© Awad S. Hanna, PhD, P.E.1 Estimating and Scheduling CEE 492 Lecture 4 STEPS IN THE DEVELOPMENT OF A DETAILED ESTIMATE

© Prof Awad S. Hanna2 1. Study project documents 2. Develop Work Breakdown Structure (WBS) and Cost Code 3. Determine quantity take off 4. Price materials, equipment, and labor 5. Define work done by others and obtain quotations (subcontractors) 6. Determine job overhead costs 7. Determine markup percentage 8. Determine bonding costs Ⓒ Steps in the Development of a Detailed Estimate

© Prof Awad S. Hanna3 1. Study Project Documents   Check for discrepancies between drawings and other contract documents.   Check for drawings that are not to scale (NTS) or reduced in size.   Develop a fact sheet that identifies:   Unusual dimensions   Payment methods   etc….. Ⓒ

© Prof Awad S. Hanna4 2. Develop Work Breakdown Structure (WBS) and Cost Code   Review Lecture 3 Ⓒ

© Prof Awad S. Hanna5 3. Tips for Determining Quantity Take Off   A good approach for estimating quantities is to follow the order of the actual field construction.   Use systematic procedure when taking off quantities (clockwise).   Quantities taken off should be identified by location on the drawings.   Use decimals instead of fractions.   Quantities taken off need not to be precise.   Add allowances for waste for certain quantities. Ⓒ

LaborMaterialEquipmentSubcontract Company Overhead Contingency Direct Costs Job Overhead Bonding Mark up Profit Prof Awad S. Hanna 6 Ⓒ

© 7 4. Price Labor, Materials, and Equipment   Once the quantity take off is completed, apply pricing to the quantities.   Best method for obtaining accurate pricing is to call suppliers.   Means manuals may be used but adjustments may need to be made.   May need to project costs forward to the time when they will be purchased or installed. Ⓒ

Labor Cost Six Components to the Labor Cost: 1. Wages 2.Worker's Compensation Insurance 3.FICA Tax, Federal Insurance Contribution Act 4.Unemployment Compensation Tax/Insurance 5.PL&PD- Public Liability and Property Damage Insurance 6.Fringe Benefits © Prof Awad S. Hanna8 Ⓒ

Labor Wages   Vary considerably with locations and types of crafts   Agreements such as Union / Open-Shop / Prevailing Wage   The above wage rates are known as Base Wage Rate   Compensation for 40 hr/week ( 8 hr/day for 5 days )   For work over 8 hr/day or weekends, the Base Rate is multiplied by   Average wage rate considers straight time and overtime = base rate * ( * overtime hours) (Actual Hours Worked per Week) © Prof Awad S. Hanna9 Ⓒ

Worker's Compensation Insurance   Insurance paid by employers   Covers employees in accidents or death caused by work   Premium rate is specified in $s per $100 of Base Wage   Discounts are given depending on company's records in enforcing Safety Programs ( Experience Modification Rate, EMR )   EMR can be > 1, With bad safety and accident records © Prof Awad S. Hanna10 Ⓒ

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Federal Insurance Contribution Act -FICA (Social Security)   Federal Government requires employers to be taxed for providing retirement benefits for employees.   The rate = 6.2% of Total Earnings (Avg. Wage) up to $106,800/year of employee wage.   The employee contributes an equal amount through the employer. © Prof Awad S. Hanna14 Ⓒ

Unemployment Compensation Tax/Insurance   A tax collected by the State to provide unemployment insurance.   Paid by employers   Approximately 3% of Total Earnings (Avg. Wage) of the employees © Prof Awad S. Hanna15 Ⓒ

Public Liability and Property Damage Insurance (PL&PD)   An insurance protecting the contractor from liabilities involving damage to a third party or public property, caused by contractor's employee during construction.   Premium is specified in $$ per $100 of Base Wage. © Prof Awad S. Hanna16 Ⓒ

Fringe Benefits   Employers often pay benefits in the form of:   Paid Vacations   Pension Plans   Training Programs, etc.   Others   Rate Ranges From 0.75 to 2.1 $/hr © Prof Awad S. Hanna17 Ⓒ

© Prof Awad S. Hanna18 Union Labor Rates   Means Labor Rates for the construction industry   Provides annual hourly union wages for 46 building construction trades in major U.S. and Canadian cities.   The Richardson Report   Provides quarterly union wages for 16 crafts in 120 U.S. and Canadian cities.   The Construction Labor Research Council (CLRC)   Provides construction union labor cost for 17 crafts in 300 cities (average of 3000 projects). Ⓒ

© Prof Awad S. Hanna19 Sources for Non-Union Labor Costs   Means Open Shop Building Construction Labor Costs, R.S. Means   Employment and Earning, Bureau of Labor Statistics (website: Ⓒ

© Prof Awad S. Hanna20 Equipment Costs and Sources of Equipment Cost   Two types of equipment costs: Purchased or owned equipment Rented equipment Ⓒ

Purchased Equipment   A contractor does not pay for construction equipment, the equipment must pay for itself.   Estimate must include all costs of owning and operating equipment which includes: 1.Depreciation (function of purchase price, salvage price and time) 2.Investment (function of interest, insurance, taxes, and storage) 3.Maintenance and Repair (function of condition of use) 4.Fuel, Oil, and Lubrication (function of site efficiency and operating conditions) © Prof Awad S. Hanna21 Ⓒ

© Prof Awad S. Hanna22 Rented Equipment   Equipment is most commonly rented if only for one-time or short-term use, such as a crane.   Must evaluate pros and cons of renting versus purchasing.   Purchasing equipment may not be financially feasible for small companies with only a few jobs each year.

© Prof Awad S. Hanna23 Sources of Equipment Costs   Cost Reference Guide for Construction Equipment, Dataquest Inc.   Provide hourly ownership and operating costs   Rental Rates Blue Book (more info at   Local rental agency data Ⓒ

© Prof Awad S. Hanna24 5. Define the Work Done by Others   Specialized work   Geographic location   Reduction of risks Ⓒ

© Prof Awad S. Hanna25 Indirect Job Labor Project manager and/or Superintendent Project engineer Draftsman Timekeeper Office manager and/or secretary Safety engineer and/or first aid attendant Watchmen Indirect Job Equipment Project manager’s vehicle Pickup truck Site maintenance Site Facilities Construction Sign Job site fence Construction access/entrance Portable toilets Office trailers: contractor’s, engineer’s, first aid, change room and lockers Telephone service Temporary electric utilities Shop or maintenance facility Fuel for general job vehicles Materials Handling and Storage Material storage area & bins Warehouse facility Subcontracted Indirect Cost Disposal services Soil or rock borings Laboratory tests –Soil samples –Rock samples –Concrete samples Surveying service CPM scheduling services Job photographs Models Artist renderings Bonds and Insurance Performance bond Builders rick Insurance Contractor’s liability insurance Permits Building Site improvement Road or entrance Additions for Remote Sites Communications Living quarters for workmen Kitchen and food service Entertainment Transportation Temporary power Water supply Waste disposal 6. Determine Job Overhead Cost Ⓒ

© Prof Awad S. Hanna26 7. Determination of Markup   Markup is an allowance for: a. Home Office overhead b. Contingency (mistakes, differing conditions, design errors, etc.) c. Profit (1% - 10%)   Markup range from 5% to 20% of the total project costs   Overhead is normally 10%   Profit is normally 5% Ⓒ

© Prof Awad S. Hanna27 a. Home Office Overhead Salaries Executive staff marketing staff Accounting staff Estimating staff Legal staff Support staff: clerical, data processing, etc. Facilities Office purchase or rental Furniture purchase or rental Data processing equipment Utilities Telephone, fax, etc. Heating & air conditioning Illumination Water Taxes Company Income Property Insurance Company policies not chargeable to projects Benefits Pension & retirement program Profit sharing & bonus plans Health insurance plan Transportation Company aircraft Company automobiles Company trucks Commercial travel Marketing Advertising Estimating Other promotional costs Maintenance Maintenance & overhaul, not just chargeable Ⓒ

© Prof Awad S. Hanna28 b. Contingency   To cover unexpected risk, error and omission, and contract risk Ⓒ

© Prof Awad S. Hanna29 c. Profit   Profit varies from 1% to 10% or more   Factors affecting profit   Need for work   Contract type   Total bid value   Risk   Competition   Economic Conditions Ⓒ

© Prof Awad S. Hanna30 8. Determination of Contract Bond Cost   The contract document usually requires as a minimum a “performance bond” and a “payment bond.”   Bond cost ranges from 0.5 % to 1% of the total contract price. Ⓒ

© Prof Awad S. Hanna31   Assumptions 1. Sales Tax = 6% of Direct Material Costs 2. Job Overhead Labor Costs = 25% of Direct Labor Costs 3. Job Overhead Management Costs = 10% of Direct Labor Costs 4. Markup = 20% of Total Project Costs Office O.H.= 10% Contingency= 2% Profit= 8% 5. Bond = 0.5% of 1% of Total Project Costs Ⓒ Example of Determining Total Contract Price

© Prof Awad S. Hanna32   Estimated Directed Job Costs 1. Direct Labor Costs25, Direct Material Costs 15, Direct Equipment Costs 13,000 (Owning & Operating Costs) 4. Subcontract Costs 20, DIRECT COST SUBTOTAL$73,670 Ⓒ Example of Determining Total Contract Price (Cont.)

© Prof Awad S. Hanna33   Job Overhead Costs 6. Sales Tax [6% of (2)]$ Job O.H. Labor [25% of (1)] $6, Job O.H. Management [10% of (1)]$2, Total Job Overhead Costs $9, Total Estimated Job Costs [(5) + (9)] $83, Markup [20% of (10)]$16, Cost Subtotal$100, Bond [0.005 x (12)]$ TOTAL CONTRACT COST [(12) + (13)]$100,767 Example of Determining Total Contract Price (Cont.)

© Prof Awad S. Hanna34 Bid Factor = DIRECT COST SUBTOTAL TOTAL CONTRACT COST 73, ,767 ==1.368(=37%) Ⓒ  Reflects the amount of OH&P, bonding, etc. that makes a up a contractor’s bid price  Usually expressed as a percent Example of Determining Total Contract Price (Cont.)

LaborMaterialEquipmentSubcontract Company Overhead Contingency Direct Costs Job Overhead Bonding Mark up Profit Prof Awad S. Hanna 35 Ⓒ Total Components of Cost within a Bid