Professional Documents
Culture Documents
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.
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.
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.
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
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
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.
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
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.
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.
1.4 Estimating
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.
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.
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 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:
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
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.
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.
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 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.
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
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.
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 average output should be used in computing the time required to complete a job.
1.11 Exercises
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.
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.
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:
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.
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:
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.
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.
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.
Figure 2.2 shows a sample of the quantity surveying table for quantity take-off.
Earth works comprises site level, excavation, backfilling and transportation of excavated
materials.
- 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
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.
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)
Concrete works comprises of both plain concrete (PC) and reinforced concrete (RC).
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).
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.
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
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.
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.
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
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.
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.
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.
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.
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
Report to Management
Decision Approved
Not Approved Making Preliminary
Budget
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
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
1 466,580 150
2 290,304 80
3 525,096 120
4 349,920 90
5 259,290 60
6 657,206 220
7 291,718 70
8 711,414 180
Solution
The unit cost per car can be calculated as given in Table 3.2.
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.
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
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
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.
Solution
The cost of the proposed project could be adjusted for location as follows:
Cost = LE387,200 × (1.105 / 1.025) = LE417,420
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.
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
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
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 units
1 2,250 100
2 1,485 60
3 2,467 120
4 2,730 150
5 3,401 190
Solution
The unit costs are calculated as given in Table 3.6.
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
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.
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?
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
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.
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
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.
2. Find the weighted unit cost per square meter for the project data shown and
determine the cost of a 2700-m2 project.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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
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
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.
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.
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).
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
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
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
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.
Equipment could be classified based on their use as specific use or general use.
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
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.
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.
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.
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
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.
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
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
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.
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)
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
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:
(1 i ) n 1
F C ( 4 .7 )
i
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:
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.
i
C F n (4.8)
(1 i ) 1
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:
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:
i (1 i ) n
C P n (4.10)
(1 i ) 1
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
5 5
C = 5000[(0.08 × 1.08 ) / (1.08 – 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
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.
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.
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%
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
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.
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.
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
For an asset with useful life N, to obtain the annual depreciation charge, Dn, at any year n,
can be calculated as follows:
Ν - n 1
Dn ( p F ) (4.13)
N ( N 1)/2
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).
i (1 i ) n
C ( P F ) n (4.14)
(1 i ) 1
Then the depreciation value, Dn, at any year n is calculates using the following equation.
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%
10 10
C = (60000 – 6000) × [(0.1 × 1.1 ) / (1.1 – 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.
Initial
value
Sinking
fund
Book value
Straight-
line
Sum-of
years
Salvage
value
Age
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.
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.
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:
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
- Interest rate (i) = 15%
Solution
Depreciation (assume straight-line) = (460000 – 40000) / 10 = LE42000/year
Investment annual cost is calculated as follows:
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.
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
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.
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.
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.
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
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:
Truck cycle time = loading time + going time + return time + dumping time (5.2)
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.
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.
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%.
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
The indirect costs comprises both site and head office (general) overheads.
The estimated total jobsite overhead costs will become the baseline budget for jobsite
overhead expenditure control. These items might include:
- Jobsite personnel wages and fringe benefits;
- Jobsite personnel project-related travel expenses;
- Outside contracted engineering support (surveying, materials testing, etc.);
- General use equipment for the benefit of the general contractors and
subcontractors (cranes, hoists);
- Field buildings;
- Site utilities for the job duration;
- Horizontal structures (roads, parking, fences, and gates);
- Temporary environmental controls requirements;
- Winter and summer protection of completed works or works in progress;
- Related camp facilities for remote jobs;
- Jobsite production facilities (concrete batching plants, quarry, various shops);
- Protective aids for workers (gloves, hard hats, etc.) during construction and final
cleanup of the project; and
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.
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.
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;
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.
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.
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).
Price
Markup Cost
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
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.
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.
The share of specific item =Direct cost of this item x (total indirect cost + markup)
Total 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)
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 5.3 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.
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:
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:
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.