Undertake basic estimation and costing - overview

Transcription

1 Undertake basic estimation and costing - overview Undertake basic estimation and costing - overview 1 Introduction 2 Assessment criteria 2 What is estimating? 3 Terms you will need to know 4 Factors affecting construction costs 7 Size of the project 7 Location of the project 7 Composition of building costs 9 Materials and cartage 9 Labour 10 Plant 11 Overheads 12 Anticipated profit 14 Importance of time 15 Summary 16 TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 1 of 17 This

2 Introduction Estimating is the process of forecasting the actual cost of construction including; calculating the quantities of materials, labour, time required to complete the job and any associated overheads associated with the job. Consistently good estimating ensures the continuing financial health of the contractor. Assessment criteria At the end of this section you should be able to: At the end of this unit you should be able to: - estimate the amount of material required. - Determine the types and amount of labour required to complete simple jobs. - estimate the time it takes to complete work. - estimate overheads associated with the project. State of New South Wales, Department of Education and Training TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 2 of 17 This

3 What is estimating? Estimating is the process of determining how much a job will cost. It is not easy to do this, given the nature of construction work and how many unknown factors contribute to the completion of a job. For example, let s say that you are asked to install a garden shed for a cliet. You have already determined the cost of the shed and the amount of concrete in the slab that the shed will sit on. However, in calculating these quantities, you have not considered the ease of access to the site how long it will be before you can construct the shed without damage to the slab what additional cost are involved in having a small amount of pre mixed concrete delivered to site how much it will cost to remove the waste material at the end of the job. There is a lot to consider, isn t there? And I m sure there are things that we haven t thought of, even on such a relatively small task as this. To fully appreciate how complex this task is, we need to take a look at the overall picture, and determine the role of estimating in a construction project. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 3 of 17 This

4 Terms you will need to know There are many terms used in the construction business that are particular to building and that you should be familiar with. You should read through the glossary in the module overview again as well as the following list and try to memorise some of the more important definitions. You will find that you will learn most of them as you use them or see them used. Refer to this list as needed, as you work through this module. bill of quantities A list of numbered or coded items describing quantities and materials required to carry out the contract work. It is divided into sections corresponding with their usual building trade classification in accordance with the ASMMBW budget estimate of cost A second cost estimate of the project at current prices, based on a firm design proposal in the form of final sketch plans for a building on the site. builder In some forms of contract the main contractor is called the builder. On small jobs, the contractor may be called the builder builder s bill (of quantities) A list of quantities prepared by a builder to estimate the cost of a project, but not prepared in accordance with the ASMMBW. It can be similar in format and generally follows the trade order of the specification. building contract An agreement entered into by two (or more) parties whereby one of them agrees to perform specified services in a building project for the other party for a specified consideration. The contract is a written document contingency sum Is an amount of money allowed in the tender/contract for unforeseen expenses and is adjusted in the final account. It can only be spent by the architect, superintendent or principal TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 4 of 17 This

5 contract documents All documents related to the construction as stated in the Articles of Agreement. Conditions of Contract. Specification. Drawings. Bill of quantities. A bill of quantities may or may not form part of the contract. contract variation The term used to describe additional work, omissions, alterations and substitutions to the work as documented in the contract documents. The term also includes the adjustment of a specified monetary provision where the actual amount expended varies from the specified amount. In commonly used builders jargon, a contract variation is called an extra. Of course, this is not technically correct as extra work results in additional cost and omitted work results in a deduction. costing Collating relevant information and calculating the actual cost of construction. Information obtained is analysed and directed to provide: cost control on projects data for future estimating. direct labour Site labour employed directly by the builder. Employee is a PAYG taxpayer. head contractor The person, persons or organisation contracted to perform building or civil engineering works in accordance with a contract. labour constant The average estimated time for a unit of work to be completed, calculated in terms of one average person under normal conditions and reasonable quantity of work. It is expressed in person hours TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 5 of 17 This

6 nominated subcontractor A subcontractor who is nominated by the client to perform a separate or specialised section of the work under the main contractor s control. The cost of nominated subcontractor works is allowed as a provisional sum in the contract. practical completion The date certified by the architect on which the works are reasonably fit for use and/or occupation by the principal. subcontract Portion of the main contract performed by others (subcontractors) and can be for: a supply material only supply and fix material supply labour only. The Head Contractor retains the full responsibility for completion of all work. subcontractor Person(s) or organisation contracted by the main contractor to perform a part of the contract works variation (contract variation) The term used to describe additional work, omissions, alterations and substitutions to the work as documented in the contract documents. The term also includes the adjustment of a specified monetary provision where the actual amount expended varies from the specified amount. In commonly used builders jargon, a contract variation is called an extra. Of course, this is not technically correct as extra work results in additional cost and omitted work results in a deduction. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 6 of 17 This

7 Factors affecting construction costs There are several factors that could influence the costs associated with a construction project. I am sure that you could think of many yourself. Let s take a look at two of the major ones. Size of the project Big projects generally involve the use of larger amounts of material, such as concrete, steel, or timber, than smaller ones. This can and often does affect the unit rate paid for these items. For example, the concrete in the floor slab of a shed slab with a total order of 2 cubic metres may cost $250 per cubic metre to place, whereas the same type of concrete in a multi-storey building (where the total used is 650 cubic metres) may cost only $100 per cubic metre to place. Similarly, the degree of complexity of a job may increase the cost. For example, there would be more long, straight runs of brickwork in a large project, than in a residential building, so the pricing per square metre of brickwork, considering corners, openings, feature work, etc., would mean a higher unit cost for the domestic brickwork. Location of the project Access to a site can be a critical component in cost estimation. A difficult site may need preliminary construction works in order for plant to gain access. For example, a steep site may require the construction of an access ramp, platform or roadway, or even the installation of a lift. For some sites, the access problems may be due to the location. For example, a building site in a city that is surrounded on all sides by narrow alleyways and mediumrise residential buildings would require special arrangements relating to traffic and may require large plant to be delivered in pieces and assembled on site. You can imagine that access difficulties could add substantially to the cost of a project. The location of a project will affect how much of the cost is concerned with transporting materials, plant and labour to the site. This may simply be the added cost of moving materials a long distance from the supply point. On the other hand, specialised equipment may need specialised transport vehicles and carefully planned and coordinated traffic redirection, involving TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 7 of 17 This

8 council permission, police involvement, RTA notification, etc. This also could add greatly to the cost of the overall project. Location also determines climate. Construction in the cold extremes of Australia in winter can be somewhat different from that in temperate climates such as in Sydney. Additional personal equipment may need to be supplied for the workers, such as wind jackets and thick gloves. Additional crib facilities may need to be provided. Workers may need to be given regular breaks if they are to be working in exposed conditions. The construction of concrete buildings may require special and expensive techniques to raise the temperature of the concrete for adequate curing. Snow may need to be cleared from the site daily to allow building work to proceed. Additional safety issues may need to be considered which may lead to delays in the progress of the job. All of these will need to be recognised and considered in the costing of the project. Location of itself may affect project cost. For instance, construction of an underwater aquarium will necessarily incur greater cost than if it were constructed on land. Underground installations would involve high costs for the construction as well as for access, dangerous working conditions, safety provisions, pumping of water out, and air in, etc. Construction on dangerous sites such as on cliff-faces (like the end station of a tourist cable way in mountainous terrain) or over deep valleys (such as a bridge like the twin bridges over Moonee Moonee Creek just north of Sydney), will also require consideration as to how the cost of the project will be affected due to these unusual conditions. The cost of pole frame construction of a residential house on a very steep site would be similarly affected. Reflect What are some of the factors that influence the jobs you quote? TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 8 of 17 This

9 Composition of building costs The cost estimate for each task in a construction project can be broken down into three main components: 1 materials and cartage 2 labour 3 plant These three components must be considered when estimating and costing. Once the cost of each task has been determined, then other costs associated with the job are calculated and added including: 4 preliminaries 5 overheads (The indirect costs incurred in running business. These include rent and rates, marketing and publicity, administrative and financial costs, eg insurances.) 6 anticipated profits The gross or all in amount obtained by the above process is the tender price. Now let s look at each of the cost components in more detail: Materials and cartage The cost to the builder and thus the amount to be included in the estimate comprises: purchase price less discounts, cartage costs, costs for unloading and storing, an allowance for bulking or shrinking, an allowance for fixing and sundries, and an allowance for wastage. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 9 of 17 This

10 Labour Labour is the hardest of all components to estimate, given the many variables that must be considered. Some of these are: availability of personnel, worker experience and skills required repetitive nature of the work location of the job and access waiting for and dealing with deliveries tying and untying loads, covers and tarps working off scaffolds communication response times union requirements training requirements (on and off the job) language problems double handling of materials waiting at the hardware store or timber yard working in with other trades work incorrectly executed because of lack of clarity and understanding of instructions (supervision) interruptions OH&S requirements (making the work area a safe environment) All of these factors can add up to much lost time on site. There are also Award and Statutory allowances that must be considered such as: dirty work zone or site second hand timber fares morning tea EPT worker s compensation superannuation hazardous materials handling height money confined spaces distance from home meal allowance first aid weather conditions payroll tax severance pay compensation for lost or stolen tools Don t forget your Labour On-costs On-Cost s are any additional costs directly associated with an activity, such as an employees Award and Statutory allowances, sick leave, superannuation, Workers compensation etc. These On-costs need to be factored into the rate at which your employee is charged out at. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 10 of 17 This

11 Plant Plant can be divided into three categories: minor plant: such as small tools, wheel barrows. if not supplied by the subcontractor, are to be allowed for in the builder s general overheads. major plant: plant that is to be used by various trades over the duration of the job, including tower cranes, builder s hoist, scaffolding. Allow for these in the preliminaries special plant: plant that will be used by only one particular trade, for example,. a concrete pump. It should be costed to suit the individual job, and depending on the Bill of Quantities, can be costed in the preliminaries, or as a separate item in the preambles. Another way is to cost the respective item or items of that particular trade, depending on the size, scope and programming of the job. Plant costs The actual cost of plant, whether it is the outright purchase, lease or hire, can be made accurately. Investigate alternative types and uses of plant to obtain the most efficient and cost effective plant to be used. How long the plant is required on the job is difficult to predict and the estimator will have to account for the possibility of such things as: site delays strikes plant breakdown size of gang weather site difficulties idle time Running expenses, maintenance, transport to and from site, plus the security of plant also need to be considered. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 11 of 17 This

12 Overheads Overhead is the general administration cost of a Contractor s or builder s business. It is usually added as a percentage to the nett estimated cost of the job after all estimating work is complete. Items included in overheads are: office expenses (rent, equipment, furnishing, rates, electricity, telephone, cleaning, stationery, postage, interest on borrowings etc.) office staff salaries including estimators and supervisors (except the general foreman who is usually charged to preliminaries for each job). personal salary of self-employed bank charges accounting fees motor vehicle expenses plant maintenance and depreciation builder s license fees insurances on offices, yards, workshops, vehicles, plant, staff (job insurances are charged to preliminaries and labour insurances are charged to direct labour for each job). Depending on the particular builder s organisation the list may vary. For example, the smaller builder or contractor will probably do all the estimating work himself probably work from home and so save on staff salaries and office expenses. It may also be more convenient to charge some of the above items directly to particular jobs. The usual method of establishing the percentage for overheads is to relate total overhead expenses to total turnover for a particular period. This is done by using information from the firm s records for the previous year. Example Turnover for Jan 2001 = $ Overhead for Jan 2001 = $ Overhead percentage = = 76.% This percentage should be added to the total labour cost rate. The overhead percentage can be compared against figures for the previous year. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 12 of 17 This

13 Questions 1. What is estimating? 2. Define: Direct Labour 3. Name the two major factors that affect construction costs 4. Give two examples of when the location of a job may affect the cost of a job? 5. Name the 3 main components needed to estimate the cost of a job. 6. In addition to the above, what are the 3 costs that need to be added to a estimate to end up with a final tender price? 7. Name 2 materials and cartage costs that need to be included in the estimate? 8. What are the 3 Plant categories? 9. Give 3 examples of an overhead. 10. The final overhead amount is added to the total labour cost rate in the form of a TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 13 of 17 This

14 Anticipated profit The object of all building businesses is to make a profit. However, we can only call it anticipated profit at the tendering stage, because the profit margin will depend on the closeness of the estimator s cost calculations to the actual costs. The builder will determine the profit margin, or the percentage that is applied to the final nett costs in the tender. He or she will assess what risks are involved, whether high levels of expertise are required, or whether there are any other factors not accounted for elsewhere in the tender, which may affect the final cost estimate. The term anticipated profit is appropriate because at the time of tendering, the amount included in the estimate for profit (ie estimated excess of income over expenditure) can only be a forecast of the final outcome. The conduct of the job, material availability, industrial relations, performance of tradesmen and subcontractors and weather, are some of the many factors that can influence the final cost. Anticipated profit is usually added as a monetary amount or as a percentage to the various components of the nett estimated cost. Since overheads and preliminaries are definite expenses to the builder and are not profit items, management may decide to add anticipated profit to these components as well. Because risk varies from one component to another anticipated profit should be added at differing percentages to the various components. The least risky component is monetary sums because the amount included in the contract is fully adjustable against actual expenditure. Subcontract work and materials (so long as the contract includes a rise and fall clause) carry greater risk to the builder. They are in the middle category. Direct labour could be regarded as the most risky component cost-wise to the builder. Other factors to be considered when deciding profit margins are competition, the builder s own work situation, continuity of work, maximum utilisation of plant and the state of the tender market. In slump conditions, a builder (yourself or any of the other tenderers) may be so keen for work that little or no profit will be added, simply to keep the builder s organisation going. Also, it is probably reasonable to state that the degree of competitiveness in tender prices is in direct proportion to the number of tenderers for the job. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 14 of 17 This

15 Importance of time Time is the essence of any building contract. The proprietor requires a completed building as soon as possible to allow him to minimise his interest and holding charges. The importance of time and its relationship to cost permeates the whole of the building industry. The estimator s work is affected by time in various ways, including the following: The time for tendering is set by the architect, and the estimator must have his figures ready for a management decision well ahead of tender closing. Late tenders are ruled invalid without exception. Contract documents may include a rise and fall clause. Such a clause allows for the adjustment of the contract sum to compensate for variations in wage rates and/or material prices during the contract period. The rise and fall allowance is usually based on a formula tied to a cost index. The estimator is expected to report to management on the type and the effect of the particular rise and fall clause included in the contract. When a contract firm price contract) does not include a rise and fall clause, management expects the estimator to report, on items where price rises might be expected so that some allowance can be made. The Estimator needs to examine and take appropriate action on subcontractor s quotes to establish whether they are firm (and for how long) or subject to rise and fall (and on what basis). When using rates and prices from previous jobs to prepare a current estimate, the estimator must adjust for cost rises that have occurred in the interim. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 15 of 17 This

16 Summary The accuracy of an estimate will depend on the knowledge gained from past experience, historical records, and the accuracy of any information gained from people with more experience or knowledge in certain specialised fields. Many variables have to be considered when estimating. For example, if a class was asked how much it would cost to hang a door, one student may immediately give a price, while others will ask for more details: who is to supply the material? is the jamb supplied? what type of door is it? what type of lock, hinges, how many hinges? And if this is not enough, they may ask: who is to do the painting? Where is the job? Is it on the top floor of a 30 storey building? is it located in the country? Is there more than one door to be hung? etc., etc. The pricing can only begin once all of the details are known. The information must be both accurate and up-to-date. Marginal differences in rates when multiplied through the quantities in a job may make the difference between winning and losing a contract. Questions Q11. Anticipated profit is usually added as a amount or a to the various components of the nett estimated cost. TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 16 of 17 This

17 Answers Q1. Estimating is the process of determining how much a job will cost Q2. Site labour employed directly by the builder. Employee is a PAYG taxpayer. Q3. Size of the project Location of the project. Q4. a) a steep site may require the construction of an access ramp, platform or roadway, or even the installation of a lift. b) a building site in a city that is surrounded on all sides by narrow alleyways and medium rise residential buildings would require special arrangements relating to traffic and may require large plant to be delivered in pieces and assembled on site Q5. a) Materials and Cartage, b) Labour, c) plant Q6. a) Preliminaries, b) overheads, c) anticipated profit. Q7. a) Purchase price less discounts, b) cartage costs, c) Costs for unloading and storage, d), Allowance for baulking and shrinking, e) an allowance for fixing and sundries, f) allowance for wastage. Q8. a) Minor, b)major, c) special. Q9. a) Office expenses, b) office staff salaries, c) Personal salary of self employed d) Bank charges, e) accounting fees, f) Plant maintenance and depreciations, g) Licence fees, h) Insurances. Q10. % Q11. Monetary Percentage TAFE NSW South Western Sydney Institute Version 1 - November 2007 Page 17 of 17 This