile if the result is much larger operating costs or not meeting the functional

requirements for the new facility satisfactorily. Thus, owners must be very concerned

with the quality of the finished product as well as the cost of construction itself. Since

facility operation and maintenance is a part of the project life cycle, the owners'

expectation to satisfy investment objectives during the project life cycle will require

consideration of the cost of operation and maintenance. Therefore, the facility's operating

management should also be considered as early as possible, just as the construction

process should be kept in mind at the early stages of planning and programming.

1.3 Types of Contracts

There are many types of contracts that may be used in the construction industry.

Construction contracts are classified according to different aspects. They may be

classified according to the method of payment to the contractor. When payment is based

on prices which submitted by the contractor in his tender, they are called cost-based


contracts. Examples are cost-reimbursable and target cost contracts. Contracts may be

classified in the point of view of the risk involved. The range of risk runs from a fixed-

price contract to a totally non-risk cost-reimbursable contract at the other end (Figure

1.2).

Figure 1.2: Contracts classification

1.2.1 Lump-sum contract

A single tendered price is given for the completion of specified work to the satisfaction of

the client by a certain date. Payment may be staged at intervals on the completion. The

contract has a very limited flexibility for design changes. The tendered price may include

high level of financing and high risk contingency. Where considerable risk has been

places with the contractor, this contract may lead to cost cutting, trivia claims, or

bankruptcy. Contract final price is known at tender. A lump-sum contract would seem to

prevent risks for the client where in fact it just changes them. An important risk to the

client is that of not receiving competitive bids from desirable contractors who may avoid

a high-risk lump-sum contract. This contract may be used for a turnkey construction. It is

appropriate when work is defined in detail, limited variations are expected, level of risk is

low and quantifiable, and client does not wish to be involved in the management of his

project.

1.2.2 Admeasurement contract

In this type of contracting, items of work are specified in Bills of Quantities or Schedule

of Rates. The contractor then specifies rates against each item. The rates include risk

contingency. Payment is paid monthly for all work completed during the month. The


contract offers a facility for the client to introduce changes in the work defined in the

tender documents. The contractor can claim additional payment for any changes in the

work content of the contract. Claims resolution is very difficult because the client has no

knowledge of actual cost or hidden contingency. Tender price is usually increased by

variations and claims. Two forms of admeasurement contract are usually used: bill of

quantities and schedule of rates.

The admeasurement contract is well understood and widely used. It can be used when

little or no changes are expected, level of risk is low and quantifiable, and when design

and construction need to be overlapped.

1.2.3 Cost-reimbursable contract (cost-plus contract)

The contractor is reimbursed for actual cost plus a special fee for head office overheads

and profit, no special payment for risk. Payment may be made monthly in advance. The

contract involves a high level of flexibility for design changes. Final price depends on

changes and extent to which risks materialize. The contractor must make all his records

and accounts available for inspection by the client or by some agreed third party. The fee

may be a fixed amount or a percentage of actual costs. This contract has no direct

financial incentives for the contractor to perform efficiently. It may be used when it is

desirable for design to proceed concurrently with construction and when the client wishes

to be involved in contract management.

1.2.4 Target cost contract

Cost targets may be introduced into cost-reimbursable contracts. In addition to the

reimbursement of actual cost plus percentage fee, the contractor will be paid a share for

any saving between target and actual cost, while the fee will be reduced if actual cost

exceeds the target. The target figure should be realistic and the incentive must be

sufficient to generate the desired motivation. Specified risk' can be excluded from the

tendered target cost. When these occur, the target cost is adjusted accordingly and the

client pays the actual cost incurred by the contractor. The target may also b' adjusted for


major changes in work and cost inflation. This contract can be used in the same

circumstances as the cost-plus contract.

1.4 Estimating

Estimating is not an exact science. Knowledge of construction, common sense and

judgment are required. Estimating material costs can be accomplished with a relatively

high degree of accuracy. However, accurate estimating of labor and equipment costs is

considerably more difficult to accomplish. Estimating material costs is a relatively simple

and easy task. The quantity of materials for a particular job can be accurately calculated

from the dimensions on the drawings for that particular job. After the quantity of material

is calculated and knowing the unit prices, the cost could be estimated by multiplying the

quantity by the unit prices. Estimating labor and equipment costs is more difficult than

estimating material costs. The cost of labor and material depends on productivity rates,

which can vary substantially from one job to another. The skill of the labor, job

conditions and many other factors affect the productivity of labor.

Estimating plays important roles in forecasting future events in construction process. It

consists of two distinct tasks: determining the probable cost and determining the probable

time to build a project

Cost estimate has been defined in different ways. For example:

Estimating is the compilation of all the costs of the elements of a project or effort

included within an agreed upon project scope. To a contractor, this is the cost that

will most likely be incurred to complete the project as defined in the contract

documents and to turn it over to the owner. In another definition, it is the production

of a statement of the approximate quantity of materials, time and costs to perform

construction decisions. Cost estimating is, also defined as, the process of analyzing a

specific scope of work and predicting the cost of performing the work. The basic

challenges the construction contractor faces are to estimate the cost of constructing a

project, schedule the specific construction activities, and then build the project within

the estimated cost and schedule.


Cost estimating is the process of analyzing a specific scope of work and predicting the

cost of performing the work. The basic challenges the construction contractor faces are to

estimate the cost of constructing a project, schedule the specific construction activities,

and then build the project within the estimated cost and schedule. The objective of cost

estimate is to produce an accurate, cost effective prediction of what a project will most

likely cost and it needs to be done in different manners at different stages. Cost

Estimating is a complex process involving collection of available and pertinent

Information relating to the scope of a project, expected resource consumption and future

changes in resource costs. At the beginning of a project, the estimate cannot be expected

to carry a high degree of accuracy since little information is known. As the design

progresses more information is known and accuracy should improve (Figure 1.3).

Required information: Detailed plans, specifications, available site data, available

resource data (labor, material, & equipment), contract documents, resource cost

information, pertinent government regulations, applicable owner requirements. Various

names have been given to estimates by several organizations. However, there is no

industry standard that has been established for defining estimates.

Figure 1.3: Cost estimate stages


1.5 An Estimator

The estimator (or quantity surveyor, or cost engineer) is the person who prepares

estimates in the planning, design, and perhaps construction stages. An estimator is always

involved for studies requiring thorough understanding of the principles and methods of

engineering economics. He or she must often work closely with managers, accountants,

financial analysts, and engineers to forecast the cash or borrowing needs for the project.

As major decision is made from information contained in the conceptual or preliminary

estimate, this places a responsibility and liability on the estimator. He or she will risk

reputation when insufficiently accurate estimate is prepared for a bid but the owner or the

contractor will risk money.

A good estimator must conceptualize the complete building before it is fully designed. He

or she must be able to think, and perceive the details of the project. The estimator must

also have the ability to anticipate design decisions and communicate those assumptions

made during the conceptual estimating process. He or she must also be knowledgeable of

the expected life of construction materials, accounting, taxation, law, economics, and

awareness of engineering design. Qualifications for a good estimator include: patience of

detail; technical knowledge; good memory; knowledge of construction process; able to

plan the works; have an idea of relative costs and good judgment. An estimator must not

spend so much time and effort to analyze unnecessary details in determining the costs of

insignificant items as the estimating will take time and be expensive. In a bill of

quantities for civil engineering project, 80% of the costs can be attributed to 20% of the

items, and vice versa.

1.6 Purpose of Estimating

The purpose of estimating is to determine the forecast costs required to complete a

project in accordance with the contract plans and specifications. For any given project,

the estimator can determine with reasonable accuracy the direct costs for materials, labor,

and equipment. The bid price can then be determined by adding to the direct cost the

costs for overhead (indirect costs required to build the project), contingencies (costs for


any potential unforeseen work), and profit (cost for compensation for performing the

work). The bid price of a project should be high enough to enable the contractor to

complete the project with a reasonable profit, yet low enough to be within the owner's

budget.

There are two distinct tasks in estimating: determining the probable cost and determining

the probable time to build a project. With an increased emphasis on project planning and

scheduling, the estimator is often requested to provide production rates, crew sizes,

equipment spreads, and the estimated time required to perform individual work items.

This information, combined with costs, allows an integration of the estimating and

scheduling functions of construction project management. Because construction estimates

are prepared before a project is constructed, the estimate is, at best, a dose approximation

of the actual costs. The true cost of the project will not be known until the project has

been completed and all costs have been recorded.

1.7 Construction Project Costs

The principal components of a contractor's costs and expenses result from the use of

labors, materials, equipment, and subcontractors. Additional general overhead cost

components include taxes, premiums on bonds and insurance, and interest on loans. The

sum of a project's direct costs and its allocated indirect costs is termed the project cost.

The costs that spent on a specific activity or project can be classified as;

- Fixed cost: costs that spent once at specific point of time (e.g., the cost of

purchasing equipment, etc.)

- Time-related cost: costs spent along the activity duration (e.g., labor wages,

equipment rental costs, etc.)

- Quantity-proportional cost: costs changes with the quantities (e.g., material cost)

Project direct costs

The costs and expenses that are incurred for a specific activity are termed direct costs.

These costs are estimates based on detailed analysis of contract activities, the site


conditions, resources productivity data, and the method of construction being used for

each activity. A breakdown of direct costs includes labor costs, material costs, equipment

costs, and subcontractor costs.

Project indirect costs

Other costs such as the overhead costs are termed indirect costs. Part of the company’s

indirect costs is allocated to each of the company's projects. The indirect costs always

classified to: project (site) overhead; and General (head-office) overhead.

Project overhead

Project overhead are site-related costs and includes the cost of items that cannot be

directly charged to a specific work element and it can be a fixed or time-related

costs. These include the costs of site utilities, supervisors, housing and feeding of

project staff, parking facilities, offices, workshops, stores, and first aid facility. Also,

it includes plants required to support working crews in different activities.

A detailed analysis of the particular elements of site-related costs is required to

arrive at an accurate estimate of these costs. However, companies used to develop

their own forms and checklists for estimating these costs. Sit overhead costs are

estimated to be between 5% - 15% of project total direct cost.

General overhead

The costs that cannot be directly attributed a specific project called general

overhead. These are the costs that used to support the overall company activities.

They represent the cost of the head-office expenses, mangers, directors, design

engineers, schedulers, etc. Continuous observations of the company expenses will

give a good idea of estimating reasonable values for the general overhead expenses.

Generally, the general overhead for a specific contract can be estimated to be

between 2% - 5% of the contract direct cost. The amount of the general overhead

that should be allocated to a specific project equals:

Project direct cost x general overhead of the company in a year

Expected sum of direct costs of all projects during the year


Having defined the direct costs, indirect costs, then the project total cost equals the sum

of both direct and indirect costs.

1.8 Types of Cost Estimating

There are many types of cost estimates that can be performed on a project, each type

having different levels of accuracy. The estimating process becomes increasingly more

expensive as more detailed and accurate techniques are applied. Estimating can be

categorized into several classes according to purposes, budget, limitation, time, and

accuracy. Generally, the nature and characteristics of estimating can be summarized as

follow: accuracy improves with the development of the project such that the distribution

of errors narrows from feasibility to settlement; underestimates are more likely than

overestimates and the final cost of a project cannot be established until the settlement of

project accounts.

For example, cost estimates is divided into seven types: 1- Preliminary or rough cost or

approximate estimate is prepared to decide the financial aspect and accompanied by

detailed report, brief specifications, layout plan showing the proposal in hand; and brief

idea of rates for different items; 2- Detailed estimate, is prepared in detail prior to inviting

of tenders; 3- Quantity estimate, is a complete estimate of quantities for all items of work

required to complete a project; 4- Revised estimate is also a detailed estimate and is

prepared afresh, when the original sanctioned detailed estimate exceeds by 5% or more;

5- Annual repair or maintenance prepared in order to keep the structures in proper

condition; 6- Supplementary estimate, when some additions are done in the original

work; and 7- Extension estimate, when some changes and extensions are required to be

made in old work.

Typically, cost estimates are divided into three major types: 1- Conceptual cost estimates

are developed using incomplete project documentation; 2- Semi-detailed cost estimates

are prepared when parts of the project have been completely designed; and 3- Detailed

cost estimates are prepared based on fully developed construction drawings and


specifications. The accuracy of the estimate depends on the completeness of the contract

documents and the experience of an estimator. The typical accuracy of the various types

of cost estimates is shown in Table 1.1.

Table 1.1: Accuracy of different types of cost estimates

Type of Estimate Construction Document Development Expected Percent Error*

Conceptual Schematic Design

0-30% Construction Documents ± 10-20 %

Semi-Detailed Design Development

30-90% Construction Documents ± 5-10 %

Detailed 90-100% Plans and Specifications ± 2-4 %

* Percent error means the expected variation between cost estimate and actual cost

There are many types of cost estimates and re-estimates for a project based on the stage

of project development. Estimates are performed throughout the life of a project,

beginning with the first estimate and extending through the various phases of design and

into construction. Initial cost estimates form the basis to which all future estimates are

compared. Future estimates are often expected to agree with (i.e., be equal to or less than)

the initial estimates. However, too often the final project costs exceed the initial

estimates. Estimates are performed throughout the life of a project, beginning with the

first estimate and extending through the various phases of design and into construction, as

shown in Figure 1.4.

Traditionally, the different classifications of estimates conclude that there are three main

types of estimates:

1. Conceptual cost estimates.

2. Semi-detailed cost estimates.

3. Detailed cost estimates.


Figure 1.4: Level of accuracy of cost estimates

1.8.1 Conceptual estimate

A conceptual estimate is also known as a top-down, order of magnitude, feasibility,

analogous, or preliminary estimate. It is the first serious effort made at attempting to

predict the cost of the project. A conceptual estimate is usually performed as part of the

project feasibility analysis at the beginning of the project. In this way, the estimate is

made with limited information on project scope, and is usually made without detailed

design and engineering data.

The conceptual estimate is also defined as approximate estimate and used to know the

budget for a project. Considerable experience and judgment are required to obtain a

dependable approximate estimate for the cost.

1.8.2 Semi-detailed estimate

Semi-detailed cost estimates are developed while basic design decisions are being made

to verify that the project can be constructed at its intended scope within the owner's

budget. Some aspects of the project may be completely designed. Detailed estimating

methods can be used to estimate the cost of project components that have been designed,

and conceptual estimating methods are used to estimate the cost of those components that

remain to be designed. This means that databases are used to estimate the cost of

components for which the design is not complete, and project data are used to estimate


the cost of components for which the design is complete. Therefore, these estimates are

known as semi-detailed cost estimates.

1.8.3 Detailed estimate

A detailed estimate is also known as a bottom-up, fair-cost, or bid estimate. Detailed

estimates are prepared once the design has been completed and all construction

documents prepared. The estimator divides the project into individual elements of work

and estimates the quantities of work for each element. Next, the individual elements of

work are priced to determine an estimated cost for each one. The estimated costs are

summed, and overhead costs are added to cover the contractor's cost of managing the

work.

The breakdown of tender price is illustrated in Figure 1.5. The tender price consists of

two components, the construction cost estimate and mark-up (margin). The direct cost is

the combined costs of labor, equipment, material, and subcontractor’s costs. The addition

of site overheads and office overheads to the direct cost produces the construction cost

estimates. The second component of the tender price is the mark-up (margin) which

consists of the profit margin, risk allowance, and financial charge.

Figure 1.5: Schematic diagram of the structure of tender price


The various estimates discussed above are carried out in sequence, the previous cost

estimate being the input to the next one. The estimates are successively refined,

incorporating new information and thus keeping a continuously updated estimate that

becomes the budget, available for control process. As the project progresses, the amount

of unknowns and uncertainties decreases, while the level of details and the project

information increases. In this way, the accuracy of the estimate improves as it moves

from conceptual to detailed estimate.

A detailed estimate is prepared by determining the costs of materials, labor, equipment

and subcontractor work. Detailed estimate is prepared from a complete set of contract

documents before the submission of a bid. It follows a systematic procedure begins with

a thorough review of the complete set of contract documents, drawing and technical

specification. A site visit should be done to observe factors that can influence the cost of

construction such as: available space for material storing, security, control of traffic and

existing underground utilities.

The estimator prepares a material quantity take-off of all materials from the drawings.

The quantity of material multiplied by the unit cost of the materials yields the material

cost. The quantity of work required of equipment is divided by the equipment production

rate and then multiplied by the unit cost of equipment to obtain the total cost of

equipment and similarly, the cost of labor are calculated.

The direct cost of a project includes material, labor, equipment, and subcontractor costs.

Upon the completion of the estimate of direct costs, the estimator must determine the

indirect costs of taxes, bonds, insurance and overhead required to complete the project. A

risk analysis of uncertainties is required to determine an appropriate contingency to be

added to the base estimate to account for the unforeseen work that develops during

construction. Upon calculation of the direct and indirect costs, analysis of risk and

assignment of contingency, a profit is added to the estimate to establish the bid price. The

amount of profit can vary considerably, depending on numerous factors such as the size

and complexity of the project, amount of work in progress by the contractor, accuracy


and completeness of the bid documents, competition for work. The steps for preparing a

detailed estimate are listed in Table 1.2.

Table 1.2: Steps for preparing a detailed cost estimate

1 Review the scope of project. Consider the effect of location, security, traffic, available storage space, underground utilities, etc. on costs.

2 Determine quantities. Perform a material quantity takeoff for all work items. 3 Obtain suppliers’ bids. 4 Price material. Material cost = quantity x unit price. 5 Price labor based on their probable production rate. 6 Price equipment based on their probable production rates. 7 Obtain specialty contractors’ bids. 8 Calculate taxes, bonds, insurance and overhead. 9 Contingency and markup. Add costs for potential unforeseen work. 10 Profit. Add costs for compensation for performing the work.

1.9 Quantity Takeoff

To prepare an estimate, the estimator reviews the plans and specifications and performs a

quantity takeoff to determine the type and amount of work required to build the project.

The quantity of material in a project can be accurately determined from the drawings.

The estimator must review each sheet of the drawings, calculate the quantity of material

and record the amount and unit of measure. The unit cost of different materials should be

obtained from material suppliers and used as the basis of estimating the costs of materials

for the project. If the costs of the materials do not include delivery, the estimator must

include appropriate costs for transporting materials to the project.

Each estimator must develop a system of quantity takeoff that ensures that a quantity is

not omitted or calculated twice. A well-organized check-list of work will help reduce the

chances of omitting an item. The estimator must, also, add an appropriate percentage for

waste for those items where waste is likely to occur during construction. The material

quantity takeoff is extremely important for cost estimating because it often establishes the

quantity and unit of measure for the costs of labor and contractor’s equipment.


1.10 Production Rates

To determine the time required to perform a given quantity of work, it is necessary to

estimate the probable rates of production of the equipment or labor. These rates are

subject considerable variation, depending on the difficulty of the work, skill of the labor,

management conditions and the condition of the equipment.

A production rate is the number of units of work produced by a unit of equipment or a

person in a specified unit of time. The time is usually one hour or one day. The rate could

be determined during an interval when production is processing at the maximum possible

speed. However, delays or interruptions may hinder the work at any time and reduce the

average production rate to less than the ideal rates. So, the production rate is always

lowered by a factor to account for such interruptions.

For example, a backhoe with 1 m3 bucket may be capable of handling 3 bucket-loads per

minute under ideal conditions. However, on a given job, the average volume per bucket

may be only 0.8 m3 and the backhoe may be actually operating only 45 min/hr. for these

operating conditions, the average output can be calculated as follows:

The ideal output: 3 m3/min x 60 min/hr = 180 m3/hr

The bucket factor = 0.8

The efficiency factor = 45/60 = 0.75

The combined operating factor = 0.8 x 0.75 = 0.6

The average output = 0.6 x 180 = 108 m3/hr

The average output should be used in computing the time required to complete a job.

1.11 Exercises

1. State if True (T) or False (F):


a. Contract changes are more likely to occur on a single fixed price contract than

on a cost plus a fee contract.

b. In lump sum contracts, it is allowed to change in the quantity of work

performed within a limit of 25%.

c. In the admeasurement contracts, the item description, quantity, unit of

measure, unit cost and the total cost in the B.O.Q should be cleared.

d. The owner has the ability to know the contractor profit in the unit price

contracts.

e. The direct costs are the summation of the cost of the labor, equipment,

materials, and subcontractors.

f. Overheads include the cost of items which cannot be directly charged to a

specific work element.

g. The construction project must have a defined goal or objective.

h. The construction project must have a defined beginning and end.

2. What are the main types of construction contracts?

3. Explain what is meant by the two terms: “Price-based Contracts” and “Cost-based

Contracts”.

4. Compare the following types of contracts from the point of view of flexibility for

design changes and variations:

- Lump Sum.

- Admeasurement.

- Target cost.

5. Compare the lump sum, admeasurements, and cost plus contracts from the

following point of view:

- Early start to construction.

- Risk sharing.

6. Select the right answer:

I. Site selection and financing would be the responsibility of which project

member.

a. Owner b. Designer

c. Construction project manager d. Subcontractor


II. Which of the following is not a characteristic of a project?

a. Having a specific goal b. Having a defined beginning and end

c. Resources being consumed d. usually being performed only once

e. Never being found outside the construction field

III. The advertising for contractors and review of contractors’ bids occurs during

which project phase.

a. Procurement b. Design

c. Construction d. Conceptual planning

IV. As-built drawings, warranties, and operation manuals are all provided to the

owner during which project phase.

a. Design b. Conceptual planning

c. Construction d. Project closeout

V. As project moves on in time, the ability to change the project

becomes…………difficult and…………expensive.

a. more, less b. less, less

c. more, more d. less, more

7. Briefly describe the project life cycle.

8. Explain how the cost could be transferred to a tender price?

9. Give three examples of direct and indirect costs.

10. The cost spent of a given activity could be classified into …., ….. and ……

11. What are the different types of cost estimate and when each one is used?


CHAPTER 2

QUANTITY TAKE-OFF

The quantity “takeoff” is an important part of the cost estimate. It must be as accurate as

possible and should be based on all available engineering and design data. Use of

appropriate automation tools is highly recommended. Accuracy and completeness are

critical factors in all cost estimates. An accurate and complete estimate establishes

accountability and credibility of the cost engineer, therefore, providing greater confidence

in the cost estimate. The estimate contingencies for programming purposes reflect the

estimate confidence.

2.1 Importance of Quantity Takeoff and Required Documents

The quantity of material in a project can be accurately determined from the drawings.

The estimator must review each sheet of the drawings, calculate the quantity of material

and record the amount and unit of measure. Each estimator must develop a system of

quantity takeoff that ensures that a quantity is not omitted or calculated twice. A well-

organized check-list of work will help reduce the chances of omitting an item. The

estimator must, also, add an appropriate percentage for waste for those items where waste

is likely to occur during construction. The material quantity takeoff is extremely

important for cost estimating because it often establishes the quantity and unit of measure

for the costs of labor and contractor’s equipment.

2.1.1 Contract documents

The contract is defined by the contract documents, which are developed from the tender

documents. In a logical order, these documents refer to the following subjects:


Input from the client (task description).

Output of the contract (specifications, results to be achieved).

Prices for the contractor's contribution.

Responsibilities and procedures (liability, resources provided, time schedule,

payment conditions, changes procedures, etc).

Contract documents are usually arranged according to the following sequence:

General (for any project).

Special (for a specialty area of the project).

Supplementary (unique to a given project).

Additional (during bidding or negotiation).

Agreement form (for singing very important and particular clauses).

Modifications (during contract fulfillment).

The complete contract agreement usually consists of the following documents:

Conditions (general, special, supplementary).

Drawing and specifications.

Addenda.

Agreement form.

Modifications.

The most important document from the legal point of view is the agreement. It is

sometimes called the contract. Since so many documents are included as contract

documents, the agreement is the better term for this particular one. The form of the

agreement can be standardized and used for many projects, or a unique document can be

prepared for each project. The standard form of agreement prescribed by the American

Institute of Architects has proved to be satisfactory and has been used on many building

projects with good results. The form followed for non-building projects is often more

varied. Man: agencies have own standard forms, which are used on all their projects.


Information usually included in the agreement of three parts. The first part is a short

introductory paragraph which defines the parties, gives the date of the agreement, and

state that each party agrees to what follows. The second part contains the elements of

contract and defines the work to be undertaken. The final paragraph confirms the

agreement and provides space for signatures of the parties. Thus, the agreement usually

composed of the following articles:

1. A short introductory paragraph.

2. Scope of the work.

3. Time of completion.

4. Contract documents.

5. Performance bond.

6. Contractor's insurance.

7. Owner's insurance.

8. Laws, regulations and permits.

9. Payments.

10. Extensions of time.

11. Changes in the work.

12. Owner's right to terminate the work.

13. Contractor's right to terminate the work.

14. Confirmation and signatures.

2.1.2 Quantity take-off: Why?

Owner perspective:

- Initial (preliminary) estimate of the project costs at the different stages of the

project.

- Preparing the BOQ as a requirement of the contract documents.

- Estimating the work done for issuing the contractor payments.

Contractor perspective:


- Pricing different work items.

- Identifying the needed resources (Labor, Equipment, etc.).

- Project schedule.

- Preparing invoices for work done.

- Subcontractors’ payments.

- Review and control of crews’ production rates.

2.2 Quantity Development

After the scope has been analyzed and broken down into construction tasks, each task

must be quantified prior to pricing. Equal emphasis should be placed on both accurate

quantity calculation and accurate pricing. Quantities should be shown in standard units

of measure and should be consistent with design units. Assistance for preparing

“takeoffs” may be provided by others within the organization in support of cost

engineering; however, the responsibility for the accuracy of the quantities remains with

the cost engineer. Distinction should be made between “net” quantities without waste

versus quantities that include waste or loss. This is necessary to ensure duplication does

not occur within the estimate.

The detail to which the quantities are prepared for each task is dependent on the level of

design detail. Quantity calculations beyond design details are often necessary to

determine a reasonable price to complete the overall scope of work for the cost estimate.

A simple example would be fabrication waste material that is a material cost to the

project. Project notes will be added at the appropriate level in the estimate to explain the

basis for the quantity calculations, to clearly show assumed quantity allowances or

quantity contingencies, and to record quantities determined by cost engineering judgment

that will be reconciled upon design refinement. Use the following recommended

guidelines in quantity development:

- Coordinate the quantity takeoff process and plan with the estimator.

- Ensure full project scope is reflected within the estimate.

- Include a list of materials in quantity takeoffs.


- Utilize a process that easily records the quantity development, i.e., document

source and date, estimator name and date, location within the project,

demonstrated calculations and additions such as waste or loss.

- Use a systematic approach similar to the construction methodology required.

- Check scales and dimensions on each drawing sheet.

- Highlight or mark drawing areas where quantities have been determined to ensure

all scope is captured but not double counted.

- Consider items that have no material but still require cost, e.g., job office

overhead (JOOH), task setup, training and certifications, and labor preparation.

- Develop quantities within a reasonable range for the work using decimals where

critical.

- Add a certain amount of waste, loss, drop off, or length related to the material

purchases for a bulk order. Ensure this addition is separate from the original

quantity measured.

- Select a natural stopping point during work interruptions.

- Coordinate with designers if the design appears in error, if a better approach is

discovered, or a value engineering process is warranted.

2.3 Bill of Quantities

The Bill of Quantities (BOQ) is defined as a list of brief descriptions and estimated

quantities. The quantities are defined as estimated because they are subject to

admeasurement and are not expected to be totally accurate due to the unknown factors

which occur in civil engineering work. The objective of preparing the Bill of Quantities is

to assist estimators to produce an accurate tender efficiently and to assist the post-

contract administration to be carried out in an efficient and cost-effective manner. It

should be noted that the quality of the drawings plays a major part in achieving theses

aims by enabling the taker-off to produce an accurate bill and also by allowing the

estimator to make sound engineering judgments on methods of working. Figure 2.1

shows a sample of a bill of quantities.


Fig. 2.1: Bill of quantities sample


The bill of quantities, when completed, is traditionally presented in trade format; that is,

in a given order, for example:

- Demolition and alteration

- Groundwork

- Concrete work

- Masonry

- Etc.

Also, the bill of quantities is classified into the following work groups:

- Civil works which includes: Earth works (leveling, excavation, backfilling,

transportation of excavated soil); Foundation works (plain and reinforced

concrete, piling foundations); Brick works (internal and external); Skelton

reinforce concrete (columns, beans, slabs and stairs); Water proofing; Staircases;

Plastering, Flooring; Painting; Metal works (windows, doors, accessories); etc.

- Sanitary works which includes: Water feeding systems; Internal and external

plumbing works; Finishes of plumbing works; etc.

- Electrical works which includes: Electrical cables; Wiring; Accessories; Internal

connections; etc.

- Mechanical works which includes: Air conditioning systems; Elevators; etc.

2.4 Measurement Practice

It is vitally important that measurement practice applied to buildings is both accurate and

consistent. There are a number of situations that require a quantity surveyor to measure

and record dimensions from both drawings as well as on site, depending on the stage of

the project. In order to standardize measurement rules and conventions, there are a

number of standard codes and methods of measurement that are available. These are

outlined below.

There are various approaches to measurement for bills of quantities and these are as

follows:

- Each (numbers): Piles, doors, Windows, Precast concrete, etc.

- Length (meter): Windows sills, Pipes, Skirts, stair steps, etc.


- Area (Square meter): Flooring, painting, plastering, Brick walls (12 cm or less),

etc.

- Volume (Cubic meter): Brick walls (>12 cm thick), Excavation, Backfilling,

Reinforced Concrete, etc.

- Weight (Ton): Metallic works, Reinforcement steel, etc.

- Lump Sum: Some electrical and plumbing works, Manholes, etc.

- Effort (Man-day): Renting of equipment or labor, etc.

Figure 2.2 shows a sample of the quantity surveying table for quantity take-off.

Fig. 2.2: Quantity take-off table

2.4.1 Earth works

Earth works comprises site level, excavation, backfilling and transportation of excavated

materials.


Excavation:

- Quantities are calculated based on the dimensions of the foundation in plans from

the owner perspective.

- Contractors should consider the excess of material excavated to all for safe

operations.

- Prices differ based on the soil type, deep of excavation, ground water level, site

location, shoring system, Equipment used, etc.

- Unit of measurement is cubic meter (volume).

- Consider the following example (Figure 2.3).

Fig. 2.3: Plan and cross section of building foundation

The length of excavation = 5.4 × 2 + (4.4 – 2) × 2 = 15.6 m

Depth of excavation = 1.8 m

Width of excavation = width of plain concrete footing = 1.0 m

Volume = 15.6 × 1.8 × 1.0 = 18.8 m3

- Consider another example (Figure 2.4). Plain concrete dimensions (1.2 × 2.0 × 0.2

m), reinforced concrete footings dimensions (0.8 × 1.6 × 0.4 m); depth of

excavation 1.2 m and ground beams cross section is (0.25 × 0.4 m). Find the


volume of the excavated material (see Figure 2.4). Distance between centerlines is

5 m.

Fig. 2.4: Footing foundation plan and cross section

Excavation for footings = 2 × 1.2 × 2.0 × 1.2 = 5.76 m3

Excavation for smell = (5 – 2 × 1) × 0.6 × 0.25 = 0.45 m3

Volume = 5.76 + 0.45 = 6.21 m3

Backfilling:

- Unit of measurement is cubic meter (volume)

- Backfilling = Excavation – volume of all works inside the excavated pit (footings,

smells, column necks, brickwork, etc.) + amount above GL (or – amount below

GL) as shown in Figure 2.5.

Fig. 2.5: Backfilling quantities calculations


- Consider the example shown in Figure 2.4, the volume of backfilling could be

calculated as follow:

Volume of backfilling = excavation – concrete – brick

Volume of concrete = 15.6 × 1 × 0.4 = 6.24 m3

Volume of brick = 15.6 × 0.4 × 1.4 = 8.736 m3

Volume of backfilling = 18.8 – (6.24 + 8.736) = 3.824 m3

Site leveling:

- Measured in m2 (area) if thickness less than 30 cm.

- Measured in m3 (volume) if thickness more than 30 cm.

Soil transportation:

- Transported soil = vol. of exc. – vol. of backfilling + additional soil at site

- Add swelling factor based on the soil type: 5% sandy soil. 15% clayey soil and

25% for demolition material. (owner or contractor)

2.4.2 Concrete works:

Concrete works comprises of both plain concrete (PC) and reinforced concrete (RC).

Plain concrete (PC):

- Measured in m2 (area) if thickness < 20 cm.

- Measured in m3 (volume) if thickness ≥ 20 cm.

- Average thickness should be mentioned when measurement is done by area.

Reinforced concrete (RC):

- All RC elements measured by volume (m3) except hollow block slabs measured

by area (m2).

- Domes, cylindrical roofs and shells measured by area in the horizontal projection.

2.4.3 Brick works:


The rules and precautions that should be followed when measuring brick works are

(Figure 2.6):

- Measured in m2 (by area) if thickness <25 cm.

- Measured m3 (by volume) if thickness ≥25cm.

- Deduct all openings.

- Deduct half the area (volume) of arches.

- Deduct all Concrete elements.

- Facades are measured by area.

- Separate item for each brick type

Fig. 2.6: Cross section of brick walls

2.4.4 Plastering:

Plaster works are measured according to its location of being internal or external works.

Internal plaster work measured as it is (engineering measurement).


Internal Plaster:

- Engineering measurement by area (m2).

- All openings are deducted.

- All openings sides are added.

- Inclined slabs are calculated based on their horizontal projection.

External plaster:

- Measured by area (m2).

- Openings with areas < 4 m2 are kept with deduction.

- Deduct half the area of the openings ≥ 4 m2.

- Openings with areas < 4 m2 are kept with deduction.

- Cantilever slabs < 1 m projection not added.

- Add half the area of cantilever slabs ≥ 1 m.

2.5 Example Application: Substructure

As with most measurement exercises it is good practice to start with a taking-off list

containing all the items that have to be included on a Substructure – taking-off list:

• Site preparation Removing trees and shrubs

Lifting turf

Top soil/removing/preserving

• Excavation Reduce levels/disposal of excavated material

Excavating trenches/disposal of excavated material

/filling/surface treatments

• Earthwork support to sides of reduced level/sides of trenches

• Concrete Foundations

Beds/formwork/damp-proof membrane

• Masonry Brick walls/facings

Forming cavities

Filling to cavities

Damp-proof courses

Site levels


Virgin sites will almost certainly be covered with a layer of vegetation that has to be

removed prior to excavation and stored separately or removed from site. Top soil cannot

be used for backfilling as it would, over time, cause damage to the substructure. The

usual default depth for topsoil is 150 mm although it could be more than this and a test pit

may be dug to accurately determine the actual depth. Figure 2.7 shows a 5 m grid of a

survey of levels taken on a proposed site.

Fig. 2.7: Grid survey of the proposed site

The site is required to be reduced to a level of 35.62 and in order to calculate the volume

of excavation required the average level of the site must be determined. This can be quite

easily done by calculating the average level:

Average site level = (35.90 × 5 + 35.86 × 3 + 35.89 × 2 + 35.92 + 35.84 × 2 +

35.88 × 2 + 35.85 + 35.87 × 2) / 18 = 35.87 m

Reduced site level = 35.62 m

Average excavation depth = 0.25 m

Total excavation volume = 0.25 × 25 × 10 = 62.5 m3

Figure 2.7 shows the ground floor plan of the building with the external and internal

walls.


Fig. 2.7: Ground floor plan showing external and internal walls

Figure 2.8 shows a cross-section through the trench and reduced level excavation

required for the external wall in the Example application. Note that the levels have been

reduced internally by 150 mm to allow for a 150 mm thick bed of hardcore. The top of

the hardcore bed when compacted will be covered or blinded with sand to prevent the

damp proof membrane, a layer of polythene sheet with a minimum thickness of 0.30 mm,

being perforated by the hardcore. It is important that the material used as hardcore is inert

and free from chemicals, vegetable or other deleterious matter. It is a requirement of the

Building Regulations that insulation is incorporated into the floor construction and in this

case 50 mm thick rigid insulation board has been used. The bottom of the trench

excavation when completed will be compacted prior to the concrete being poured, this is

to prevent the soil being incorporated into the concrete and weakening the mix. This is

particularly important when reinforced concrete is being used, where it is common to

blind the bottom of the excavation with a weak mix concrete before the reinforcement is

placed in position.


Fig. 2.8: Cross sections of external and internal walls

Working space

Working space is to be measured in circumstances where workmen have to operate in

situations that require them to work in trenches below ground level, for example when

working with formwork, rendering, tanking or protection. It is measurable as a superficial

item where there is less than 600 mm between the face of the excavation and the work;

all additional earthwork support, disposal, backfilling and breaking out are deemed to be


included with the working space item. This is another contractor’s risk item as he must

decide and price what space he thinks is required as illustrated in Figure 2.9.

Fig. 2.9: Work space allowance

The different quantities take-off is shown as presented below.


2.6 Exercises

1. Consider the following figure, it is required to prepare a quantity take-off for the

following types of work to be included on the bill of quantities:

a. Excavation.

b. . Backfilling

c. Plain concrete footing

d. Reinforced concrete footings and smells and column necks till the ground

level.

e. Insulation.


2. Consider the following figure; find the same requirements as above.


3. Perform quantity surveying for the different work items of the building shown

below.


4. Consider the following figure; find the same requirements as above.


CHAPTER 3

CONCEPTUAL COST ESTIMATING

At the beginning of a project by the owner, prior to any design, only limited information

is known about a project. However, the owner must know the approximate to evaluate the

economic feasibility of proceeding with the project. Thus, there is a need to determine the

approximate cost of a project during its conceptual phase.

A conceptual estimate is also known as a top-down, order of magnitude, feasibility,

analogous, or preliminary estimate. It is the first serious effort made to predict the cost of

the project. A conceptual estimate is usually performed as part of the project feasibility

analysis at the beginning of the project. In this way, the estimate is made with limited

information on project scope, and is usually made without detailed design and

engineering data. The conceptual estimate is also defined as approximate estimate and

used to know the budget for a project. Considerable experience and judgment are

required to obtain a dependable approximate estimate for the cost.

3.1 Conceptual Cost Estimating Basics

Conceptual cost estimating is an important pre-design planning process. The following

subsections present the conceptual cost estimating definitions, characteristics,

importance, preparation, process, and outputs.

3.1.1 Conceptual cost estimating definition

A “conceptual estimate” is an estimate prepared by using engineering concepts and

avoiding the counting of individual pieces. As the name implies, conceptual estimates are


generally made in the early phases of a project, before construction drawings are

completed, often before they are hardly begin. The first function of a conceptual estimate

is to tell the owner about the anticipated cost, thus presenting useful information for the

owner in contemplating the project feasibility and further development. A conceptual

estimate is also used to set a preliminary construction budget, and to control construction

costs at the most critical stage, during the design. Conceptual cost estimating is defined as

the forecast of project costs that is performed before any significant amount of

information is available from detailed design and with incomplete work scope definition,

with the purpose of using it as the basis for important project decisions like go/no-go and

the appropriation of funds decisions.

3.1.2 Conceptual cost estimating characteristics

The first recognized characteristic of conceptual estimating, like all other estimating, is

the inexactness in the process. With the absence of data and with shortage of time, there

may be no other way to evaluate designs but to use opinion. Conceptual estimating is a

mixture of art and science; the science of estimating tells the cost of past work. The art is

in visualizing a project and the construction of each detail, selecting comparative costs

from past projects and adjusting them to new conditions.

The second characteristic of conceptual estimating is that its accuracy and validity are

highly related to the level of information provided by the project scope. The availability

of a good, complete scope definition is considered the most crucial factor for conceptual

estimating.

The third characteristic of conceptual estimating is that it is a resource restricted activity.

The main resources for conceptual estimating are information, time, and cost. Due to the

fact that conceptual estimating is performed in the early stages of the project, the scope

information available is usually restricted in detail as well as in precision. In addition, the

time and cost available for making the estimate is restricted. Conceptual estimating is

used to determine the feasibility of a project quickly or screen several alternative designs.

Therefore, the estimate, although important, cannot be given much time and resources.


3.1.3 Importance of conceptual cost estimates

Preliminary estimate assists the overall cost-control program by serving as the first check

against the budget. It will indicate the cost overruns early enough for the project team to

review the design for possible alternates. Since preliminary estimate is made prior to the

completion of detailed design, the margin of error will be relatively large. Then, the

larger contingency should be applied. The contingency varies with the amount of design

information available and the extent of cost information obtainable from similar projects.

3.1.4 Preparation of conceptual cost estimates

A generic conceptual cost estimating preparations is shown in Figure 3.1, the

preparations begins with a request made by management to estimate the cost of a new

project. The most important part of the request is the project scope. The first task for the

estimator is to study and interpret the project scope and produce an estimating plan. The

next task is to collect historical data related to similar past projects. The selection and

usage of these data is crucial for the estimating preparations because inappropriate

information will negatively affect the estimate. The outputs from this stage are the project

conceptual cost estimate and a documented estimating basis used to develop this cost. It

is very important to describe in detail all the information, assumptions, adjustments, and

procedures considered in the estimate. The resulting conceptual cost estimate is then

submitted to management for decision-making.

To prepare an elemental cost plan the following information should be assembled:

• A cost analysis of a previous similar building

• Sketch plans and elevations of the proposed project

• Outline specification/levels of services installation, etc. for the proposed project.

3.1.5 Conceptual Cost Estimating Output

The primary output of the cost estimating effort is the cost estimate. The estimate is

typically expressed in unit cost. Alternative units can be work quantities, material

quantities, or staff work hours. However, for majority of the highway construction


projects, the unit cost are mostly applicable; therefore, they are frequently used.

Fig. 3.1: Conceptual cost estimating preparations

3.2 Broad Scope of Conceptual Estimates

Prior the design of a project, cost estimate could be prepared based on the cost

information based on previously completed projects similar to the proposed project. The

number of units or size of the project is the only available information. Although the

range of costs varies among projects, the estimator can develop unit costs to forecast the

cost of future projects.

The unit cost should be developed from weighting the data that emphasizes the average

value, yet it should account for the extreme maximum and minimum values. In that

regard Eq. (3.1) can be used for weighting cost data from previous projects.

UC = (A + 4B + C) / 6 (3.1)

Where: UC = forecast unit cost

A = minimum unit cost of previous projects

Request for Estimate

Report to Management

Study & Interpretationof Information

Collect Additional Information

Conceptual Cost Estimating

DecisionMakingNot Approved Approved

PreliminaryBudget


B = average unit cost of previous project

C = maximum unit cost of previous projects

Example 3.1

Use the weighted unit cost to determine the conceptual cost estimate for a proposed

parking that is to contain 135 parked cars. Previous projects data are given in Table

3.1.

Table 3.1: Previous projects cost data

Project No. Cost (LE) No. of cars

12345678

466,580290,304525,096349,920259,290657,206291,718711,414

15080120906022070180

Solution

The unit cost per car can be calculated as given in Table 3.2.

Table 3.2: Unit cost per car

Project No. Unit cost (LE/car)

12345678

3,110.43,628.84,375.83,888.04,321.52,978.34,167.43,952.3

Then, the average unit cost = 30,431.5 / 8 = LE3,803.94 / car

Using Eq. 3.1, the forecast unit cost = (2,987.3 + 4 × 3,803.94 + 4,375.8) / 6 =

3,763.14.

Accordingly, the cost estimate for 135-cars parking = 135 × 3,763.14 = LE508,023


3.3 Conceptual Estimate Adjustment

It is necessary for the estimator to adjust the cost information from previously completed

projects for use in the preparation of a conceptual cost estimate for a proposed project.

There should be adjustment for time, location, and size.

3.3.1 Adjustment for time

The use of cost information from a previous project to forecast the cost of a proposed

project will not be reliable unless an adjustment is made proportional to the difference in

tine between the two projects. The adjustment should represent the relative inflation or

deflation of costs with respect to time due to factors such as labor rates, material costs,

interest rates, etc.

Measures of changes in items such as location, building costs or tender prices are

performed using index numbers. Index numbers are a means of expressing data relative to

a base year. For example, in the case of a building cost index, a selection of building

materials is identified, recorded and given the index number 100. Let us say for the sake

of argument that the cost of the materials included in the base index is LE70.00 in

January 2005. Every 3 months the costs are recorded for exactly the same materials and

any increase or decrease in cost is reflected in the index as follows: Building cost index

January 2005 = 100; Building cost index January 2009 = 135. This, therefore, represents

an increase of 35% in the cost of the selected materials and this information can be used

if, for example, data from a 2005 cost analysis was being used as the basis for calculating

costs for an estimate in January 2009.

Various organizations publish indices that show the economic trends of the construction

industry with respect to time. The estimator can use the change of value of an index

between any two years to adjust past cost records and to forecast future project costs.

Example 3.2


Suppose the indices for building construction projects show these economic trends

(Table 3.3). It is required to use the cost of a LE843,500 project completed last year

to prepare a conceptual estimate for a project proposed for construction 3 years from

now.

Table 3.3: Construction economic trends

Year Index

3 years ago2 years ago1 year ago

Current year

358359367378

Solution

The equivalent interest rate can be calculated based on the change in the cost index

during the 3-year period as follow:

(378/358) = (1 + i)3, then i = 1.83%

Accordingly, the cost of the project should be adjusted for time as follows:

Cost = LE843,500 × (1 + 0.0183)4 = LE906,960

3.3.2 Adjustment for location

Tender price levels vary according to the region of the country where the work is carried

out. Similarly, as stated previously in section 3.3.1, the use of cost information from a

previous project to forecast the cost of a proposed project will not be reliable unless an

adjustment is made proportional that represents the difference in cost between the

locations of the two projects. The adjustment should represent the relative difference in

costs material, equipment and labor of the two locations. Indices that show the relative

difference in construction costs with respect to geographical location is usually published

by many organizations.

Example 3.3

Suppose the indices for different location of construction costs are shown in Table

3.4. Suppose that the construction cost of a project completed at city A is LE387,200,

it is required to prepare a conceptual estimate for a similar project proposed in city D.


Table 3.4: Locations cost indices

Location Index

City ACity BCity CCity DCity E

1.0251.1701.2601.1051.240

Solution

The cost of the proposed project could be adjusted for location as follows:

Cost = LE387,200 × (1.105 / 1.025) = LE417,420

3.3.3 Adjustment for size

The use of cost information from a previous project to forecast the cost of a future project

will not be reliable unless an adjustment is made that represents the difference in size of

the two projects. In general, the cost of a project is directly proportional to its size. The

adjustment is generally a simple ratio of the size of the proposed project to the size of the

previous project from which the cost data are obtained.

3.3.4 Combined adjustment

The conceptual cost estimate for a proposed project is prepared from cost records of a

project completed at a different time and at a different location with a different size. The

estimator must adjust the previous cost information for the combination of time, location

and size.

Example 3.4

Use the time and location indices presented in Tables 3.3 and 3.4 to prepare the

conceptual cost estimate for a building with 62,700 m2 of floor area. The building is

to be constructed 3 years from now in city B. A similar type of building that cost


LE2,197,540 and contained 38,500 m2 completed 2 years ago in city E. Estimate the

probable cost of the proposed building.

Solution

Proposed cost

= Previous cost × Time adjustment × Location adjustment × Size adjustment

= LE2,179,540 × (1 + 0.0183)5 × (1.17 / 1.24) × (62,700 / 38,500)

= LE3,700,360

3.3.5 Unit-cost adjustment

Although the total cost of a project will increase with size, the cost per unit may decrease.

For example, the cost of an 1800 m2 house may be LE535/m2 where as the cost of a 2200

m2 house of comparable construction maybe only LE487/m2. This is because certain

items such as furniture, garage, etc., are independent of the size of the project. Size

adjustment for a project is unique to the type of project. The estimator must obtain cost

records from previous projects and develop appropriate adjustments for his/her particular

project.

Example 3.5

Cost records from previous projects show this information (Table 3.5). Find the unit

cost as a function of the number of units.

.

Table 3.5: Previous projects cost data

Project No. Cost (LE) Size, no. of units12345

2,2501,4852,4672,7303,401

10060120150190

Solution

The unit costs are calculated as given in Table 3.6.


Table 3.2: Unit cost

Project No. Unit cost (LE)

12345

22.524.7520.5618.2017.90

A plot of these points is shown in Figure 3.2. For the first order relationship, the

general equation for a straight line is: y = ax + b. The equation of the straight line can

be determined as:

y = [(17.9 – 24.75) / (190 – 60)] x + 24.75 = - 0.0526 x + 24.75

where 60 < x < 190, then y = 24.75 – 0.0526 (S – 60)

where S the number if units in the proposed project.

Or by adding a trend line of linear type, thus yields the equation shown in Figure 3.1:

y = - 0.056 x + 27.81

Obtaining the unit cost for 170 units project size = - 0.056 × 170 + 27.81 = LE18.29

Fig. 3.2: Comparison of size and cost per unit


As illustrated in the Example 3.5, the adjustment of unit costs based on the size of a

project is unique and can be obtained only from previous cost records. The cost data for

some types of projects could be nonlinear. Accordingly, a second order equation may

better fit the data for some types of projects. The estimator must evaluate his/her own

particular cost records and develop a unit cost-size relationship.

3.4 Conceptual Estimating Techniques

3.4.1 Interpolation

Interpolation is a technique used in the early stages of the design sequence when

information on the proposed project is in short supply. It requires a good deal of skill and

experience and is the process of adding in or deducting from the cost analysis to arrive at

a budget for a new project. Therefore in preparing a budget for a new project assume a

cost analysis has been chosen as the basis for the estimate. However, the cost analysis

will contain items that are not required for the new project and these must be deducted.

For example, in the new project the client wishes to exclude the installation of air

conditioning from the estimate and this will have to be deducted from the budget; but on

the other hand the client wishes to include CCTV throughout and the cost of providing

this must be calculated and added in. It is important, as described later, to adjust costs to

take account of differences in price levels. The process continues until all identified

differences have been accounted for. Other credible approaches to approximate

estimating that are available to the quantity surveyor are:

• The unit and square meter methods, generally used for preliminary estimates when firm

information is scarce.

• Approximate quantities and elemental cost planning for later stage estimates.

• Other approaches are often cited, most notably cubic meter and storey enclosure

methods, but the accuracy of these approaches are somewhat dubious and they are

seldom used in practice and are not considered here.


3.4.2 Unit method

The unit method is a single price rate method based upon the cost per functional unit of

the building, a functional unit being, for example, a hotel bedroom. This method is often

regarded as a way of making a comparison between buildings in order to satisfy the

design team that the costs are reasonable in relation to other buildings of a similar nature.

It is not possible to adjust the single rate price and therefore is very much a ball park

approach. It is suitable for clients who specialize in one type of project; for example,

hotel or supermarket chains, where it can be surprisingly accurate. Other examples where

unit costs may apply are:

• Schools – cost per pupil

• Hospitals – cost per bed space.

Example 3.6

Assume that the current cost for a 120-pupil school constructed of wood frame for a

city is LE1,200,000. We are asked to develop an estimate for a 90-pupil school.

Solution

The first step is to separate the per-pupil cost = LE1,200,000/120 = LE10,000/pupil

Apply the unit cost to the new school = LE10,000/pupil X 90 pupils = LE900,000

Example 3.7

The current cost for a 100-bed hospital constructed is LE1,250,000. We are asked to

estimate a 125-bed hospital.

Solution

Cost per-bed = LE1,250,000/100 = LE12,500/bed

New hospital cost = LE12,500/bed X 125 bed = LE1,562,500

Example 3.8

For a multistory garage spaced for 500 cars the construction cost was LE3,000,000.

What is the estimate of 450-car garage?


Solution

Cost per-car = LE3,000,000/500 = LE6,000/car

New Garage cost = LE6,000/car X 450 car = LE2,270,000

3.4.3 Superficial method

The superficial method is a single price rate method based on the cost per square meter of

the building. The use of this method should be restricted to the early stages of the design

sequence and is probably the most frequently used method of approximate estimating. Its

major advantage is that most published cost data is expressed in this form. The method is

quick and simple to use though, as in the case of the unit method, it is imperative to use

data from similarly designed projects. Another advantage of the superficial method is that

the unit of measurement is meaningful to both the client and the design team. Although

the area for this method is relatively easy to calculate, it does require skill in assessing the

price rate. The rules for calculating the area are:

- All measurements are taken from the face of external walls. No deduction is made

for internal walls, lift shafts, stairwells, etc. – gross internal floor area.

- Where different parts of the building vary in function, then the areas are

calculated separately.

- External works and non-standard items such as piling are calculated separately

and then added into the estimate. Figures for specialist works may be available

from sub-contractors and specialist contractors.

Example 3.9

Gross floor area for office block shown in Figure 3.3 = 10.0 x 25.0 = 250.0 m2

- 2 x 3.0 x 7.50 = 205.0 m2

Area of 5 floors 205.0 x 5 = 1025.0 m2 x LE1100 /m2 = LE1,127,500.0

Basement 7.00 x 25.0 = 175.0 m2 x LE1300 /m2 = LE227,500.0

Estimate for block LE1,355,000.0


Fig. 3.3: Plan and cross section of Example 3.9

3.4.4 Approximate quantities

Approximated quantities are regarded as the most reliable and accurate method of

estimating, provided that there is sufficient information to work on. Depending on the

experience of the surveyor, measurement can be carried out fairly quickly using

composite rates to save time. The rules of measurement are simple although it must be

said they are not standardized and tend to vary slightly from one surveyor to another.

- One approach involves grouping together items corresponding to a sequence of

operations and relating them to a common unit of measurement; unlike the

measurement for a bill of quantities, where items are measured separately.

- Composite rates are then built up from the data available in the office for that

sequence of operations.

- All measurements are taken as gross over all but the very large openings.

- Initially, the composite rates require time to build up, but once calculated they

may be used on a variety of estimating needs.


3.5 Parametric Cost Estimate Models

The parametric model uses historical data as the basis of the model's predictive features.

However, the characteristics that are input into the process are primarily based on

performance indicators such as speed, accuracy, tolerance, reliability, friendliness, error

rate, and complexity of the environment of the deliverables. Parametric estimating is used

primarily in software development and system development projects. The output of

parametric models includes the cost of major phases, duration of project major phases,

total project cost, and resource requirements.

Parametric models calculate the dependent variables of cost and duration based on one or

more independent variables. These independent variables are quantitative indices of

performance and/or physical attributes. More sophisticated models provide a multitude of

levels of estimates. If, during the early stages, a small array of data regarding the project

is available, a rough estimate is provided. However, if a large array of project data is

available later in the project's life; more accurate estimates are calculated using the same

model.

A parametric model, for a construction project, would use the data provided by the user

on any or all of the following characteristics: project type, frame material, exterior

material, ground conditions, desired floor space, and roof type. Then, using the general

relationships developed between these input and output variables, the model provides an

estimate of some or all of the output variables. The output variables include cost of the

design process, cost of the structure, size of major equipment, optimum size of

construction crew, size of the parking lot, and duration of structure construction, duration

of equipment installation, and overall project duration.

Parametric estimate models are refined and fine-tuned for specific projects within

specific industries. Many organizations have developed parametric models for projects of

their own specialty. Depending on the organizational environment and on the nature of

targeted projects, these models use different statistically derived algorithms, which in

turn would use different sets of input and output data in calculating the output variables


based on the input variables. These models are, or should be, regularly evaluated,

validated, calibrated, and customized for accuracy and appropriateness. The estimates of

cost and duration developed by the parametric model usually establish a preliminary

budget for the project that will compare its financial desirability with other projects of the

enterprise.

3.6 Exercises

1. Use the time and location indices shown below to estimate the cost of a building

that contains 32500 m2 of floor area. The building is to be constructed 2 years

from now in City A. The cost of a similar type of building that contained 48300

m2 was completed last year in City C for a cost of LE3,308,500.

Construction economic trends Locations cost indices

2. Find the weighted unit cost per square meter for the project data shown and

determine the cost of a 2700-m2 project.

Project No. Total cost (LE) Size, m2

12345

147,300153,700128,100118,400135,700

25802900210018502300

3. Determine the relationship between unit cost and size for the project data shown

in Problem 2 to estimate the cost of a 2200-m2 project.

Location Index

City ACity BCity CCity DCity E

1.0251.1701.2601.1051.240

Year Index

3 years ago2 years ago1 year ago

Current year

358359367378


4. Complete the following sentences:

a. Conceptual cost estimate is also known as: ………, ……….., ………

b. The conceptual estimate is defined as …………………………………

c. The important project decision based on the conceptual estimate is ...

d. The most important piece of information in conceptual estimate is ….

e. When using historical data to predict the cost of a new project, these data

should be adjusted for ……., ……. and ……………

f. The time adjustment should account for the ………. and …………..

g. The parametric models calculate ……….. based on ……………….

h. In parametric model, some of the input independent variables are …….,

……., ……. and …….

5. Assume that the current cost for a 120-pupil school constructed of wood frame for

a city is LE1,200,000. We are asked to develop an estimate for a 90-pupil school

to be constructed this year in City A. The 120-pupil school was constructed in

2008 in City E. the inflation rate was assumed to be 2.3% annually.

.


CHAPTER 4

COST OF CONSTRUCTION LABOR AND EQUIPMENT

Construction labors influence every part of a project. They operate equipment and fabricate and

install materials. Detailed estimate requires the breakdown of project costs into the labor, material

and equipment costs. Thus type of estimate need to have a design available to get such required

details. This chapter introduces the details of estimating labor, equipment and material costs as

the basis for detailed cost estimate of construction projects.

4.1 Preparing the Detailed Estimate

If a contractor chooses a project he or she can professionally and financially handle, it is

worthwhile to expend all efforts to win the bid. In addition, the contractor must

successfully pass a qualification screening. After the decision to bid, arrangements need

to be made to pick up the contract document and prepare a detailed cost estimate. The

steps listed below, in logical order, are the road map for developing a detailed estimate.

One: Review the bidding documents. Check for general conditions, specifications and all

the drawings. If any discrepancies exist, record them and check with the architect or

engineer. The general conditions and specifications are generally organized into the

following sections: the bid, the owner/contractor agreement, bonds, alternates,

general conditions, specifications, and addenda.

The bid section includes the invitation to bid, instructions to bidders, and bid forms.

The invitation to bid contains a description of the nature, extent, and location of the

project as well as contact information for the owner. The documents should also

contain date, time and place that bids will be received; general contractor and


subcontractors’ prequalification requirements; date, time, and location of any pre-

bid conference; availability of bidding documents with their dates, locations, and

procurement costs; and bond requirements.

The owner/contractor agreement section is most often a “standard” document that

formalizes the construction contract price and construction duration. It should also

list progress payments retained, percentage of completed work value, acceptance

conditions, and final payment constraints.

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. Labor 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.

Two: Review the drawings to visualize the building size, height, shape, function,

basements, and so on. Start with floor plans, cross-sections, exterior finish system,

and the roof. Note all unusual construction procedures, building systems, and

materials that have been specified.

Three: Review structural drawings to get acquainted with specified systems: reinforced

concrete, structural steel, masonry, wood, or combinations. Find out which pieces

of heavy construction equipment will be needed for erection and for how long. Pay

attention to various wall sections, materials and prefabricated assemblies.

Four: Review mechanical, electrical, fire extinguisher, and security drawings. Record any

possible interference with substructure and superstructure erection.

Five: Start identifying work to be done by general contractor and work to be done by

subcontractors.


Six: Read and study thoroughly the specifications for the work to be done by the general

contractor and those related to any subcontracted work. Also, review general

conditions and note the items that will affect project costs.

Seven: Visit the project site and have with you the project manager or field engineer.

Eight: 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.

Nine: Develop a list of subcontractors. Notify subcontractors and suppliers that the

company is preparing a proposal and ask if they intend to submit bids.

Ten: Following the site visit and staff consultation, develop a list of items to be

considered for jobsite overhead and general overhead that need to be priced later.

Eleven: Start the quantities takeoff for the category of construction work selected to be

done in house (most often site work, foundations, and concrete work). When taking

off quantities, break each item down by size, type of material, and workmanship.

Also list the type of construction equipment needed for each phase.

Twelve: Condense quantities from the work up sheet by work category and transfer them

to a summary sheet for pricing. Pricing means the cost of materials, labor, and

construction equipment. The prices used are from company available cost files

adjusted to a particular location, or from quotes from suppliers and subcontractors.

4.2 Sources of Cost Information

Not all cost information has the same reputation for accuracy and reliability and care

should be exercised when choosing cost data for a new estimate. Cost information

required for pricing different work items may be gathered or compiled from different

sources.

- Cost information from published price books such as US Means. Price books are

published annually and contain a range of prices for standard bills of quantities

items.

- Priced bills of quantities from previous projects. A useful source of information as

the cost information tends to be current. As with other forms of cost data, there is a

need to adjust for differences in location, etc.


- Cost analysis and cost models produced in-house. Depending on the size of an

organization, perhaps the most reliable source of cost information, partly due to the

fact that it is easier to ensure good quality control on the data. Also data presented

in this format will be easily understood and interpreted. A disadvantage is the time

and cost taken to prepare and store the information.

4.3 Construction Labor

In today’s fast-paced industrialized age, where many of the products we see are

increasingly being mass produced in factories by machines, a building still remains as

one of the few handcrafted products put together piece by piece by craftsmen. The

construction industry, to which these craftsmen belong, is one of the most labor-intensive

industries in the world. The labor cost component of a building project often ranges from

30 to 50%, and can be as high as 60% of the overall project cost. Therefore, it is clear that

construction labor is a vital component of a construction project.

A building is a very complex product, made up of many different systems, such as the

structural system, exterior enclosure system, and HVAC system. These systems can be

broken down into many more subsystems and sub-subsystems. In this way, a building

construction project is divided into numerous work packages. These work packages can

then be assigned to and completed by an individual worker or a crew. A crew is a team of

workers, which can be of the same trade or a composite of many different trades. Due to

the diverse nature of the different tasks associated with all the building systems, many

types of craftsmen from many different trades are required in a building construction

project.

4.3.1 Labor s production rates (Productivity)

A production rate is defined as the number of units of work produced by a person in a

specified time. Production rates may also specify the time in man-hours or man-days

required to produce a specified number of units of work. The time that a labor will

consume in performing a unit of work varies between labors and between projects and


with climatic conditions, job supervision, complexities of the operation and other factors.

It requires more time for erect shutters for stairs than for foundations.

Sometimes, the production rate is replaced by the term productivity. In the most general

sense, productivity is the ratio of input versus the respective output. In construction, the

input is often the work hours of a worker or a crew, such as the 8 hours of a bricklayer.

The output is the amount of work produced, such as laying 500 bricks. Thus construction

productivity is defined as the quantity of work produced in a given amount of time by a

worker or a specific crew, that is, the quantity of construction output units produced in a

given amount of time or a unit time. The formula for productivity is presented in Eq. 4.1.

Construction productivity = quantity of work produced / time duration (4.1)

Example 4.1

If a bricklayer can lay 500 bricks in 8 hours, then, the associated construction

productivity is 500 bricks divided by 8 hours, which is 62 bricks per bricklayer hour.

Although most items associated with the monetary factor remain relatively constant over

a short period of time, such as during the construction phase, productivity, on the other

hand, can fluctuate wildly. To accurately estimate productivity, an estimator not only

needs a good historical record, but a lot of experience.

4.3.2 Productivity sources

Productivity rates can be determined from published sources such as Means’ Building

Construction Cost Data and Walker’s Building Estimator’s Reference Book. Figure 4.1

illustrates an excerpt from Means.


Fig. 4.1: Excerpt form Means’ Building Construction Cost Data

For a line item, Means provides the crew types associated with that line as well as two

forms of productivity rate: the daily output (unit/day) and labor hours (hr/unit). For

example, referring to Figure 4.1, for line 09210-100-0900, the daily output is 72.74 m2

and the labor hours required for one m2 is 0.550 hours. The bare labor cost for the line

item is $13.70/m2. Also, the crew type for this work is Crew J-1. With reference to Figure

4.2, the excerpt from Means’ crew listing shows Crew J-1 as consisting of 3 plasterers, 2

plasterer helpers, and 1 mixing machine.

Fig. 4.2: Excerpt form Means’ Building Construction Cost Data: Crew J-1

The labor hours per unit production are determined by dividing the total labor hours of

the crew by the daily output. With reference to line 09210-100-0900 in Fig. 4.1 and Crew

J-1 in Fig. 4.2, Figure 4.3 shows the computation involved in determining the weighted

wage rate for the crew and bare unit labor cost for the line item.


Fig. 4.3: Calculating crew rate

It is important to note the presentation of productivity in labor hours. By keeping the

productivity record in labor hours, the record is essentially normalized and is not

subjected to the variability in project locations and prevailing wage rates. In this way,

unit labor costs for the contractor’s own operating region can be easily developed by

multiplying local wage rates including burden and fringe benefits by the productivity

rate.

Example 4.2

A contractor determines that the unit productivity for painting a wall is 0.55 hour per

m2. If the local wage rate including burden and fringe benefits is LE30 per hour, the

unit labor cost becomes LE16.50 per m2. If the wage rate is LE20 per hour, the unit

labor cost becomes LE11 per m2. In addition, productivity performance between

projects can also be easily compared if contractors keep cost accounting records in

man-hours.

4.3.3 Estimating work duration

Determining the total work duration for a task involves knowledge of the quantity of

work required for the task and the production rate for the specific crew that will be

performing the work. The quantity of work associated with the material quantity is

determined by the quantity take off discussed in Chapter 2. A straight forward approach

to the estimation of activity durations is to keep historical records of particular activities

and rely on the average durations from this experience in making new duration estimates.

Since the scope of activities is unlikely to be identical between different projects, unit


production rates are typically employed for this purpose. The duration of an activity may

be estimated as given in Eq. 4.2.

Work duration = quantity of work / number of crews × production rate (4.2)

Example 4.3

Find the duration of an interior and exterior painting activities with quantities of 440

m2 and 378 m2 respectively, using crews of 11 m2/hours and 14 m2/hours for the

interior and exterior painting activities respectively.

Solution

Interior painting duration = 440 / 11 = 40 hours

Exterior painting duration = 378 / 14 = 27 hours

Total work hours = 67 hours

Typically, the quantity of work is determined from engineering drawings of a specific

project. The number of crews working is decided by the planner. In many cases, the

number or amount of resources applied to particular activities may be modified in light of

the resulting project plan and schedule. Some estimate of the expected work productivity

must be provided. Historical records in a firm can also provide data for estimation of

productivities.

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.

4.3.4 Basic principle for estimating labor costs

Labor 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.


Estimating the components of the monetary factor is more difficult in construction than in

other industries. This is due to the variety of work involved in construction, as well as the

many types of trades involved. The problem is further complicated by the presence of the

unions with their craft structures and collective bargaining processes. Although the

computational process of this component seems complex and tedious, it is only a matter

of accounting as the needed numbers (such as wage rates, fringe benefits, and insurance)

are readily available.

The formula for computing the total cost of labor is quite simple. It requires the

knowledge of the total work hours or labor hours needed to perform all the tasks and then

applying the corresponding wage rates. The formula for calculating the total cost of labor

is shown in Eq. (4.3).

Total cost of labor = total work hour × wage rate (4.3)

Example 4.4

An ironworker works 10hr/day, 6 days/week. A base wage of LE20.97/hr is paid for

all straight-time work, 8 hr/day, 5 day/week. An overtime rate of one time and one-

half is paid for all hours over 8 hr/day, Saturday through Wednesday, and double time

is paid for all Thursday work. The social security tax is 7.65% and the unemployment

tax is 3% of actual wages. The rate for worker’s compensation insurance is LE12.5

per LE100 of base wage. Calculate the average hourly cost to hire the ironworker.

Solution

Actual hours = 10 × 6 = 60 hr

Pay hours = weekly straight time + weekly overtime + Thursday overtime

= 5 × 8 × 1 + 5 × 2 × 1.5 + 10 × 2 = 75 hr

Taxes are paid on actual wage and insurance is paid on base wage

Average hourly pay = (75/60) × LE20.97 = LE 26.21/hr

Social security tax = 26.21 × 0.0765 = 2.01

Unemployment tax = 26.21 × 0.03 = 0.79

Compensation = 12.5/100 × 20.97 = 2.62


Then, the average hourly cost = LE 31.63/hr

Example 4.5

Assume that a crew for a work item includes three bricklayers and two helpers. The

crew works for three days (8-hr/day) to complete the work package. The wage rate

for each bricklayer is LE28.55 and each helper is LE22.40. Find the total cost of the

crew.

Solution

In this instance, the total cost of crew is calculated as follows:

Total cost = 3 × 3 × 8 × 28.55 + 2 × 3 × 8 × 22.4 = LE3131

Example 4.6

If the daily production rate for a crew that works in an activity is 175 units/day and

the total crew cost per day is LE 1800. The material needed for daily work is 4.5 units

at LE 100/unit.

a. Calculate the time and cost it takes the crew to finish 1400 units

b. Calculate the total unit cost. Consider an eight hour work day.

Solution

a. Duration (units of time) = Quantity / Production per unit of time x number of crews

= 1400 / 175 × 1 = 8 days

Cost (labor cost) = Duration (units of time) x crew cost per unit of time

= 8 days × LE 1800 / day = LE 14400

Total direct cost = Le 14400 + 4.5 units of material × LE 100 / day × 8 days

= LE 18000

b. Unit cost = total cost / quantity

= LE 18000 / 1400 = LE 12.86 / unit

Sometimes the productivity of a specific crew expressed in man-hours/unit not units/day.

For example, if the productivity is said to be 0.5 Man-hour/cubic meters, this means how


long it will take one labor to construct one unit. This way applied to any crew formation

and work hours.

Example 4.7

What is the duration in days to install 6000 square feet of walls shuttering if:

a. Crew of 2 carpenters is used with output of 2000 square feet/day

b. Productivity is measured as 0.008 man-hour/square feet. Number of

carpenters =3, and number of working hours/day = 8 hours

Solution

a. Duration = 6000 / 200 = 3 days

b. Total man-hours needed = 6000 × 0.008 = 48 man-hours (if one man used)

Duration = 48 / 8 = 6 days (if one man used)

Duration using 3 men = 6 / 3 = 2 days

Example 4.8: (use of several resources)

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? Comment on this crew formation.

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.

This is unbalanced crew where the loader is not working with full capacity; the

production rate of this crew could be adjusted by increasing the number of trucks to 4

of 5 trucks. Then, for a balanced mix of resources, use 1 loader, 1 excavator and 4-

trucks. Accordingly, the activity duration = 3000 / 200 = 15 days.


4.4 Construction Equipment

Modern construction is characterized by the increasing utilization of equipment to

accomplish numerous construction activities. Equipment refers to all the equipment,

tools, and apparatus necessary for the proper construction and acceptable completion of a

project. In a construction project, equipment costs are typically divided into portions. The

first and bigger portion covers the cost of equipment and is often referred to as equipment

cost. It represents the cost of acquiring the equipment and the cost of operating that

equipment during the construction processes. The second and smaller portion covers the

cost of hand tools. This represents a smaller portion of the project cost and is often

calculated as a percentage of payroll costs. It is added to the indirect cost under the

jobsite overhead.

4.4.1 Construction equipment classification

Equipment could be classified based on their use as specific use or general use.

4.4.1.1 Specific use equipment

Specific use equipment is for a specific work item or items on the job. Units are

assignable to jobs and are not shared by other subcontractors. This equipment is only for

specific construction operations and is removed from the job site soon after the task is

completed. Its usage is shorter term when compared to general use equipment. The most

equipment-intensive operations are: site work, concrete and metal works. Some typical

equipment used for site work includes: tractors, scrapers, front shovels, hoes, loaders and

backhoe loaders, hauling units, and compactors.

Tractors are self-contained units designed for heavy pushing and pulling work. Tractors

can be crawler or wheel type. Crawler or track type units are designed for work requiring

high tractive forces, whereas wheel type units sacrifice some of the tractive power while

being designed for greater mobility and an ability to travel up to an excess of 50 km/hr.

Tractors are one of the most versatile pieces of equipment since they can be modified for

different uses by changing the blades and attachments of the units. Typical applications


of tractors are land clearing, bulldozing, and ripping earth. In addition, tractors are also

often used together with other construction equipment, such as in pushing a scraper

during excavation or in pulling a roller compactor during compacting operations.

Scrapers are units designed to load, haul, and dump loose material. Scrapers represent an

alternative to using two different pieces of equipment, one for loading and another for

hauling. Scrapers are ideal for short hauls of less than a mile and for off-highway work

conditions. In addition, the ability to deposit their loads in layers of uniform thickness

also facilitates subsequent compaction operations. Front shovels are excavation units

used for digging above the surface of the ground on which the piece of equipment rests.

A shovel is especially suited for hard digging conditions. On the other hand, hoes,

backhoes, or back shovels are excavation units used for digging below the surface of the

ground on which the piece of equipment rests. Hoes develop excavation force by pulling

the bucket downward and inward towards the unit, and curling the bucket. Apart from pit

excavation, hoes are also used for excavating trenches and for the handling and laying of

pipes.

Loaders are one of the most common pieces of construction equipment and are used

extensively to handle and transport materials, excavate earth, backfill, and as a loading or

hauling unit. Backhoe loader units are loaders that have a backhoe attachment on the

back of the unit. Hauling units or trucks serve only one purpose, which is to efficiently

transport material from one point to another. The longer the distance, the more the

justification and advantage is in using trucks rather than other pieces of equipment. This

is because trucks are the fastest moving construction unit and they generally cost the least

to operate for the moving of material.

Compactors are pieces of equipment used to perform soil compaction. There are many

types of compactors available to suit the varieties of soil that can be encountered on a

construction site, as well as a required compaction methodology and the desired specified

compaction. The above list is not exhaustive and new equipment is continually being

developed to handle other specialized tasks in construction.


4.4.1.2 General use equipment

General use equipment has shared utilization by all subcontractors on the construction

site and is not associated with any particular work item or items. These pieces of

equipment are kept on the site over a longer period of time, throughout almost the entire

construction phase. Some examples of general use equipment include: cranes, air

compressors, light towers, forklifts and pumps.

Cranes are usually used on building projects. Many types of cranes have been developed

to accommodate the variety of construction needs. Cranes can be static, like the tower

crane, or they can be movable, as in a wheel- or track-mounted mobile unit. Tower cranes

are general use equipment, whereas the mobile type may be specific task equipment.

Cranes are used for lifting and moving loads, assisting in the construction installation

processes, such as the erecting of precast concrete panels. Air compressors generate

pressurized air that is used to power hand tools, such as vibrators and jackhammers. Light

towers provide illumination for a work area that lacks sufficient light or when work is

carried out beyond daylight. Forklifts are used for the loading and unloading of heavy

bulk loads from trucks, the movement of materials to a storage area, and the distribution

of the materials to work areas onsite. Pumps are necessary for moving water from a

source to a needed area on the site and supply the water pressure needed in some

construction activities. Submersible pumps may also be required in the dewatering or

draining of water collected in the work area.

4.4.2 Factors influencing equipment selection

Many factors can influence the selection of equipment on a construction site. These

factors can be group into three categories: site conditions, the nature of the work, and

equipment characteristics.

4.4.2.1 Site conditions

Primary site conditions are: types of material to be handled, onsite physical constraints,

and hauling distances. An example that can influence equipment selection is the type of


soil encountered. The compaction of clayey soil is done best with a sheep’s foot roller,

whereas more sandy soil is best compacted with a vibratory roller. Physical constraints

onsite refer to site area and layout, surface condition, topography, and adjacent

neighborhood. The smaller the site area, the more constraints it has on the mobility of

equipment. Smaller equipment may be needed to maintain mobility or bigger units may

be required to minimize equipment traffic and site congestion. Selection of cranes is also

affected by the shape and layout of the site. Static cranes must have access to all the area

around a site to be efficient as they have high mobilization cost. On the other hand,

mobile cranes can be more easily relocated but require more workspace and have higher

operating costs. The primary surface condition of concern is the bearing capacity of the

soil. Low bearing capacity soil may dictate the selection of track-type instead of wheel-

type equipment. The neighborhood of the construction site must be considered, such as

other buildings and traffic in the area, as it can also offer obstacles to equipment

movement or certain construction operations.

Hauling distances can affect the selection of equipment. For short hauls, a loader can pick

up the load and move it to a dump area by itself. However, for longer hauling distances,

the loader can be just used loading and a dump truck can be used for hauling and

dumping. The longer the hauling distance, the more advantage is in using higher capacity

hauling units since they can be more cost effective.

4.4.2.2 The nature of the work

Some factors relating to the nature of the work include payload, the total quantity of

work, and the construction schedule. Payload has a direct relation to the capacity of the

equipment selected. For example, the particular crane selected must be able to lift the

maximum load the work may require. A higher quantity of work can influence and justify

the selection of higher capacity equipment. Although higher capacity equipment has

higher mobilization and rental costs, the per-unit production costs are lower. Therefore,

given a higher quantity of work, the savings in unit production costs could be high

enough to offset higher mobilization and rental costs, and thus result in lower total costs.

On some projects, costs may not be the governing constraint; instead, the construction


schedule might be. A tighter schedule often requires higher productivity units, such as

those with higher power, bigger capacity, more mobility, and faster deployment.

4.4.2.3 Equipment characteristics

Equipment characteristics are related to equipment capabilities (capacities and versatility)

and costs. Capacity can be in the form of maximum allowable payload and maximum

volume that can be handled. It can also relate to the power, mobility, or maneuverability

of a piece of equipment. Versatility refers to the degree of applicability of a unit to

perform many different operations. For example, a dozer can be adapted to perform many

tasks by simply changing a blade or adding additional attachments. Versatility can make

a piece of equipment more useful on a site, thus replacing the need for more specialized

units. Cost is certainly an important consideration in equipment selection.

All the above factors can be related and they all must be considered together in

equipment selection. Equipment planning can yield many solutions. Many decisions

involve trade-offs that must be properly analyzed to identify the best solution. For

example, choosing two smaller pieces of equipment instead of one larger unit may mean

higher unit production costs, but there is a redundancy in the system that can be good

insurance if one unit should break down and work can be kept moving. Considering the

above factors that can influence equipment selection, the outcome of equipment planning

should yield a solution that satisfies the following three underlying objectives in

equipment selection: feasibility, efficiency, and economy.

The feasibility refers to the selection of equipment that can carry out the tasks in a

satisfactory manner. This is determined by the nature of the work that the equipment will

perform and the condition in which the equipment will do the work. Efficiency refers to

the selection methods that maximize efficiency of the construction operation such as

those decisions that can reduce the number of equipment pieces through selecting higher

capacity units. Efficiency in operation may not have a direct effect on the direct cost of

the project but may have an indirect effect on other aspects of the construction project,

such as minimizing site congestion leading to higher productivity, while decreasing the


likelihood of accidents and promoting communication and coordination. Finally, the

selected pieces of equipment and methods that produce the lowest cost are ideal for the

project as they directly contribute to lower construction costs, which is one of the goals of

every construction project.

4.4.3 Renting versus purchasing equipment

The purchase of equipment represents a capital investment by the construction contractor.

The contractor must recover sufficient money to pay the ownership and operating costs of

the equipment during its useful life, and at the same time make a profit on the investment.

Any estimate must include the cost of equipment used on the project. Construction

equipment could be purchased or rented. The choice between purchase and rental usually

depends on the amount of time the equipment will be used in the contractor’s operations.

If extensive use of the equipment is required, the equipment is always purchased. If the

equipment is to be used a limited amount of time, it is typically rented.

A contractor does not necessarily have to own any construction equipment in order to

carry on business. 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.

Contractors may purchase equipment when factors pertaining to ownership and

economics make this alternative more favorable than renting. When the construction

operations of a contractor need the steady use for certain equipment, owing such

equipment may be financially better. There can be, also, a marketing advantage to the

contractors who own their equipment which shows that they are more financially stable

than others who do not own their equipment. Some owners ask contractors who bid on

their projects to list on the bid the company-owned equipment they propose to use in the

work. This information is used in the owner’s assessment of the bidder. Also, the

advantage of purchasing equipment is that it allows a contractor to have absolute control


on the use and disposition of equipment. He/she can use the equipment in any manner fits

the required job. Decisions on maintenance and servicing can be easily made, thus

ensuring the desired operational performance.

4.4.4 Time-value of money

The value of money is dependent on the time at which it is received. A sum of money on

hand today is worth more than the same sum of money to be received in the future

because the money on hand today can be invested to earn interest to gain more than the

same money in the future. Thus, studying the present value of money (or the discounted

value) that will be received in the future is very important. This concept will be

demonstrated in the following subsections.

4.4.4.1 Single payment

The Future Value of a given present value of money represents the amount, at some time

in the future, that an investment made today will grow to if it is invested to earn a specific

interest rate. For example, if you were to deposit LE100 today in a bank account to earn

an interest rate of 10% compounded annually, this investment will grow to LE110 in one

year. The investment earned LE10. At the end of year two, the current balance LE110

will be invested and this investment will grow to LE121 [110 x (1 + 0.1)]. Accordingly,

investing a current amount of money, P, for one year, with interest rate (i) will result in a

future amount, F using the following equation.

F = P × (1 + i) (4.4)

If P is invested for n years then the future amount F will equals:

F = P × (1 + i)n (4.5)

In contrary to the Equation 4.4, the present value (the discounted value), P, of a future

some of money, F, that will be received after n years if the discount rate is ”i” is

calculated as follow:

P = F / (1 + i)n (4.6)

For example, the present value of LE100 to be received three years from now is LE75.13


if the discount rate is 10% compounded annually.

4.4.4.2 Uniform series of payment

The Future Value, F, of a uniform annual payment, C, is calculated at the end of the

period, n, in which the last payment occurs with an investment rate i. Thus, the future

value of a five year annual payment is computed at the end of year five. The Future Value

of the uniform annual payments is equal to the sum of the future values of the individual

payments at that time. This can be found in one step through the use of the following

equation:

The term within the brackets of Eq. 4.7 is called the uniform series compound factor.

Consider the annual payment of LE100 per year for five years given. If the discount rate

is equal to 10%, then the Future Value of this annual payment at the end of period five

can be found as follows:

F = 100 [((1+0.1)5-1)/0.1] = LE610.51

Accordingly, the annual uniform amount, C, to be invested at the end of each period in

order to produce a fixed amount, F, at the end of n periods with interest rate i could be

calculated as follow from Eq. 4.7.

Equation 4.8 could be used to convert a future amount of money, F, will be received after

n years into equal annual payments, C. The term between the brackets in Eq. 4.8 is called

the sinking fund factor.

Now, the present value, P, of a future amount of money, F, from a uniform series

payments, C, could be calculated from Eq. 4.7 as follow:

)74(1)1( .iiCF

n

)84(1)1(

.iiFC n


Equation 4.9 is called the uniform series present worth formula and the term in brackets

is called the uniform series present worth factor. Using the uniform series present worth

formula (Eq. 4.9), the value of a uniform series payment, C, when the present sum, P, is

known could be determined as follow:

The value between the brackets in Eq. 4.10 is called uniform series capital recovery

factor.

Example 4.9

On January 1, a man deposits LE5000 in a bank that pays 8% interest, compounded

annually. He wishes to withdraw all the money in five equal end-of-year sums

beginning December 31st of the first year. How much should he withdraw each year?

Solution

P = 5000; n = 5; i = 8%; C = unknown

C = 5000[(0.08 × 1.085) / (1.085 – 1)] = LE1252

Example 4.10

A man deposits LE500 in a bank at the end of each year for five years. The bank pays

5% interest, compounded annually. At the end of five years, immediately following

his fifth deposit, how much will he have in his account?

Solution

C = 500; n = 5; i = 5%; F = unknown

F = 500[(1.085 – 1) / 0.05] = LE2763

)94()1(

1)1( .ii

iCP n

n

)104(1)1(

)1( .i

iiPC n

n


4.4.5 Equipment costs

The cost per unit of time of owning an item of equipment has to be determined. Costs

associated with owing equipment called the ownership costs. Estimating equipment cost

involves identifying the ownership and operating costs. Ownership costs include: initial

cost, financing (investment) costs, depreciation costs and taxes and insurance costs. The

operating costs include: maintenance and repair costs, storage costs and fuel and

lubrication costs.

4.4.5.1 Initial cost

The initial cost is the total cost required to purchase a piece of equipment. This initial

cost is the basis for determining other costs related to ownership as well as operating

costs. Generally, initial cost is made up of: price at the factory or used equipment price,

extra options and accessories, sales tax, freight and assembly or setup charges. The initial

cost is very straight forward, whereas the other costs require more analysis and

computation.

4.4.5.2 Investment cost

The purchase of construction equipment requires a significant investment of money. This

money either be borrowed from a lender, or it will be taken from reserve fund of the

contractor. Either the lender will charge an interest rate for the borrowed money, or the

contractor will lose any interest money that could be gained if the contractor invest that

amount of money used to purchase a piece of equipment.

In order to calculate the cost of finance (or investment cost) of an equipment, both the

purchase price, P, and the salvage value, F, should be converted into uniform annual

values using Eqs. 4.10 and 4.8 respectively. In this situation, the purchase price is

considered as a present value invested for n yeas as a series of uniform payments

(equipment useful life) and the salvage value is considered as a future sum of money to

be discounted for n years as a series of uniform payments.


Example 4.11

An excavator purchase price is LE460,000 and its salvage value is LE40,000 after 10

years of useful life. Find the annual cost of finance of this excavator if the annual

interest rate is 15%.

Solution

P = 460,000; F = 40,000; n = 10; i = 15%

Annual cost of finance = LE47,684/year

4.4.5.3 Depreciation

The depreciation in defined as “the decrease in market value of an asset”. A machine may

depreciate (decline in value) because it is wearing out and no longer performing its

function as well as when it was new. Many kinds of machinery require increased

maintenance as they age, reflecting a slow but continuing failure of individual parts.

Also, the quality of outputs may decline due to wear in components. Another aspect of

depreciation is that caused by obsolescence. A machine is described as obsolete when the

function it performs can be done in some better manner. A machine may be in excellent

working condition, yet may still be obsolete. For example, electronic machines,

computers, etc.

As asset always has different values: initial value, book value, salvage value and market

value. The initial value represents the purchase price of an asset. Salvage value represents

the expected price for selling the asset at the end of its useful life. The book value

represents the current value in the accounting systems. The book value equals the initial

)114(1)1(1)1(

)1( .nF

iiF

nP

iiiPfinanceoftcosAnnual nn

n

10

400001)151(

1504000010

4600001)151(

)151(150460000 1010

10

..

...financeoftcosAnnual


value of the asset minus all the depreciation costs till given time. The book value is

always calculated at the end of each year. The market value, on the other hand, represents

the value of the asset if it is sold in the free market. It is not necessary that the book value

equals the market value.

Depreciation is an accounting charge that allows for the recuperation of capital that was

used to procure equipment or other physical assets. There are three common methods for

calculating depreciation expense for financial accounting purposes: straight-line, sum-of-

years digits and the sinking fund method. Each method involves the spreading of the

amount to be depreciated over the recovery life of an asset in a systematic manner.

Each depreciation method selected produces different patterns of depreciation expense

per period. The straight-line method assumes linear depreciation or the depreciation cost

is allocated equally over the asset useful life. The sum-of-years digits assumes high rate

of depreciation at the early age of an asset and decreasing rate at its aged life. The Third

method assumes lower rate at the early ages and faster rate at the late age.

Straight-Line method

The simplest and best known of the various depreciation methods is the straight-line

depreciation method. In this method a constant depreciation charge is made. To obtain

the annual depreciation charge at any year, Dn, the total amount to be depreciated (initial

value, P – salvage value, F) is divided by the useful life in years, N.

(Annual depreciation charge) Dn = (P – F) / N (4.12)

Example 4.12

If the purchase price of an equipment is LE60,000 and its salvage value after 8 years

is LE6,000, calculate the annual depreciation and the book value of the equipment

each year.

Solution


P = 60,000; F = 6,000; N = 8;

Total depreciation = 60000 – 6000 = LE54,000

Annual depreciation = 54000 / 8 = LE6,750

Notice that the book value of the equipment equals its salvage value at the end of its

useful life as shown in Table 4.1.

Table 4.1: Straight-line depreciation of Example 4.12

Year Annual depreciation Book value

0 0 60,000

1 6,750 53,250

2 6,750 46,500

3 6,750 39,750

4 6,750 33,000

5 6,750 26,250

6 6,750 19,500

7 6,750 12,750

8 6,750 6,000

Sum-of-years digits method

Another method for allocating the cost of an asset minus its salvage value over its useful

life is called sum-of-years digits depreciation method. This method results in faster

depreciation at the early life of an asset. Larger depreciation charges than straight-line

depreciation during the early years of an asset and smaller charges as the asset nears the

end of its estimated life. Each year, the depreciation charge is computed as the remaining

useful life at the beginning of the year divided by the sum of the years digits for the total

useful life, with this ratio multiplied by the total amount of depreciation (P – F). Thus

means that the depreciation is calculated as the percentage of the remaining life to the

original life.

For an asset with useful life N, to obtain the annual depreciation charge, Dn, at any year n,

can be calculated as follows:


Dn = (Remaining useful life at beginning of a year / Sum of years digits) × (P – F)

Example 4.13

Resolve Example 4.12 using the straight-line depreciation method.

Solution

P = 60,000; F = 6,000; N = 8

Sum-of-years digits = 8 (8 + 1) / 2 = 36 years

The calculations are shown in the following table (Table 4.2).

Table 4.2: Sum-of-years depreciation of Example 4.13

YearRemaining life /

sum-of-years

Annual

depreciationBook value

0 0 0 60,000

1 8/36 12,000 48,000

2 7/36 10,500 37,500

3 6/36 9,000 28,500

4 5/36 7,500 21,000

5 4/36 6,000 15,000

6 3/36 4,500 10,500

7 2/36 3,000 7,500

8 1/36 1,500 6,000

Sinking fund method

This method assumes that a uniform series of end-of-payments are deposited into an

imaginary sinking fund at a given interest rate i. The amount of the annual deposit is

calculated so that the accumulated sum at the end of the asset life, and at the stated

)134(1)/2(

1- .)Fp(NN

nΝDn


interest rate, will just equal the value of the asset depreciated (i.e., P – F). The amount of

yearly depreciation is invested in a compound manner for the remaining period as a

uniform series of payments using Eq. 4.10 as follows:

Then the depreciation value, Dn, at any year n is calculates using the following equation.

Dn = C × (1 + i)n-1 ; n = 1, 2, 3, …….. ……., N (4.15)

Example 4.14

Resolve Example 4.12 using the sinking fund depreciation method, assuming that the

interest rate is 10%.

Solution

P = 60,000; F = 6,000; N = 8; i =10%

C = (60000 – 6000) × [(0.1 × 1.110) / (1.110 – 1)] = LE4,722

Accordingly, the annual depreciation could be calculated as follows:

At the first year: D1 = LE4,722

At the second year: D2 = 4722 × (1.1) = LE5,194

At the third year: D3 = 4722 × (1.1)2 = LE5,714

……………..

At the eighth year: D8 = 4722 × (1.1)7 = LE9,202

The results of the depreciation calculations are summarized in Table 4.3.

After studying depreciation calculations from the previous listed three methods,

Figure 4.3 illustrates the difference between the three methods. The figure shows that

the sum-of-year digits method gives an accelerated depreciation compared to the

straight-line method. On the other hand, the sinking fund is a decelerated method

compared with the straight-line method. However, the straight-line method is the

commonly used for calculating asset depreciation.

)144(1)1(

)1( .i

ii)FP(C n

n


Table 4.3: Sinking fund depreciation of Example 4.14

YearAnnual

depreciationBook value

0 0 60,000

1 4,722 55,278

2 5,194 50,084

3 5,714 44,370

4 6,285 38,085

5 6,913 31,172

6 7,605 23,567

7 8,365 15,202

8 9,202 9,202

Figure 4.3: Comparison among the three depreciation methods

Age

Boo

k va

lue

Salvagevalue

Initialvalue

Sinkingfund

Sum-ofyears

Straight-line


4.4.5.4 Operating costs

Operating cost accrue only when the unit of equipment is used, whereas ownership costs

accrue whether or not the equipment is used. Operating costs include maintenance and

repairs, fuel, oil and lubricants. The amounts consumed by a piece of equipment vary

with the type and size of equipment, the conditions under which it is operated. An

equipment is seldom used its total horse power and also it is seldom to work for 60

minute/hour. Thus, the fuel consumed should be based on the actual operating conditions.

Perhaps the average demand on an engine might be 50 percent of its maximum power for

an average 45 minutes/hour.

Maintenance and repair costs

The cost for maintenance and repairs include the expenditures for replacement parts and

the labor required to keep the equipment in good working condition. Historical cost

records of maintaining and servicing equipment are the most reliable guide in estimating

maintenance and repair cost. The manufacturers of construction equipment provide

information showing recommended costs for maintenance and repairs for the equipment

they manufacture. The annual cost of maintenance and repairs is often expressed as a

percentage of purchase prices or as a percentage of the straight-line depreciation costs.

Fuel consumption

When operating under standard conditions, a gasoline engine will consume

approximately 0.06 gallon of fuel for each horsepower-hour developed. A diesel engine

will consume approximately 0.04 gallon of fuel for each horsepower-hour developed.

Lubricating oil consumption

The quantity of lubricating oil consumed by an engine varies with the size of the engine,

the capacity, the equipment condition and the number of hours between oil changes.

Cost of rubber tires

Many types of construction equipment use rubber tires, whose life usually will not be the

same as the equipment on which they are used. For example, a unit of equipment may


have an expected useful life of six years, but the tires on the equipment may last only for

two years. Therefore, a new set of tires must be placed on the equipment every two years,

which would require three sets of tires during the six years the equipment will be used.

Thus, the cost of depreciation and repairs for tires should be estimated separately from

the equipment.

Example 4.15

Calculate the ownership cost per hour for an excavator powered by a 250-hp engine

based on the following data:

- Purchase price (P) = LE420,000

- Salvage value (F) = LE250,000

- Operation factor = 50%

- Useful life (N) = 6 years

- Working hours per year = 2000

- Maintenance and repair costs = 110% of annual depreciation

- Diesel fuel price = 3.8/gallon

- Fuel consumption = 0.04 gallon/hp/hr

- Lube oil cost = 10% of fuel

- Interest rate (i) = 10%

Solution

Depreciation (assume straight-line) = (420000 – 250000) / 6 = LE28333.33/year

Investment annual cost is calculated as follows:

Annual investment = (420000 × 0.2296 – 70000) – (250000 × 0.1296 – 41666.67)

= 26432 – (- 9264.82) = LE35696.82/year

Maintenance and repair cost = 1.1 × 28333.33 = LE31166.67/year

Then, the total yearly costs = 28333.33 + 35696.82 + 31166.67 = LE95196.81/year

6

2500001)11(

102500006

4200001)11(

)11(10420000 66

6

..

...investmentAnnual


Accordingly, the hourly cost = 95196.81 / 2000 = LE47.6/hr

Fuel consumption = 250 × 0.04 × 0.5 = 5 gallon/hr

Fuel cost = 5 × 3.8 = LE19/hr

Lubricate oil cost = 19 × 0.1 = LE1.9/hr

Finally, the total hourly cost = 47.6 + 19 + 1.9 = LE68.5/hr

Example 4.16

Calculate the hourly arte of equipment based on the following data:

- Purchase price (P) = LE460,000

- Salvage value (F) = LE40,000

- Useful life (N) = 10 years

- Working hours per year = 2000 years

- Annual maintenance costs = 10% of purchase price

- Annual operating costs = LE47,000


Solution

Depreciation (assume straight-line) = (460000 – 40000) / 10 = LE42000/year

Investment annual cost is calculated as follows:

Annual investment = LE47684/year

Maintenance and repair cost = 0.1 × 460000 = LE46000/year

Operating costs = LE47000/year

Then, the total annual costs = 42000 + 47684 + 46000 + 47000 = LE182684/year

Accordingly, the hourly cost = 182684/ 2000 = LE91.34/hr

10

400001)151(

1504000010

4600001)151(

)151(510460000 1010

10

..

...investmentAnnual


4.5 Exercises

1. The construction of RC wall involves placing 660 m3 concrete, 50 t of steel, and

790 m2 of formwork. Calculate the duration of the activity using a balanced mix

of the resources if:

- A 6 man concrete gang can place 16 m3 of concrete / day.

- One steelfixer and one assistant can fix 0.5 t of steel / day.

- One carpenter and one assistant can fix and strike 16 m2 / day.

2. Estimate the labor cost for the formwork of a continuous wall footing that has a

quantity of 500 SF. The activity is constructed by crew that has a daily output of

485 SF/day, and consists of: 3 carpenters at rate LE 21.60/hr & 1 building labor at

rate LE 17.15/hr.

3. A crew of four carpenters and two labors is used to build the formwork for a

concrete structure. Work is scheduled for 9 hr/day on Saturday through

Wednesday and 8 hr on Thursday. Overtime at a rate of one and one-half will be

paid for all hours over 8 hr/day during the week and double time for all Thursday

work. The base wage, taxes and insurance rates are given in the table below.

Calculate the hourly and weekly cost of the crew.

Item Carpenters Labors Notes

Base wage

Worker’s compensation

Social security

Unemployment insurance

Benefits

LE21/hr

LE19/LE100

7.%

3%

LE3.5/hr

LE15/hr

LE16/LE100

7%

3%

LE2.5/hr

of base wage

of actual wage

of actual wage

4. A small concreting subcontractor keeps track of his resources (L1, L2, E1, E2,

C1, M1) and also keeps information related to his frequently used concreting

methods (Md1, Md2). The subcontractor is currently preparing an estimate for a


new concreting job in which he has to pour 600 m3 of concrete. A normal

working day is eight hours.

- The rate for labor overtime per hour is considered to be 1.5 normal rates. The

crew production during an overtime hour is 90% of their production in a

regular hour.

- If the subcontractor is free to use either of the two methods of construction,

Md1 and Md2. It is required to calculate the total cost and time required to

finish the job in both cases taking into consideration the following information:

Labor L1 rate is 20 LE/hr & labor L2 rate is 30 LE/hr.

Equipment E1 cost (rental and operational) is 80 LE/hr & Equipment

E2 (rental and operational) cost is 160 LE/hr.

The material M1 (ready mix concrete) unit cost is 250 LE/m3.

Crew C1 formation is (2 L1 + 3 L2 + 1 E1 + 1 E2).

Required resources for Md1 (Concreting by pump – 8 hrs/day) are

C1+M1 and its production rate is 100 m3/day (Normal hours).

Required resources for Md2 (Concreting by pump – 14 hrs/day) are

C1+M1 (6 Over time hrs/day).

5. An investor holds a time payment purchase contract on some machine tools. The

contract calls for the payment of LE140 at the end of each month for a five years

period. The first payment is due in one month. He offers to sell you the contract

for LE6,800 cash today. If you otherwise can make 1% per month on your money,

would you accept or reject the investor’s offer.

6. A company purchased a piece of equipment 3 years ago with an initial value of

LE15,000, salvage value of LE3,000, annual operating cost of LE2,000, and

estimated life of 10 years. Calculate the book value of the machine now using the

straight-line, sum-of years digits and sinking fund depreciation method. Assume

interest rate 10%.


7. Calculate the ownership cost per hour for a dump truck powered by a 120-hp

gasoline engine based on the following data:

- Purchase price = LE175,000

- Freight charges = LE2,000

- Estimated salvage value = LE57,500

- Operation factor = 40%

- Useful life = 5 years

- Hours used per year = 1800

- Maintenance and repair = 130% of annual depreciation

- Tire cost = LE5,000

- Tire life = 4,000 hours

- Maintenance and repairs (tires) = 15% of tire depreciation

- Gasoline fuel price =LE4.0/gallon

- Fuel consumption = 0.06 gallon/hp/hr

- Lube oil cost = 10% of fuel


8. A backhoe will be purchased for a cost of LE109,750. After a useful life of 5

years, it is assumed the equipment will be sold for LE35,000. Assume interest of

8% for borrowing money, 4% for risk and 2% for taxes, insurance and storage.

Calculate the annual ownership cost and the cost per hour assuming the

equipment will be used 1800 hr/year.


CHAPTER 5

ESTIMATING WORK ITEMS COSTS, IDIRECT COSTS, MARKUP

AND CONTRACT PRICING

The cost of labor, material and equipment expended on the items that were measured in

the quantity takeoffs is usually referred to as the direct costs of the work. The general

expenses of a project comprise all of the additional, indirect costs that are also necessary

to facilitate the construction of the project. These indirect costs are sometimes titled

general requirements of the project or project overheads. This chapter is devoted for the

estimating of different items represents the overheads of a project and also discusses the

pricing of the project items after defining both the direct costs and markup values.

5.1 Estimating Work Items Cost

Estimating the cost of any work items include estimating the cost of labor, equipment and

material. The analysis of a given job requires a thorough review of the plans and

specifications of the bid documents, an evaluation of the soil investigation report and a

visit to the jobsite where the project is to be constructed. For earthwork estimates, the bid

documents usually contain a soil report that provides geotechnical information about the

soil and subsurface conditions. The estimator can use other sources that help in

developing an accurate estimate.

5.1.1 Swell and compaction factors

To estimate the cost of excavating and hauling earth, it is necessary to know the physical

properties of earth because the volume changes during construction operations. For an

earth work operation, the soil is excavated from its natural state, placed in a hauling unit


and transported to the disposal area, where it is distributed and compacted. For example,

one cubic meter of soil that is excavated from the ground may occupy 1.25 cubic meters

after it is loosened and placed in the hauling unit. After the soil is compacted in place it

may occupy 0.9 cubic meter. The soil to be excavated is called bank measure, in its

undisturbed condition, prior to excavating or after being compacted in place. Also, any

additional requirements to support the excavation operation should be also added to the

cost estimating of an excavation operation. For example, excavation support, dewatering,

etc.

5.1.2 Calculating truck requirements

The estimator has to determine the optimum number of trucks required to transport

excavated materials. A simple formula can be used for this calculation based on the

premise that it is desirable to have sufficient trucking capacity to ensure that the

excavation equipment is able to operate continuously and not have to waste time waiting

for trucks. Obviously, three trucks will be required if it takes 10 minutes to load a truck

and 20 minutes for that truck to unload and return for another load, because while the

first truck is away, two other trucks can be loaded. Thus, the number of trucks can be

calculated as:

Number of required trucks = truck cycle time / loading time (5.1)

Truck cycle time = loading time + going time + return time + dumping time (5.2)

Loading time = truck capacity / production rate of loader (5.3)

Truck capacity (bank measure) = truck capacity (loose) / (1+swelling factor) (5.4)

Note that the number of trucks obtained from Eq. 5.1 should always be rounded up no

matter how small the decimal. Most estimators consider it better to have more rather than

less capacity so that the excavator is kept occupied.


5.1.3 Waste factors

When estimating the material required for any job, it is necessary to add a portion for the

wastage of material used. The quantities of material taken off are the unadjusted net

amounts calculated from the drawings. 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.

Example 5.1

Calculate the equipment and labor prices per m3 to excavate 3000 m3 of trench

using 0.75 m3 backhoe costing LE670/day (day = 8 hrs), plus LE4000 for

transportation and set up charges. Expected output is 60 m3/day with an operator

and 0.5 labor at wages of LE40 and LE30 respectively.

Solution

Operator unit price = LE40/hr; Labor unit price = 0.5 × 30 = LE15/hr

Backhoe unit price = 670 / 8 = LE83.75/hr

This crew produces 60 m3/day,

Labor price/m3 = 55 / 60 = LE0.92/m3

Equipment price/m3 = 83.75 / 60 = LE1.4/m3

Transportation price = 4000 / 3000 = LE1.33/m3

Then price/m3 = LE3.65/m3

Example 5.2

Calculate the price of obtaining a gravel form a pit located 16 km from the work

site, where unit price is LE2.5/m3, using a loader with a rate of 50 m3/hr (bank

measure) and 12 m3 trucks to transport the gravel. The loader and trucks are priced

at rates of LE450/day and LE300/day respectively. The labor crew consists of one

equipment operator at LE40/hr, two labors at LE30/hr and truck driver at LE30/hr.

the dump truck travel at an average speed of 20 km/hr. the gravel has swell factor of

12% and 5 minute required to off-load the truck.


Solution

First: calculate the number of trucks required to have a balanced crew

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 = 12 (loose material) / 1.12 = 10.71 m3 (bank measure)

Loading time = 10.71 × 60 / 50 = 12.85 min

Travel time = 16 × 2 × 60 / 20 = 96 min

Cycle time = 12.85 + 96 + 5 = 113.85 min

No. of trucks = 113.85 / 12.85 = 8.86 = 9 trucks

Second: calculate the gravel supply price

Loader = 450 / 8 = LE56.25/hr

Trucks = 9 × 300 / 8 = LE337.5/hr

Operator = LE40/hr

Labors = 2 × 30 = LE60/hr

Drivers = 9 × 30 = LE270/hr

Crew hourly cost = 56.25 + 337.5 + 40 + 60 + 270 = LE763.76/hr

Crew unit price = 763.76 / 50 = LE15.28/m3

Then, gravel unit price = crew price + gravel cost = 15.28 + 2.5 = LE15.78/m3

Example 5.3

It is required to determine the unit price for plain concrete given the following

information:

Plain concrete (PC) quantity = 1080 m3.

One cubic meter of PC comprises of 250 kg cement; 0.8 m3 gravel and 0.4 m3 sand.

The prices of these materials are LE500/ton; LE80/m3 and LE40/m3 for cement,

gravel and sand respectively. Assume 10% wastage for all these materials.

The details of the crew used are shown in the table below.

Assume overheads and markup 20%.


Crew item No Production Price ratePump 1 30 m3/hr LE450/day

Truck mixer 3 9 m3/hr/one LE350/day/oneVibrator 2 - LE100/day/oneLabor 5 - LE15/day/one

Foreman 1 - LE30/day/one

Solution

Assume 8-working hours/day

Pump production rate = 30 m3/hr = 30 × 8 = 240 m3/day

Truck mixers production rate = 3 × 9 × 8 = 216 m3/day

The crew production rate equals the production rate of the critical resources (the

lowest) = 216 m3/day

Then, duration = 1080 / 216 = 5 days

Material cost:

Cost per/m3 = 1.1 × (0.25 × 500 + 0.8 × 80 + 0.4 × 40) = LE225.5/m3

Total material cost = 225.5 × 1080 = LE243,540

Equipment cost:

Equipment cost/day = 450 + 3 × 350 + 2 × 100 = LE1700/day

Equipment cost = 1700 × 5 = LE8,500

Labor cost:

Labor crew cost/day = 15 × 5 + 1 × 30 = LE105/day

Labor cost = 105 × 5 = LE525

Item price:

Item cost = 243540 + 8500 + 525 = LE252,565

Item price = 252565 × 1.2 = LE303,078

Then, the item unit price = 303078 / 1080 = LE280.63/m3

5.2 Estimating Indirect Cost

The indirect costs comprises both site and head office (general) overheads.


5.2.1 Site overheads

To accommodate various site situations, it is a good idea for a construction company to

develop comprehensive checklists for general jobsite requirements regarding its

specialized line of business. Such a list would aid the estimator, ensuring that no

important cost items are forgotten under the time pressure of finalizing the bid. Visits to

the jobsite by an experienced estimator and a principal of the firm are a must after a

preliminary review of drawings and specifications. A site investigation report can be used

to collect needed information useful for organizing the future jobsite and, above all, to

determine prior bidding costs. Certainly not all items are relevant for each report. If the

project is in a remote area or in a harsh environment, more items will be checked and

questions answered during the site visit. Later, they will be converted to line items with

an estimated cost toward job site overhead. Any missing items will reduce overall profit.

A prudent contractor and subcontractor will not be satisfied applying a fee to the direct

estimated costs, a fee that is supposed to cover jobsite overhead and markup.

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; and


- Bonds, insurance, permits, and taxes required in the contract general conditions;

- Utilities needed for material storage;

- Cost of temporary site utilities.

5.2.2 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 general contractor’s or

subcontractor’s main office expense consists of many items.

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

The expense list presented above is not appropriate for all contractors. For smaller

contractors who operate from a truck, the list would contain considerably fewer items and

for a large contractor, the list could fill pages, but the concept is the same. The expenses

should be estimated, and all efforts must be made to stay in the budget and to generate the

planned business volume. In general, main office expense ranges from 2.5 to 10% of

annual construction billings.

5.2.3 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. Many chief estimators or

contractor executives add a contingency to the estimate to cover one or possibly more of

the following:

- Unpredictable price escalation for materials, labor, 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 startup 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.

Most often, if for any reason an accurate estimate is not made (95 to 100% accuracy), an

estimator never knows how much money to allow for these “forgotten” items. Many

times added contingencies are an excuse for using poor estimating practices such as not

enough time, subcontractors not reporting, no time to visit the job site, and so on.

Contingency for these reasons is difficult to sell to management and can hurt the

credibility of the estimating team. On the other hand compounding building projects’

bidding complexity justifies the need to add contingency as part of the markup. This

construction risk compensation is added to the final direct and jobsite overhead cost. The

magnitude depends on the type of contract agreement, type of construction, and certainly

project location.

Contingency is not potential profit. It includes risk and uncertainty but explicitly excludes

changes in the project scope (change orders). The contingency should absolutely not be

treated as an allowance. Allowances are costs that are foreseen to be spent, and need to be

included in the detail estimate in the proper construction category of work and not as a

total for the project. There are many factors that affect the amount of contingency to be

included in the estimate. General contingency guidelines also apply to different types of

construction. For underground work the contingencies should be increased by 2 to 5% for

each design phase. For buildings, it is recommended to decrease the contingencies by 1 to

3% for each phase. In general, contingency reflects the contracting organization’s

judgment decision to avoid bid cost overrun. On the other hand, too much contingency

will create a “fat” estimate if management is not willing to accept some construction

risks.

To management, contingency is money it hopes will not be expended, but instead

returned as profit at project completion. If the amount of contingency added to the bid is


too large the contractor risks not getting the project and recording an additional expense

for doing the estimate and bidding. This is the reason that a cost line item is usually not

included in the bid.

5.2.4 Contractor/Subcontractor profit

The last item to be included in the bid and representing contractor’s return on investment

is the profit. The magnitude of desired profit must be decided by the owner for each

individual bid, depending on local market conditions, competition, and the contractors’

need for new work. In the construction industry, markup is defined as “the amount added

to the estimated direct cost and estimated job into overhead cost” to recover the firm’s

main office allocated overhead (general overhead) and desired profit. The less profit

added to a bid, the greater the chance is of being the successful bidder. Bidding a job with

a high profit added does not mean the contactor will get the job. Bidding a job below cost

with no planned profit or a minimum profit only to get the work is also no guarantee of

being a successful contractor. A contractor can go broke by not obtaining enough

profitable work.

To be competitive, a construction company’s general overhead and profit should be close

to industry norms. The concept of percentage of return on indirect cost investment must

also be considered. The return on indirect cost is calculated by dividing the corporation’s

annual net profit before taxes by the general overhead cost. General overhead and profit

recovery factors are developed from the annual general overhead budget. After bid

opening, contractors occasionally ask close competitors what percent they added for

profit. Surprisingly, competitors are refreshingly candid in revealing the amount added

for profit. This natural curiosity is related to the many kinds of profit. Contractors are

intuitively trying to ascertain why competitor A, who lost the job, marked up 2%, and

competitor B, who marked up 4%, was awarded the bid. 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 contractor’s risk.

5.3 Finalizing a Tender Price

The total price of a tender comprises the cost and the markup. The cost includes direct

and indirect costs. The markup, on the other hand, includes profit margin, financial

charges (cost of borrowing), and a risk allowance margin (Figure 5.1).

Figure 5.1: Components of a tender price

If you are much involved in the construction business, you must have experienced how

difficult it is to decide on a suitable margin to make your bid competitive against other

contractors. We need to decide on the markup percentage that makes the bid low enough

to win and, at the same time, high enough to make reasonable profit. Generally,

contractors often have to main methods of assessing a specific contract markup.

Estimating a single percentage markup to be added to the total cost. It is assumed that this

percentage will cover all the components of markup as shown in Figure 5.1; and Detailed

analysis of the risky components in the project and their impact on the project in terms of

increased time and cost. Also, cash flow analysis to estimate the financial charge and

estimating a reasonable profit margin. Calculations of the financial charges (cost of

borrowing) were, also, presented previously in this chapter based on the cash flow

Price

CostMarkup

Direct costIndirect costProfitRisk allowance Financial charge


analysis of the contract. Estimating profit and risk allowance margins will be presented in

the next subsection.

Having all contract costs (direct and indirect), and markup components (profit margin,

risk allowance and financial charge), it is time to finalize the bid price. While, the direct

cost are associated directly to the contract activities, indirect cost and markup are not

associated with specific activities but with the whole contract. Accordingly, pricing

policy is the method by which the indirect costs and markup will be distributed among

the items of the bill of quantities, so that the bid price is ready to be submitted to the

client.

5.3.1 Balanced bid (straight forward method)

In this method the indirect cost and the markup will be distributed among different items

based on their direct cost; i.e., the more the direct cost of an item, the more its share from

indirect cost and markup. The resulting bid price is called a balance d bid.

Direct cost of this itemTotal contract direct cost

Example 5.4

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.

Solution

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)

400,0002,800,000

Then, price of activity a = its direct cost + indirect cost

= 400,000 + 100,000 = LE 500,000

x 700,000 = LE 100,000=

x (total indirect cost + markup)The share of specific item =


5.3.2 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.

Loading of rates may be risky to both the contractor and the owner. If the contractor

raised the price for an item and the quantity of this item increased than that was estimated

in the bill of quantities then, this situation is more risky to the owner as it will cost the

owner more money. On the other hand, if the contractor reduced the price of a specific

item and the quantity of that item increased, thus situation will be more risky to the

contractor. So, it is better to follow a balanced way of distributing the indirect costs and

markup among contract items.

Example 5.5

Consider a small contract comprises of five sequential activities of equal duration.

The quantity of work in each activity, the direct cost rate, and total cost rate for

balanced and unbalanced bid are given in Table 5.1. Determine the effect of

unbalanced bid on the contractors profit if: Quantity of activity (B) is increased by

50%. Quantity of activity (C) is increased by 50%.

Table 5.1: Data for Example 5.5

Activity QuantityDirectcostrate

Balanced bid Unbalanced bid

Rate Price Rate PriceABCDE

100100100100100

4816168

510202010

5001000200020001000

61418189

600140018001800900

Tender price 6500 6500


Solution

- Contract total direct cost = 100 (4 + 8 + 16 + 16 + 8) = 5200

- Contract price = 6500

- Contract markup and profit = 6500 – 5200 = 1300 = 25% of direct cost

- Table 5.2 shows the effect of tender price if the quantity of activity “B” increased

by 50%.

- The price of the unbalanced bid (7200) is greater than that of the balanced bid

(7000) which means more profit to the contractor and more risk to the owner.

Table 5.2: Effect of change in quantity of activity B




100150100100100

4816168

510202010

5001500200020001000

61418189

600210018001800900


- Table 5.3 shows the effect of tender price if the quantity of activity “C” increased

by 50%.

- The price of the unbalanced bid (7400) is less than that of the balanced bid (7500)

which means less profit and more risk to the contractor.

This decrease means that the profit of the contractor has been decreased and thus

represents risk to the contractor.

Table 5.3: Effect of change in quantity of activity C




100100150100100

4816168

510202010

5001000300020001000

61418189

600140027001800900



5.4 Exercises

1. A crew comprising 3 labors and 0.5 foreman is deserved to take (16 hr) 2-days to

excavate 36 m3 of soil. If the average rate of labor is LE21/hr and foreman is

LE24/hr. Find the unit cost of excavation.

2. A bill of quantity of a project includes 500m2 of masonry work. The work will be

done by one crew with a production rate of 50 m2/day and consists of:

Crew member No All-in rate/dayBrick layer 2 50Assistant 1 25

Labor 2 12

Vendor price of 1000 bricks = LE160. Each 55 bricks are estimated to make one

square meter of masonry. Each one cubic meter of mortar is used to join brick

area of 50 m2 and consists of:

Quantity Material Primary quotation form vendorOne cubic meter Sand LE15/m3

6 sacks (50 kg each) Cement LE240/ton

As a contractor, it is required to estimate the item price and the unit price. Assume

all material waste as 20% and assume overheads and markup as 20% of total cost.

3. Calculate the price of pit-run gravel delivered to the site per cubic meter (bank

measure) based on the following data:

- The pit is located 10 km from the site.

- Truck costs LE40/hr, including fuel and maintenance; they have 12 cubic

meter (loose material) capacity and travel at an average speed of 30 km/hr

empty and 20 km/hr loaded.


- The swell factor for this material is 20% and the compaction factor is 90%.

- Trucks take 5 minutes to unload at the site.

- The loader costs LE80/hr and loads material at the pit at the rate of 40 m3/hr.

- Truck driver’s wage is LE32/hr and the equipment operator’s wage is

LE40/hr.

- Gravel price (loose) = LE40/m3.

- Quantity of gravel required to fill an excavated site with dimensions 30 × 30

× 1 m3.

- Assume overheads and markup of 10%.

4. Consider the following items of a given project.

Item Unit QuantityDirect cost (LE)

Material Equipment Labor Subcontractor

1 m3 150 1000 11200 4000 -

2 m3 180 1800 1000 4000 -

3 m3 40 960 400 3200 -

4 m3 60 1200 600 4800 -

5 lump-sum Lump-sum - - - 2000

- Site overheads = 5% of Direct cost (i.e., LE10500).

- General overheads = 5% of Construction cost.

- Profit and risk = 10% of Total cost.

It is required to:

a. Develop a balanced tender price (balanced –bid).

b. Develop an un-balanced tender price (unbalanced-bid).

estimation and costing

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