ENGG MG 6003 - ENGINEERING MANAGEMENT

EM15 – CONTRACTORS COST MANAGEMENT

ENGG MG 6003 - ENGINEERING MANAGEMENT

EM15A - COST MANAGEMENT

© Unitec New Zealand

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CONSTRUCTIONCOMMISSIONING

TENDERING

INCEPTIONFEASIBILITY

DESIGN

Preliminary Design

Developed Design

Detailed Design

How much will it cost?

Which is the best option?

Can I afford to do the work?What is a fair price?

ROUGH ESTIMATE

DETAILED ESTIMATEENGINEERS ESTIMATE

How much will it cost to do the work? What price do I submit?

Am I making a profit ?How can I manage my costs?

PROVISIONAL ESTIMATE

TENDER PRICE

ESTIMATING AND COSTING

BUDGET

COSTING SYSTEM

Client

Consultant

Contractor

© Unitec New Zealand 4

Tender Estimate + Cost Control = Successful Contractor

COST MANAGEMENTa.k.a Financial Management

PROJECT MANAGEMENT PROCESSES

Initiating Processes

Closing Processes

Monitoring and Controlling Processes

Planning Processes

Executing Processes

Estimating costs and ratesDeveloping budgets

Monitor costs

Implementing workValuing VariationsForecasting

Feedback for future estimates

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ENGG MG 6003 - ENGINEERING MANAGEMENT

EM15B – COST ESTIMATE CYCLE

COST ESTIMATE CYCLE• Means of recording actual construction costs against rates used in

the schedule.• Rates are then updated and used for future estimating for work of

similar nature.Historic Project , Subcontractor, Supplier and Labour Costs and Cost Indices

Field Costs, Cost Distribution, Cost Studies, Cost Analysis, Budget Reports, Final Reports

Actual Project Cost Information

Project Tender Cost Estimate

Project Cost Control

Cost Database

COST DATABASE

• Collect previous contract cost information.• Review cost indices and trends.• When new tender advertised:

• Review contract and determine requirements.• Obtain quotes for subcontractor and material supply.• Review previous contracts for similar work.• Review cost indices.• Update and adjust historic unit rates.• Provide up-to-date pricing information for new tenders.

Actual Project Cost Information

Project Tender Cost Estimate

Project Cost Control

Cost Database

Historic Project , Subcontractor, Supplier and Labour Costs and Cost Indices

TENDER COST ESTIMATE

Basically – Filling in the Tender Schedule

• Estimating cost to carry out Contract Works• Enter unit rates into Tender Schedule to get Tender Sum• Tender Sum – Amount Tenderer is offering to do the

Contract Works• Need accurate unit rates to get accurate Tender Sum

Actual Project Cost Information

Project Tender Cost Estimate

Project Cost Control

Cost Database

PROJECT COST CONTROLIf you win the Contract you then have to do the work for the tendered sum.

• Measure actual performance and costs• Compare with tender amounts• Identify and investigation any discrepancies

Actual Project Cost Information

Project Tender Cost Estimate

Project Cost Control

Cost Database

Field Costs, Cost Distribution, Cost Studies, Cost Analysis, Budget Reports, Final Reports

ACTUAL PROJECT COST INFORMATION

Actual Project Cost Information

Project Tender Cost Estimate

Project Cost Control

Costing Department

• Actual performance and costs recorded• Used for estimating in future bids

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ENGG MG 6003 - ENGINEERING MANAGEMENT

EM15C – COSTS AND RATES

DEFINITIONS

Unit Cost – Direct cost of producing a unit of an item

Unit Rate – Amount that is paid for a unit of a schedule item

Performance Rate -The number of units of work which can be carried out in unit time (usually 1 hour). (E.g. Bulldozer PR - 520 m3/hour)

CONTRACTOR’S COSTS

Net Cost(Labour, Plant, Materials,

Subcontractors)

Onsite Overhead(Direct Overheads)

Offsite Overheads(Indirect or Head Office overheads)

Profit

Direct Costs

Margin

Unit Rate Estimation Process1. Estimate Direct Costs2. Add in Indirect Costs3. Add in Profit

CONTRACTORS COSTS

• Direct Costs – Cost of resources required to complete the Contract Works. • Net Costs – Labour, plant and materials to construct the Contract Works.• Onsite Overheads – Costs of onsite support and facilities e.g. supervisors,

site huts, site offices, transport to site

• Margin (also known as “Markup”)• Offsite Overheads

• Indirect Costs – project specific costs not specifically related to a specific work item e.g. Project management, payroll preparation, account support

• Head Office Costs (a.k.a. “Companywide Costs”) – Costs of running the construction company not related to project e.g. Head office salaries, proposal preparation

• Profit – money retained by company after all costs have been paid.

LABOUR COSTS

•Basic Cost of Labour•“All in” rate - need to allow for• Wages• Overtime – may be required • Travel – time and transport • Breaks – starting and stopping work and break time• Supervision – or could be included in on-site overheads• Wet time• Sick leave• Annual leave• Statutory holidays• ACC levies• Additional employment contract allowances

(superannuation, medical, tool allowance etc)• Profit and Overheads

PLANT COSTS•Basic Cost of Plant•Ownership costs – (Fixed Costs)

•Depreciation•Interest•Insurance•Taxes

•Operating costs (Variable Costs)•Fuel, oil, grease•Consumables – tyres, filters•Repairs and maintenance•Operator ‘s wages

MATERIAL COSTS

• Obtained from Suppliers during tender period.•Include delivery to site.•Allow for wastage•Usually add 10 to 15% on Price.

SUBCONTRACTORS COSTS

• Prices obtained from Subcontractors during tender period.

PERFORMANCE RATES• The number of units of work which can be carried out in a

unit of time. • Determined from:

• Previous experience• Measurement• Industry figures e.g. Rawlinsons

• Varied according to conditions.

ExamplePerformance Rate to hand excavate a trench in medium soilFrom Rawlinsons – 2.2 Labourer Hours/m3

> Performance rate = 1/2.2= 0.45m3/hour

TENDER BUILD-UP•Develop unit rates and put in Schedule

•Calculate and add up all elements •Labour and Plant – Charge out rates x performance rates•Materials and Subcontractors – Cost plus margin.

•Multiply Quantity by Unit rate to get Item Amount•Add items to get Tender Sum.

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TENDER BUILD-UP•Develop unit rates and put in Schedule

•Calculate and add up all elements •Labour and Plant – Charge out rates x performance rates•Materials and Subcontractors – Cost plus margin.

•Multiply Quantity by Unit rate to get Item Amount•Add items to get Tender Sum.

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ENGG MG 6003 - ENGINEERING MANAGEMENT

EM15D - COST CONTROL

COST CONTROL SYSTEM• The assignment of all job expenditure (labour, plant,

materials, subcontractors) into a costing system.• Purpose providing an accurate comparison between

estimate and onsite costs.• Basic cost classifications

• Labour• Plant and equipment• Materials• Subcontractors• Overheads

COST CONTROL• Costs split into items used in schedule – allows actual costs to be

compared with tender estimates• Onsite costs recorded

• Labour – Timesheets/Daily Site Sheets• Plant – Operators Timesheets/Daily Site Sheets• Materials – Order Books/Invoices• Subcontractors – Order Books/Formal Agreements/Invoices• Overheads – Supervisors Timesheets

• Onsite records entered into Computer Costing System.• Cost Reports produced each month (usually)

DATA COLLECTION• Actual performance needs to be recorded.• Costs need to be gathered and totalled for each work

(schedule) item• Progress on items needs to be gathered• Costs and progress for each item needed to judge

whether work is being carried out as planned.

COST REPORTS• Set out costs and progress to date• Predict final costs• Identify Discrepancies

DISCREPANCIESDiscrepancy - actual performance differs from that estimated• Investigate both positive and negative discrepancies.• Depth of investigation depends on costing record detail.• Labour and Plant

• Estimated hourly rate is wrong - check financial records• Estimated number of hours is wrong - underestimate or under

performance.• Materials

• Estimate and actual quantities, increased costs, invoice errors, excessive waste, pilfering.

End