Estimating Work

Items Costs, Mark

up, Indirect Costs
and Pricing

Estimating Work Items Costs

 Estimating the cost of 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
 Evaluation of the soil investigation reports and a visit
to the jobsite where the project is to be constructed.
 Consider swell and compaction factors
 Consider waste factors

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 Estimating Work Items Costs
Swell and Compaction Factors
 To estimate the cost of excavating and hauling earth, it is
necessary to know the physical properties of earth because
the volume changes during construction operations.
 The soil is excavated from its natural state, placed in a hauling
unit and transported to the disposal area, where it is
distributed and compacted.
 The soil to be excavated is called bank measure, in its
undisturbed condition.
 Any additional requirements to support the excavation
operation should be also added to the cost estimating of an
excavation operation. For example, excavation support,
dewatering, etc.

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Estimating Work Items Costs

Calculating Truck Requirements
 The estimator has to determine the optimum number of
trucks required to transport excavated materials.
 Number of required trucks = truck cycle time / loading time
 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.
 Truck cycle time = loading time + going time + dumping time
+ return time.
 Loading time = truck capacity / production rate of loader
 Truck capacity (bank measure) = truck capacity (loose) /
(1+swelling factor)
 Round up the number of trucks

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 Estimating Work Items Costs
Waste Factors
 When estimating the material required for any job,
it is necessary to add a portion for the wastage of
material used
 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 ranges from
one to 10 percent for different materials

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Estimating Work Items Costs

Example 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

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 Estimating Work Items Costs
Example
 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
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Estimating Work Items Costs

Example 2:
 Calculate the price of obtaining a gravel form a pit
located 16 km from work site, unit price is LE25/m3,
using a loader with a rate of 50 m3/hr (bank measure)
and 12 m3 trucks. The loader and trucks are priced at
rates of LE450/day and LE300/day. The labor crew
consists of one operator at LE40/hr, two labors at
LE30/hr and driver at LE30/hr. The 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
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 Estimating Work Items Costs
Example 2: calculate number of trucks
 Truck capacity = 12 (loose material) / 1.12 = 10.71 m3
(bank measure).
 Loading time = 10.71 × 60 / 50 = 12.85 min
 Travel time = 16 × 2 × 60 / 20 = 96 min
 Cycle time= 12.85 + 96 + 5 = 113.85 min
 No. of trucks = 113.85 / 12.85 = 8.86 = 9 trucks

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Estimating Work Items Costs

Example 2: calculate gravel supply price
 Loader = 450 / 8 = LE56.25/hr
 Trucks = 9 × 300 / 8 = LE337.5/hr
 Operator = LE40/hr
 Labors = 2 × 30 = LE60/hr
 Drivers = 9 × 30 = LE270/hr
 Crew hourly cost= 56.25 + 337.5 + 40 + 60 + 270 = LE763.76/hr
 Crew unit price = 763.76 / 50 = LE15.28/m3
 gravel unit price = crew price + gravel cost = 15.28 + 25 =
LE40.28/m3

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 Estimating Direct Cost
Preparing the method statement
 Work breakdown structure
 A schedule of the activities showing the labor and
materials required
 Construction method of each work item
 List of risks and uncertainties the contractor is going
to carry and responses to deal with them
 A detailed program of the work (schedule) showing
the proposed duration of each work item

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Estimating Direct Cost

Unit rate estimating
 This type of estimating is used in building work and
for civil work where the nature of work is repetitive
 It is based on the resources required and their output
rates for each category of work
 It can also be used for determining certain detailed
costs in conceptual budgets or during design
development

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 Estimating Direct Cost
Unit rate estimating
 There are some disadvantages of using the unit-rate
method for estimating major works:
 It does not demand the examination of the
program (schedule) or the method statement or
the risks costs in undertaking the work
 Also, the precision and level of detail in pricing an
item can give a false sense of confidence in the
resulting estimate

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Estimating Direct Cost

Operational estimating
 It is recommended method for estimating civil
engineering work
 It requires the estimator to build up the cost of the
operation based on its principles including the total
cost of construction equipment, labor and
permanent/temporary materials
 This method links well with the planning and
scheduling process

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 Estimating Direct Cost
Operational estimating
 It embraces the total anticipated time that the
construction equipment and labor crew are involved in
the operation including all idle time
 The operational estimating involves the following:
 Prepare the method statement showing the
sequence, resources, timing, etc.
 Prepare the work schedule
 Smooth or level the resources

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Estimating Direct Cost

Examples
 Lecture notes page 104

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 Estimating Indirect Cost
Site Overheads
 Develop comprehensive checklists for general jobsite
requirements, for example:
 Cost of temporary site utilities
 Jobsite production facilities (concrete batching plants,
quarry, various shops
 Jobsite personnel wages
 Field buildings, etc.
 It is assumed between 5 -15 % of total direct cost

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Estimating Indirect Cost

Head Office (General) Overheads
 The company home office expenses cannot be
charged to a single project, for example:
 Office supplies, Office utilities and communication
 President, estimators, human resources staff, all
personnel working at the head office
 Accounting and legal services, travel, etc.
 It is assumed between 2 -5 % of total direct cost

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 Estimating Mark up
Construction contingences
 The amount of money added to cover the unforeseen
conditions, difficulties, or estimating accuracy:
 Unpredictable price escalation for materials, labor, and
installed equipment for projects
 Unforeseen safety and environmental requirements
 Weather changes; construction difficulties; economic
and financial problems; etc.

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Estimating Mark up
Profit
 The contractor should balance between the profit and
the competition, profit is governed by:
 The number of competitors
 The need for the work
 The project size
 Project complexity
 Working with a certain type of projects or agency

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 Finalizing a Tender Price

Price

Markup Cost

Financial
Risk allowance Profit Indirect cost Direct cost
charge

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Finalizing a Tender Price

 The indirect costs and mark up will be distributed over

the different work items
 There are three ways to price work items:
 Balanced pricing (bidding)
 Un-balanced pricing (bidding)
 Method-related charge

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 Finalizing a Tender Price
Balanced Bid (straight-forward method)
 The share of each item = (direct cost of this item /
total direct cost) x (total indirect cost + mark up)
 Example:
 Assume that the direct cost for an item (a) is LE
400,000 and that item is included in a contract whose
price is LE 3,500,000 and its total direct cost is LE
2,800,000. Calculate the price for item (a) considering
a balanced bid

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Finalizing a Tender Price

Balanced Bid (straight-forward method)
 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
 Indirect cost + markup for activity (a) =
(400000/2800000) x 700000 = 100000
 Price of activity a = its direct cost + indirect cost =
400,000 + 100,000 = LE 500,000

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 Finalizing a Tender Price
Un-Balanced Bid (Loading of rates)
 The contract price is said to be unbalanced if the
contractor raises the prices on certain bid items
(usually the early items on the bill of quantities) and
decreases the prices on other items so that the tender
price remain the same
 This process is also called the loading of rates
 Loading of rates may be risky to both the contractor
and the owner

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Finalizing a Tender Price

Un-Balanced Bid (Loading of rates)
 If the contractor raised the price for an item and the
quantity of this item increased then, this situation is
risky to the owner as it will cost the owner more
money
 On the other hand, if the contractor reduced the price
of an item and the quantity of that item increased,
thus situation will be risky to the contractor

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 Finalizing a Tender Price
Un-Balanced Bid (Loading of rates)

Direct Balanced bid Unbalanced bid

Activity Quantity cost
rate Rate Price Rate Price

A 100 4 5 500 6 600

B 100 8 10 1000 14 1400
C 100 16 20 2000 18 1800
D 100 16 20 2000 18 1800
E 100 8 10 1000 9 900
Tender price 6500 6500

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Finalizing a Tender Price

Pricing Policy: Method related charge

 In conventional BOQ, all costs are related to quantity

of work
 Results in financial problems
 Example, site overheads
 Specifying independent items from quantities as
separate items in the BOQ
 These items may be fixed cost or time related

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 Finalizing a Tender Price
Pricing Policy: Method related charge

 Sample BOQ in Method Related Charge

Fixed Time-related
Activity / Resource Unit Price
charge charge
Establish site Fixed - Sum
Site overheads - Time-related Month
Bulldozers - Time-related Day
Excavators - Time-related Day
General overheads - Time-related Month
----------------- - - -
----------------- - - -
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UNIT TOTAL
ITEM DESCRIPTION QUANTITY UNIT
PRICE PRICE
Heath Safety
Lump
Equipment and
Sum
Monitoring.
1
Project Site Lump
Mobilization. Sum

Steel Structure
2
Decontamination.
a) Decontaminate steel Square
1100
structure Meters
b) Load and haul debris
5 Ton
to Landfill in Alexandria
Walls Decontamination
3
and Coating.
Square
a) Support walls 1200
Meters
Square
b) Rolling Scaffold 1200
Meters

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