CCC Summary C

Building Costing and Pricing
Organisation of the lectures, appointed time between 1st to 12th of November 2016
1st week:
Tuesday
14h00 17h00
Wednesday 8h30 12h30 and 14h00 17h00
Thursday 8h30 12h30
Friday
8h30 12h30 and 14h00 17h00
Saturday
8h30 12h30
2nd week:
Tuesday
14h00 17h00
Wednesday 8h30 12h30 and 14h00 17h00
Thursday 8h30 12h30
Friday 8h30 12h30 and 14h00 to 17h00
Saturday
11h00or using e-mail: ulke@fh-aachen.de
Contact Prof. Ulke
after 8h30
the lectures
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Prof. Dr.-Ing. Thomas Krause

Labour Costing
General
Estimating labour requires determining the number of work hours to do a
specific task and then applying a wage rate
Determining the work hours requires knowing the quantity of work to be placed
and the productivity rate for the specific crew that will perform the work
The productivity rate is often expressed as a number of work hours per unit of
work. The productivity rates can come from:
a number of sources
historical data
The advantage of historical information is it reflects how a particular company's
personnel perform the tasks.
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The Government Gazette of the Republic of Namibia (you will find the important
pages on the following slides) shows minimum wage rates with additional
requirements for workers as well as minimum productivity levels for the
Namibian construction industry
The following formula is used to determine the number of work hours
Work hours = Quantity takeoff x productivity rate
The productivity rate that is used, if derived from historical data, is for the
average or Standard project
Often the project that is being bid deviates from these Standard conditions on
many occasions
the work hours need to be modified to take into consideration how the project
that is being bid deviates from the standard condition
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Variables that need to be considered when determining the
productivity factor
Availability and Productivity of Workers:
When there is plenty of work available and workers are scarce or rar, lesstrained craft persons are accepted
Less-trained persons will need more time to complete the required task
When construction projects are scarce or rar, workers may become motivated
and the contractor can be selective and hire only the most qualified. This will
result in producing more work per hour.
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Climatic Conditions:
Weather extremes (cold, hot, winds, rain, snow) will slow down the work pace
and may require additional precautions that add indirect work hours to the
project
The estimator must try to factor in each of these to determine the most costeffective approach
Can the project be scheduled so the concrete can be poured before the
winter cold sets in?
If not, extra time and materials will be necessary to be certain the concrete does
not freeze after it is poured
If the weather is too hot, precautions will need to be taken to ensure that the
concrete does not set too quickly
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Working Conditions:
Job site working conditions can have a great effect on the rate of work
Especially projects being built in the city or high-rise constructions are
characterised through less effectiveness
Projects that are far removed from the supply of workers and materials often
have similar situations that the estimator must consider
How can material deliveries be made in a timely fashion?
Where will the material be stored until needed?
Will extra equipment and workers be required to transport the material from
the storage area to where it will be installed?
Will storage sheds be necessary for material that cannot be left out in the
weather?
If so, who will be responsible for receiving inventory and moving it to where
it will be installed?
Worker availability for remote jobs must also be considered. Are workers
available, at what cost, and are any special incentives required?
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Other Considerations:
Coffee breaks, trips to the bathroom, a drink of water, the big game or date last
night, lunches that start a little early and may end a little late etc. will cause a
average working time of 30-50 minutes per hour
Sufficient equipment like prompt awarding of material contracts, sufficient
restroom facilities and water containers, and anything else that may help are
necessary to run the project and to make it convenient to work
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productivity rate
1 = initial skill adaptation training
2 = loss of time with increasing height (vertical transports)
Number of same floors
Effect of initial skill adaptation training

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If there is a discontinous progress an the quantity of workers varies, the

productivity rate is going down!
quantity of
workers
quantity of
workers
max. capacity
Construction progress without

interruption (high productivity rate)
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max.
capacity
Discontinous progress by having a faulty

operation on the construction site
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Example 1: Work Hours Brickwork
Type of work
Brickwork for double brick wall (110 bricks/m)
Productivity rate: from Government Gazette:
Skilled worker: 630 bricks per day,
630/ 9 hrs = 70 bricks per hr 0.64 m/hr
Productivity rate:
1.56 h/m
(You can also use historical data from your company
or different data bases)
Quantity takeoff (QTO):
Labour hours:
Crew:
Work hour per labourer:
500 m2
= 500 m x 1.56 work hours per m
= 780 work hours
5 skilled workers
156 h
This can also be used to calculate the duration of work, which is important for the
time schedule and the date of finalizing the project:
780 work hours / 5 workers / 9 work hours per day ~ 17,5 days of execution time
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To determine the work hours special
items need to be divided in different
units
I.e. to place the concrete for a slab, you
have to place and to compact the
concrete but to finalize this work you
have to smoothen the surface of
concrete subsequently
Fig.: Brickwork for Extension of Hotel School, NUST
Concreting a slab requires to handle with two different units:

m for casting and compacting
m for smoothing the surface
the data in the Government Gazette are very rare
There are considerable differences between using mixed on place and ready
mixed concrete as well as casting in concrete (i.e. in a foundation or a slab or
a column)
By this reason you should use historical data or a data base to determine
productivity rates for concrete casting
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Fig.: Casting and compacting the concrete and smoothing surface subsequently
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Example 2: Work Hours Concrete Slab
Concrete of Floor (A= 624 m) slab t = 20cm: 124.8 m

Productivity rate for casting and compacting: 0.6 h/m
Work hours: 124.8 m x 0.6 h/m
= 74.9 h
Productivity rate for smoothing the surface:
Surface of concrete: 124.8 m / 0.2 m
Work hours: 624.0 m x 0.1 h/m
0.1 h/m
= 624.0 m
= 62.4 h
Overall work hours for this item:

74.9 h + 62.4 h
=137.3 h
Maximal execution time: 10 h (concrete will harden) =>

You will need at least 15 labourers
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Pricing Labour
To price labour the estimator must estimate the work hours required to do a
unit of work
Multiplying the work hours by a wage rate develop the bare labour cost
(current wage rates for different kind of workers can be found in the
Government Gazette)
When the crew is made up of different crafts being paid different wage rates, a
weighted average wage rate must be determined
This is done by determining the total cost for the crew for an hour and dividing
that amount by the number of persons on the crew, as shown in the following
figure.
To determine the bare labour cost, the average crew wage rate can be
multiplied by the number of work hours
Bare labour cost = Adjusted work hours x weighted average wage rate
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According to the example above (No.1 Brickwork) there were 780 work
hours, the bare labour cost would be:
Bare labour cost = 780 work hours x 22.44 N$/ hour = N$ 17,503.20
The bare labour cost need to be increased by the burden and benefit rate to
determine the total labour cost
The following page shows a spreadsheet to calculate the specific average
wage of a project including all burdens and benefits
First step is to work out the overall working hours
With the (given) period of construction (time schedule) you will work out the
number of worker you need on your site
Your foreman has to do his supervisory work, but because this is a smaller
site, he has to do productive work for 50 % of his working time as well
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Calculate the average wage AFSB for a crew of 6 workers:
Wagegroup/
Number of workers
description
basic wage
6/1
4/2
3/2
2/1
charched hand(50% prod.) 50.00 N$/h

master craftsman
35.11 N$/h
tipper driver
22.32 N$/h
unskilled workers
13.26 N$/h
Further informations:
1. The charged hand can only work 50% of the time productivly because of his
supervisory work
2. Rateable pay rise from 6% for 100% of the construction period
3. Overtime allowance is 25% of the average basic wage, 40 working hours per
week are fixed in the contracts of employment, effective work hours are 44 per
week
4. Social costs are 89% of the AF (average wage incl. foreman) is given from
payroll accounting of the company as an average value
5. There is a meal allowance for 5 labourers (except the charged hand) of 5 N$/day
for 5 days per week (voluntary for the employer)
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The following work sheet can be used to calculate the labour cost with use
of predetermined allocations
For a construction company with 44 labourers the average wage will be
determined. To simplify the calculation, subcontractor work is excluded in
this example, only labour cost and cost for material and plants are taken
into account.
You will see, the average wage is much higher than in case of a project
based average wages calculation, because it has to cover a high amount
of overhead and indirect cost now.
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Material Costing
For each project being bid, the contractor will request quotations from materials
suppliers and manufacturers' representatives for all materials required
He should obtain written quotations that spell out the exact terms of the freight,
taxes, time required for delivery, materials included in the price, and the terms
of payment (figure)
The written proposals should be checked against the specifications to make
certain that the specified material was bid
For each item the estimator has to select from the quotation the required
material, identify the used material per unit and has to insert the cost into the
estimate
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Example: Written quotation of prices
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Quantity take-off: 500 m masonry walls, height 3.00m, thickness 24 cm, (double)
erected by concrete bricks
Material from
quotation:
concrete masonry units (bricks): 24x11.5x11.5,

price: N$ 4.20 ea.
Number of bricks per unit (m) of masonry wall:
10 % cutting loss
cost per unit: 110 x N$ 4.20 x 1.1
= N$ 508.20 per m
mortar: use 50 litre per m masonry, additional consumption 10 %
price: N$ 1,125.00 per m
cost per unit: 50/1000 x N$ 1125.00 x 1.1
= N$ 61.88 per m
Material costs
per unit:
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N$ 508.20 + N$ 61.88
= N$ 570.08 per m
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Fig.: Facility for Ready-Mixed Concrete

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Fig.: Casting the concrete for a longer distance by pump

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Equipment, Plant and Machinery Costing
Fig.: Excavator and Dumper at Work

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Fig.: Transportation of Payloader (Wheelloader)

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Fig.: Towercranes at a highrise building in Frankfurt

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General
One problem an estimator faces is the selection of equipment suitable to use
on a given project:
The equipment must pay for itself

Unless a piece of equipment will earn money for the contractor, it should
not be used
Because it is impossible for contractors to own all types and sizes of
equipment, the selection of equipment will be primarily from that which they
own
New equipment can be purchased if the cost can be justified
If the cost of the equipment can be charged off to one project or written off in
combination with other proposed uses of the equipment, the equipment will
pay for it-self and should be purchased
Example: If a piece of equipment costing N$150,000 will save N$200,000 on
a project, it should be purchased regardless of whether it will be used on future
projects or whether it can be sold at the end of the current one
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Figuring the cost of equipment required for a project presents the same
problems to estimators as figuring labour
It is necessary for the estimator to decide what equipment is required for each
phase of the work and for what length of time it will have to be used
If the equipment is to be used for a time and then will not be needed again for
a few weeks, the estimator should ask:
What will be done with it?
Will it be returned to the main yard?
Is there room to store it on the project?
If rented, will it be returned so that the rental charge will be saved?
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Equipment that is required throughout the project is included under equipment
expenses, because it cannot be charged to any particular item of work.
This equipment is often called supporting machinery and includes the hoist
towers and material-handling equipment such as lift trucks
As the estimator does a takeoff of each item, all equipment required should be
listed so that the cost can be totalled in the appropriate column
This equipment is as well called time related plants
Equipment on site, which can be charged to one particular item of work is
called performance machinery or directly costed plants (i.e. an excavator
for a bigger excavation)
Equipment required for one project only or equipment that might be used
infrequently is often purchased for the one project and sold when it is no longer
needed
The difference between the purchase price and the selling price would then be
charged to the project
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Operating Cost
The cost of operating the construction equipment should be calculated on the
basis of the working hour since the ownership or rental cost is also a cost per
hour
Operating costs include fuel, grease, oil, electricity, miscellaneous supplies, and
repairs
Operators' wages and mobilisation costs are not included in equipmentoperation costs
Cost for power equipment are usually based on the horsepower of the
equipment
A gasoline engine will use between 0.18 to 0.24 litre of gasoline per horsepower
per hour when operating at full capacity
An electric powered engine will need from 0.10 to 0.25 KWh per KW installed
performance and work hour
However, the equipment will probably operate at 55 to 80 percent of full capacity

per working hour and will not operate for the full hour, but only for a portion of it
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Example: Fuel Cost
What is the estimated fuel cost of a 120-horsepower pay loader?
Assumptions:
Fuel cost:
Consumption rate:
Fuel cost per machine hour
N$ 10 per litre
0.18 l per hp per hour
= hp rating x consumption rate x fuel cost
= 120 hp x 0.18 l per hp per hr x 10 $/l
= 216.00 N$/h
Lubrication
The amount of oil and grease required by any given piece of equipment varies
with the type of equipment and job conditions
A piece of equipment usually has its oil changed and is greased every 100 to 150
hours
Under severe conditions the equipment may need much more frequent servicing
(oil consumed between oil changes must also be included in the cost)
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Example: Equipment Lubrication
A piece of equipment has its oil changed and is greased every 120 hours. It requires
6 litres of oil for the change. The time required for the oil change and greasing is
estimated at 2.5 hours.
Assumptions:
Oil cost
Oiler labour rate
Lubrication cost
N$150 per l
N$ 17.50 per hour
= 6 l of oil x $ 150 per l
= N$ 900
Labour cost
Total cost for oil change
= 2.5 hours x N$17.50 per work hour = N$ 43.75

= N$ 900 + N$ 43.75
= N$ 944.00
Cost per machine

work hour
= N$944 / 120 hours
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= N$/h
7.87
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Tyres
The cost of tires can be quite high on an hourly basis
The cost of tires, replacement, repair, and depreciation should be figured
separately
The cost of the tires is depreciated over the useful life of the tyres and the cost
of repairs taken as a percentage of the depreciation, based on past experience
Example: Tyres
Four tyres for a piece of equipment cost $50,000 and have a useful life of about
3,500 hours.
The average cost for repairs to the tyres is 15 percent of depreciation.
What is the average cost of the tyres per hour?
Tyre depreciation = $50,000 / 3,500 hours = $ 14.30 per hour

Tyre repair
= 15% x N$14.3 per hour = N$ 2.10 per hour
Tyre cost
= N$14.3 + N$.2.1
= N$ 16.40 per machine work hour
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Depreciation
As soon as a piece of equipment is purchased, it begins to decrease
(depreciate) in value
As the equipment is used on the projects, it begins to wear out and in a given
amount of time it will have become completely worn out or obsolete
If an allowance for depreciation is not included in the estimate, there will be
no money set aside to purchase new equipment when the equipment is worn
out This is not profit (money for equipment should not be taken from profit)
For practical purposes:

The total depreciation for any piece of equipment will be 100 percent of the
capital investment minus the scrap or salvage value, divided by the number
of years it will be used
For estimating depreciation costs, assign the equipment a useful life
expressed in years, hours, or units of production, whichever is the most
appropriate for a given piece of equipment
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Example: Depreciation
If a piece of equipment had an original cost of N$675,000, an anticipated salvage N$
100,000 and an estimated life of five years, what would be the annual depreciation?
Depreciable cost = original cost salvage value

Depreciable cost = N$ 675,000 N$ 100,000
= N$ 575,000
Depreciable cost per year = depreciable cost / useful life

Depreciable cost per year = N$ 575,000 / 5
= N$ 115,000 per year
If the piece of equipment should last 10,000 machine work hours, the hourly cost would
be found as follows:
Depreciable cost per hour = depreciable cost / useful life (hours)
Depreciable cost per hour = N$ 575,000 / 10,000 depreciable cost per hour
= N$ 57.50 per machine work hour
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Interest
Interest rates must be checked by the estimator
The interest should be charged against the entire cost of the equipment, even
though the contractor paid part of the cost in cash
Contractors should figure that the least they should get for the use of their
money is the current rate of interest
Interest is paid on the unpaid balance
The balance due begins at the cost price and decreases to virtually
nothing when the last payment is made
Since the balance on which interest is being charged ranges from 100 to 0
percent, the average amount on which interest is paid is 50 percent of the cost
Approximate interest cost = (C x I x L)/2
Where:
C = Amount of loan
Example: N$ 675,000
I = Interest rate
8% per year
L = Life of loan
5 years / 10,000 work hours
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Because the estimator will want to have the interest costs in terms of cost
per hour, the projected useful life in terms of working hours must be
assumed. The formula used to figure the interest cost per hour would be:
Approximate interest cost = (C x I x L) / 2 x H
Where:
H = Useful life of equipment (working hours) 10,000 hrs
Interest Cost:
(675,00 x 0.08 x 5) / 2 / 10,000 = N$ 13.50 per work hours
The last formula is the one used to determine interest costs toward the total
fixed cost per hour for a piece of equipment
Other fixed cost (insurance, taxes, storage, repairs, depreciation) are figured
in a manner similar to that used for figuring interest
These items are taken as percentages of the cost of equipment and are
expressed as decimals in the formula
When the expenses are expressed in terms of percent per year, they must be
multiplied by the number of years of useful life to determine accurate cost
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Ownership Cost
To estimate the cost of using a piece of equipment owned by the contractor, the
estimator must consider depreciation, major repairs, and overhaul as well as
interest, insurance, taxes, and storage
These items are most often taken as a percentage of the initial cost to the
owner
The cost for fuel, oil, and tires must be added too
The cost to the owner should include all freight cost, sales taxes, and
preparation charges
Example: Ownership Cost
Estimate the cost of owning and operating a piece of equipment on a project with
the cost following (Assumptions on the next page).
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Assumptions:
Actual cost (delivered)
Horsepower rating
Cost of tyres
Salvage or scrap value
Useful life
Total interest
Length of loan
Total insurance, taxes, and storage
Fuel cost
Consumption rate
Lubrication
Oiler labour
Lubrication schedule
Life of tyres
Repair to tyres
Repairs to equipment
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N$ 476,000
150 hp
N$ 45,000
3%
7 years or 14,000 hours
8% per year
7 years
6% per year
N$ 7 per litre
0.18 litre per hp per hour
4 litres of oil at N$150
2 hours labour at $16.50
every 150 hours
4,000 hours
12% of depreciation
65% over useful life
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Fixed Cost (per hour):
Approximate interest cost
= ($ 476,000 x 0.08 x 7) / 2 x 14,000 = N$ 9.52 p. equip. work hr
Salvage value
= N$ 476,000 x .03
= N$ 14,280
Depreciable cost
= N$ 476,000 - $ 14,280
= N$ 461,720
Depreciable cost per work hour
= N$ 461,720 / 14,000
= N$ 33.00 p. equip. work hr
Repairs
= (476,000 x 0.65) / 14,000
Insurance, taxes, and storage
= (.06 x 7 x $N 476,000) / 14,000
Sum of fixed cost per hour:
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Operating Cost (per hour):
Tire depreciation
= N$ 45,000 / 4,000 hrs
= N$
11.30 per equip. work hr
Tire repair
= 0.12 x N$ 11.30
= N$
Fuel cost
= 150 hp x 0.18 x 7 N$/l
= N$
Lubrication cost
= 4 l. of oil x N$ 150 per l
= N$ 600
Lubrication labour
= 2 work hours x N$ 16.50 per work hour
= N$ 33.00
Lubrication cost per hour
= (N$ 600 + N$ 33.00) / 150
= N$
Sum of operating cost per hour: = N$ 205.92 per equip. work hr
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Total ownership cost
= fixed cost + operating cost

= N$ 78.90 + N$ 205.92= N$ 284.82 per equip. work hr
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Rental Cost
Rental equipment can be used if:
A project is a long distance from the contractor's home base
The construction involves the use of equipment that the contractor does not
own (and will not likely use after the completion of this one project)
The estimator must investigate the available rental agencies for the type and
condition of equipment available, the cost, and the services the rental firm
provides
The estimator must be certain that all terms of rental are understood, especially
those concerning repair of the equipment
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Equipment is generally rented for a short time, and lease agreements are
arranged when that time extends to one year or more
Rental rates are usually quoted by the month, week, or day

Cost must be broken down into cost per hour or per unit of work so that they
may be accurately included in the estimate and checked during construction
The rental charge will be based on a day of 8 hours (or less)
If the equipment is to be used more than 8 hours per day, a proportional
charge will be added
To this must be added the other costs of operating the equipment
These costs include mobilisation, repairs (except ordinary wear and tear),
and day-to-day maintenance, as well as the cost of fuel, insurance, taxes,
and cleaning
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Miscellaneous Tools
Miscellaneous tools are wheelbarrows, shovels, picks, crowbars, hammers,
hoses, buckets, and ropes
The mechanics that work on the projects have their own small tools, but the
contractor will still need a supply of miscellaneous tools and equipment
The estimator should list the equipment required and estimate its cost
The life of this type of equipment and tools is generally taken as an average of
one year
Loss of miscellaneous tools and equipment due to disappearance (theft) is
common, and all attempts must be made to keep it under control
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Cost Accounting
The cost for equipment cannot come from thin air the estimator must rely
heavily on equipment expense data for future bids
Especially in heavy construction, the cost accounting is important since the
contractor has a great deal of money invested, and the equipment costs
become a large percentage of the cost of the project
It is important that equipment cost be constantly analysed and kept under
control
Small, miscellaneous equipment and tools are not subjected to this cost control
analysis and are generally charged to each project on a flat rate basis
The procedure for determining equipment expenses varies from contractor to
contractor
Generally the equipment expense is broken down into a charge per hour or a
charge per unit of work
Field reports of equipment time must include only the time during which the
equipment is in use
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When excessive idle time occurs, estimators must check to see whether it
can be attributed to bad weather, poor working conditions, or management
problems on the project
Management problems sometimes include poor field supervision, poor
equipment maintenance, poor equipment selection, and an excessive amount of
equipment on the project
Mobilisation
The cost of transporting all equipment required for the project to the Job and
then back again when the work is completed must be estimated too
This cost will vary with the distance, type and amount of equipment, method of
transportation used, and the amount of dismantling required for the various
equipment
Mobilisation cost must also be considered for rental equipment since it must be
brought to the job site
The cost of erecting some types of equipment, such as hoists, scaffolding, or
cranes, must also be included, as well as the cost of loading the equipment at
the contractor's yard and unloading it at the job site
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Subcontractors
A subcontractor is a separate contractor hired by the prime contractor to
perform certain portions of the work
The amount of work that the prime contractor will subcontract varies from
project to project
Trades such as mechanical, electrical, sanitary installation and heating and air
conditioning have a tradition of being performed by subcontractors, due to their
specialised nature and licensing requirements
If specialty contractors are to be used, the contractor must be certain to notify
them early in the bidding period so they have time to prepare a complete,
accurate proposal
Otherwise the subcontractor tends to bid high just for protection against what
might have been missed
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The use of subcontractors can be economical, but estimates still must be done
for each portion of work
Even if the estimator intends to subcontract the work, an estimate of the work
should be prepared
It is possible that the estimator will not receive proposals for a project before the
bid date and will have to use an estimated cost of the work in totalling the
proposal
All subcontractors' proposals are compared with the estimator's price
It is important that a sub-contractor's price is neither too high nor too low
If either situation exists, the estimator should call the subcontractor and discuss
the proposal with him
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Example of a subcontractors proposal:
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The Estimator has to analyse all subcontractor proposals very carefully
In checking the proposals, note especially what is included and what is left
out
Each subsequent proposal may add or delete items
Often the proposals set up certain conditions, such as use of water, heat, or
hoisting facilities
The estimator must compare each proposal and select the one that is the most
economical
If the subcontractor does not include an item in the proposal, it must be
considered elsewhere (All cost must be included somewhere)
A tricky task for the prime contractor is the comparison of the individual
subcontractor price quotes
Through-out the estimate process the prime contractor should be
communicating with the specific subcontractors concerning the fact that they
will submit a price quote and what scope of work is be to included within that
quote
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However, subcontractors will include items that they were not asked to bid
and will exclude items that they were asked to bid
A bid tabulation or "bid lab" is used to equalise the scope between
subcontractors so that the most advantageous subcontractor's bid can be
included in the prime contractor's bid. The figure below is an example of a bid
tabulation form
Fig.: Bid Tabulation to
compare different
subcontractor bids
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Charges and Prices

General Cost
Overhead cost are generally divided into home office overhead cost and
general (job overhead) cost
The home office overhead costs include items that cannot be readily charged
to any one project, but represent the cost of operating the construction
company
The job overhead costs include all overhead expenses that will be incurred as
a result of executing a specific project
The major difference between the two is that the home office overhead costs
are incurred regardless of any specific project
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General cost constitute a large percentage of the total cost of a construction
project
The Job overhead cost can range from 15 to 40 percent of the total project cost
and must be estimated with the same diligence and precision as the direct cost
Simply applying a percentage for project overhead degrades the overall
accuracy of the estimate
If the direct portion of the estimate is quantified and priced out with diligence
and precision and project overhead is guessed, then the overall accuracy of the
estimate is only as good as the guess of the project overhead
Estimators must consider overhead carefully, make a complete list of all
required items, and estimate the cost for each of these items
C: Unit Cost
71

General cost are all cost which cannot be estimated within a special item i.e. of
the Quantity Take Off and cover the following items:
Site mobilization and demobilization: transport of all site equipment to and
from site, installation of power and water supply preparation of temporary
construction roads and fields, temporary foundations i.e. for cranes, scaffolding,
site access, hoardings, installations, traffic signs, etc.
Cost for time related plants and equipment on site, rental cost for site
equipment, cost for electricity, fuel or water, maintenance of temporary
installations, roads etc.
Cost for structural engineering, geotechnical exploration, surveying, quantity
surveying, work preparation, insurances, etc.
Salaries for site manager, supervisors, site accountants etc.
Wages for temporary staff, clerks, security guards, etc.
Cost for removing all temporary installations and final cleaning
C: Unit Cost
72

The Estimator has to decide in consultation with the management if all
General Cost have to be covered in a special item, i.e. site mobilization
and maintaining site facilities or if these cost have to be covered by an
allowance on all items of the quantity take-off
This is a decision of strategic planning and very often these cost will be partially
covered by special items and partially by allocations on all or some other items
C: Unit Cost
73
Overhead, Risk and Profit

Home Office Overhead
Home office overhead cost are cost that are not readily chargeable to one
particular project
These cost are fixed expenses that must be paid by the contractor and are the
cost of staying in business
These expenses must be shared proportionally among the projects undertaken
Usually the home office cost items are estimated based on a fiscal year budget
and reduced to a percentage of the anticipated annual revenue
C: Unit Cost
74

Office Rent
(if owned, the cost plus return on
investment), electricity, heat, water,
office supplies, postage, insurance (fire,
theft, liability), taxes (property),
telephone, office machines, and
furnishings
Depreciation
Expenditures on office equipment,
calculators, typewriters, and any other
equipment. A certain percentage of the
cost is written off as depreciation each
year and is part of the general overhead
expense of running a business. A
separate account should be kept for
these expenses
Items that
should be
included in a
home office
overhead
budget
Salaries
Office employees such as
executives, accountants,
estimators, purchasing agents,
bookkeepers, and secretaries
Miscellaneous
Advertising, literature (magazines, books for
library), legal fees (not applicable to one particular
project), professional services (architects,
engineers), donations, travel (including company
vehicles), and club and association dues
C: Unit Cost
75

N$/year
N$ / year
Extempt Employees
CEO
950,000
Controller
500,000
Estimator
250,000
Director Human Resources
200,000
contractor for one year
Non-extempt Employees
Secretaries (2)
300,000
Payroll Clerk
120,000
Accounts Payable Clerk
120,000
Total Office Labour Cost
2,440,000
2,440,000
Benefits @ 38 %
927,200
Office Rent (Gross Lease) 2000 m @ N$ 6.50
130,000
Telephone
36,000
Office Supplies
14,000
Office Equipment
Advertising
Trade Journals
Donations
115,000
50,000
2,262
150,000
Legal Services
20,000
Accounting Services
36,000
Insurance on Office Equipment
8,000
Club & Association Dues
10,000
Travel & Entertainment
120,000
Cars (2) with insurance
90,000
Anticipated Office Expense for Year
C: Unit Cost
Tab.: Example for estimated

home office cost for a general
Obviously, for smaller contractors

the list would contain considerably
fewer items and for large
contractors it could fill pages, but
the idea is the same
It should be obvious that the more
work that can be handled by field
operations, the smaller the amount
that must be charged for general
overhead and the better the
chance of being low bidder
4,152,462
76

As a contractor's operation grows, attention should be paid to how much
and when additional staff should be added
The current staff may be able to handle the extra work if the additional workload
is laid out carefully and through the use of selective spot overtime
Another consideration to adding new staff is the cost of supporting that person
with Computers, communications equipment, office space, and furniture
Once the home office overhead has been estimated, it becomes necessary to
estimate the dollar volume for the year
If that amount is to rise over the coming year, the plan must state how to make
that happen with the associated cost included in the budget
Will this growth come about by bidding for additional jobs and will that require
additional estimators?
Will the growth come by expanding into new markets and, if so, what are the cost
of becoming known in these new markets?
These are very important strategic issues that need to be addressed by the key
people in the construction Company
C: Unit Cost
77

Once the sales for the year are estimated, a percentage can be developed
and applied to all work that is pursued
If this is not included in the estimate, these services are being provided free
to all customers
The following example takes the home office cost estimate and shows how it would be
allocated to specific projects.
Anticipated Sales Volume for Fiscal Year:
N$ 27,683,080.00
Home office cost allocation:
Annual estimated home office costs / Estimated annual revenue
= N$ 4,152,462 / N$ 27,683,080
= 15 %
(see also predetermined allocations)
Some contractors do not allow for the category "General Overhead Expense"
separately in their estimates; instead they figure a larger percentage for profit or
group overhead and profit together
This, in effect, "buries" part of the expenses. From the estimator's viewpoint, it is
desirable that all expenses be listed separately so they can be analysed periodically
C: Unit Cost
78

Risk
It is to be devided in the common contractor risk (i.e. price risk, economic risk,
warranty) and special risks for a specific project (i.e. inclement weather, new
techniques in production, stipulated fines, etc.)
A certain percentage of revenue should be calculated to cover these risks
Profit
Profit is the reasonable long term result for contractors economic performance
to balance the loss from a bad year with the profit from good years
Its as well mandatory for new investment to upgrade and increase the
company and if CEO is the owner and not an employee its his salary
A certain percentage of revenue should be calculated to cover these items as
well
C: Unit Cost
79
Pricing
When the estimator has ascertained all cost for the specific project (unit cost
and total cost for each item as well as general cost) he has to prepare the bid
In consultation with the management there is to decide the method of covering
the general cost in special items or partially or totally by allocations on the
unit cost
Cost for overhead, risk and profit will allways be covered by allocations on unit
cost
Allocations very often will be defined by management on a yearly basis
In dependence from the kind of projects the allocations can be different for
different cost: labour cost, cost of material, equipment cost and subcontractor
cost
C: Unit Cost
80

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Building Costing and Pricing

Prof. Dr.-Ing. Thomas Krause

Building Costing and Pricing

Prof. Dr.-Ing. Thomas Krause

Building Costing and Pricing

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