KiT
W0ll0 University
Department of Civil Engineering
Contract, Specification
and
Quantity survey
LECTURE -5
Prepared by: Abduselam H.
Project Cost Estimation
Project Cost estimation is the process of valuing on
monetary expression, including the cost of all
possible entrants necessary for the planning,
implementing and monitoring stages of the proposed
project under consideration.
The possible entrants are:
- Preliminary investigation (project appraisal costs)
- design and supervision (consultancy cost )
- construction works (contractor’s cost )
- land owning cost, and
- monitoring costs
Purposes of Cost Estimation
The main purpose of costing or estimating are to:
• know the volume of work in reference to
the fund available
• determine actual cost per unit of item
• Identifying engineering estimate of the
work for bidding purpose
Cont’d…
• work out economical use of materials
, labor and equipments
• In cases of variations to determine
the extra cost to be incurred
• when changes in cost due to
legislation happens, to work out the
escalation in cost
Cont’d…
The following information is required to define cost per
unit of work
1. Correct information of the market price of the
materials at the time of need to be used as a basic
price.
2. Correct information of the rates of various categories
of skilled and unskilled laborers as wage rates to be
used for daily work rate.
3. Output of laborers per day for various types of items
(productivity)
Cont’d…
4. Correct information of the rates of
various categories of equipments and
tools as rental rates to be used for
major items of rates.
5. Up-to-date knowledge of the
construction methods.
Factors affecting cost estimation
1) Type and documentation of the project
2) Construction scheduling
3) Bidding environment
4) Quality and availability of material and labour
5) Construction facilities /tools and method of
construction
6) Location of the site: Transportation charges
7) Proper management
8) Land charges (lease)
9) Nature of subsurface condition
Types of Costing or Estimation
Preliminary /approximate costing
i) Preliminary Estimates: Early in the planning
stages, both building owners and designers must
agree on an anticipated cost of the project at bid
award.
Rates are determined either from practical knowledge
or from records of similar previous works.
This type of cost estimation is required to know the
financial position of the client before costly detailed
designs are carried out.
Examples of approximate cost estimations are as
follows:
A. Cost per functional unit
Hospital =cost per bed,
Dormitory = cost per student,
Cinema or theatre = cost per seat,
residential buildings = cost per area,
road works = cost per kilometer length,
culverts or bridges = cost per meter span,
water supply or sewerage projects = cost per
head of population.
B. Plinth area method – cost per m2.
This estimate is prepared on the basis of
plinth area of the building.
The rate per meter square is deduced
from the cost of similar building projects in
the locality.
The plinth area shall be calculated based on
the roof area, by taking external dimensions of
the building at the plinth level.
C. Cubical Content method – cost per m3
The estimate is based on cubical
contents of various buildings, i.e. plinth
area of the building x height x cubic
content rate.
Height should be taken from the top of
flat roof (or halfway of the sloped roof)
to the top of concrete in foundation.
Purpose of approximate estimate
i) To investigate feasibility
ii) To save time and money
iii) To investigate benefit and comparison of cost with
utility.
iv) Adjustment of Planning.
v) To obtain administrative approval:
Detailed cost estimate( based on item rate)
This is the most reliable and accurate type of
estimate.
The quantities of items are carefully prepared
from the drawings and the total cost worked
out from up to date market rates.
A detail cost estimate thus requires quantity
surveying and analysis of the different rates
for the quantities prepared.
Composition of Project Price
The total price of a construction project is the sum of
direct costs, contingency costs, and margin.
Direct costs: are the labor, material, and equipment
costs of project construction.
Contingency costs: are those that should be added to
the costs initially calculated to take into account
events, that are likely to occur during the course of the
project and affect overall project cost.
Margin (sometimes called markup): has three
components: indirect (distributable) costs; company-
wide (general & administrative) costs; and profit.
Cont’d…
Indirect costs: are project-specific costs that are not
associated with a specific physical item. They include
the cost of project management, payroll preparation.
Company-wide costs include:
(1) Costs that are incurred during the course of a project
but are not project related.
(2) Costs that are incurred before or after a project.
Profit: is the amount of money that remains from the
funds collected from the client after all costs have been
paid.
Disposition of the Cost Calculation
i) Direct itemized costs:
A. Material costs
Construction/Building material
Operating supplies
Loading, unloading and
transportation costs
Wastages
Cont’d…
required information:
Quantity of material required to produce a unit
amount of itemized work
Basic price (Prime cost) at the source of
material
Transport, loading and unloading to the site
Waste/loss (e.g. Breaking, rupture, defective
material, wastage etc).
Cont’d…
B. Labor costs: include
Standard wages
Extra and supplementary pay for
o Production bonus
o Long continuity of Service (permanent
laborer)
o Over time pay
o Property creating performance
o Less favorable condition
Cont’d
Social Service payments
Holiday pay if any
Health insurance
Unemployment insurance
Payment during sickness
Cont’d…
Required information for the calculation of
labor cost
Number and type of skilled and unskilled manpower
for a particular type of work, (Crew)
Performance of crew per hour for a unit amount of
work
Indexed hourly cost of the workman ship.
Utilization factor of the workmanship. Share of a
particular personal per hour for the specified work.
Cont’d…
C. Equipment costs: - All costs for commissioning /holding
and operation of the equipment.
ownership of plant
hire of plant
- Standing Costs: includes capital sum based on purchase
price and operating cost, maintenance, tax and insurance.
- Operating Costs: operators cost, fuel, consumable
stores.
Required information:
Type of equipment for a particular item of work.
Performance of equipment per hour for a unit amount
of work (production rate)
Cont’d…
D. Costs for sub-constructor:- If the work is
to be subletted to a nominated
subcontractor, the cost shall be determined
and separately established as a sub
contractor fee.
Ex. –Marble cladding
-Supply and fix items (aluminum frames)
-Furniture etc.
ii) Indirect Costs
A. Site over head costs
Time-independent costs
Costs for site plant/ site installations
Cost for site facilities
Engineering and controlling
Operation risks
Special costs
Cont’d…
Time-dependent costs
Commissioning /holding costs
Operating costs
Costs for contractor’s agent
B. General overhead costs
C. Risks and profit
Cont’d…
Direct cost + Site overhead Cost = Production cost
Production cost +General overhead cost = Self-costs
Self- costs + Risk& profit = Bid sum
Bid sum + Vat = Bid sum inclusive vat.
Example
a) Calculation of material cost
1) Calculation of the material costs of 1m3 concrete C-
25 grade given.
-1Qtl of cement -355 Birr
-1truck of Sand (6 m3 ) from source to Site 1500 Birr
-1 truck of gravel (6m3) from source to site 1200 Birr
-1m3 water 10 Birr
-Transportation cost 5 Birr/Qtl/Km
-Wastage 5%
Solution:
Type of Unit Qty Unit rate Cost/unit
material
Cement Qtl 3.6 355 1278
Sand M3 0.5 250 125
Gravel M3 0.75 200 150
Water M3 0.3 10 3
Sum 1556
Loss 5% 77.8
Total 1633.8 Birr/m3
b) Calculation of Labour cost
Example2. Calculation of labor cost for a m3 of
concrete; production rate 1.25 m3 /hr
Labour No UF Index hourly Hourly cost
cost (Birr)
Forman 1 ½ 10 5
Plasterer 2 1 5.5 11
Carpenter 1 ¼ 7.5 1.85
Bar 2 ¼ 7.5 3.75
bender
D. 18 1 4 72
Laborer
Total 93.6
Labour cost = 93.6/1.25 = 74.88/m3
c) Calculation of Equipment cost
Example 3: Calculation of equipment cost for m3 of
concrete
Mixer - Original cost = 500,000 Birr
Useful life = 3yrs
Monthly repair cost with supplies: - 700 Birr
Virbrator- Original cost = 350,000 Birr
Useful life = 7yrs
Repair cost monthly = 450 Birr
Assume 8 working hours per day and 22 days per
month
Solution
Two methods of calculation are followed.
I) With charges accounted for depreciation, interest
return and monthly repair costs
II) With monthly rental charges.
Hourly equipment cost
i) Mixer
Depreciation (d) =500,000 Birr = 78.9 Birr/hr
3x12(22x8) hr
Hourly repair cost = 700/8x22 = 3.98 Birr/hr
Hourly Mixer cost = 78.9 + 3.98 = 82.88 Birr/hr
Cont’d…
ii) Virbrator
Depreciation (d) = 350,000/(7x12x8x22) =23.6Birr/hr
Repair cost = 450/(8x22) = 2.5 Birr /hr
Hourly vibrator cost = 23.6+ 2.5 = 26.1 Birr/hr
Types of No, UF Hourly Hourly
Equipment rental cost cost
Mixer 1 1 23.6 23.5
Vibrator 1 1 2.5 2.5
Total hourly cost (Birr) = 26.1
Equipment cost for (1m3 concrete) 26.1/1.25 = 16.70 Birr/ m3
Cont’d…
Equipment cost using monthly rental changes
Mixer= 500,000 Birr Month rental charge
Vibrator = 350000 Birr month rental charge
Hourly cost
Mixer 500000/22x8 = 2841 Birr/hr
Vibrator = 350000/22x8 = 1988 Birr /hr
Total = 4824Birr/hr
equipment cost for 1 m3 of concrete = 4824/1.25
= 3863.2Birr/ m3
Two approaches for cost calculation
i/ Cost Calculation with predetermined charges
Example: Establish the unit price of 1 m3 concrete
considered for in the previous examples.
Given that the surcharge for the indirect cost is 35%.
Material cost= 1633.8
Labour cost = 74.88
Equipment cost = 16.7
Direct cost = 1725.38
Indirect cost = 0.35 (1725.38) = 603.88
Unite price = 1725.38 + 603.88 = 2329.26 Birr/ m3
Cont’d…
ii/ Cost calculation through the bid Sum
In this approach, amounts for site overhead costs,
general overhead costs, risk and profit are to be
ascertained separately for each project.
Here from surcharges on direct itemized costs result
with different amount for each project;
Four steps for this calculation method:
- Establishing the production costs
- Establishing the bid sum
- Establishing the surcharges on direct itemized costs
- Establishing the unit prices
Cont’d…
Eg. Given the following detail for the construction of 5Om
long fence around a site.
1/ List of items quantities and direct itemized costs are as given in the
table.
No work Unit Qnt Direct cost
1 Excavation to a depth of 1m M3 - 20
2 50 cm thick masonry wall M3 - 50
3 Concrete for tie beam M3 - 500
4 Dia 14 dc formed ban Kg - 8.5
5 Dia 8 stirrups Kg - 4.5
6 Formwork tie beam M2 - 70
7 20cm thick HCB wall m2 - 50
Direct cost 703,000
Cont’d…
2) Site overhead costs
Site facilities (office, store---) -------------------2500 birr
Electricity, water & telephone --------------------800 birr
Salary professionals -----------------------------2000 birr
Secretarial service ---------------------------300 birr
3) General overhead cost ----------------10 % direct cost
4) Risk & profit ---------------------------7% of direct cost
Cont’d…
Question: Establish bid sum and unit prices for the
itemized works.
Step 1: Establish production cost. (Direct cost + Site
overhead cost)
• Direct cost :- 703,000 birr
• Site overhead cost :- 5,600 birr
• Production cost 708,600 birr
Cont’d…
Step 2: Establish bid sum [production cost +
General overhead cost + risk & profit]
Production cost -------------------------- 708,600 birr
General overhead cost = 10%(708,600)=70860 birr
Risk & profit ---------------7 %(708,600)= 49602 birr
Bid sum without vat = 829062 birr
vat 15% = 124321.3
Bid sum with vat = 953421.3 birr
Cont’d…
Step 3: Surcharge on direct itemized cost
Surcharge = Bid sum without vat
Direct itemized cost
= 829062/ 703,000 = 1.2
Step 4: Establishing unit prices
Unit price = Surcharge x direct itemized cost
Cont’d…
No work Unit Qnt Unit price amount
1 Excavation to a depth of M3 40 24 960
1m
2 50 cm thick masonry M3 25 60 1500
wall
3 Concrete for tie beam M3 5 60 3000
4 Dia 14 dc formed ban Kg 245 10.2 1479
5 Dia 8 stirrups Kg 132 5.4 712.8
6 Formwork tie beam M2 20 84 1680
7 20cm thick HCB wall m2 90 60 5400
Bid sum without vat 14731.8
Add 15 % vat 2209.77
Bid sum with vat 16941.57birr
VALUE ENGINEERING
Value Engineering is a systematic and organized
effort to identify the functions of a product,
system or procedure and to attain that function
with minimum cost without jeopardizing
quality, aesthetics, appearance etc.
Value engineering studies may be performed by
Consultants during design development, or by
the contractor during construction.
The most effective time to conduct such studies is
during design development.
Cont’d…
The value of a component or system can be defined as
its function plus quality divided by its lifecycle cost.
Value of a component = ( Function + Quality )
Life Cycle-Cost
Life-Cycle Cost = Initial or Construction Cost +
Operating Cost+ Maintenance Cost+ Depreciation
Cost – any Salvage Value.
Value Engineering seeks the highest value design
components by Improving utility with same cost or
maintains same function with less cost.
Cont’d…
In general Value engineering:
Enhances value of money,
Effects improvements in function, performance and
quality,
Enables people pin point areas that need attention
and improvement,
Provides a method of generating ideas and
alternatives for possible solution to a problem,
Provides a vehicle for dialogue,
Documents the rationale for decisions,
Improves the value of goods and services.
Steps in Value Engineering
1) Information Gathering:
The information gathering phase involves studying
the design to identify potential components or
systems for detailed study.
2) Speculation through Creative Thinking:
The purpose of the speculation or creative phase is to
identify alternative ways to accomplish the
essential functions of the items selected for the study.
The intent is to develop a list of alternative
materials or components that might be used.
Cont’d…
3) Evaluation through preliminary Life-Cycle Costing:
The evaluation phase involves determining the
most promising alternatives from the set identified
in the speculation phase.
The intent is to determine which alternatives will meet
the owner’s functional requirements and provide
more value to the completed project.
Cont’d…
4) Development of Technical Solutions:
The development phase involves creating design
concepts for the alternatives identified during the
evaluation phase.
Alternatives are compared, and the ones representing
the best value are selected for presentation to the
designer and the owner.
Cont’d…
5) Presentation of Alternative Options:
The final step is the preparation of the value
engineering proposals, in which detailed technical
and cost data are developed to support the
recommendations.
The proposals are submitted to the designer and the
owner for approval.
If approved, the proposals are incorporated into
the design. If not approved, the design is not changed.
.
The END
