Estimation of bid price or tender cost of a construction project is calculated as the sum of the total cost of construction and mark-up price. Total cost of construction project consists of direct cost and indirect costs for the construction works.
Direct cost of building undertaking includes the cost of materials, labors, plants and machinery while the indirect costs are associated with expenses on personnel recruitment and their training, research and development required for the building works.
Thus a direct cost is associated with the activities performed at construction site, i.e. if the activities are not carried out, direct costs are not incurred. Indirect costs may have incurred even if the construction works / activities have not been performed. In case of indirect costs, they are non-traceable based on activity.
Thus, following formulas can be used to calculate the cost of construction undertakings:
Direct Cost = Labor Cost + Plants & machinery Cost + Crew Cost + Materials Cost + Subcontractor Cost
Indirect Cost = undertaking Overheads + Common Plants & machinery Cost + Common Workmen Cost
Mark-up Cost = Profit + Contingency + General Overheads + Allowance for Risks
building Project Cost = Direct Cost + Indirect Cost + Mark-up Cost
Direct cost of building project consists of cost of substances, labors, plants and equipment, subcontractors and crew costs. Following are the guidelines for estimating components of direct cost:
These materials include cement, aggregates, reinforcement steel etc. Cost of materials includes cost of all construction materials which will go into the construction or the construction work. The cost of material consists of actual cost of the material at the source, their packing and handling charges, transportation, excise duty, sales tax, entry tax etc. on the actual rate of material.
as a result, the cost of substance = Actual cost of substance at the source + packing and handling charges + transportation cost + taxes
The cost of labor is the payment made to labor for works done at building site on daily or weekly or monthly basis. The cost of labor includes the basic wage paid, bonus payments, cost for labor welfare schemes such as pension, insurance, health benefits, notice pay, housing, food, retrenchment, mobilization and demobilization costs.
The cost of labor are influenced by local laws. Thus they vary from place to place and also depend on skill levels of the labors.
Cost of plants & machinery covers the cost incurred towards owning and operating the machinery for various building activities.
The cost of plants and machinery includes cost of owning and operating, mobilization cost, cost of fuel, oil and lubricants, cost of repair and maintenance of machinery, cost of spare parts, cost of operators, drivers, statutory expenses, personnel, carrier expenses and demobilization costs.
In a large construction undertaking, the main contractor has one or many sub-contractors under them for various construction works or activities or specialized works such as waterproofing, wood works, aluminium works, anti-termite treatments etc.
The cost associated with specialized construction work or any work done by a subcontractor is called as subcontractor costs.
The main contractor gets the quotation from subcontractors for the proposed construction work to be done by them. Then the cost of works to be completed by subcontractor is considered as subcontractor costs.
A crew is a group of men (laborers, supervisors etc.) and machineries which are assigned a particular type of building activity such as excavation, piping, welding, woodwork etc.
The cost associated with these crew to complete the given work is taken as the crew cost. This cost can also be taken directly instead of calculating cost of labor, equipment for such works.
For example, excavation crew consists of 2-3 workers, excavator machine, dumpers etc. By knowing the capacity of this crew to complete the work in a time frame and cost of the crew per unit time, we can compute the cost of excavation directly without calculating the cost of labor, equipments separately.
A construction undertaking has many activities to be complete. The indirect costs are also called as overheads. Thus these costs are not considered as direct costs and considered separately as indirect costs. Some costs are incurred in a construction undertaking which are not associated with only one activity and they can be distributed to many activities.
for instance, for a material cost, the indirect cost can be purchase cost, inventory carrying cost etc.
The indirect cost includes undertaking overheads, common workmen, common plants and equipment costs.
Project overhead cost consists of following in a construction project:
i) Salaries and benefits – This includes the salaries and benefits to staffs including engineers, supervisors and other administrative posted at construction site. Thus, salaries and benefits to staffs shall be considered in bid price estimation calculation. The gross salaries of these are considered for this cost.
ii) Insurance cost – A construction undertaking possesses many types of protection and health hazards. Thus insurance for life and health and offered to all staff and workmen involved in the construction undertaking.
iii) Financing cost – A large construction project needed a large amount of money to mobilize and carryout the construction activities. For this, the loans are arranged from various banks which attracts interest. So, these costs are appropriately considered while estimating bid price or tender cost of a construction project. Also costs are incurred during bidding process such as bid bond, performance bond, advance bond and payment guaranty, retention guaranty, letter of credit, establishment charges, work insurance, fines and penalties etc.
iv) Conveyance cost, Travel and transfer Cost – Many times equipments, staffs and workmen need to move from one place to another for various purposes which incurs a cost known as conveyance cost. This is also considered while estimation of bid price of a building project.
v) Temporary Site Installation Cost – Temporary site installation such as site office, workshops, stores, fencing, warehouses and storage areas, sanitary, first aid, furniture and fittings, computers and other electronics, temporary roads, car parking and even residential units and messing facilities are provided at construction site. The cost associated with these temporary site installations are also considered in bidding price calculation of construction project.
vi) Clients and Consultants Requirements – Many times a contractor has to provide facilities to client and consultants such as office staffs, office space, furniture, telephone etc. The cost associated with these facilities also have to be taken into tender cost calculation of construction project.
vii) Utilities Cost – The cost associated with utilities such as water, power etc. for office and residential areas are to be borne by the contractor and shall be considered for bidding price estimation calculation.
viii) Taxes and Duties – Taxes such as contract tax, excise duties, custom duties, income tax, sales tax, service tax, value added tax etc. are different type of taxes which may be application for a construction project. Thus cost of these taxes are considered appropriately for bidding price calculation wherever applicable.
ix) Miscellaneous Expenses – There can be other expense other than mentioned above such as administrative expenses, field expenses, stationary, documentation, communication, instruments and consumables, safety and protective equipments etc. The cost associated with these miscellaneous expenses are considered for tender price estimation calculation.
Some plants and equipments and construction workers are associated with many construction activities. They are grouped and their cost is calculated separately and included in the tender cost – bid price estimation calculation of a construction project.