CCM Lecture 7

Construction Cost Management Systems
Lecture 7: Contractors Estimate & Bid Pricing

CM 643: Construction Cost Management Systems Estimation and bidding from contractors perspective
Notice for pre-qualification
Submit pre-qualification
proposal
No
Prequalified Stop and Analyse
Yes
Collect tender document and
study
Prepare tender summary
Decision to No
Stop and Analyse
Bid
CM 643: Construction Cost Management Systems Estimation and bidding from contractors perspective
Site Visit and Investigation
Consultation, queries, meetings and other

associated works
Preparation of construction
and related schedule
Collection of material Collection of labour Plant and equipment Other relevant

information information information information
Determination of mark up
Determination of direct costs Determination of indirect cost
and its distribution
Determination and
submission of bid price
Project
Stop and Analyse
awarded
Appoint project team and

execute project
CM 643: Construction Cost Management Systems The Estimating Process
Fundamental Objectives: Accuracy & Completeness
Major concerns while estimating:
How many (quantities)
How much (pricing)
How long (productivity)
CM 643: Construction Cost Management Systems Steps to Prepare an Estimate
Accuracy
Determined by
Experience
Labour
Technical
specificati
ons
Clients Plant
Quality How to do Estimate Cost per
Require Requireme
unit
nt the job Inputs
ment Material
Site
Conditions Sub-
contractor
s
Estimate
Degree of Approximation
CM 643: Construction Cost Management Systems Determining Bid Price
Tender price/bid price= Total cost + mark-up.
Total cost = direct costs + indirect costs
The cost of material, labour and plant and
equipment could be taken under direct cost,
while expenses on items such as personnel
recruitment, training, and research and
development are essentially indirect costs.
A direct cost of an activity is physically
traceable to the activity in an economic
manner, and thus, is a cost not incurred if the
activity is not performed.
Indirect costs, on the other hand, are business
costs other than direct costs and are not
physically traceable to the activity, and may be
incurred even if the activity is not performed.
CM 643: Construction Cost Management Systems Direct Costs
Direct costs are those items that actually go into building the facility. An item is considered a
direct cost if it can be linked to a specific item of work on a project. Direct costs make up the
bulk of any construction estimate. These are the obvious direct costs associated with any
project:
Materials (M)
Labor (L)
Equipment (P)
Subcontracts (S)
L-M-P-S
CM 643: Construction Cost Management Systems Indirect Costs
Indirect costs are the expenses incurred in order to manage and deliver the materials, labor, equipment,
and subcontracts employed on any given job. They are often referred to as job-specific overhead or
general conditions. The list of indirect costs for any given project will vary, but some of the common items
include the following:
Supervision
Job trailer expense
Temporary utilities
Testing and inspections
Job photographs
Safety supplies
Chemical toilets
Security fencing and barricades
Trash and debris removal
Cleanup
Bonds and insurance
CM 643: Construction Cost Management Systems Labor Resources
Labor resources refer to the various human craft or skill resources that actually build a
project.
Labor Rate The labor rate is the total hourly expense or cost to the contractor for
providing the particular craft or labor resource for the project. This labor rate includes
direct costs and indirect costs. Direct labor costs include all payments made directly to
the crafts workers.
Labor Productivity Quantity of work done per unit time. Of all the cost elements
that contribute to the total project construction cost, labor productivity ranks at the
top for variability. Because labor costs represent a significant proportion of the total
cost of construction, it is vital that good estimates of productivity be made relative to
the productivity that will be experienced on the project. Productivity assessment is a
complex process and not yet fully understood for the construction industry
Calculate labour requirement There may be a number of types of labourers present
at any construction project site, such as departmental labour, plant operators and
helpers, mates, masons, carpenter, fitters and subcontractors labourers. They are also
sometimes characterized as skilled, semiskilled and unskilled labourers. They are
employed in different modesjob contracts; labour contracts; regular employment;
project-based employment; daily-wage employment; casual employment, etc.
Estimation of Labor Costs: Estimated based on the analysis of past performance data,
study of published production norms, study of construction processes, thumb rules,
and labour cost prevailing in the area where the project site is located.
Labor rates should ideally be estimated considering productivity norms.
For example, activity A requires X man-hours to complete. The per hour standard
labor rate is Rs. Y. The applicable labor rate = X * Y
Labour productivity, however, will depend on a number of parameters including
complexity of work; repetition of work; quality control; mechanization; quality of
supervision; management policies; resource management; work environment; climatic
and weather conditions; and labour availability. Accordingly, suitable correction factors
should be taken into account while estimating for the productivity norms.
Labor productivity, however, will depend on a number of parameters:
Complexity of work
Repetition of work
Quality control
Mechanization
Quality of
supervision
Management policies
Resource management
Work environment
Climatic and weather conditions
Labor availability
Accordingly, suitable correction factors should be taken into account while estimating for
the productivity norms.
The workers productivity in mathematical terms can be defined as below:
As can be expected, labour productivity varies from project to project.

Standard productivity norms are established and well documented by several agencies
such as, Central Public Works Department (CPWD), and MES, as well as big
construction companies.
It must be pointed out here that standard productivity is applicable under ideal
conditions, whereas actual productivity is far less due to various factors, as listed above.
In a typical building project, the efficiency varies from 60 per cent to 70 per cent.
CM 643: Construction Cost Management Systems Labour Productivity
Breakdown of a Typical Craftsmans

Hour
Direct Work
19%
32% Tools, materials and
Transportation
Traveling
Waiting
29%
7%
Breaks, late starts,
13% instructions
Source: http://www.delhi.gov.in/wps/wcm/connect/doit_labour/Labour/Home/Minimum+Wages/
CM 643: Construction Cost Management Systems Derivation of Standard Hourly Rates
Standard hourly rates are derived keeping in view factors such as
basic wages
bonus,
employee provident fund (EPF) and family pension
Retrenchment
notice pay
insurance.
The basic wages vary from state to state, and before estimating the labour
rates, the minimum wages to be paid to laborer should be checked with the
minimum wages list specific to a state.
CM 643: Construction Cost Management Systems Derivation of Standard Hourly Rates
Presently:
Bonus: Paid at a rate of 20 per cent of the total wages earned by the labourer.
EPF and family pension: Contributed by the employer at the rate of 12 per cent of total wages
earned
If the laborer has worked for more than 240 days, he is entitled for 15 days pay for retrenchment
and notice pay equivalent to 26 days wages.
These statutory requirements must be cross-checked every time the labour standard hourly wages
are estimated.
Other factors that may have to be considered:
Accommodation cost
mobilization and demobilization
Canteen and medical facilities
Sports and entertainment
Incentives.
If the construction project is located in a foreign country, then depending on the country, one may
have to incorporate recruitment expenses, airfare and social security costs also in order to arrive at
the standard hourly wages.
CM 643: Construction Cost Management Systems Minimum Wage Rate: Scheduled Employment
CM 643: Construction Cost Management Systems Minimum Wage Rate: Scheduled Employment
CM 643: Construction Cost Management Systems
CM 643: Construction Cost Management Systems Problem
A steelworker works 10 hr/day, 6 days/week. A base wage of Rs. 100 per hour is paid for all
straight time work, 8 hours/day, 5 days/week. An overtime rate of time and one-half is paid for
all hours over 8 hours/day, Monday through Friday, and double time is paid for all Saturday
work. The employer also has to pay a tax of 10.65% of actual wages. The insurance rate to be
paid by the employer is Rs 12.5 per Rs. 100 of base wage. Fringe benefits of Rs. 12 per hour are
also to be paid. Calculate the average hourly cost to hire the steelworker.
Next suppose there are five steelworkers in a crew and the crew can place 3000 Kg per 10 hour
working for reinforcing steel, what is the cost of labour per kg of steel in place, if weekend work
was and was not considered.
CM 643: Construction Cost Management Systems Solution
Actual hours worked = 60

Pay hours = weekly straight time + weekly overtime + Saturday overtime
= 5days x 8 hours + 5days x 2hours x 1.5 + 1 day x 10 hours x 2
= 40 +15 + 20
= 75 hours
Total pay per week = Rs 100 x 75 = Rs. 7500
Average hourly pay = Rs. 7500/60 = Rs. 125
Tax paid @ 10.65% = Rs. 125x.1065 = Rs. 13.3
Insurance @ 12.5% = Rs. 100 x .125 = Rs. 12.5
Fringe benefits = Rs. 12
Average Hourly Cost = Rs. 162.8
Cost of a 5 person crew for a 10 hour day = 5 x 10 x 162.8 = Rs. 8140
Production rate = 3000 kg per day
Cost per unit installed = 8140/3000 = Rs. 2.71 per kg
CM 643: Construction Cost Management Systems Solution Not considering weekend work
Actual hours worked = 50
Pay hours = weekly straight time + weekly overtime
= 5days x 8 hours + 5days x 2hours x 1.5
= 40 +15 = 55 hours
Total pay per week = Rs 100 x 55 = Rs. 5500
Average hourly pay = Rs. 5500/50 = Rs. 110
Tax paid @ 10.65% = Rs. 110x.1065 = Rs. 11.72
Insurance @ 12.5% = Rs. 100 x .125 = Rs. 12.5
Fringe benefits = Rs. 12
Average Hourly Cost = Rs. 146.22
Cost of a 5 person crew for a 10 hour day
= 5 x 10 x 146.22 = Rs. 7311
Production rate = 3000 kg per day
Cost per unit installed = 7311/3000 = Rs. 2.44 per kg
CM 643: Construction Cost Management Systems Assessment of Labor Req.
Two step process:
i. calculating total man-hours and, hence, total labour days required for executing
the entire project
ii. calculating labour benefits.
In order to calculate the total man-hours needed to complete the project, we need to
know
i. The month-wise schedule of quantities to be executed
ii. The productivity norms for executing the different activities.
CM 643: Construction Cost Management Systems Labour Resources
ROLE: (Return on Labour employed) = Invoice/Sales (monthly)/ number of

labour deployed per month. Ideal is around 1 Lakh per man month
ROTE: (Return on Talent employed) = Invoice/Sales (monthly)/ number of
staff deployed per month. Ideal is around 20-25 Lakh per staff month
CM 643: Construction Cost Management Systems Illustration of labour cost calculation
The labour can be of unskilled, semiskilled and skilled categories. Sometimes, it is required to
calculate the average man-day rate for labour.
In such cases, it is normal to assume a weighted average on the assumption that for every
skilled workman, there would be 2 semiskilled workmen and 4 unskilled workmen. The basic
minimum wages across the country for these categories of labourers vary.
Illustration of labour cost calculation
CM 643: Construction Cost Management Systems Determining Productivity for Estimating purposes
Determine base productivity

Adjust for
Project and task complexity
Weather
Site congestion
Experience and skill of the workforce
Overtime work done
Adjusted productivity = Base Productivity/(1 + Adjustment Factors)
CM 643: Construction Cost Management Systems Example
On a building project you plan to utilize a crew of carpenters to place 5000 sq. ft
of forms for one of the pours. The crew cost per hour is Rs. 140. The crew
productivity rate is 335 square feet per day under normal conditions. Normal
conditions are 5 days and 8 hours working
1. What is the labour cost for installing these forms under normal conditions?
2. Heavy rains have delayed the work by 3 days. You decide to work the crew 3
hours overtime each workday and to work them on Saturday for 11 hours.
Premium rate for overtime and weekend work is 1.5. Assuming the first day of
the work is a Monday, when will the work be complete and what will it cost?
Assume an adjustment factor of 0.2.
3. Rather than working overtime, you decide to double the crew. However the
original crew was the optimal size and the larger crew leads to some
congestion on the site. Is this a better choice than working overtime in terms of
time and cost? Assume an adjustment factor of 0.15.
Sol 1. Productivity = 335 sq.ft/day
Rate = Rs. 140/hour
Cost per day = Rs. 140 x 8 = Rs. 1120
Time required to complete = 5000/335 = 15 days = 3 working weeks
Total Cost = Rs. 1120 x 15 = Rs. 16,800
Sol 2. Actual hours worked per week = 5 x 11+ 1X 11= 66
Pay hours = weekly straight time + weekly overtime + Saturday overtime = 5days x 8
hours + 5days x 3hours x 1.5 + 1 day x 11 hours x 1.5 = 40 +22.5 + 16.5 = 79 hours
Total pay per week = Rs 140 x 79 = Rs. 11060 Average hourly pay = Rs. 11060/66 = Rs.
167.6 Average daily pay = Rs. 167.6 x 11 = Rs. 1843.6
Productivity multiplier = 1/1.2 = 0.83
Hourly base productivity = 335 sq.ft/8 = 41.875 sq.ft/hr
Hence daily productivity under new strategy = 41.875 x 11 x 0.83 = 382.32 sq.ft/day
Time required to complete = 5000/382.32 = 13.07 days
2 working weeks and 2 days. Project is back on track
Total Cost = Rs. 1843.6 x 14 = Rs. 25,810
Sol 3. Actual hours worked per week = 40 Rate = Rs. 280/hr
Total pay per day = Rs. 280 x 8 = Rs. 2240
Productivity multiplier = 1/1.15 = 0.87
Daily productivity for doubled crew = 335 x 2 = 670 sq.ft/day Hourly base productivity =
670 sq.ft/8 = 83.75 sq.ft/hr
Hence daily productivity under new strategy = 83.75 x 8 x 0.87 = 582.9 sq.ft/day
Time required to complete = 5000/582.9 = 8.58 days 1 working week and 4 days.
Project is ahead of schedule
Total Cost = Rs. 2240 x 9= Rs. 20,160
This option is better than the previous option on both time and cost.
Construction Cost Management Systems (MBA CPM)
SEMESTER 2
Labour Cost for Concrete
Description Unit Qty Rate Amount
Labour Charges For Laying and Placing of Concrete including finishing
Cum 1 325 325
and levelling
Cost of Dept. Labour Cum 1 59 59
Labour Charges for Pipeline Cum 1 75 75
Labour at Ground Point & Plant Area Cum 1 18 18
L/C for Construction Joint Chipping Cum 1 15 15
L/C for Slurry and Slush removing and Debris Shifting & Stacking after
Cum 1 13 13
concrete
Labour Charges for Grinding Works For Smooth Finishing Cum 1 13 13
Labour Charges for Housekeeping Works Cum 1 34 34
Labour Charges for Providing Labours for Safety Works Closing of Cut
out and Lift Shaft Gates etc.(Shifting of Material and Providing Helpers Cum 1 13 13
to Welders for Fixing)
Labour for Curing Cum 1 10 10
Labour for Debris Shifting (Costof Debris Disposal) Cum 1 26 26
Labour for Heisan Cloth Fixing, Cum 1 10 10
Labour for Staging Pathways Cum 1 30 30
Cost for post concrete of Executed Work Cum 1 0 0
Labour for area cleaning before and after concrete Cum 1 20 20
Total Cum 661
SEMESTER 2
SEMESTER 2
SEMESTER 2
Illustration of labour req.
For a project, the schedule of quantities to be executed month-wise along with the total quantities are given .
Compute the average monthly labour requirement and the associated cost towards labour benefit
Productivity data is assumed as Man-hour /unit ,Assuming miscellaneous labour as 9 per month, average wages
paid is Rs. 125 per day , assumption of 10 working hours every day (8 normal hours and 2 overtime hours) and 26
workdays every month
CM 643: Construction Cost Management Systems Illustration of labour req.
This is achieved in two steps(1) calculating total man-hours and, hence, total labour days
required for executing the entire project, and (2) calculating labour benefits.
In order to calculate the total man-hours needed to complete the project, we need to know (1)
the month-wise schedule of quantities to be executed and (2) the productivity norms for
executing the different activities. In this example, we are given the information on the first
part. For the second part, we may refer to the appropriate productivity norm. The following
values of productivity are obtained.
The monthly labour requirement has been calculated on the assumption of 10 working hours
every day (8 normal hours and 2 overtime hours) and 26 workdays every month. Thus, for
month one, the labour requirement for earthwork would be calculated thus:
Similarly, the labour required for concreting in month 2 would be
In addition to the above labour requirement, the project would also require some
miscellaneous workers such as electrician, mechanic, security men, store helper, office peon,
computer operator, and typist.
For calculating the labour benefits, the total number of such miscellaneous workers is also
added in the average labour requirement. Let us assume that the total miscellaneous workers
are estimated to be 9 every month for the total project duration of 10 months
Illustration of labour req.
Computation of labor requirement
Month-wise labor requirement

The average requirement of labour would be = (12 + 60 + 112 + 131 + 165 + 120 + 94 + 44 + 25
+ 17)/10 = 780/10 = 78
Total man-hours for the project would be = 780 10 26 = 20,280
The average monthly requirement of workers is useful for calculating the labour benefits, which
ultimately form part of the indirect costs.
Calculating labour benefits

The average number of labour calculated for the above problem is 78. Let us assume that the
average wages paid is Rs. 125 per day
Calculation details for labour benefits
25,35,000 507,000
25,35,000 304,200
811,200
Calculation for retrenchment and notice pay
78 1,46,250
78 2,53,500
3,99,750
12,10,950
Pricing of Material
CM 643: Construction Cost Management Systems Pricing Materials
The materials used in a construction project fall into two broad categories:
materials that form part of the finished structure such as concrete
materials that are consumed in the construction operations such as formwork and fuel
oil.
There is less risk of cost overruns with material estimates since firm prices can be
obtained from suppliers for the supply of materials.
Important points to consider:
Do the materials offered by the supplier comply with the specifications?
Do the prices quoted include delivery of the materials to the site?
Can the contractor rely on the suppliers prices to remain firm until the owner awards
the contract?
Does the suppliers price include state or city sales taxes?
Will there be any storage or warehousing requirements for the materials?
What are the vendors terms of offer?
CM 643: Construction Cost Management Systems Pricing Materials
The price of materials entered into an estimate has to be calculated because the units that
materials are packaged in often differ from takeoff units.
Calculate material requirement per unit of an item/activity .
Material constitutes about 55 per cent to 75 per cent in any typical project.
It is a general tendency to go for thumb rules for calculation of material quantities, especially in
the case of items like concrete. However, it is recommended that mix design be carried out for
this and material quantities derived from the mix design.
All considerations of wastages, breakages and bulkages should be noted in estimating the
material quantities. Materials productivity is defined as the quantity of work done per unit of
materialsthat is,
SEMESTER 2
Concrete Mix design
Microsilic River Crusher

Total cement Fly Ash 20mm 10mm
Sr. No. Grade Qty M3 a Sand Sand
Cement
Kg Kg Kg Kg Kg Kg Kg
1 M80 680 1 480 140 60 552 563 0 740
2 M 70 614 1 455 108 51 535 509 0 708
3 M60 570 1 450 80 40 537 436 593 185
4 M50 560 1 450 110 0 535 512 716
5 M40 480 1 400 80 0 530 484 846
M30 420 1 350 70 0 0
6 M20 320 1 260 60 0 552 502 946
7 M15 280 1 224 56 0 556 520 703 306
8 M10 220 1 176 44 0 588 478 568 358
CM 643: Construction Cost Management Systems Illustration of material cost calculation
Calculating cost of cement OPC-43 Grade
- -
Calculating cost of steel reinforcement (Fe 415)

Calculating cost of fine sand

INTERCARTING &
SEMESTER 2
HANDLING incl
Testing Unloa Wastage
DESCRIPTION UNIT Landed Cost transportation Wastage Scrap credit NET RATE
charges ding (%)
from client store to
site
CEMENT-OPC BAGS 267.0 3% 8.01 275.01
REINFORCEMENT MT 46150.0 175 4% 1846 500 47871.00
STRUCTURAL STEEL MT 49000.0 150 3% 1470 500 50120.00
40 MM METAL MT 590.0 4% 23.6 613.60
SAND FOR CONCRETING CUM 2968.2 10% 296.81979 3265.02
SAND FOR MASONARY /
CUM 3180.2 10% 318.0212 3498.23
PLASTERING
BRICKS NOS 7.0 10% 0.7 7.70
BLOCKS 100 mm NOS 43.8 1.08 8% 3.504 48.38
BLOCKS 150 mm NOS 65.7 1.62 8% 5.256 72.58
BLOCKS 200 mm NOS 87.6 2.16 8% 7.008 96.77
Fixo Block Ultratech KG 15.0 2.16 7% 1.05 18.21
Gypsum KG 8.6 2.16 10% 0.859 11.61
PLYWOOD NOS 2700.0 5% 135 2835.00
FLY ASH KG 2.5 5% 0.124 2.60
ADMIXTURE - RHEOBUILD
KG 52.1 4% 2.0848 54.20
1124
ADMIXTURE - HP SG KG 35.7 4% 1.426 37.08
Micro Silica KG 29.0 4% 1.16 30.16
Putty fine KG 17.9 8% 1.4304 19.31
Putty coarse KG 13.3 8% 1.0664 14.40
Hilti Ml 6.1 4% 0.2424242 6.30
Binding Wire KG 57.2 4% 2.2888 59.51
Cover Blocks MT 200.0 4% 8 208.00
CM 643: Construction Cost Management Systems Stock calculation (basic and bulk material part)
This is illustrated with respect to the schedule of quantities shown in

CM 643: Construction Cost Management Systems Assumptions
Cement for concrete= 450 kg/cum DESCRIPTION UNIT Rate

Cement-Opc Bags 267.0
Flyash for concrete = 110 Kg/cum Reinforcement Mt 46150.0
20 mm for concrete = 535 kg/cum Coarse Aggregate Mt 604.0
Sand For Concreting Cum 2968.2
10 mm for concrete = 512 kg/cum Sand For Masonry/plaster Cum 3180.2
Sand for concreting = 716 kg/cum Bricks Nos 6.9
Plywood Nos 2700.0
Cement for brickwork = 1.99 bags /cum
Fly Ash Kg 2.2
Sand for brickwork = 0.21 cum /cum Admixture Kg 52.1
Micro Silica Kg 29.0
Bricks = 473 /cum
Binding Wire Kg 57.2
Cement for plaster = 1.22 bags/10 sqm Conventional formwork Sqm 190
Sand for plaster= 0.13 cum/10 sqm Aluminum Formwork Sqm 250
SEMESTER 2
We calculate the month-wise stock value of materials such as cement, coarse aggregate, fine
aggregate, reinforcement, structural steel, plywood and timber.
Suppose we are required to find the stock of cement required for month 2. Now, cement is required for
concreting activity, brickwork activity and plastering in the project. Concreting planned for month 2 =
200 m3, and brickwork and plastering are nil. Assuming that for one m3 of concrete the cement required
is approximately 6.5 bags (each bag containing 50 kg), the total requirement of cement would be 200
6.5 = 1,300 bags.
If the lead time (time difference between order placed and receipt of cement) for cement is 15 days, the
number of cement bags required for supporting the concreting activity would be 1,300 15/30 = 650
bags. In monetary terms, the stock value = 650 225 = Rs. 146,250 (assuming Rs. 225/bag of cement).
For month 3,400 m3 of concreting and 170 m3 of brickwork is planned. The total consumption of cement
would be 400 6.5 + 170 2.2 = 2,974 bags (considering 2.2 bags of cement per m3 of brickwork). The
stock requirement would be 2,974 15/30 = 1,487 bags, assuming 15 days lead time. In monetary
terms, it is equivalent to 1,487 225 = 334,575. In this manner, the month-wise stock of cement in
monetary terms can be calculated.
For calculation of stock of coarse aggregate and fine aggregate, the material coefficients for unit
quantity can be referred to and the stock value obtained assuming appropriate lead time.
For formwork material such as staging material (props, cup-lock system, framing material, etc.) and
sheathing material (plywood and timber), we need to know the formwork area scheduled to be
achieved for the month, the cycle time for formwork activity and the repetition possible for the
formwork materials.
CM 643: Construction Cost Management Systems Stock calculation (temporary structure part)
A contractor has to construct a
number of temporary structures at
site including site office, cement
godown, store, clients office,
architects office, maintenance
workshop, carpentry workshop,
canteen, labour hutment and site
barricading. A substantial portion of
money goes into constructing these
temporary structures and they are
also treated as part of stock at site.
An illustration for providing such
stock value is shown.
It is usual to distribute the total
cost of temporary construction on
a pro rata basis depending on the
invoicing achieved per month.
SEMESTER 2
Illustration - Stock calculation
For a particular construction project, the month-wise stock of basic and bulk materials (in
monetary terms) is given in Table. The contractors estimated cost of construction of temporary
structure is Rs. 34 lakh. The month-wise estimated invoice (in terms of percentage of contract
value) is also given. Calculate the average monthly stock value for the project
SEMESTER 2
We split the stock of temporary structures (Rs. 34 lakh obtained through Example) month-wise
on pro rata basis of invoice values. Thus, the contribution of stock of temporary structures for
month 1 will be 2% of Rs. 34 lakh = Rs. 0.68 lakh; for month 2 it will be 10 per cent of Rs. 34
lakh = Rs. 3.4 lakh; and so on. These values are added in the total month-wise stock of basic
and bulk materials, as shown below
SEMESTER 2
Thus, average monthly stock = cumulative stock/duration = 189.0/10 = 18.9 lakh.

Cement coefficients for plastering
Cement coefficients for brickwork
Cement coefficients for finishing
CM 643: Construction Cost Management Systems Equipment Resources
One of the most important decisions a contractor makes involves the selection of
construction equipment. The decision for selection of a particular type of equipment
may be the result of an optimization process or may be based solely on the fact that
the contractor already owns a particular piece of equipment that should be put to use.
Equipment Selection Criteria- It is important for the estimator to have a solid
background in and understanding of various types of construction equipment. This
understanding is most important when making decisions about equipment. The
estimator, having recognized the work to be performed, must identify the most
economical choice for equipment.
Production Rates - Equipment production rates can be determined in a relatively
simple fashion for the purposes of the estimator.
Equipment Productivity = Work Units Achieved/ Equipment Hour Consumed
Equipment Costs - Equipment costs represent a large percentage of the total cost for
many construction projects. Equipment represents a major investment for contractors,
and it is necessary that the investment generate a return to the contractor
CM 643: Construction Cost Management Systems Equipment Costs
The cost associated with equipment can be broadly classified as direct equipment
costs and indirect equipment costs.
Direct equipment costs include the ownership costs and operating expenses
Indirect equipment costs are the costs that occur in support of the overall fleet of
equipment but which cannot be specifically assigned to a particular piece of
equipment
CM 643: Construction Cost Management Systems Construction Equipment
Plant, equipment, and tools used in construction operations are priced in three different
categories in the estimate.
First, hand tools up to a certain value together with blades, drill bits, and other
consumables used in the work are priced as a percentage of the total labor price of the
estimate. This percentage, referred to as the Small Tools Allowance, is included with the
add-ons
The second category consists of larger items of equipment that are usually shared by a
number of work activities; the kind of equipment items that are kept at the site over a
period of time and used only intermittently on the work in progress. Examples would
include items such as air compressors and electrical generators.
The third category of equipment comprises items that are used for specific tasks on the
project such as digging a trench or hoisting materials into place. This equipment is priced
directly against the takeoff quantities for that work it is to be used on. The equipment is
not kept on-site for extended periods like those in the previous classification, but is
shipped to the site, used for its particular task, and then immediately shipped back to its
source. Excavation equipment, cranes, hoisting equipment, and costly, highly specialized
items such as concrete saws all fall into this category
CM 643: Construction Cost Management Systems Renting versus Purchasing Equipment
There can be distinct advantages to renting equipment, including:
The contractor does not have to maintain a large inventory of specialized plant and
equipment where individual items are used infrequently.
The contractor has continuous access to the newest and most efficient items of
equipment available.
There is little or no need for equipment warehouse and storage facilities.
There is a reduced need for the contractor to employ maintenance staff and operate
facilities for their use.
Accounting for equipment costs can be simpler when equipment is rented.
There may be significant savings on company insurance premiums when a contractor is
not maintaining a inventory of plant and equipment.
However, when the construction operations of a contractor generate a steady demand for
the use of certain items of equipment or plant, there can be distinct financial benefits
gained by owning equipment. There can also be a marketing advantage to the contractors
who own their own equipment due to the perception that these contractors are more
financially stable and committed than others who own no equipment.
CM 643: Construction Cost Management Systems Equipment Costs
In fact, some owners require contractors who bid on their projects to list on the bid the
company-owned equipment they propose to use in the work. This information is utilized
in the owners assessment of the bidder.
Where a comparison of equipment ownership with the rental alternative strictly on the
basis of cost is needed, the full cost per unit of time of owning an item of equipment has
to be determined. To estimate the full ownership cost, the following aspects of
equipment ownership have to be considered
1. Depreciation expense
2. Maintenance and repair costs
3. Financing expenses
4. Taxes
5. Insurance costs
6. Storage costs
7. Fuel and lubrication costs
SEMESTER 2
Description Approx.fuel Consumption Per Hour
BULLDOZER D6 18.0 LTRS
BULLDOZER D155A 48.0 LTRS
BULLDOZER D80A12, D65E8 28.0 LTRS
MOTOR GRADER 28.0 LTRS
WHEEL LOADER 1.2CUM ( HM2021 / W20) 16.0 LTRS
CK 72 POC. EXCAVATOR 14.0 LTRS
90CK / 115CL HYDRAULIC EXCAVATOR 18.0 LTRS
170 CK. HYDRAULIC EXCAVATOR 28.0 LTRS
300 CK HYDRAULIC EXCAVATOR 46.0 LTRS
EXCAVATOR CUM LOADER ( JCB / CASE 580) 7.0 LTRS
TRENCHER CASE 660 6.0 LTRS
EARTH RAMMER 3.0 LTRS
ROAD ROLLER - 8.0 TON 8.0 LTRS
PIPE LAYER 21.0 LTRS
AM HOIST 9320 / 326 T 45.0 LTRS
LINK BELT CRANE LS1018 48.0 LTRS
MANITOWAC 4100 38.0 LTRS
AM HOIST 9225 / 135 T 24.0 LTRS
CRAWLER CRANE 75 T 21.0 LTRS
TRUCK CRANE 40 T 16.0 LTRS
DIESEL / HYD WINCH 10T 10.0 LTRS
DIESEL WINCH 5 T 7.0 LTRS
MOBILE DIESEL COMPRESSOR 600 CFM 28.0 LTRS
WELDING GENERATOR DIESEL MINI 6.0 LTRS
WELDING GENERATOR DIESEL 400 AMPS 6.0 LTRS
PAY WELDING UNIT 24.0 LTRS
BORING MACHINE ( AMERICAN AUGER ) 9.0 LTRS
PG SET DIESEL 3 PH, 15 KVA 7.0 LTRS
CM 643: Construction Cost Management Systems Depreciation
Depreciation refers to the decline in market value of an asset. the term has a more
narrow meaning having to do with allocating the acquisition cost of an item of plant over
the useful life of that asset.
In our appraisal of depreciation, some factors are explicit while other factors have to be
estimated. Generally what we know is that the asset costs a certain amount to acquire
(the initial cost); the asset will be used for a number of years (the useful life); and the
asset will be sold at the end of this period for a sum of money (the salvage value). There
is, however, some uncertainty about the exact length of the useful life of the asset and
about the precise amount of salvage value that will be realized when the asset is
disposed of. Any assessment of depreciation, therefore, requires these values to be
estimated.
The process of allocating the cost of the item over its useful life is known as
amortization, and there are several depreciation methods available to calculate
amortization of an asset. Here we will consider three methods:
1. The straight-line method
2. The declining-balance method, double declining
3. The production or use method
CM 643: Construction Cost Management Systems Straight-Line Depreciation
The straight-line method is the most commonly used method of calculating depreciation.
Depreciation on a straight-line basis is allocated equally per year over the useful life of the
asset, thus the annual depreciation amount is constant and is equal to the cost of the asset
minus any salvage value divided by the years of life of the asset:
Limitations of this method:

It does not reflect the fact that depreciation usually occurs at an accelerated rate in the
early years of the life of an asset
Does not account for the intensity of use of the asset.
CM 643: Construction Cost Management Systems Maintenance and Repair Costs
The costs of maintenance and repairs of plant and equipment comprise a factor that
cannot be ignored when considering ownership costs. Construction operations can
subject equipment to considerable wear and tear, but the amount of wear varies
enormously between different items of equipment used and between different job
conditions. The rates used in the following examples are based on the average costs of
maintenance and repair, but since these costs can vary so much, the contractor
formulating equipment operating prices should adjust the rates for maintenance and
repairs according to the conditions the equipment is to work under.
Again, as in many places in estimating, good records of previous costs in this area will
much improve the quality of the estimators assessment of probable maintenance
costs.
Maintenance and repair costs are calculated as a percentage of the annual
depreciation costs for each item of equipment
CM 643: Construction Cost Management Systems Maintenance and Repair Costs
When depreciation is calculated using the straight-line method, the result is a constant amount
being charged yearly for depreciation and then a second constant amount is allowed for
maintenance and repairs.
CM 643: Construction Cost Management Systems Financing Expenses
Whether the owner of construction equipment purchases the equipment using cash or
whether the purchase is financed by a loan from a lending institution, there is going to be an
interest expense involved.
The interest expense is the cost of using capital; where cash is used, it is the amount that would
have been earned had the money been invested elsewhere, that is, the forgone interest
revenue. Where the purchase is financed by a loan, the interest expense is the interest charged
on the loan.
In both cases the interest expense can be calculated by applying an interest rate to the
owners average annual investment in the unit. The average annual investment is
approximately midway between the total initial cost of the unit and its salvage value. Thus:
The interest rate used to calculate the financing expense will vary from time to time, from place
to place and also from one company to another depending mostly on its credit rating and how
good a deal it can get from the lending institution.
CM 643: Construction Cost Management Systems Taxes, Insurance, and Storage Costs
Just as with investment expenses, significant variations can be expected in the cost of the
annual taxes, insurance premiums, and storage costs together with fees for licenses required
and other fees expended on an item of equipment. Where these expenses are known, they
should be added into the calculation of the annual ownership costs of the equipment.
In the case where information on these costs is not available, they may be calculated as a
percentage of the average annual investment cost of the piece of equipment. The interest
expense rate and the rate for taxes, insurance, and storage costs are often combined to give a
total equipment overhead rate.
For estimation, we will use an equipment overhead rate of 11%, which comprises 6% for the
investment rate and 5% to cover taxes, insurance, and storage costs
CM 643: Construction Cost Management Systems Fuel and Lubrication Costs
Fuel consumption and the consumption of lubrication oil can be closely monitored in the field.
Data from these field observations will enable the estimator to quite accurately predict future
rates of consumption under similar working conditions.
However, if there is no access to this information, consumption can be predicted where the
size and type of engine are known and the likely engine operating factor is estimated. This
operating factor is an assessment of the load under which the engine is operating.
An engine continually producing full-rated horsepower is operating at a factor of 100%.
Construction equipment never operates at this level for extended periods, so the operating
factor used in calculating overall fuel consumption is always a value less than 100%.
The operating factor is yet another variable with a wide range of possible values responding to
the many different conditions that might be encountered when the equipment under
consideration is used. Again, there is no good substitute for hard data carefully obtained in the
observation of actual operations in progress.
SEMESTER 2
Description Approx.fuel Consumption Per Hour
BULLDOZER D155A 48.0 LTRS
BULLDOZER D80A12, D65E8 28.0 LTRS
MOTOR GRADER 28.0 LTRS
WHEEL LOADER 1.2CUM ( HM2021 / W20) 16.0 LTRS
CK 72 POC. EXCAVATOR 14.0 LTRS
90CK / 115CL HYDRAULIC EXCAVATOR 18.0 LTRS
170 CK. HYDRAULIC EXCAVATOR 28.0 LTRS
300 CK HYDRAULIC EXCAVATOR 46.0 LTRS
EXCAVATOR CUM LOADER ( JCB / CASE 580) 7.0 LTRS
TRENCHER CASE 660 6.0 LTRS
EARTH RAMMER 3.0 LTRS
ROAD ROLLER - 8.0 TON 8.0 LTRS
PIPE LAYER 21.0 LTRS
AM HOIST 9320 / 326 T 45.0 LTRS
LINK BELT CRANE LS1018 48.0 LTRS
MANITOWAC 4100 38.0 LTRS
AM HOIST 9225 / 135 T 24.0 LTRS
DIESEL / HYD WINCH 10T 10.0 LTRS
DIESEL WINCH 5 T 7.0 LTRS
WELDING GENERATOR DIESEL MINI 6.0 LTRS
WELDING GENERATOR DIESEL 400 AMPS 6.0 LTRS
PAY WELDING UNIT 24.0 LTRS
BORING MACHINE ( AMERICAN AUGER ) 9.0 LTRS
PG SET DIESEL 3 PH, 15 KVA 7.0 LTRS
CM 643: Construction Cost Management Systems Equipment Operator Costs
Whether a contractor decides to rent or own the equipment used on its projects, the cost
of operating the equipment has to be considered.
In some situations rentals may be available that include an operating engineer as part of
the rental agreement. This variety of rental agreement is sometimes available for
excavation equipment, and it can be a preferred alternative when the rental company
offers a high-caliber Equipment operator who is familiar with the particular excavation
unit and is capable of high productivity. More often than not, however, equipment is
rented without an operator.
So, just as in the case in which the contractor is using company-owned equipment, the
labor costs for operating the equipment have to be calculated and added to the
estimate. The usual way to price these costs is to apply an operating engineers hourly
wage alongside the equipment hourly rate and then use the expected productivity of the
equipment to determine a price per measured unit for labor and a price per measured
unit for equipment. Note that the unit prices for labor and for equipment should always
be considered separately as the labor prices have to be included in the total labor content
of the estimate so that add-ons can be applied to this amount at the close of the bid.
CM 643: Construction Cost Management Systems Problem
Consumption-0.04 Gl. per HP
Of annual investment
Lub cost 10% of fuel

SEMESTER 2
Solution
SEMESTER 2
Solution
Now the hourly costs can be calculated, including the cost of fuel and lube oil required:
Hourly Costs: Vehicle Cost = Total Annual Cost/ Hours Used per Year
SEMESTER 2
Problem
What would be the estimated unit prices for excavating basements using the excavator
described in previous example together with an operating engineer at a wage of $40.00 per
hour when the expected productivity of this unit is 36 cu. yd. per hour?
SEMESTER 2
Example: plant and equipment cost
A contractor wants to estimate the equipment cost for undertaking earthwork involving a quantity of
40,000 m3. The contractor has derived the following requirement for equipments for this work. Calculate
the equipment cost per unit m3 of earthwork for the contractor.
Take spare cost as 25%; Hire charges of Poclain is Rs 125000; hire charge of dumper is Rs 50000 per no ;
mobilization cost for Poclain is 50000, tipper is 20000 per no.;
Fuel Consumption is 13litres per hr for Poclain, & 5 litres per hr for tipper; oil & lubricants as 30% over
and above fuel
Cost of fuel is Rs 38 per litre
Overtime charges for labour is 50%, driver- Rs 220 ; helper Rs 180; dumper driver: Rs 200 per MD
SEMESTER 2
Solution: plant and equipment cost
Plant and equipment cost consists of owning and operating cost, the cost of fuel, oil and
lubricants, cost of spare parts, and cost towards minor and major repairs. The option for a
contractor is either to own the equipment or to hire them on rental. The costs of the above
equipments are calculated under three cost heads, owning cost, operating fuel and operating
labour, as shown . Equipment-owning cost
SEMESTER 2
Solution : plant and equipment cost
Equipment-operating fuel cost
5
SEMESTER 2
Solution : plant and equipment cost
Equipment-operating labour
5
5
5
SEMESTER 2
Solution plant and equipment cost
Summary
Description Amount (in Rs.)
P&M-owning cost 1,828,750

Fuel/power cost 1,438,528
Operating labour 184,080
Total 3,451,358
Cost per m 3,451,358/40,000 = 86.28
3 86 per m 3
CM 643: Construction Cost Management Systems Pricing Subcontractors work
Subcontractors often perform 80% or more of the work on building construction projects.
In some situations all of the project work is put in place by subtrades, leaving the general
contractor to merely coordinate the activities of the subtrades as construction manager
Potential Problems:
Problems can emanate from the practice of subcontracting for a number of reasons,
including:
1. Unreliability of some subcontractors
2. Errors in subtrade bids
3. Overlap or underlap in the scope of work subcontracted
4. Conditional bids from subcontractors
5. Bid closing congestion
6. Compliance with government positive action requirements
SEMESTER 2
Illustration of subcontractor cost calculation
A contractor is evaluating the bids of 4 subcontractors for a given item in a project. The details
of final price and exclusion/inclusion in the bid price of the 4 subcontractors are given in Table.
The contractor has estimated that the charges towards electricity, should it be provided to the
subcontractor would cost Rs. 25,000. The contractor has further estimated that the charges
towards plant and machinery, should it be provided to the subcontractor would cost Rs. 75,000.
The tax applicable for the given item is at present 12%. Help the contractor award the bid to the
most eligible subcontractor
SEMESTER 2
Solution of subcontractor cost calculation
The computation details of the total bid price which would be the cost to the contractor for
engaging the subcontractor is shown in Table. It is clear that awarding the given item to
Subcontractor 1 would have least cost liability for the contractor. Thus, Subcontractor 1 is most
eligible for this item
Project Overheads
CM 643: Construction Cost Management Systems Project overheads
Salaries and benefits This covers salaries of project staff including engineers,
supervisor and other administrative personnel posted at a construction site, and also a
part of the salaries of staff indirectly related to the site. The latter could include staff
involved in maintaining logistics, supporting staff, and staff engaged in warehousing and
maintenance of equipment.
Insurance cost Different kinds of risk are associated with a construction project as far
as a contractor is concerned, and to cover these, appropriate insurance schemes are
worked out with insuring agencies. Some of the insurance policies could be contractors
all risk (CAR) policy, workmen compensation, group insurance for staff, site and camp
establishment, materials at site.
Financing cost In order to be able to mobilize and carry out a job, a contractor needs
to arrange for operating funds from financial institutions, banks, etc., and these loans
attract interest. Apart from such interest payments, cost is also incurred on account of
preparing a bid bond and a performance bond, advance and payment guarantee,
retention guarantee, letter of credit establishment charges, guarantee for temporary
workers, bank service charges, credit for advances, work insurance, social security,
unforeseen fines and penalties, etc.,
Progress photographs and video A monthly sum (usually a lump sum) is usually set
aside for such expenses, on the basis of past experience and the total expenditure
estimated on the basis of the duration of the project.
Conveyance cost To facilitate travel of personnel posted at sites, vehicles are often
locally hired, and the cost is estimated on the basis of the number of vehicles required
(which, in turn, depends on the size of the project, the duration of the project, the
hierarchy of project staff, etc.). The conveyance vehicles could be jeeps, cars, vans, or
buses. These vehicles may be either owned by the contractor himself or taken on rental
basis. In any case, the cost for keeping these vehicles for a month should be multiplied
with the number of months the vehicles are proposed to be kept at site, in order to get
the conveyance cost.
Travel and transfer costs The expenses incurred in travelling by staff either from
closing project site or from home office to the new project sites are charged to the new
site. Accordingly, this cost is estimated based on the total staff strength estimated for
the proposed project.
Visits of headquarter personnel Personnel from the head office often visit the site for meetings,
inspection, or coordination. Depending upon the size and duration of the project, the total cost for such
trips can be estimated using a unit cost for such a visit from past experience. Apart from the travel itself,
such expenses could include stay, transport, entertainment, applicable taxes and other incidental
expenses.
Temporary site installations and facilities As part of a project, temporary site installations such as a site
office, workshops, stores, fencing of equipment, warehouse and storage areas, sanitary facilities, first-aid
facilities, furniture and fittings, temporary roads, car parks, and even residential units and messing
facilities for the staff need to be set up, and such expenses are held under this head. As far as estimates
for such facilities are concerned, it need not be very accurate and could be based on the plinth area rate
estimates, with the area itself being determined on the basis of the size and duration of the project. It
may also be noted that for large projects, contractors usually prefer to construct temporary site
accommodation near the project site itself, provided land is available, in which case the costs of leasing
land as well as of construction also need to be taken into account. However, in the case of rented
accommodation being leased, the cost should be accounted for under accommodation and not this
head
Clients and consultants requirements: At times, a contractor is required to provide

certain facilities to the client and consulting organizations in terms of office space,
office staff, furniture and fittings, telephone, stationery, operating and maintenance,
transport, etc., which need to be kept in mind separately.
Utilities: Appropriate arrangements for water, power and sewage facilities need to be
made in connection with the project office and the residential area (if set up).
Depending upon the conditions of the contract, some of these may be provided free of
cost or at a predetermined rate, though usually the contractor is required to set up his
own distribution/collection network. In the case of water, a contractor may choose to
set up his own borewell and pump sets, and the cost towards running these pumps and
the distribution cost through temporary pipelines need to be accounted for. In the case
of power also, there are two possibilitieseither the power is made available at a
single point on a chargeable basis by the owner, or the contractor is required to make
his own arrangement by either buying it from external sources or installing his own
generator sets. In both cases, the total cost on this account should be considered
Taxes and duties Construction activities attract different taxes and duties. Some
examples of taxes are works contract tax, excise duty, customs duty, income tax, sales
tax, service tax and value-added tax. The relevant taxes and duties need to be checked
for the construction project and suitably accounted for.
Miscellaneous expenses Apart from the expenses listed above, some of the other
expenses, which could be estimated either on a lump-sum basis or on the basis of the
unit rates, are:
administrative expenses at the site
general field expense consisting of operating costs such as stationery,
documentation, and communication facilities such as telephone, fax and postage
small tools and consumables including fuel and lubricants
cost for mobilization and demobilization of personnel, equipment, temporary
facilities, small tools, consumables, camp structure and other facilities
establishment expenses including the cost incurred on field supervisors, technical
staff and workers, materials management staff and workers, plant and machinery
management staff and workers, administration staff, workers and managers
Technical management costs for designs and drawings, project consultancy, data
processing, site laboratory and testing, technical library, subcontracted workers expenses,
on-site surveying, site clearance
Safety and protective equipment costs
Costs incurred towards payment of certain professional fees, government liaison fees
Sundry expenses, catering expenses, laundering and camp-operating costs, etc
CM 643: Construction Cost Management Systems Overheads Cost
DESCRIPTION % of Overheads
Staff Expenses 23.8%
Labour Expenses 9.3%
Provident Fund and Other Funds 8.6%
Welfare Expenses 8.6%
Water and Power 9.8%
Packing and Forwarding 1.0%
Travelling Expenses 0.2%
Conveyance Expenses
Overheads cost is 8-10 % 7.6%
Insurance Charges of the contract value 3.2%
Bank Charges 0.3%
Post and Telegraph Expenses 0.7%
Printing and Stationery Expenses 0.2%
Repair and Maintenance Others 3.0%
Sundries - Miscellaneous Expenditure 1.5%
Temporary Structure and Installation 15.8%
Professional Fees 1.3%
Hire Charges and Rental Charges 5.1%
CM 643: Construction Cost Management Systems Mark-up
It is clear that mark-up is the sum of profit, contingency, allowances for risk, and general
overheads. It can be expressed either (1) in terms of some percent of total cost TC or (2) in
terms of some percent of bid price B explained latter. In the second case, it is also referred to
as off-top.
Profit This is a reward for carrying out the business and thus taking the risks involved. Risky
business carries more profit, and vice versa.
Contingency and allowances for risks Construction projects are a risky proposition full of
uncertainties and risks. In spite of different details known at the tendering stage, there are
uncertainties and risks pertaining to timely completion, budget escalation, site conditions, soil
characteristics, labour and material availability, and so on. In order to safeguard against these
eventualities, contractors keep certain contingency provisions. Indeed, the higher the
uncertainties involved in a project at the time of tender, the higher is the contingency
provisions.
CM 643: Construction Cost Management Systems Fix Mark-up
General overheads Several expenses incurred at the corporate headquarters of a company

cannot be directly traced to any particular project and, accordingly, such expenses are charged
from the running projects on a pro rata basis. Such expenses include those incurred towards
research and development, publicity and advertisement, the cost of unsuccessful bids that
necessarily need to be distributed over other projects, recruitment of personnel, and salaries of
security personnel at the head office, and are termed as general overheads. The general
overheads for a construction company vary between 2 per cent and 3 per cent of the contract
value, depending on factors such as turnover, staff strength, nature of expenses incurred at
head office, and the number of projects in hand.
It is clear that for a contracting agency, since the direct and indirect costs are actually incurred,
the bid price (the cost at which it accepts to carry out the job) needs to be higher to provide a
certain profit, to cover general overheads, and also to cover risks involved. These three
components are collectively referred to as mark-up, which a contracting agency adds to the
cost at the time of bidding.
CM 643: Construction Cost Management Systems Distribution of Mark-up
The distribution of mark-up is an important decision that a contractor has to make.

Take an example where total value of the project was Rs. 500 lakh and the markup amount was
Rs. 50 lakh. Thus, the total cost to the contractor for this project works out to be Rs. 450 lakh.
The mark-up in terms of percentage works out to be 10 per cent of the value, or 11.11 per cent
of the total cost.
There are different ways to distribute the mark-up amount of Rs. 50 lakh. Although it does not
affect the total bid price, the timing of cash receipt plays an important role in easing the
negative cash flow that is usually encountered in the beginning phases of a project
SEMESTER 2
Example for Markup distribution
SEMESTER 2
Example for Markup distribution
SEMESTER 2
CM 643: Construction Cost Management Systems Distribution of Mark-up
Table shows the three ways in which the total mark-up has been distributed. In the first case, the total
mark-up is distributed uniformly across all the activities of the project. Thus, it can be seen that the
mark-up percentage of 11.11 per cent is uniformly applied to all the items of the project, totalling to Rs.
50 lakh
In the second case, the activities that are likely to be taken up early in the project carry a higher mark-
up percent. For example, the activities earthworkall soils, concrete works, formwork, reinforcement
and brickwork carry mark-up of 22.22 per cent, 13.89 per cent, 18.52 per cent, 12.84 per cent and 15.34
per cent, respectively, which are relatively high compared to the uniform mark-up of 11.11 per cent. This
is also known as front-end rate loading and has an effect of improving the cash flow in the early stages
of the contract. It may be noted that the total mark-up is still Rs. 50 lakh
In the third case, the mark-up percent is higher for the items that are planned to be completed in the
final or later stages of the project. This is referred to as back-end rate loading. It can be noticed from
Table that the activities such as plasteringall types, paintingall types, flooringall types, aluminium
work and electricalwork have mark-up of 22.59 per cent, 22.22 per cent, 14.14 per cent, 20.58 per cent
and 19.05 per cent, respectively, which are relatively higher than the uniform value of 11.11 per cent,
although the total mark-up amount still remains at Rs. 50 lakh. The back-end rate loading is adopted
when inflation rate is higher than the interest rate, so that the contractor can recover the amount on
account of price escalation.
CM 643: Construction Cost Management Systems Computing Bid Price
After the estimation of direct cost and indirect cost, and the finalization of mark-up percent, it
is not very difficult to compute the bid price for a project. For the purpose of illustrating the
computation of bid price, let us assume that direct cost of a project is DC and the indirect cost
is IC. Thus, total cost TC is given by
TC = DC + IC
It may be recalled that mark up is applied either (1) in terms of some per cent of total
cost TC or (2) in terms of some percent of the bid price B. The computation of bid price for both
the situations are given below:
For the 1st case, that is when the mark up is expressed in terms of some percent of the total
cost TC, the bid price is computed as
SEMESTER 2
Computing Bid Price
For the 2nd case, that is when the mark up is expressed in terms of some percent of the bid
price B, the bid price is computed as:
Assuming that mark-up is 10 per cent of the bid price B, the bid price B is given as
SEMESTER 2
Computing Bid Price
The multiplication factor CO, for the direct cost of individual items would be given as
where L, M and P are the labour, material and plant and equipment costs for all the activities of the
project. The expressions for computation of L, M and P are given below
CO is also referred to as cover on LMP. The product of CO and (L 1 M 1 P) amount is entered under the
rate column of bill of quantities, which when multiplied with the total quantity of that item gives the
amount corresponding to this item. A similar process is repeated for all the items and the total sum, i.e.,
bid price B, is obtained.
multiplication factor (cover) is the factor through which the direct cost of bid items is to be multiplied in
order to get the bid price
n is total activity/items in the project
SEMESTER 2
Computing Bid Price
Also, knowing the bid price B and total cost TC, mark up (in terms of percent) can be obtained
as given below:
Mark up in terms of percent of total cost TC
Mark up in terms of percent of bid price B, referred to as off top is given as
As mentioned earlier, mark up obtained in the 2nd case is referred to as off-top percent in
some construction companies
SEMESTER 2
Example
For a building project, the estimated costs of civil, electrical, fire-fighting, and plumbing and
sanitary works are Rs. 3,500 lakh, Rs. 280 lakh, Rs. 150 lakh and Rs. 125 lakh, respectively. The
cost of common plant and equipment has been estimated to be Rs. 10 lakh. The contractor has
further estimated his overheads to be Rs. 400 lakh. There is no escalation clause in the contract
and the duration of the project is 30 months. Thus, the contractor has also estimated the likely
escalation in cost over the total duration of the project. The escalation is estimated to be Rs. 50
lakh. If the contractor desires to operate at 10 per cent mark-up on his bid price, what would be
the bid price of the contractor given that the liability of contractor towards works contract tax is
Rs. 80 lakh? Also, find the multiplication factor (cover) through which the direct cost of bid
items is to be multiplied in order to get the bid price.
SEMESTER 2
Solution
SEMESTER 2
Bid price and cover computations
For a given project, the contractor has estimated the direct cost and indirect cost of labour,
material, plant and specialized contractors (see Table). The contractor plans to apply an off top
of 15 per cent, 10 per cent, 10 per cent and 5 per cent on labour, material, plant and
subcontractor costs, respectively. Further, the contractor has kept contingency amounts of Rs. 5
lakh, Rs. 20 lakh, Rs. 1 lakh and Rs. 35 lakh for labour, material, plant and subcontractor costs,
respectively. Calculate the bid price and cover to be applied on labour, material, plant and
subcontractor costs.Take labour cess @1% of sales
SEMESTER 2
Solution
SEMESTER 2
Estimation of Profit after Tax
X Project Duration in Months X Project Duration in Months

A TOTAL SALES = A TOTAL CONTRACT VALUE
DIRECT COST+INDIRECT
B TOTAL COST = B
COST+RISK+CONTINGENCIES
C Gross Margin = C = A-B TOTAL SALES - TOTAL COST
D %Margin D = (C/A)% GM/ TOTAL SALES
E HO & RO OH E = 3% x A 3% of TOTAL SALES
PBIT (Profit Before Income
F F = C- E TERMINAL GM - HO & RO OH
Tax)
G % PBIT OVER SALES G = (F/A)% PBIT/TOTAL SALES
H TAX @ 33% H = F*33% PBITx33%
PAT (Profit After Tax) or NE
I I = F-H PBIT - TAX
(Net Earnings)
SEMESTER 2
Problem
An infrastructure project has direct cost of 497 Crs and Indirect cost of 56 Crs. Risk and
contingencies of project are 3.5 % of the total cost. Contract value of the project 637 Crs.
Compute the following
Margin
PBIT
PAT
A TOTAL SALES = A 637 TOTAL CONTRACT VALUE
Direct Cost 497
Indirect Cost 56
Risk & Contingencies 3.5% of TC 19.355
DIRECT COST+INDIRECT
B TOTAL COST = B 572.355
COST+RISK+CONTINGENCIES
C Margin = C = A-B 64.645 TOTAL SALES - TOTAL COST
D %Margin D = (C/A)% 10.15% Margin / TOTAL SALES
E HO & RO OH E = 3% x A 19.11 3% of TOTAL SALES
F PBIT (Profit Before Income Tax) F = C- E 45.535 Margin- HO & RO OH
G % PBIT OVER SAELS G = (F/A)% 7.15% PBIT/TOTAL SALES
H TAX @ 33% H = F*33% 15.02655 PBITx33%
PAT (Profit After Tax) or NE (Net
I I = F-H 30.50845 PBIT - TAX
Earnings)
PAT % 4.79%

CCM Lecture 7

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CCM Lecture 7

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Construction Cost Management Systems

Lecture 7: Contractors Estimate & Bid Pricing

Prepare tender summary

Consultation, queries, meetings and other

Collection of material Collection of labour Plant and equipment Other relevant

Appoint project team and

As can be expected, labour productivity varies from project to project.

Breakdown of a Typical Craftsmans

Actual hours worked = 60

ROLE: (Return on Labour employed) = Invoice/Sales (monthly)/ number of

Determine base productivity

Similarly, the labour required for concreting in month 2 would be

Computation of labor requirement

Month-wise labor requirement

Calculating labour benefits

Calculation details for labour benefits

Calculation for retrenchment and notice pay

Microsilic River Crusher

Calculating cost of cement OPC-43 Grade

Calculating cost of steel reinforcement (Fe 415)

Calculating cost of fine sand

This is illustrated with respect to the schedule of quantities shown in

Cement for concrete= 450 kg/cum DESCRIPTION UNIT Rate

Thus, average monthly stock = cumulative stock/duration = 189.0/10 = 18.9 lakh.

Limitations of this method:

Consumption-0.04 Gl. per HP

Lub cost 10% of fuel

Equipment-operating fuel cost

Description Amount (in Rs.)

P&M-owning cost 1,828,750

Clients and consultants requirements: At times, a contractor is required to provide

General overheads Several expenses incurred at the corporate headquarters of a company

The distribution of mark-up is an important decision that a contractor has to make.

Mark up in terms of percent of bid price B, referred to as off top is given as

X Project Duration in Months X Project Duration in Months

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