Lecture Note (QSV 313) Department of Quantity Surveying

lecture note

estimating and price analysis

(QSV 313)

first SEMESTER

2022/2023 SESSION

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COURSE OUTLINE

1.0 INTRODUCTION TO CONSTRUCTION WORK

2.0 CONSTRUCTION INDUSTRY

3.0 CONSTRUCTION ESTIMATING

4.0 CONSTRUCTION ESTIMATOR

5.0 IDENTIFYING THE TYPES OF CONSTRUCTION COST ESTIMATE SYSTEMS

6.0 CONSTRUCTION ESTIMATING SOFTWARE

7.0 ELEMENT OF PRODUCTIVITY STUDIES , LABOUR AND EQUIPMENT

OUTPUTS (THEIR SOURCE AND COMPUTATIONS)

8.0 PRELIMINARY ESTIMATE

9.0 INTRODUCTION TO PRICING OF CONSTRUCTION WORK

10.0 ESTIMATING OPPORTUNITIES

11.0 ESTIMATING EXAMPLES – build-up of unit rates for building substructure, in

accordance with the latest edition of the Building and Engineering Standard Method
of Measurement (BESMM) – groundwork, in-situ and precast concrete,
brickwork/blockwork/masonry.
12.0 ESTIMATING PRELIMINARY ITEMS

13.0 DIFFERENCES BETWEEN OPERATIONAL ESTIMATING AND UNIT

ESTIMATING

14.0 INTRODUCTION TO CONSTRUCTION CONTRACTUAL ARRANGEMENTS

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1.0 CONSTRUCTION WORKS

1.1 Definition of Construction Work
Introduction:

Each of us will have our own view as to what construction work looks like. Clearly the
building of a new office block or housing estate is construction. However, there are many
other tasks that may come under the definition of construction work.

For example: · Carrying out maintenance or upkeep on a building is construction work. ·

Repairing a farm building is construction work. · Fitting mobile telecommunications
equipment to the side of a structure is construction work.

In general term construction could be described as the art or science of forming any objects,
systems or organisations. Construction is the process that sets up a portable plant, bring
material to the site, and on completion of the work moves the plant away, leaving its output
standing. Construction is a high-risk activity, which must be managed from procurement,
through the design process and to the end of the construction stage. Everyone involved in a
building project must appreciate their role, from client, project supervisor design process
(PSDP), designer, project supervisor construction stage (PSCS), contractor and employees.

Spending five minutes to look at these definitions will help you to get a better understanding
of what work activities are considered to be construction work. There is a flowchart which
outlines the four different categories of construction work, from maintenance up to large
construction projects.

Construction Structure Project Construction

Work Includes an Any development
Site
Any building, civil extensive list of or activity that Where
engineering or elements that are includes construction work
engineering work structures. construction work is carried out.

Figure 1. Definitions that combine to define construction work

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1. 2 Definition of construction work

There are a lot of everyday activities that actually come under the definition of construction
work. The definition is very broad, many work activities or tasks on a building or structure
are construction. Here are some activities that are construction:

 Construction
 Alterations
 Converting
 Fitting-out
 Commissioning
 Renovating
 Repairing
 Upkeep
 Decorating
 Maintaining
 De-commissioning
 Demolishing
 Dismantling
 Assembling
The definition of construction work clearly relates to the tasks that you are intending to
carrying out. Nevertheless, ‘construction work’ means the carrying out of any building, civil
engineering or engineering construction work, as may be prescribed

1.3 Definition of Structure

There is a wide range of features that are deemed to be a structure. You will probably accept
that buildings and bridges are structures. However, the definition also includes features such
as cables, lagoons and embankments.

For example, the following are all structures.

 Building
 Railway line or siding
 Tramway line
 Dock
 Harbour
 Inland navigation systems
 Tunnel
 Bridge
 Viaduct
 Waterworks

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 Reservoir
 Pipe-line, whatever it contains or is intended to contain
 Underground or overground cables
 Aqueduct
 Sewer
 Sewage works
 Gasholder
 Road
 Airfield
 Sea defence works
 River works
 Drainage works
 Earthworks
 Lagoon
 Dam
 Wall
 Caisson
 Mast
 Tower
 Pylon
 Underground tank
 Earth retaining element or assembly of elements
 Element or assembly of elements designed to preserve or alter any natural feature
 Any other structure similar to the foregoing
For example, if you work in a water treatment works and you are carrying out electrical
maintenance, under the Regulations, you are undertaking construction work on a structure.
While an embankment is a structure, cutting the grass on the embankment is not construction
work. However, if you were excavating the embankment to form a new profile, then you
would be engaged in construction work.

Overall, structure means any of the above listed examples or any formwork, falsework,
scaffold or other element or assembly of elements designed or used to provide support or
means of access during construction work, or any fixed plant in respect of work which is
installation, commissioning, de- commissioning or dismantling.

1.4 Definition of Project

When you are thinking about starting construction work or actually undertaking the
construction work, you are basically involved in a project. It is not complex, you just need to
make sure that you understand your role and duties as part of the construction project.

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For example, if you are a client, then you need to ensure that you appoint competent PSDP,
Designers, PSCS and contractors. You also need to make information available to them.
Other duty-holders should advise the client as to the definition of construction work and their
duties under the Regulations.

Once you have identified that you are undertaking construction work on a structure, you must
make sure that you have the proper controls in place. If you are the client, then where
required by the regulations you must appoint competent designers and PSDP before the
design process starts and appoint competent contractors and PSCS before construction work
starts on site. All appointments must make in writing. It is about taking sensible precautions
in good time to protect people and being proactive in making the work safer.

Therefore, a project means an activity which includes or is intended to include construction

work. while, construction site means any site at which construction work in relation to a
project is carried out.

The definition of construction is interlinked with the following definitions: · Construction

work · Structure · Project · Construction site.

References:
Hyari, K.H. (2005). Introduction to construction industry. Available
at:https://www.researchgate.net/publication/292401396_Introduction_to_Construction_In
dustry

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2.0 CONSTRUCTION INDUSTRY

2.1 BRIEF INTRODUCTION TO CONSTRUCTION INDUSTRY
Construction industry is one of the industries that play an important role in developing and
enhancing economic sector and also the development of one’s country. The construction
industry is traditionally divided into three sub-sectors. They are:

1) the construction of buildings;

2) infrastructure construction: such road, highway, and others; and
3) Industrial.

Construction
Industry

Building Infrastructure (i.e. Civil Industrial

Construction or heavy engineering) Construction
Construction

Residential Large public works Offshore construction

Non-residential Dams (mainly of energy installations)

Bridges Mining and quarrying

Highways Refineries

Water or waterworks Chemical processing

Roads Power generations

Etc. Mills

Manufacturing plants

Figure2.1 Summary of construction industry sector

Construction industry thus encompasses all the businesses that build either houses and office
buildings or highways and bridges, as well as those who do the specialized work of
electricians, plumbers and masons, who are typically involved in the construction of all kinds
of structures. The construction industry is a significant part of our economy, employing
certain percent of all wage earners.

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2. 2 Importance of the construction industry

Construction industry play important role in the development of any nation, economically,
physically, socially etc. The industry:

 Enables the growth of other industries through its role as a fundamental building
block of the nation’s socio-economic development.
 Essential elements of a healthy, functioning economy such as Educational institutions,
Government offices, tourist attractions, transportation infrastructure (airports,
seaports, roads), housing, commercial property need to be built and maintained by the
construction industry.
 Besides enabling socio-economic development, the construction activities generate
tremendous spill-over opportunities. It contributes to the growth of other industries in
its role as a large user of manufactured goods (building and construction materials,
iron and steel, etc.), specialised tooling and heavy machinery (such as cranes), and
financial services.

2.3 Characteristics of Construction Industry

• The physical nature of the product:
– Large, heavy and expensive
– Required over a wide geographical area
– Customer tailored
– A large part of components manufacturedelsewhere

• The ultimate use of the product is:

– As a mean to further production
– As an addition to or improvement of theinfrastructure of the economy (e.g.,
roads)
– As a social investment (e.g., hospitals)
– As an investment for direct enjoyment (e.g.,housing)

• The demand for the product is:

– Determined differently for different types ofproducts
– Largely dependent on governmental policy
– Largely dependent on economy cycles

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• Unique Industry:
– Incorporates small remodeling to giantinternational, multibillion-dollar
contractors.
– Highly competitive.
– Low profit margins.

• Many parties are involved in the process:

– Owner
– Architect
– Contractor
– Subcontractors
– Materials and equipment suppliers
– Regulatory agencies
– etc….

• The price determination is a discrete process foreach project and for each piece of
worksubcontracted (bidding or negotiations)
• Human resources: Growing shortage ofskilled workers due to:
– 4 ‘d’s Industry Perception (dull, dirty,demanding, and dangerous)
– Aging workforce
– Absence of apparent technology
– Requirement to travel

• Safety:
– Construction accounted for high % of allworkplace fatalities in recent
century. (e.g. about 5% of the total U.S.workforce)
• Quality control:
– In this competitive age, if you do notprovide quality services, someone
elsewill

2.4 Construction Contractors

Construction contractors are companies andindividuals engaged in the business
ofConstruction. They operate under a contract arrangement withthe owner.
• Construction contractors
– General contractors: engage in a wide range ofconstruction activities and
execute most majorconstruction projects
– Specialty contractors: limit their activities to oneor more construction
specialties

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2.5 Building Team in Construction Industry

Client

Quantity
Surveyor DESIGN
Architect TEAM

Specialist
engineers

Local Clerk of Works

Authority

Building contract
Health & Safety
(Main contractor)
Inspector CONSTRUCTION
TEAM

Electrical, Suppliers of
mechanical materials,
services, plastering, equipment and
painting plant
(subcontractors)

2.6 Construction Project Phases

The goal of any project manager is to carry out the work of the project for the purpose of
meeting the project’s objectives. Every project has a beginning, a middle period during which
activities move the project toward completion, and an ending (either successful or
unsuccessful). A standard project typically has the following four major phases (each with its
own agenda of tasks and issues):

i. Initiation phase,
ii. Planning phase,
iii. Implementation phase, and
iv. Closure phase.

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Taken together, these phases represent the path a project takes from the beginning to its end
and are generally referred to as the project “life cycle.”

Student: Download RIBA PLAN OF WORK 2020

References

Hyari, K.H. (2005). Introduction to construction industry. Available

at:https://www.researchgate.net/publication/292401396_Introduction_to_Construction_Indust
ry

Szymanski, S. (n.d.). What is construction industry? An economic fact book. Available at:
https://www.esc.edu/media/academic-affairs/harry-vanarsdale/hvacls-publications/
Construction-Industry-Fact-Book.pdf

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3.0 CONSTRUCTION COST ESTIMATING

One of the most crucial important aspect of construction development is cost. Construction
costs forms part of the overall cost of the development.Most of the times, this aspect of the
development worries both contractors and clients about the financial impact of cost overruns
and failing to complete a project. Hence, they both devote time and effort to estimating how
much a project will cost before deciding to move forward with construction.

Construction cost estimating is the process of forecasting the expense of putting up a physical
structure. Understanding what a construction cost estimate is and the phases entailed is
therefore essential to anyone who is concerned about how much their projects will cost. Cost
estimates are executed for many different types of construction projects, from building new
structures to remodeling efforts.

Due to the risks involved, a major concern for both builders and clients is the financial impact
of cost overruns and failing to complete a project. Therefore, it is in both parties’ best interest
to spend time researching and estimating project expenditures before proceeding. Clients who
are considering extensive projects often look for multiple cost estimates, including those
prepared by contractors, as well as those assessed by independent estimators.

In order to determine a project’s scope and feasibility, project owners typically use cost
estimates to allocate their budget. In addition, contractors utilize cost estimates when they are
deciding whether or not to bid on a potential project. Estimates are generally prepared with
the input of both architects and engineers in order to ensure that a project is in accordance
with both scope requirements and budget allotment. Essentially, a good cost estimate will not
only prevent the builder from losing money but also help the customer avoid overpaying. A
fundamental component of earned value management, cost estimates are a project-
management technique that tracks a project’s performance against the total time and cost
estimate.

3.1 Constituents of a Price Estimate

A price estimate is a sum of money that a construction project will cost without executing the
project. It contains only direct work, packages and on-cost. The estimator calculates only
these costs and without converting it to a tender. The constituents are as shown in figure
below:

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Direct work Packages On-costs

Labour Sub-contractors Preliminaries
Plant Sub-contract Bid costs
Materials preliminaries Design fees
Attendances Inflation
Provisional Sums
Dayworks
Contingencies

Estimates (N)
Risks
Opportunities
Margins
Tender (N)

3.2 Estimating Cycle

Traditionally, the process of estimating involves the recipient of tender documents in form of
drawings, BoQs and specifications. Some estimates are based on just drawings and
specifications which required a measurement stage before seeking market prices. Traditional
approach to estimating as described by CIOB Code of Estimating Practice) is as follows:

Preselection and decision to tender

Receipt of tender documents
Tender strategy
Procurement
Planning and temporary works
Pricing the works
Preliminaries
Completion of estimate
Tender settlement
Post-tender activities

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In modern estimating, there are three basic part to the approach. The parts are Cost Planning,
Estimating, and Tendering. In modern estimating, contractors are involved much earlier and
provides cost-planning services. A measurement exercise will still be needed but not now in
Stage 3 and 4 of RIBA plan of work.

Cost Planning Estimating Tendering

Historical data Design-to-cost Reports
Design scope Measure Settlement
Target cost plan within Market test Handover
affordability Rate

Pipeline of opportunities 1. Feedback

Tender budget + sign off . Benchmarking

Table 3.1 Comparing Traditional and Modern approaches to estimating

Traditional Estimating Cost-planning and estimating

(see CIOB Code of Estimating Practice) (in addition to traditional estimating)
Preselection and decision to tender Collect benchmark data for similar
buildings
Receipt of tender documents Understand client’s affordability – produce
high-level cost plan to meet affordability
Tender strategy Set design-to-cost targets in terms of
elemental costs and specifications
Procurement Work up designs with key sub-contractors.
Obtain market rates and cost plans
Planning and temporary works

Pricing the works Attend design meetings to advise on design

options. Check floor areas do not exceed
targets.
Preliminaries Project team given cost target to meet

Completion of estimate Benchmark data must be shown alongside

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the estimate figures

Tender settlement Check that the design matches the pricing –
some designers add embellishments later
Post-tender activities Create elemental cost/specification sheet for
use on future projects

3.3 Top-down and Bottom-up Estimating

Top-down estimating is all about meeting, and improving on, a client’s target price for a
project. This is based on two assumptions: the client is prepared to state the target price
before the design is development, and there are reliable historical cost data available to the
estimator.

Bottom-up estimating is characterised by working from a design solution, creating a bill of

quantities and obtaining quotations for work packages. A planning manager will produce a
programme, and preliminaries will be calculated late in the tender period. The estimate is
completed immediately prior to the settlement meeting, which of course creates huge
challenges if the design has to be changed due to cost overruns.

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Start TOP-DOWN BOTTOM-UP

Affordability Tender
Margin Margin
Risks Opportunities
Inflation Risks
Design fees Contingencies
Bid costs Dayworks
Preliminaries Provisional Sums
Civil & Structure Inflations
Envelop Design fees
Fit out Bid costs
Mechanical & Electrical Preliminaries
Works costs Sub-contractors
Civil & Structure Materials
Envelope Plant
Fit out Labour
Mechanical & electrical Bill of Quantities
Design to cost allowance Specifications
Start
Design to cost statement Detailed drawings

‘Top-down’ and ‘Bottom-up’ estimating

3.4 The Importance of Obtaining Accurate Cost Estimates

As we have covered, creating a construction cost estimate is a sound practice when

determining the expenditures associated with a building project. However, the accuracy of
estimates are particularly critical for development projects, which have timelines and budgets
closely linked to reimbursing lenders while generating revenue as quickly as possible. They
are also crucial for large civil projects or mega-projects due to their substantial scope and the
possible involvement of public monies. In the instance of mega-projects, small
miscalculations become magnified. Therefore, it’s wise to obtain extremely accurate cost-
estimates in projects fabricated using public funds, as it will not only increase accountability
but provide transparency while developing trust in your ability to manage the project
adequately.

While it’s nearly impossible to estimate the cost of any given project with absolute precision,
failure to prepare a feasible cost estimate can lead to catastrophic consequences in cost
overruns. Although projects can fail for a variety of unforeseen reasons, a skilled estimator

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will account for as many factors as necessary, including items such as market conditions, to
create an accurate estimate.

There are several components that a cost estimate will rely upon:

1. The quality of the project plan

2. The level to which the estimator defines a project
3. The experience and skill of the estimator
4. The quality of the tools and procedures the estimator utilizes

The cost estimation of a project may fall to one individual or a team depending on the type,
scope, and size of a project; additionally, estimators may hold a number of different
positions. In the case of certain construction projects, contractors and subcontractors may
prepare cost estimates, although this isn’t regarded as best practice. In other instances, the
construction salesperson may be responsible for drawing up an estimate. Architectural firms
may have in-house estimators, generally individuals who take on the estimator’s function in
addition to their primary role. However, it has become more common to see qualified
independent estimators handle estimates against which one corroborates the general
contractor’s estimates.

For contractors, accurate cost estimates win jobs. Customers generally choose the lowest bid
that meets the standards and project parameters they specify. In a competitive bidding
scenario, the time and effort you spend preparing the estimate is an invaluable investment, as
a good estimate can ultimately lead to winning a bid. If urgency is a project factor, how
quickly you prepare a bid can also be a differentiator.

3.5 Cost Estimating Methods

The following are the cost estimating methods used for predicting the actual cost of any
construction. Though, the choice of picking any one depends on the amount of detail
information available as at when the estimate is to be prepared:

1. Initial cost appraisals might simply break down the overall project budget based
on information provided by the client, an analysis of comparable projects and the
experience of the cost consultant.
2. Elemental cost plans might simply be the total construction cost for
the project divided into the main elements of the works on a percentage basis.

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3. The approximate quantities cost plan is a first attempt

to measure defined quantities from drawings (or to take them off from a building
information model). It presents a more accurate picture of where costs are distributed,
in particular it draws the attention of designers to those elements of the design that
are standard and those that are not and as a consequence may be more expensive.
4. The pre-tender estimate (PTE) is the final estimate of the likely cost of the works that
are described in completed tender documents. It provides a final comparison with
the budget, and along with a cash flow estimate enables the client to confirm that
sufficient funds area available before committing to seeking tenders. It also gives a
basis for assessing and comparing tenders when they are returned.
5. The contract sum provides the first actual confirmed price. Up to this point, all cost
planning has been based on estimates. A bill of quantities is issued
to tendering contractors for them to prepare a price for carrying out the works.
The bill of quantities assists tenderers in the calculation of construction costs for
their tender, and, as it means all tendering contractors will be pricing the
same quantities (rather than taking-off quantities from
the drawings and specifications themselves), it also provides a fair and
accurate system for tendering.

N.B:

Best practice for the preparation of bills of quantities is set out in the New Rules of
Measurement (NRM). The price agreed with the successful tenderer is entered into
the contract as the contract sum. Unfortunately it is fairly common for there to be a
significant difference between the prices offered by contractors and the cost
consultants pre-tender estimate.

The final account includes any adjustments to the contract sum so that the amount of the final
payment can be determined.

REFERENCES
Ramos, D. (017). Construction cost estimating: The basics and beyond.
https://www.smartsheet.com/construction-cost-estimating
The Chartered Institute of Building (1997). Project Overheads. In: Code of Estimating
Practice (6ed.) Addison Wesley Longman Ltd.

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4.0 THE CONSTRUCTION COST ESTIMATOR

As you may have guessed, the cost estimator is pivotal to the cost-estimation process. This
individual is generally familiar with design and construction and skilled at navigating the
various expenses associated with construction projects and must possess both skill and
training.

There are many qualified cost estimators in theindustry, with employment opportunities
anticipated to grow by considerable percent over the next decade. Many of these estimators
work in the construction industry.

A list of the abilities most important to the success of an estimator follows, but it should be
more than simply read through. Any weaknesses affect the estimator’s ability to produce
complete and accurate estimates. If individuals lack any of these abilities, they must (1) be
able to admit it and (2) begin to acquire the abilities they lack. Those with construction
experience, who are subsequently trained as estimators, are often most successful in this field.
To be able to do quantity takeoffs, the estimator must:

1. Be able to read and quantify plans.

2. Have knowledge of mathematics and a keen understanding of geometry. Most
measurements and computations are made in linear feet, square feet, square yards,
cubic feet, and cubic yards. The quantities are usually multiplied by a unit price to
calculate material costs.
3. Have the patience and ability to do careful, thorough work.
4. Be computer literate and use computer takeoff programs such as On-Screen Takeoff
or Paydirt.

Some Qualities of an Estimator

To be an estimator, an individual need to go a step further. He or she must:

1. Be able, from looking at the drawings, to visualize the project through its various
phases of construction. In addition, an estimator must be able to foresee problems,
such as the placement of equipment or material storage, and then develop a solution
and determine its estimated cost.
2. Have enough construction experience to possess a good knowledge of job conditions,
including methods of handling materials on the job, the most economical methods of
construction, and labour productivity. With this experience, the estimator will be able

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to visualize the construction of the project and thus get the most accurate estimate on
paper.
3. Have sufficient knowledge of labor operations and productivity to thus convert them
into costs on a project. The estimator must understand how much work can be
accomplished under given conditions by given crafts. Experience in construction and
a study of projects that have been completed are required to develop this ability.
4. Be able to keep a database of information on costs of all kinds, including those of
labor, material, project overhead, and equipment, as well as knowledge of the
availability of all the required items.
5. Be computer literate and know how to manipulate and build various databases and use
spreadsheet programs and other estimating software.
6. Be able to meet bid deadlines and still remain calm. Even in the rush of last-minute
phone calls and the competitive feeling that seems to electrify the atmosphere just
before the bids are due, estimators must “keep their cool.”
7. Have good writing and presentation skills. With more bids being awarded to the best
bid, rather than the lowest bid, being able to communicate what your company has to
offer, what is included in the bid, and selling your services is very important. It is also
important to communicate to the project superintendent what is included in the bid,
how the estimator planned to construct the project, and any potential pitfalls.

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5.0 IDENTIFYING THE TYPES OF CONSTRUCTION COST ESTIMATE

SYSTEMS

In order to ensure a cost estimate’s accuracy, a well-defined project plan must be in place
first. Therefore, it’s customary to create multiple estimates during the pre-design/design
phases. As the project level of definition increases, the cost estimates subsequently become
more accurate. According to The American Society of Professional Estimators, a five-tiered
system is used to classify estimates; throughout each level, the estimate grows increasingly
more detailed and reliable. Below, a breakdown of the five-level system:

Level 1: Order of Magnitude Estimate

Formulated before the project design has commenced, an order of magnitude estimate
is only utilized to determine the overall feasibility of a construction project.

Level 2: Schematic Design Estimate

This phase refers to an estimate produced in line with schematic design.

Level 3: Design Development Estimate

This estimate is made during the design development phase.

Level 4: Construction Document Estimate

This refers to an estimate based on the construction drawings and specifications.

Level 5: Bid Estimate

Based on the information found in construction documents, this is an estimate

prepared by the contractor. The bid estimate is the basis of the bid price offered to the
customer.

A more simplified system of classifying estimates entails only three main categories: i.
design estimates, ii. bid estimates, and iii. control estimates. These category titles reflect
the way in which you utilize each estimate:

a. Design Estimates:

Prepared during a project’s pre-design/design phases, these estimates begin with an order
of magnitude estimate (also known as a screening estimate) to determine which type of
construction methods and types are most viable. The next phase is the preliminary

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estimate (also referred to as the conceptual estimate), which is based upon the schematic
design. The detailed estimate (or definitive estimate) follows, which is based on the design
development. Finally, the last of the design estimates is the engineer’s estimate, which is
based on the construction documents. A basic template can provide an initial assessment of
project expenditures.

b. Bid Estimates:

When bidding to construct a project, contractors conduct an extensive amount of research in

order to prepare bid estimates. This data is drawn from various sources to prepare the
estimate, including direct costs, supervision costs, subcontractor quotes, and quantity take-
offs.

c. Control Estimates:

This estimate is prepared after a contractor agreement is signed off but before construction
commences, and serves as a baseline by which actual construction costs of a project are
assessed and controlled. The control estimate also enables contractors to plan ahead in order
to satisfy upcoming costs while determining the project’s cost to completion.

5.1 Construction Cost Estimate Glossary: Key Terms to Know

Clearly, many elements make up the construction estimating process. The following are some
key terminologies and core concepts applicable to estimators and the industry itself:

Bonds: As a general rule of thumb, an owner typically needs a contractor to arrange for the
issuance of a performance bond in favor of the project owner. The bond functions as a form
of guarantee of delivery. In the instance that the contractor fails to complete the project
according to the terms of the contract, the owner is entitled to compensation for monetary
losses up to the amount covered by the performance bond.

Capital Costs: Capital costs are essentially the expenditures affiliated with establishing a
facility. Such costs include the following:

a) The cost of acquiring land

b) The cost of conducting feasibility studies and the pre-design phase
c) Compensating the architect, engineer, and specialist members of the design team

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d) The total cost of construction (which covers not only labor, materials, and equipment,
but also administrative, permitting, and supervision costs, as well as any insurance
fees or taxes)
e) The cost of any temporary equipment or structures that are not part of the final
construction
f) The cost of hiring a commissioner
g) The cost of inspecting the structure when it is close to completion

Contingencies: Since even the most accurate estimate is prone to be affected by

unforeseeable factors, such as materials wastage, an estimate will typically have a pre-
determined sum of money built in to account for such added expenditures.

Equipment Costs: Equipment costs refer primarily to the cost of running (and possibly
renting) heavy machinery, such as cement mixers and cranes; it is therefore important to note
that the equipment in use influences how rapidly you can complete a project. In actuality, the
use of equipment can potentially impact many costs outside of the project scope directly
associated with running the equipment.

Escalation: Escalation refers to the natural inflation of costs over time, and is especially
crucial to take into account for long-running projects. Some projects have escalation clauses
that address how to handle this type of inflation.

Indirect Costs: Indirect costs are expenses indirectly associated with construction work, such
as administrative costs, transport costs, smaller types of equipment, temporary structures,
design fees, legal fees, permits, and any other number of expenditures, depending on the
particular nature of the project.

Labor Hour: The labor hour, or ‘man-hour,’ is a unit of work that measures the output of
one person working for one hour.

Labor Rate: The labor rate is the amount per hour paid to skilled craftsmen. This includes
not only the basic hourly rate and benefits but the added costs of overtime and payroll
burdens, such as worker compensation and unemployment insurance.

Material Prices: Because the cost of materials is prone to fluctuation (based on market
conditions and factors like seasonal variations), cost estimators may look at historical cost
data and the various phases of the buying cycle when calculating expected material prices.

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Operations and Maintenance Costs: More a concern for the owner than the contractor,
operations and maintenance costs are accounted for during the design phase. Making
decisions that lower the total lifetime cost of a building may result in higher construction
costs. Operating costs include expenses such as land rent, the salaries of permanent
operations staff, maintenance costs, renovation expenses (as required), utilities, and
insurance.

Profits: To turn a profit, the contractor needs to add a margin on to the actual cost of
completing the work. Subcontractors do the same when preparing their own quotes.

Quantity Take-Off: Developed during the pre-construction phase, a quantity take-off

measures the labor and materials required to complete a construction project.

Subcontractor Quotes: Most contractors will hire multiple specialist subcontractors to

complete parts of the construction; you will then add the subcontractors’ quotes to the
contractor’s total estimate. It can be very beneficial to use a tracker in order to collect and
record all of the subcontractor documentation in one place.

Variances: Owners frequently allocate construction budgets that are greater than cost
estimates, since even in-depth cost estimates tend to underestimate actual construction costs.
This may happen for a number of reasons: for example, wage increases, which can be
difficult to forecast, will drive up construction costs. Seasonal or natural events, such as
heavy rainfall, may call for action to protect construction or restore the construction site.
Large projects in urban areas may face regulatory or legal issues, such as a demand for
additional permitting. And finally, owners who start construction without first finalizing the
project’s design will go in over-budget to account for design changes, as well as the
inevitable cost increases that result from throwing a project off-schedule.

REFERENCES
Peterson, S.J., &Dagostino, F.R. (2018). Estimating in Building Construction (9th ed.). Pearson
Education: United States.

Ramos, D. (2017). Construction cost estimating: The basics and beyond. Available at:
https://www.smartsheet.com/construction-cost-estimating
The Chartered Institute of Building (1997). Project Overheads. In: Code of Estimating
Practice, 6ed. Addison Wesley Longman Ltd.

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6.0 CONSTRUCTION ESTIMATING SOFTWARE

No matter the size of one’s construction business, software can maximize workflow
efficiency, collaboration and estimating accuracy. One easy way to determine when software
is worth the cost is to track how much time is spent estimating and taking off plans. Even
complex construction projects can be completed in a day or two with software. Automating
common estimating processes can save time. The difference in time spent performing tasks is
nevertheless significant. Many software vendors and users claim estimating efficiency can be
improved by 90 percent or more, however.

Many good construction estimating programs are buried within bloated, complex, and
expensive project management software. Although these software programs contain many
useful project management tools, there is usually a steep learning curve prior to
implementation.

The core of every construction estimating program is the database of costs or pricing.
Developing your own database of construction pricing does not have to be complicated. In
fact, you might already have a database of information without even knowing it.

6.1 Estimating Technology: Then, Now and the Future

Construction estimating and takeoff tools are undoubtedly more sophisticated than they used
to be, and are continually advancing. The timeline below highlights important technology
changes in the industry over the last four decades and beyond.

Pre-1980s

Estimating and takeoff was down completely by hand, and on bid day, sub-contractors
telephoned or faxed costs as estimators recorded it all on paper

1980s – ‘90s

Through the 1980s and into the 1990s, personal computer purchases surged, and the
machines quickly became permanent fixtures in the office. General-purpose software
programs such as Lotus 1-2-3 and Microsoft Excel made it possible for estimating to enter
the digital space. Spreadsheet software sped up cost tabulation, but the technology was
expensive and not user-friendly, so SMBs lagged in adopting it. In the late 1990s and early
2000s, the construction industry witnessed the next major disruptor: The Internet.

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Early versions of computers and software were clunky and not easy to use, however. And
since such general-purpose applications weren’t built specifically for construction estimating,
users had to modify their processes to work with the software’s limitations. Large
construction firms could afford the new technology and figured out how to handle the
change, but many small and midsize businesses (SMBs) chose to stick with the traditional
tools they were already familiar with.

Today

The internet, Software-as-a-Service (SaaS) and sophisticated mobile technology has given
rise to multitude of affordable cloud-based applications. These days, millions of businesses
have moved their operations online, a wave of cloud-based applications hit the market to
support them. Earlier versions of software were deployed “on-premise,” meaning they
required manual installation on each user’s machine—often resulting in different teams using
different versions of the software. Cloud-based products, on the other hand, deliver
“Software-as-a-Service (SaaS)”: They are deployed quickly, updated automatically and
accessed via the Web, so everyone always has the latest and greatest version.

Future

Estimating technology has come a long way, but the evolution is just getting started. Over the
next decade and beyond, expect to see BIM-powered estimating trickle into the SMB
construction market. Building information modelling (BIM) will be more widely adopted by
small and medium size companies, resulting in faster and more precise estimates. BIM is a
3D digital model of the building. This model, however, is way more than pure geometry and
some nice textures cast over it for visualization.

Hypothetically, BIM enables takeoff and estimating directly from the 3D model, letting
estimators view and interact with it to gather information more easily than is possible in the
non-virtual world.

6.2 Types of Tools to Perform Takeoff and Create Estimates

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There are three main types of tools to perform takeoff and create estimates: manual methods,
spreadsheets and specialized estimating and quantity takeoff applications. The pros and cons
of each are outlined in the table on the next page.

Advantages Disadvantages
Manual Methods • Low learning curve • High error rate
• Always available • Difficult to share/ collaborate
• Free or inexpensive • Inconsistent workflow
Spreadsheets • Automated calculations • Difficult to share/ collaborate
• Lower error rate • Does not scale
• Consistent workflow • May not integrate with other
• Inexpensive software
Specialised • Automated calculations • Upfront and recurring costs
applications • Low error rate • Higher learning curve
• Consistent workflow • May not integrate with other
• Professional-looking bids software
• Easy-to-search cost database

6.3 Estimating Software

The following are few notable estimating software available for construction project cost
estimate:

On-Screen Takeoff, HeavyBid,

Bluebeam Revu, Planswift,
B2W Estimate, Trimble Accubid,
ProEst, Sage Estimating,
WinEst, CatPro,
MasterBill, Win QS,
QS Bill Construction Estimator, Material Estimator Calculator,
Civil Quantity Estimator, Building Materials Calculators,
Construction Estimator App

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It should be noted that not all estimating applications include takeoff functionality. Many
takeoff applications are available as best-of-breed, stand-alone programs. Some of the
estimated software have all or some of the following listed advantages.

Advantages What it does

Cost database Stores material, equipment and labor costs to reference when
creating an estimate. Users can import third-party cost databases,
or create their own.
Visual assembly Displays a 2D or 3D graphical view of a build assembly to
visualize which portion of the project is being estimated.
Historical database Records material, labor and equipment costs and other details of
all past projects.
What-if analysis Models how a bid will change if timelines, materials, labor and
other variables change.
Proposal generator Allows users to customize estimate templates and automatically
add cost data to create accurate, professional-looking proposals.
Reporting Generates cost breakdown reports using charts and graphs to
support the analysis of project costs.

6.4 Software Price

When transitioning from manual estimating methods to specialized software for the first time,
pricing might seem mysterious. There are many factors that contribute to the software’s final
cost, including the type of license, recurring fees and additional fees that are often overlooked
by first-time buyers.

6.4.1 License Type

The two most common types of software licenses are “perpetual” and “subscription.”

 Perpetual license: An upfront sum is paid to use the software in perpetuity. This is the
traditional licensing model, and is most commonly associated with applications
installed onpremise (on the construction company’s computers and internal servers).
 Subscription license: A fee is paid to use the software for a set amount of time.
Subscription pricing became popular with the advent of cloud-based software.

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6.4.2 Pricing Criteria

Software vendors price products in different ways. The most common are:

 Flat fee: A single fee is charged for users to access the application. The fee, whether
subscription or perpetual, does not change.
 Per user: A license fee is paid for each software user. Some vendors use volume
pricing: charging a higher license fee for a single user, and decreasing the per-user
license cost as the number of users increases.
 Per project: This is common with subscription-based software products. Users pay
either a one-time fee for each new project, or a monthly fee for each active project.
Most of the time, an unlimited number of users—including estimators, project
managers and subcontractors—have access to the project.
 Revenue-based: This is less common than other pricing methods. The license cost is
calculated on a sliding scale based on the construction company’s annual revenue.

6.4.3 Recurring Costs

All software requires periodic maintenance and upkeep. Consider these costs when setting a
budget.

 Subscription fee: Subscription-based software incurs regular license fees, which are
paid monthly or annually, depending on the contract terms.
 Support: Most vendors provide limited support as part of the license cost. Others may
charge a mandatory or optional fee for additional support services.
 Maintenance and upgrades: Subscription-based software typically includes
maintenance and upgrades with the license fee. Maintenance and upgrades for
perpetually licensed software typically incur an additional charge of up to 20 percent
of the license cost each year.
 Access to cost database: To access and import cost databases, such as RS Means,
within the estimating application requires a subscription, unless the vendor explicitly
states that it is included with the license cost.

6.4.4 Additional Costs

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REFERENCES
Finch, J. (2020). Construction estimating guide: An overview of estimating tools and
software. Software Advice. Available at: https://www.saimgs.com/imglib/lightbox-
download-assets/construction-estimating-software-guide.pdf Retrieved on 06/07/2020
Liu, T., Mathrani, A., &Mbachu, J. (2018). Benefits and barriers in uptake of mobile apps in
New Zealand construction industry. Facilities. doi:10.1108/f-08-2017-0078
Oyediran O.S., &Odusami, K.T. (2005) A study of computer usage by Nigerian quantity
surveyors. Journal of Information Technology, 10, 291-303.
Peterson, S.J., &Dagostino, F.R. (2018). Estimating in Building Construction (9th ed.).
Pearson Education: United States.
TrustRadius (2020). Best construction software, available at:
https://www.trustradius.com/construction-software#products. (Retrieved on 19th May,
2020)

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8.0 PRELIMINARY ESTIMATE

Cost estimates evolve through preliminary or conceptual phases into detailed, final or
definitive estimates, depending on the amount of information known when the estimate is
prepared. Prior to making an offer for the completion of a project, a preliminary estimate is
made, which should be completed as soon as possible after receiving the query from the
investor.

A preliminary estimate of the duration and cost of a construction is essential and is the first
phase of the estimate, in fact, it is one of the most important phases considering that it is the
basis for any decision concerning involvement in the potential project. This estimate is
prepared approximately without going much into the details. Preliminary estimate is the
probable cost of a future project given by Quantity Surveyor during the preliminary stage of
the project in other to forecast what the project will cost. It enables the client get the first idea
of how much a proposed project will cost and it is this amount that the client will always
remember. It is also called a conceptual estimate or abstract estimate or approximate
estimate or budget estimate.

A preliminary estimate has the task of evaluating the validity of the potential project, that is,
to decide whether to put in an offer for carrying out the work at all. This estimate is generally
prepared in initial stages to know the approximate cost of the project. By this estimate, the
competent sanctioning authority can decide the financial position and policy for the
administration section.

Preliminary estimates are prepared with reference to the cost of similar type projects in a
practical manner. In this estimate, the approximate cost of each important item of work is
displayed individually to know the necessity and utility of each item of work.

The relevant of this preliminary estimate is in two (2) folds: first, it enables the client to be
aware of his financial commitment before embarking on the detail designs and secondly, the
preliminary estimate enables the Architect and others in the design team to know specific cost
by the client and to produce cost information which will assist them during the design stage
of pre-contract stage.

8.1 Preliminary Estimating Techniques

Various approaches to approximate estimating that are available to the estimator are:

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• 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.

8.1.1 Unit method

The unit method is a single price rate method based upon the cost per functional unit of the
building, a functional unit being, for example, a hotel bedroom. This method is often
regarded as a way of making a comparison between buildings in order to satisfy the design
team that the costs are reasonable in relation to other buildings of a similar nature. It is not
possible to adjust the single rate price and therefore is very much a ball park approach. It is
suitable for clients who specialize in one type of project; for example, hotel or supermarket
chains, where it can be surprisingly accurate. Other examples where unit costs may apply are:

• Schools – cost per pupil

• Hospitals – cost per bed space.

Example 1:

Assume that the current cost for a 120-pupil school constructed of sandcrete block for a town
in Ikire, Osun State is N28,200,000. We are asked to develop an estimate for a 90-pupil
school.

Solution

The first step is to separate the per-pupil cost = N28,200,000/120 = N235,000/pupil

Apply the unit cost to the new school = N235,000/pupil X 90 pupils = N21,150,000.00.

Example 2:

The current cost for a 100-bed hospital constructed in Ikire is N98,250,000. We are asked to
estimate a 125-bed hospital.
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Solution

Cost per-bed = N98,250,000/100 = N982,500/bed

New hospital cost = N982,500/bed X 125 bed = N122,812,500.00

Example 3

For a multi-storey garage spaced for 500 cars the construction cost was N333,000,000. What
is the estimate of 450-car garage?

Solution

Cost per-car = 333,000,000/500 = N666,000/car

New Garage cost = N666,000/car X 450 car = N299,700,000.00

Merits of Unit Method

i. It is simple and quick to use

ii. It has the advantage of speed of application
iii. It can be used to facilitate comparism between buildings to indicate whether the cost
of project is reasonable to the building of similar process.

Demerits of Unit Method

i. It lacks precision
ii. It is advisable to express cost within a range of prices
iii. It can not be used to estimate the cost of a specific building as adjustment cannot be
accurately made to the applied rate.
iv. Items not included in the unit cost, such as external works and abnormal cost would
have to be assessed separately.

8.1.2 Superficial Method

The superficial method is a single price rate method based on the cost per square meter of the
building. The use of this method should be restricted to the early stages of the design

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

Advantages of Superficial Method

Most published cost information on construction costs are expressed in form of cost per
square metre.

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.

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

It is easier to adjust for varying storey heights.

Disadvantages of Superficial Method

The accuracy of this method depends on used of rate based on project of similar storey
height, size, plan, shape and form of construction. Difference in these quantities are difficult
to address accurately on this simple rate method.

Care should be taking in determine what must be included in the rate. Additional items such
external works and services and abnormal cost would have to be estimated separately using
different price rate.

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Example 4:

Gross floor area for office block shown in Figure 1

= 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 N300,000.00/m2 = N307,500,000.00

Basement 7.00 x 25.0 = 175.0 m2 x N330,000.00 /m2 = N57,700,000.00

You can then estimate for block as well separately

3.00
7.50

3.00
X X

3.00
10.00

3.00
3.00

g.fl.
7.50

3.00

7.00 3.00

Section X-X

Plan

Figure 1: Plan and Section for example 4

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8.1.3 Approximate Quantities

Approximated quantities are regarded as the most reliable and accurate method of estimating,
provided that there is sufficient information to work on. Depending on the experience of the
surveyor, measurement can be carried out fairly quickly using composite rates to save time.
The rules of measurement are simple although it must be said they are not standardized and
tend to vary slightly from one surveyor to another.

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

and relating them to a common unit of measurement; unlike the measurement for a bill of
quantities, where items are measured separately.

- Composite rates are then built up from the data available in the office for that sequence of
operations.

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

- Initially, the composite rates require time to build up, but once calculated they may be used
on a variety of estimating needs.

8.2 Adjustment to Preliminary Estimate

It is necessary for the estimator to adjust the cost information from previously completed
projects for use in the preparation of a preliminary cost estimate for a proposed project. There
should be adjustment for time, location, and size.

8.2.1 Adjustment for time

The use of cost information from a previous project to forecast the cost of a proposed project
will not be reliable unless an adjustment is made proportional to the difference in time
between the two projects. The adjustment should represent the relative inflation or deflation
of costs with respect to time due to factors such as labour 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 N700.00 in January 2005. Every 3

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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.

8.2.2 Adjustment for location

Tender price levels vary according to the region of the country where the work is carried out.
Similarly, as early mentioned, the use of cost information from a previous project to forecast
the cost of a proposed project will not be reliable unless anadjustment is made proportional
that represents the difference in cost between thelocations of the two projects. The adjustment
should represent the relative difference in costs material, equipment and labour of the two
locations. Indices that show the relative difference in construction costs with respect to
geographical location is usually published by many organizations.

8.2.3 Adjustment for size

The use of cost information from a previous project(s) to forecast the cost of a proposed
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.

8.2.4 Combined adjustment

The approximate 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.

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REFERENCES

Peško, I., Trivunić, M., Cirović, G., &Mučenski, V. (2013). A preliminary estimate of time
and cost in urban road construction using neural networks. Tehničkivjesnik 20(3), 563-
570
Peterson, S.J., &Dagostino, F.R. (2018). Estimating in Building Construction (9 th ed.).
Pearson Education: United States.

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9.0 PRICING OF CONSTRUCTION WORK

To arrive at an estimation of project for the purpose of tendering, all the priceable items of
the BoQs are costed, the total value of these items are added with a margin for overhead and
profit to give the total overall cost. Cost of a specific item as described in the BoQs and
measured in accordance with BESMM, the unit rate of such item, is based on certain resource
cost,overheads and profit. Resource here, must include at least one or combination of the cost
of materials, labour or plant. Hence, resource estimating unit rate depends practically on the
specific item of BoQs being priced.

9.1 Unit-Rate Estimating

Here, a price is estimated for each item in the BoQs as if the item is to be carried out in
isolation to the rest of the works. This is the traditional approach for pricing majority of
building work.

9.1.1 Cost of Materials

The materials for delivery to and from a construction site may be broadly classified as : (1)
bulk materials, (2) standard off-the-shelf materials, and (3) fabricated members or units. The
process of delivery, including transportation, field storage and installation will be different
for these classes of materials. The equipment needed to handle and haul these classes of
materials will also be different.

(a) Bulk materials refer to materials in their natural or semi-processed state, such as
earthwork to be excavated, wet concrete mix, etc. which are usually encountered in
large quantities in construction. Some bulk materials such as earthwork or gravels
may be measured in bank (solid in situ) volume. Obviously, the quantities of materials
for delivery may be substantially different when expressed in different measures of
volume, depending on the characteristics of such materials.
(b) Standard piping and valves are typical examples of standard off-the-shelf materials
which are used extensively in the chemical processing industry. Since standard off-
the-shelf materials can easily be stockpiled, the delivery process is relatively simple.
(c) Fabricated members such as steel beams and columns for buildings are pre-processed
in a shop to simplify the field erection procedures. Welded or bolted connections are
attached partially to the members which are cut to precise dimensions for adequate fit.
Similarly, steel tanks and pressure vessels are often partly or fully fabricated before

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shipping to the field. In general, if the work can be done in the shop where working
conditions can better be controlled, it is advisable to do so, provided that the
fabricated members or units can be shipped to the construction site in a satisfactory
manner at a reasonable cost.

Cost of materials can be predicted with a fair degree of accuracy if the material in question is
in ready supply and is frequently purchased. The quantity of material required must be
accurately measured from the drawing and is not dependent on the crew performance or work
method adopted.Cost of materials constitutes a considerable share in the building up rate of
any item of work that requires materials and their planning is an important task in the
construction planning process.

The analysis of the unit rate of material required the computation of prices and quantities of
materials which is inclusive of the following:

i. Supplier’s price,
ii. Transportation to site,
iii. The cost of unloading and storing,
iv. Handling for incorporation into the work,
v. Allowances for wastage/pilfering/breakages, and
vi. Other costs: such as deterioration on storage, returning of empty bags/cases,
compaction and cost of bulk, laps, bulking and increasing in volume and taxes and
other incidentals.

Note, storage charges are usually charged in the preliminaries section of the BoQ. Also,
materials prices are generally subject to deduction due to trade and cash discounts.

9.1.2 Cost of Labour

There are many crafts in the construction labour forces, but most contractors hire from only a
few of these crafts to satisfy their specialized needs. Because of the peculiar characteristics of
employment conditions, employers and workers are placed in a more intimate relationship
than in many other industries. Labour and management arrangements in the construction
industry include both unionized and non-unionized operations which compete for future
dominance.

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Cost of labour is aimed at arriving at the labour rate per hour which is realistic and which
reflects the actual cost of labour to the contractor. It is necessary for the estimator to compute
the hourly cost to the builder of the skill and unskilled labour which will be employed on the
contract if the tender is to be successful. Cost of labour incudes the cost of employing both
skilled (craftsmen/tradesmen/artisans) and unskilled (labourer) operatives, together with the
additional payments set down in nationally negotiated agreements.

Note that in most unit rates, the cost of labour is less than the cost of materials, yet it is
determination of the labour cost that calls for the most skill on the part of the estimator.

9.1.2.1 The ‘All-In’ Labour Rate

There are 3 main types of operatives on site, who actually execute the work. there are:

a. Craftsmen or Tradesmen or Artisans (Trade-tested)

b. Artisans (Non-trade tested)
c. Labourers/Operatives

Although, labour rates vary from sites to sites, states to states and countries to countries. A
look at the builder’s magazines or any organised construction publication will show the
regional variations. These regional variations are due to some certain factors. Such as job
location, availability of skilled labour, contract wage regulations, union or open shop labour
requirements, general market conditions, and so on.It should be noted that these labour rates
changes from time to time.

Note, this ‘all-in’ hourly rate should not be confused with the term ‘all-in rate’, which is
sometimes used instead of ‘bill rate’ to describe the price attached to an item in a bill of
quantities and which includes labour, material, plant, profit and overhead costs.

In arriving at the ‘all-in’ labour rate requires the basic wage rates combine with of all or some
of the following ‘on costs’:

i. A joint board supplement

ii. Guaranteed minimum bones payments
iii. Travel time and fares
iv. Lodging allowances
v. Overtime
vi. Holidays with pay scheme covering public holidays and annual holidays

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vii. Tool allowance

viii. Sick pay
ix. Employer’s national health insurance scheme contribution
x. Employer’s liability and third party insurances
xi. Construction industry training board levy
xii. Guaranteed time due to inclement weather

9.1.2.2 Typical Build-up Labour Rate

Computation of ‘all-in’ hourly rate to be charged by a contractor for construction operatives,

the estimator needs to early establish some facts, such as:

 The number of hours workedper week, and

 On-costs to the added

Here,

 assuming 5 working days per week.

 Number of weeks to consider is 52 weeks

Therefore, for a year is 260 days

Question 1
Calculate the all-in-hourly rate for craftsmen considering:
Basic Salary: Trade Tested = N2,500, Non-trade Tested = N1,750 and Labour = N1,200. 5%
National Providence Fund, 6% gang leadership and pension, Insurance 3%, tools and
transport 6% Industrial Training 3% and Housing and Leave Grant 20%. (Make all necessary
and reasonable assumption).

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Solution:
All-in-Hourly Rate for Craftsmen

Artisans
Non-trade Labour
Trade Tested
Tested

52 weeks x 5days/week = 260days

Basic wage for:

(i) Trade Tested, N2,500.00 x 260 days N 650,000.00
(ii) Non-trade Tested, N1,750.00 x 260days N 455,000.00
(iii) Labour, N1,200.00 x 260days N 312,000.00
Add:
 NPF = 5%
 G-leadership and pension, = 6%
 Insurance = 3%
 Tools and Transport = 6%
 IT = 3% 279500.00 195,650.00 134,160.00
 Housing and leave Grant = 20%
43% N 929500.00 N 650,650.00 N 446,160.00

Effective working days:

52 weeks x 5days/week = 260days
Less:
 Holidays
(assume) = 32 days

228 days

Therefore,
Rate/day = N929,500.00 N650,650.00 N446,160.00
228days 228days 228days

= N4,076.75/day = N2,853.73/day = N1,956.42/day

N4,076.75 N2,853.73 N1,956.42

Rate/hr. =
8hrs 8hrs 8hrs

= N509.59/hr =N356.72/hr = N244.60/hr

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9.1.3 Cost of Plant and Equipment

The carrying out of a contract requires the use of plants and equipment, which may be either:
(a) Non-mechanical plant such as digger, shovels, barrow etc., (b) Mechanical plant such as
grader, tractor, bulldozer, backactor, skimmer, payloader, concrete mixer, roller, vibrator etc.
Most item of non-mechanical plants are included in the preliminaries. The rates per hour of
these mechanical plants are charged to the appropriate unit rate of the measured item in the
BoQ.

For pricing purposes, mechanical item used on site can be divided into:
i. Plant performing specific item of work, and
ii. Plant performing many different types of job on site.

While the cost of plant is charged to an appropriate unit rate, the cost of the latter is allowed
for as a lump sum in the preliminary section of BoQ. The cost of plant can be considered
under the main headings of:
i. Standing charges:
* Capital outlay (i.e. the purchase of a machine should be considered as
investment which will bear an interest on the capital outlay
* Maintenance and repair costs
* Replacement cost

ii. Running cost:

* Labour operating cost and attendance
* Fuel and lubricating cost

iii. Variable cost:

* Transport of plant
* Temporary site work (i.e. the cost of additional work which is required due to
the site conditions. i.e. an opening may be required to give access to the site for the
machine which have to be made good after completion. This may be charged as lump
sum under preliminary section of the BoQ.

NB:
A contracting firm has three (3) alternatives to make a choice and these are:
a. Purchasing plant for the contract (contractor can purchase plant by: outright purchase,
bank or finance company loan; hire purchase; or lease purchase)

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b. Hiring existing company owned plant; and

c. Hiring plant from external sources

The purchase of plant by a contracting firm for any given project is a function of many
variables including the nature of the contract, the size of the project, the type of the client, the
location ad complexity of the project. Generally a contracting firm will own plant which is
used daily. Oftentimes, contracting firms resort to hiring plant from external source (most
especially for very specialist plant). This action has relatively proved to be cheaper. Moreso,
small contracting firm whose capital is fully committed may rely solely on hired plant, but as
the business grows and workload increases the contractor may decide on outright purchase of
specific items of plant for the business. Consideration will be:

i. Availability of capital outlay

ii. State of current and expected workload
iii. Length of time plant may be required
iv. Expected rate of utilization
v. Proper storage requirements
vi. Maintenance facilities

The advantages of plant hire

i. Contractor’s capital is not locked up in expensive piece of equipment and cash
flow is not affected
ii. Hiring costs can be paid monthly as the contractor is paid for work completed in
interim payments
iii. Contractor does not pay for plant not required no has any work for
iv. Modern and suitable plant is readily available on hire from plant companies at a
fixed hourly , daily, weekly or monthly rate.
v. Cost of maintenance, repairs and replacement is born by the plant hire company
vi. In some instances the plant hire company will provide the experience and skilled
operative, therefore the contractor doe not have permanent operative’s wages to
pay.
vii. The contractor has no storage problem when plant is not being used as it is
returned to the hire company

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The disadvantages of plant hiring

i. Effective planning and programming of work schedules is required to minimize
expensive idle time on hired plant
ii. A suitable machine may not always be available when required, especially at short
notice.
iii. The contractor still has to pay for the hire cost when work is aborted due to bad
weather
iv. The plant operator does not work for the contractor full-time and so there is no
incentive to perform well.
v. Plant may not be in good shape to undertake the work, constant breakdown will
cause the contractor costly delays.
vi. Hire rate depend on market forces, which fluctuate and can be a cause of loss to
the contractor if the hire cost escalates

The advantages of buying plant

The contractor loses the following facilities when he or she hires an item of plant in lieu of
outright purchasing:
i. Ownership of a purchased item of plant is immediately transferred to the acquiring
company, which as a company asset can be used as security for finance
ii. Outright purchase of an item of plant entitles the acquiring company to capital
allowances. i.e. tax savings
iii. Credit sale – an arrangement whereby title to the time of machinery transfers on
purchase but the acquiring company works of the purchase price by installments.
This is another good source of tax saving if it can be negotiated.

The disadvantages of buying plant and hiring plant

The contractor incurs the following additional costs in utilizing plant be it hired or owned:
 Cost of transport – From plant depot to site, the extent of this cost depends on the
distance from depot to site.
 Cost of working base – If tower cranes are employed on site they require suitable
contract base or track to work on.
 Cost of erection/dismantling – Contractor incurs the cost of having item of plant
(hoists, scaffolding, tower crane etc) erected and dismantled.
 Cost of operators – Machine operators and associated labour such as banksmen, etc.
are costs to be considered by the contractor.

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9.1.3.1 Computation Of Plants’ Hourly Rates

The following are the factors to consider while building up hourly rate for plant:

 Initial cost and finance

 Depreciation
 Interest on capital borrowed
 Life of plant
 Hours worked per annum
 Repairs and renewals
 Insurance and licences
 Fuel, oil and grease
 inflation

Question 2

A new wheel loader (CAT 986H) has a 10.3m3 bucket capacity is being considered for use on
a project to excavate very hard clay with a swell factor of 35% from a borrow pit. Determine
the hourly hire rate for the loader given the following:

(i) Purchase price N8,575,000.00; (ii) Useful working life 8 years; (iii) Interest Rate 14.5%;
(iv) Interests, taxes, insurances etc 23% of purchase price per annum; (v) Scrap Value
N3.5M; (vi) Repairs and maintenance per annum 15% of purchase price; (vii) Consumables:
34.5litres of diesel/day, 0.96litre of lubricating oil per day, 2 sets of tyres per annum (four
tyres per set).

Solution:

Hourly hire rate for a 10.3m3 capacity wheel loader

Cost of tipper = N 8,575,000.00

Less: Scrap value = 3,500,000.00
N5,075,000.00

Cost per annum = N5,075,000.00÷ 8yrs

= N 634,375.00/yr
Assume Hours worked is 1,500;
Therefore, Cost per hour for interest
and depreciation = N634,375.00 ÷ 1,500 = N422.92

Add:

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(i) Interest rate 14% of N422.92 = 59.21

(ii) Taxes, insurance etc. 24% of N422.92 = 101.50
(iii) Repairs and maintenance 15% of N422.92 = 63.44
(iv) Consumables:
* 34.5litres of petrol per day @N 200.00
= 34.5ltrs x N 200.00/ltr÷ 8hrs = 862.50
* 0.96litre of oil per day @N980.00/ltr
= 0.96 x N980.00/ltr÷ 8hrs = 117.60
* 2 set of tyres thr’out working life @N105,000/tyre
= (2 x 4 tyres x N105,000 ÷ 1500hrs)/8yrs = 70.00
= 1,697.17
Labour
(i) Operator (assume) N2,853.73 per day
(ii) Attendant 1,956.42 per day
4,810.15 per day

Therefore, per hr = N4,810.15 /day÷ 8hrs = 601.27.00

Cost of hiring tipper lorry and labour per hour = N2,298.44 (Net)

9.1.4 Profit and Overheads

Element of profit normally varies from 5 to 10%. Overheads vary from 7 to 15%. The total
element of overheads and profit shall not normally exceed 25% on estimated rates. Although,
this varies from organizations to organizations, regions to regions, etc.

REFERENCES

Nový, M., Nováková, J., & Bartoš, M. (2016). Pricing in Construction Project Management
Performed by the Self-employed. Procedia Engineering, 161. 759 – 764
Cartlidge, D. (2013). Estimator’s pocket book. Routledge Publisher.

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