23821974 construction costing

7/27/2019 23821974 Construction Costing

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Construction contracts



Name Roll

number

Topic

Srinivas K 49 Introduction & definition.

Shruti N 44 Procurement of contract.

Virupaksha 56 Contract analysis.

Zakir 58 Cost estimation.

Sharada 40 Types of payments.

Sangameshwar 36 Types of costs.

Saroj 38 Collection of costs.

Shilpa S 42 Indian example.

Soumya B 47 International example.



Construction contract

A construction contract is a contract

specifically negotiated for the

construction of an asset or a combinationof assets that are closely interrelated or

interdependent in terms of their design,

technology and function or their ultimate purpose or use.



Construction contract is a

formal agreement for construction,

alteration, or repair of

buildings or structures (bridges,dams, facilities, roads, tanks, etc.). A

construction contract is distinct from a

contract to assemble, fabricate,or manufacture.



Contract costing

Contract costing is defined as “the form of

specific order costing which is

undertaken for customer’s specialrequirements and each order is of long

duration, the work is usually

constructional and in general the methodis similar to job costing”



Procurement methods of contract

•Traditional

•Design and Build



• Two Stage Tendering

• Management Contracting



• Construction Management

• Framework Agreements



Analysis of construction company

project

•Plan

•Secure

•Achieve



Factors

• Plan:Plan is developed to describe

activities associated with the project .The

resource required to achieve the best

possible outcomes for it &must be agreed

on by all key characters.

• Scope < Time < Cost < Quality < Humanresource < Communication < Risk <

Procurement.



• Secure: Once the project team is

established they should secure the

project. It means maintaining control over where the project is and where it is

headed.

• Achieve: Completing the project goals

and objectives. Achieving the goals set

out at the beginning of it ,with a

successful project outcome.

• Example : NICE construction company



Cost Estimation :

The costs in a construction contract

includes both the initial capital cost

and the subsequent operation andmaintenance costs. Each of these

major cost categories consists of a

number of cost components.



•Initial Capital cost – Land acquisition

– Planning and feasibility studies

– Construction, including materials, equipment and labor

– Insurance and taxes during construction

•Operation and maintenance cost

– Operating staff – Labor and material for maintenance and repairs

– Utilities

– Periodic renovations

– Insurance and taxes

•Unexpected cost during construction – Design development changes

– Schedule adjustments

– General administration changes



Types of construction cost estimates

•Design Estimates – Screening estimates (or order of magnitude estimates)

– Preliminary estimates (or conceptual estimates)

– Detailed estimates (or definitive estimates)

– Engineer's estimates based on plans and specifications

•Bid Estimates – As a contractor, a bid estimate is submitted to the owner either for

competitive bidding or negotiation.

•Control Estimates – Budget estimate for financing

– Budgeted cost after contracting but prior to construction

– Estimated cost to completion during the progress of construction.



TYPES OF PAYMENTS

Upfront payment/deposit:• Upfront payments or deposits will

generally be used for jobs where high

level of material cost is foundPeriodic payment:

• It is based on the interim valuation of the

work

• The main contractor then makes a down

stream payment



Stage payments:

• Depends on events rather than time• The parties agree at the out set that payment will be

released on completion of the agreed stages of work.

Milestone payment:

• It is a derivative of stage payment

• It will be setout in a schedule to the contract & the

contractor will notify the employer when it considers

that all work to be performed for a milestone.



Retention payment:

Retention payments act as an incentive for the contractor to finish the job.



Types of costs

• Direct Materials

• Direct Labor

• Indirect Costs• Direct expenses



Direct Materials.Provide a consolidated priced summary of individual material

quantities included in the various tasks, orders, or contract lineitems being proposed and the basis for pricing (vendor quotes,invoice prices, etc.).

Include raw materials like sand, stone, cement, and steel to beproduced or performed by others

Direct Labor .

workers who are engaged directly in the constructionprocess. Provide a time-phased (e.g., monthly, quarterly, etc.)

.



• Ind irect Costs . Indirect costs are those for

activities or services that benefit more than one project.Their precise benefits to a specific project are oftendifficult or impossible to trace. For example, it may bedifficult to determine precisely how the activities of the

director of an organization benefit a specific project

• Direct expenses. all other costs other than the

above mentioned costs (e.g., architects, designs,carriage inward, ) and provide bases for pricing.



Collection of cost

Material cost:

• Materials required for contract are purchasedand delivered at the site

• Materials in stock are valued and credited to

the contract account ,the contract account getsdebited by the value of material consumedduring the year

Labour cost:

• Depending upon the contract, wages are paiddirectly at the site

• Allocation of wages to various sub units is

easy



Plants & Equipment cost:

• They are purchased or hired

• Depreciation on owned plant &equipment are debited to the contract

account

• The written down value is carried over asa balance to the next accounting period

in which it is credited



Sub contracts cost :

• Specialised nature tasks are assigned to

the sub contractors

• They are paid at agreed rate.

• Direct expense

• Contract account is debited on the basisof invoice received from the sub

contractor



Godavari rail bridge



Godavari Rail Bridge is a bridge over the

river Godavari connecting Rajamandri andKovur in Andhrapradesh.

• Inaugurated in 2003.

• Length : 2730m.• Constructed by : Hindustan Construction

Company (HCC).

• Total cost: Rs. 1.5 cr.



DIRECT EXPENSES:DIRECT MATERIAL: 44,10,000DIRECT LABOUR: 15,75,000DIRECT EXPENSES: 7,77,000

PRIME COST 67,62,000

INDIRECT EXPESES:

OVERHEADS:POWER 2,10,000INSURANCE 4,20,000TRANSPORTATION 3,25,500

FIELD ENGINEERS 5,28,000DESIGN ENGINEERS 4,72,500



MANAGERS SALARY 7,68,000

SECURITIES SALARY 3,84,000

CONTRACTOR’S FEE 6,30,000



Hamilton construction company undertook

the construction of Winchester Bridge inRoseburg, Oregon, USA.



Winchester Bridge

• Built:1923

• Crosses: North Umpqua River.

• Total length :269.4 m• Construction costs: $29,40,000



Particulars Amount

Direct materials: $ 16,80,000

Direct labour: $ 8,40,000

Direct expenses: $ 2,80,000

Prime cost: $28,00,000

Overheads:Power: $35,000

Transportation: $20,000

Supervisor’s salary: $25,000

Engineering: $30,000

Fuel: $15,000

Other expenses: $15,000



Assumption

• Power: @ $2/unit for 10000 units.

• Supervisors salary @ $2000/ month.

Absorption of overhead

• % of Direct Material=8.33%

• % of Direct Labour= 16.6%

• % of Prime Cost= 5%



Sources

• Principles and practice of cost accounting: Asish K. Bhattacharyya.

• Cost Accounting: Jawahar lal.

• Cost accounting: Tukaram.

• Websites:

• www.wikipedia.com• www.futureaccountant.com

• www.slideshare.com



Thank you

23821974 construction costing

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