S TEPS IN THE D EVELOPMENT OF A D ETAILED E STIMATE BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison

1. Develop Work Breakdown Structure (WBS) and Cost Code

2. Planning and Quantity Takeoff vProject should be completely “build on paper” vDivide the project into phases vDecide how each phase will be built and the “resources” required vDetermine quantity takeoff vDecide which phase should be sub- contracted

3. Determination of Direct Costs vDirect Materials vDirect labor vSub-Contract Costs vEquipment rentals or owning and operating costs

4. Determination of Job Overhead Costs Job Overhead Costs A. Job Overhead labor Costs (Indirect Labor Costs) B. Job Overhead  Management Costs

A. Job Overhead Labor Costs (Indirect Labor) vSocial Security Tax vState Unemployment Tax vFederal Unemployment Tax vWorkers’ Compensation Tax vBenefit ^Pension Funds ^Apprenticeship Training ^Vacation Fund ^Other benefits

B. Job Overhead Costs vJob site Salaries of Engineers and supervisors vJob Site Salaries for field office personnel vJob site overhead expenses such as light, heat, telephone, fax, office etc. vJob site office equipment, supplies, and furniture

Overhead Cost for a Contractor Doing a Volume of $1.5 M to 2.5 M Manager/Owner$75,000 Estimator 50,000 Receptionist/Bookkeeper 30,000 Office rent and utilities 16,000 Furniture and fixtures 8,000 Auto expenses 12,000 Computer and Software 4,000 Telephone and fax 6,000 Insurance 6,000 Sales promotions 5,000 Legal and accounting 8,000 Educational seminars 1,500 Office supplies 4,800 Postage and courier 7,200 Association dues and misc. 1,500 TOTAL $235,000

5. Determination of Markup vMarkup is an allowance for: a. Home Office overhead b. Contingency c. Profit vMarkup range from 5% to 20% of the total project costs

a. Office Overhead Costs vHome Office rental, maintenance, utilities and expenses. vHome Office equipment, furniture and supplies. vProperty taxes, business licenses and auto insurance. vDues and subscriptions. vPostage and courier, non-job related.

a. Office Overhead Costs (cont.) vAdvertising and telephone vLegal and accounting fees vSales and marketing vPresident salary and benefits vClerical staff salary and benefits vEstimators salary and benefits

b. Contingency vTo cover unexpected risk, error and omission, and contract risk

c. Profit vProfit varies from 1% to 10% or more vFactors affecting profit ^Need for work ^Contract type ^Total bid value ^Risk ^Competition ^Economic Condition

Determination of Contract Bond Cost vThe contract document usually requires as a minimum a “performance bond” and a “payment bond.” vBond cost ranges from 0.5 % to 1% of the total contract price.

Example of Determining Total Contract Price vAssumptions 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 (cont.) vEstimated Directed Job Costs 1. Direct Labor Costs$25, 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.) vJob Overhead Costs 6. Sales Tax [6% of (2)] $ Job O.H. Labor [25% of (1)] $ 6, Job O.H. Management $ 2,567 [10% of (1)] 9. Total Job Overhead Costs $ 9, Total Estimated Job Costs $ 83,555 [(5) + (9)] 11. Total Cost [(10) x 1.2] $ 100, Bond [0.005 x (11)] TOTAL CONTRACT COST $ 100,767 [(11) + (12)]

14. Markup [(11) - (10)]$16,621 Breakdown of Markup 14a. Office O.H. [0.10 x (10)]$8,356 14b. Contingency [0.02 x (10)] 1,671 14c. Profit[0.08 x (10)] 6,684 Example of Determining Total Contract Price (cont.) Bid Factor = DIRECT COST SUBTOTAL TOTAL CONTRACT COST 73, ,767 ==1.368