The benefits of costing on a construction project
Once a tender has been won and awarded the project must be carried out. Here it must be noted that a construction project is not as straight forward as buying and selling where one buys something, adds on a profit and sells it.
In the make- up of the tender only the material cost can be guaranteed. Plant and labour costs are estimated. It is for this reason that daily costing is important. The contractor must constantly monitor what each operation is costing him. It is no use waiting for the end of the month and comparing cost against income. By that time, it is too late to rectify any operations that have been losing money.
To understand costing, one must first understand pricing or tendering. A tender consists of the calculation of the ‘cost’ of a project and the addition of a ‘mark-up’ or ‘profit’. A Tendered Rate is made up by dividing the daily cost of an operation by the daily production.
A tender cost in the construction industry is made up of five sections:
- Preliminary and General Costs.
- Cost of plant or machinery.
- Cost of labour.
- Cost of materials.
Preliminary and General Costs:
These are costs that are not recoverable through the various rates in the Bill of Quantities such as:
- Transport of Plant and Equipment to and from the Project Site
- The Cost of Establishing and Running the Site Offices is put here.
- The cost of running the Contractor’s Head Office, usually as a percentage of turnover is put here.
- Site Phones.
- Site Transport (cars and Bakkies).
These are usually included in the rate calculations.
- The types of labour are: Skilled, Semi-Skilled. Operators, Drivers and unskilled.
The cost per unit of the various types of materials that will be used for the Project.
One must remember to include for wastage in this cost, but endeavour to keep wastage to a minimum during construction.
The cost of the item of plant per hour or per day.
- The Cost of fuel.
- The cost of servicing the item of plant.
- The cost of G.E.T. (Ground Engaging Tools) Items such as blades for a grader to teeth for an excavator bucket.
Payment of all sub-contractors working on the Project under the Main Contractor.
The total cost of all the above makes up the Tender Cost. Onto this the Contractor must add his profit percentage.
Every rate in the Tender will include an element of all the above costs.
Documents required for itemised costing:
- Tender work sheet for rates: (plant; labour; materials)
- Labour only subbie rates: (operations; unskilled and skilled)
- Preliminary and general tender work sheet: (supervision)
- Supervisor’s daily return:(hourly cost of plant, labour and production) which is then compared with the tender allowable (the cost of the item excluding the mark-up)
- Weekly costing summary:(admin, plant, labour, sub-contractors, material.)
- Weekly revenue report:(items, unit cost; quantity rate totals)
- Monthly cost report:(includes summary of all items on cost sheets)
- Costs for P & G: (Preliminary and General)
This is costing the job according to the Tender makeup. This means comparing every operation’s cost against production daily. From the tender work sheet one can see how much plant, labour, sub-contractors and materials have been allowed (these are known as tender allowables) for the operation and what production these resources must achieve. By constantly assessing each ‘allowable’ one can pin-point problems or where money is being made.
This will help the Construction Manager to keep control of the Project Costs which will ultimately lead to better profitability.