Cost Engineering

Revistion

By Eyerusalem K.

20th June 2023 G.C

Contents
1. Fundamentals of Cost engineering
2. Construction contracts and risk alocations
3. Cost Estimating Aproches
4. Life cycle costing
üCost estimation in Project intation and feasilblity study
üCost Estimation in desing stage
üCost estimation in Tendering stage
 1. Fundamental Principles of Cost Engineering

Cost Engineering recognizes and focuses on

the relationships between the physical and
cost dimensions of whatever is being
“engineered.”

Undertaken throughout the project life-cycle by trained professionals utilizing appropriate

techniques, cost models, tools and databases in a rigorous way, and applying expert
judgment with due regard to the specific circumstances of the activity and the information
available.
• Cost Engineering: is an area of engineering practice concerned with the
application of scientific principles and techniques to

Cost Estimating &

Cost control

Business
Planning and Planning and
Scheduling Cost Engineering Management
Science

Profitability Analysis
and Project
Management
 1. Fundamental Principles of Cost Engineering
• Cost Engineer apply cost engineering and cost management principles,
project management methodology and specialized technology to their
projects.
 1. Fundamental Principles of Cost Engineering
• 1.2. Functions of Cost Engineering in Construction
• From owners' perspective
Ø Ascertain the necessary amount required to complete the proposed work for
his decision and arranging finance for the same
Ø to obtain administrative approval, allotment of fund and technical sanction.
Ø guide and facilitate the decision among two or three possible options
Ø Provides an assessment of capital cost for a specified piece of project
Ø help to classify and prioritize development projects with respect to an overall
business plan
Ø to justify investments from cost-benefit analysis
 Fundamental Principles of Cost Engineering
• 1.2. Functions of Cost Engineering in Construction
• From Designer and Engineers' perspective
Ø Helps to be aware of the cost implications for the design decisions
they make while still in the design phase
Ø form the base core for negotiation between the signing parties in a
contract agreement.
Ø required to invite tenders and prepare bills for payment.
• 1.2. Functions of Cost Engineering in Construction
• From Contractors' perspective
Ø A key function for acquiring new contracts at right price hence providing
gateway for long survival in the business
Ø for achieving a reasonable profit
Ø help them in making bid-price decisions when the available bid estimation
time is insufficient
Ø Determine what resources to commit to the project with providing much of the
basic information needed for preparing a schedule.
Ø Provides the financial input required to prepare a cash flow curve
 1. Fundamental Principles of Cost Engineering
• 1.3. Cost Engineering in construction projects
• The cost of a building is significantly affected by decisions made at the early
phase While this influence decreases through all phases of building project.
 2. Fundamental Principles of Cost Engineering
• 1.4. Cost Engineering Traits
• Cost Engineering shares common traits of the following
Ø Combines both science and art
Ø Does not offer guarantees of costs:
Ø Can only be as accurate as the information upon which it is based:
Ø accuracy increases as the design becomes more precisely defined
Ø requires standard computing methodology and procedures:
 2. Construction Costs and Risk Allocation
• 2.4 Construction Contracts
q construction contracts serve as a means of pricing construction,
q They also structure the allocation of risk to the various parties involved.
qThe owner has the sole power to decide
ü what type of contract should be used for a specific facility to be constructed
and
üto set forth the terms in a contractual agreement.
q It is important to understand the risks of the contractors associated with
different types of construction contracts.
Type Description Risk
Ø A total fixed price for the whole contract Ø contractor: higher risk (ill productivity
Lump Sum Contract
Ø Work must be well defined & mismanagement, inaccurate
Ø Fully developed plans & spec estimation of quantities of work )

Ø Cost known at outset and fixed Ø Owner : very high price offer, Changes
Ø Includes costs plus overheads and profits is difficult and costly
Ø Payment based on a scheduled % scheme
Ø Quote Rates / Prices by units Ø Owner : at risk for total quantities
Ø Estimated Final price may vary from Actual
Unit Rates

Ø Payment is based on measurement of the Ø Contractor : at risk for fixed unit price.
actual work.
Ø Ideal for work where quantities can not be
accurately established
ØCost + %/Fee/ fixed fee + profit-sharing Ø Higher risk to owner of direct job cost
ersment
ost Plus

üSuitable for use when amount and type of overrun

work not known Ø Variable risks based on the type
 Advantages of lump sum contracts

qLow risk for the owner. qBidding analysis and selection process
q‘Fixed’ construction cost. is relatively easily.
qMinimize change orders. qContractor will maximize its
production and performance.
qOwner supervision is reduced when
compared to Time and Material qThe contractors’ cash flow is
Contract. predictable and
qThe contractor will try to complete qThe owner can arrange the capital
the project faster. according to the payment plan
 Disadvantages of lump sum contracts
qIt presents higher risk to contractor qChanges are difficult to quantify.
(ill productivity and mismanagement,
inaccurate estimation of quantities of qContractor will select its own
work can lead the project into loss. means and methods.
qThe project needs to be designed qHigher contract prices that could
completely before the cover unforeseen conditions.
commencement of activities.
qImproper detail and specifications in
the design can lead to disputes
Type Advantages Disadvantages
ü Suitable for competitive bid Ø The actual final cost is not guaranteed to
(easy to compare tenderers) be equal to the estimated total cost at the
beginning
Unit rate/ Admeasurement contracts

ü The client has an accurate

estimate of total cost Ø Staff needed to measure the finished
quantities and report on the units not
ü Easy for contract selection completed.
ü Early start is possible Ø A tender has no obvious place to put
major temporary works costs hence
ü Possible to vary the amount of detailed comparisons may be
work during construction meaningless.
ü Flexibility: quantities and scope Ø Contractors raise prices on certain items
can be easily adjusted and make corresponding reductions of
the prices on other items, without
changing the total amount of the bid
 2. Construction Costs and Risk Allocation
• 2.4 Construction Contracts
• 2.4.3. Cost Plus (Cost Reimbursement)
üActual cost plus a negotiated reimbursement to cover overheads
and profit.
üDifferent methods of reimbursement :
Ø Cost + percentage
Ø Cost + fixed fee
Ø Cost + fixed fee + profit-sharing clause.
üHigher risk to owner.
 Type Advantages Disadvantages
ü Profitable for the contractor ü No incentive to finish the job quickly
Cost + %

ü Owners do not know the total cost

ü Larger the Job costs, the higher the
fee the client pays
ü Fee amount is fixed regardless of the ü Expensive materials and construction
fixed fee
Cost +

price fluctuation techniques maybe used to expedite

ü provides incentive to complete the the construction
project quickly
ü Rewards contractors who minimize cost
Cost + fixed fee + profit-

ü Percentage of cost under GMP is

sharing clause

considered profit and shared with the

contractor
ü Guaranteed Maximum Price (GMP)
ü % of profit sharing is specified in
contract
 3: Cost Estimating Approach
q Cost estimating is critical in the development of the project because it
informs the owner of costs, which in turn guide design decisions
qCost Engineers consider past projects while anticipating new factors. Some of
these factors include:
ØCurrent technologies,
ØMarket demand and supply of material and labor,
ØQuantities of materials,
ØCollective bargaining agreements of suppliers and buyers,
ØLevel of quality,
ØRequirements for completion.

•
• A client wants you, the cost engineer, to help them select
the best suitable contract type for construction of
commercial building. It will be located in urban area and
it doesn’t require any new technology to construct it.
However the client wants to be sure that the early
estimated project cost does not exceeds the actual
construction cost because he have a strict project budget
and he cannot afford to pay more than what they will be
agreed up on. Which contract type would you choose for
the client? Why? And If the client agreed to take your
advice what kind of risk they be expecting?
• As a contractor If you are about to enter a contract
agreement to construct the building in Q 12, what kind
of risks would you be expecting and what control
measures would you take to mitigate these risks?
• A private company needs to develop a new technologically
advanced project which hasn’t been done previously.
Therefore the client’s team has no idea about the total project
cost or project duration. But they know the client wants high
quality of work. As a project manager in the client’s team
what kind of construction contract would you suggest the
client should take? Why? Justify your reason, what kind of
risks should the client be expecting?

• 18. What kind of risk would the contractor is expecting?

 3: Cost Estimating Approach

Quick and
Past project Good Data Accurate
experiences Base Cost
Estimate

Each new project provides a Construction companies

clearer picture of the actual Cost Engineers spent considerable maintain their own databases or
cost of construction and adds time and resources developing developed from independent
to the value of the data and protecting this database cost consultants and cost data
suppliers
 3. Cost Estimating Approach
qAccurate estimation of construction costs is heavily dependent upon
Øthe availability of perfect historical cost data and
Øthe level of professional expertise among other factors.
qThe limited information available at an early stage of a construction project
may mean
ØThe quantity surveyor must make assumptions about the design
details of a project,
Øwhich may not equate as the design, planning, and construction evolve.

•
 3: Cost Estimating Approach

Quality and Amount of of

Information Available y
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The Estimator cu r t
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Tools and
Techniques used
The relationship between the accuracy of estimate and
phases of project
 3: Cost Estimating Approach
• 3.1. Types of Cost Estimation
qThere are different types of estimates which vary according to several factors
including:
ØThe purpose of estimates,
Ø Available quantity and quality of information,
ØRange of accuracy desired in the estimate,
ØCalculation techniques used to prepare the estimate,
ØTime allotted to produce the estimate,
ØPhase of project, and perspective of estimate preparer.
 3: Cost Estimating Approach
• 3.2. Methods of Cost Estimation
• Cost estimation methods can be categorized into several techniques as:
Ø Quantitative and Qualitative Technique
Ø Preliminary and Detailed Techniques
Ø Traditional and Artificial Intelligence Based Techniques

•
 3: Cost Estimating Approach
• Considerations in Costing
q The accuracy of costing is directly affected by the ability of the Cost Engineer to
properly analyze following basic issues which affects project price
Ø Size of the project,
Ø Quality of the project,
Ø The location of the project,
Ø Construction time, and
Ø other general market conditions.
• 2.2. Considerations in Costing
• 2.2.1 Project Size
q Essentially as projects get bigger, they get more
expensive but at a less rapid rate.
q This occurs because the larger the project, the more
efficiently people and equipment can be used
q Also as people repeat task, they get better and
faster, reducing the cost of labor.
q On large commercial building and heavy engineering
projects, worker productivity is plotted into learning
curves.
 Construction Costs and Risk Allocation
• 2.2. Considerations in Costing
2.2.2. Project Quality
q An owner may require a high quality project to create a specific image or may
need facilities for a specific use.
q Whatever the reason, the consequences are always the same: an increase in
costs.
q Early in the project, the Cost Engineer must discuss expectations of quality
with the users, the designers and applicable government agencies.
• 2.2. Considerations in Costing
• 2.2.3. Project Location
• Various locational difficulties can be described:
1. Remoteness
2. Confined sites
3. Labor availability
4. Weather
5. Design considerations (related to location).
6. Vandalism and site security
• 2.2. Considerations in Costing
• 2.2. 4. Construction Time
q A project is estimated at a given point in time, but usually the actual procurement and
field construction occur at some point in the future.
q Sometimes this future can be years away, especially in the case of a very large or phased
project.
q The estimate must take into consideration when the actual project will be built.
q Labor and material costs usually escalate in time;
q so by examining past and current trends, the estimator can predict where these costs will
be at the time of actual construction.
 4. Life cycle costing

• Life Cycle Costs

1. Development and construction cost
2. Maintenance and running cost to ensure
effective performance.
3. Cost of in-service failure (refurbishment).
4. Disposal cost.
 4.1. Phases Of A Project
The type of Cost Estimation needed construction project life are divided into
four major phases:

ØProject Initiation and Feasibility study

ØDesign and Engineering Stage
ØProcurement and Tendering Stage
ØConstruction and contract
Administration stage

Project definition sets the stage for design work, and design work sets the stage
for tendering/procurement and construction work.
 1. Preliminary/ 3. Engineers/ Definitive
Conceptual Estimate Estimate

ati st
im Co
on
• A rough approximation of cost • Based on detailed design

Est s of
• Within a reasonable range of values, • Ensure design is within financial
resources &

pe
• Ensure project feasibility.
• Assists in bids evaluating.

Ty
• It precedes design drawings.
• -50% to +100%accuracy range . • prior to competitive bidding
• Design 60% to 100% Complete
• -15% to +30% accuracy range.

Concept & Preliminary and detail Procurement and Construc

Definition design Tendering tion

2. Engineers estimate I
4. Bid contractor/
• Based on well-defined cost data
and established ground rules, estimate
• Allow the owner a pause to • Done by contractor
review design before details. • To price the contract.
• Design 25% to 35% complete • Design 100% Complete
• -30% to +50% accuracy range • 5% to +15% accuracy range
4.2.2 Owner's Estimate for Budgeting (Conceptual estimate)
qThe cost estimate at this stage is important because it is used to set the
maximum project budget that will be approved for design and construction.
qEarly cost estimates are often a basis for ;
übusiness unit decisions,
üasset development strategies,
üscreening of potential projects, and
ücommitting resources for further project development.
qCost information is usually derived from one of two sources:
Øprevious projects
Øpricing manuals
ürequires high level knowledge and experience of the work
 In summary the following steps shall be taken when estimating construction
projects at the conceptual phase using previously completed projects data
Project cost= Size of the project X cost per unit X Factors (Quality x size x
Location x Time)

• Step one: Identify the Purpose of the Step Five: compute Size Adjusting Factor
project
Step Six: location adjustment
• Step Two: Identify the Desired size/ area
Step Seven: Time adjusting factor, Compute
of the project
the Year difference between the published
• Step Three: identify the average cost per
area data and planned construction time

• Step Four: Consider and adjust for the Step Eight: Compute the Estimated project
Quality of the desired project against the cost based on the above the identified factors
cost database
 4.3. Design and Engineering Stage
• 4.3.3 Basis of payment to consultants
qThe design organization has a difficult task of estimating the
cost of providing design services or producing contract
documents
qFor many projects the magnitude of work that is required by
the designer cannot be fully anticipated, because
qdesign is a creative process
q involves the evaluation of numerous
alternatives.
qThe payment method depends on the accuracy of the scope
definition provided to the design organization
 4.3.3 Basis of payment to consultants

qCompensation for design services is usually by one of the

following methods:
Ølump-sum,
Øsalary cost times a multiplier,
Øcost plus a fixed payment, or
Ø Percent of construction
 1. Preliminary
Estimates 2. Detailed Estimates 3. Engineer's Estimates
The level of detail in
defining tasks is quite The level of detail could be fine The level of detail can be very fine
coarse.
Based on the Preliminary
design , at the state when It is made when the scope of Estimate is based on the completed plans and specifications
the basic technologies for work is clearly defined when they are ready for Construction bids
the design are known
30% of design completed 60% of design completed 90% - 100% of design completed
The project is decomposed The project is decomposed into detailed items of various
The detailed design is in progress
into major structural components as warranted by the available cost data.
so that the essential features of
systems or production Examples of detailed items are slabs and beams in a floor
the facility are identifiable.
items, panel, or the piping and connections for a heat exchanger.
The project is decomposed into
E.g. the entire floor of a
components of various major
building or a cooling The unit cost for each element in the bill of quantities must
systems, i.e., a single floor panel
system for a processing be assessed in order to compute the total construction cost.
for a building or a heat exchanger
plant.
for a cooling system
This concept is applicable to both design estimates and bid
estimates, although different elements may be selected in
the decomposition.
 4.4. Procurement and Tendering Stage
• 4.4.2. Basic Components of Construction bid prices
qFor the contractor, a bid estimate submitted to the owner consists of a
prediction of the cost of the physical resources and mark-up by
management.
qThe task of the estimator is to build up a unit rate for each itemized
work item.
qA fundamental principle is that unit rates should be prepared taking
into account
Ømethods of construction and
Øall circumstances which may affect the execution of work
 4.4.2. Basic Components of Construction bid prices

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 4.4. Procurement and Tendering Stage
• 4.4.3. Fundamental Approaches to Bid Estimation
qThe contractor's bid estimates often reflect
üthe desire of the contractor to secure the job
üthe estimating tools at its disposal
qSome contractors have well established cost estimating procedures while
others do not.
qUsually most contractors devote a great deal of effort in cost estimating to
be a successful bidder.
q Construction Bid cost estimating can be broken down into :
üDetermination of the quantities of work and
üComputation of the prices associated with those quantities
üFinalizing and summarizing bid prices
 4.4.3. Fundamental Approaches to Bid Estimation
C. BILL OF QUANTITIES (BOQ)

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 Determining the Construction Material Cost
q Step one: Identify the types of q Step Four: Asses the unit price of the
materials required for producing the each materials
specific work item q Step Five: Account for other additional
costs
q Step Two: calculate quantities of
ü storage costs,
each material required for producing
one unit of the specific work item ü transportation and
ü loading unloading costs
(from specification, mix design, company
records or from other published data. ) q Step Five: iIentify the annual escalation
rate and account for escalation of material
q Step Three: Account for wastage of cost
the materials q Step Seven: compute the Material cost

49
50
 Determining the Construction Labor Cost
Summary of steps to be taken when computing labor cost for a specific work
item
q Step one: Form a crew from different q Step Three: Estimate the productivity of a
trades that would ensue crew by considering different factors that would
ü consistent flow of work and influence the production rate of the crew. one of
the two approaches should be used
ü yield similar production rate as the equipment
to be used ü If the work involve the use of equipment, The crew
productivity depends on the output capacity of
q Step Two: identify the utilization of the equipment
factor of each worker
ü If the work is done by simple tools and craftsman
ü The ratio between the usage times for a use reliable historical recorded data and experience
specific task which a worker /equipment has to estimate the productivity
been functional to the total time for which it
could be used or available q Step Four: Assess the basic salaries of each
workers in the crew
51
 Summary of steps to be taken when computing labor cost for a
specific work item
q Step Five: identify the labor index to account for benefits, leaves, insurances, etc.
q Step Six: Calculate the indexed hourly wages of each workers
q Step Seven: Calculate the hourly cost of the task using the following formula

• 𝑫𝒊𝒓𝒆𝒄𝒕 𝑳𝒂𝒃𝒐𝒓 𝒉𝒐𝒖𝒓𝒍𝒚 𝑪𝒐𝒔𝒕 = ∑𝒏𝒊 𝑵𝒐 𝒐𝒇 𝒍𝒂𝒃𝒐𝒓 𝒙 𝑼𝒕𝒊𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 𝑭𝒂𝒄𝒕𝒐𝒓 𝒙 𝑰𝒏𝒅𝒆𝒙𝒆𝒅 𝒉𝒐𝒖𝒓𝒍𝒚 𝒘𝒂𝒈𝒆

q Step Eight: Calculate the labor cost per unit of the work item based on the hourly cost and
productivity using the following formula

𝑫𝒊𝒓𝒆𝒄𝒕 𝒍𝒂𝒃𝒐𝒓 𝒉𝒐𝒖𝒓𝒍𝒚 𝒄𝒐𝒔𝒕

• Direct labor cost =
𝑯𝒐𝒖𝒓𝒍𝒚 𝒄𝒓𝒆𝒘 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒊𝒕𝒚

52
 II. Labor Productivity/ production rate
q Productivity rates can come from many sources
q Considerable efforts are required to collect information regionally or nationally over a
number of years to produce such results.
q The productivity indices compiled from statistical data should include parameters such as
the performance of major crafts,
üeffects of project size,
ütype and location, and
üother major project influences
q However, the most reliable productivity records are the contractor’s own historical data
based on actual experiences performing similar work.
q The advantage of historical information is that it reflects how a company’s workforce
performs the work.
53
 II. Labor Productivity/ production rate
• Factors Affecting Job-Site Productivity
qProductivity of any work varies from labors, crew compositions projects,
with climatic conditions, job supervision, complexities of the operation and
other factors.
qFor example, it requires more time to erect formwork for stairs than for
foundations.
qHence Job-site productivity is influenced by many different factors which
can be characterized as
1. labor characteristics,
2. project work conditions or
3. Non-productive activities
54
 II. Estimation of equipment cost per unit of a work item
q Estimation of equipment cost per unit of work item follows similar manner
as the direct labor cost estimation discussed in the previous Lecture.

q Hence in estimating the direct equipment cost, the contractor shall obtain:
ü Type and number of equipment
ü Capacity and equipment utilization factor (UF)
ü The equipment hourly cost
ü Productivity: In case of the use of different equipment at once, careful
consideration should take in computations of the governing production
55
rate
 II. Estimation of equipment cost per unit of a work item
q After the above information are completed then the next step is computation
of the direct equipment cost for a specified work item using the following
equations

56
 Subcontracting
q Subcontracting is the practice of assigning, or outsourcing, part of the
obligations and tasks under a contract to another party.

q Prevalent in areas where complex projects are the norm.

q Subcontracting is very useful in situations where the range of required capabilities
for a project is too diverse to be carried out by a single general contractor.
q A subcontractor is a type of contractor who works in a specialized area and
could be a freelancer, independent contractor or vendor.
q Subcontractors are hired by the project's general contractor,
q The General contractor continues to have overall responsibility for project
completion and execution within its stipulated parameters and deadlines.
q The subcontractor provide his or her specialized skill set in exchange for a
contractual fee.
57
 Subcontracting
q Subcontractors may or may not utilize their own equipment and tools hence, it
is very important to differentiate the role and responsibilities of the
subcontractor in estimating direct cost and bid prices.
q The subcontractors reports to the primary contractor
Why Subcontract?
q There are several reasons why subcontracting is carried out.
üCan Help with Large Projects
üIt Is Cost Efficient and Risk Adverse
üProvide Expertise and Have Specialized Knowledge:
üIncreased Productivity:
üNo Long-Term Commitment
üFewer Legal Obligations
üContract requirement
58
 I. SITE OVERHEAD COST
qSite overhead costs are all costs required to run the whole operation of a
specific construction project at site level.
qThese costs are not associated with specific activity in a project but rather
shared proportionally by all activities within the project.

ü Site management costs

ü Mobilization and demobilization costs: ü Water and power supply ü Site offices
ü Outside engineering support ü General use equipment ü Indirect labor costs
ü Office furniture and equipment ü Expertise service costs ü Protective aids
ü Jobsite production facilities ü Office running expenses ü Radio communications
ü Workshops garages and warehouses, Bank charges, Transportation and travel expenses,
Insurance charges, etc…
 K. GENERAL OVERHEAD COST
qThese costs are not usually associated with specific project but rather shared
proportionally by all projects under the company.
qGeneral overhead represents contractor fixed expenses. These items might
include:
ü Senior management costs ü Workshops, garages and warehouses
ü Indirect labor costs ü Bank charges
ü Bidding Expenses ü Insurance charges
ü Expertise service costs ü Transportation and travel expenses
ü Office furniture and equipment ü Sundry expenses
ü Office running expenses ü Head office building costs
 L. MARKUPS
q The amount added to the estimated direct cost and estimated Overhead costs (self
costs) to recover for risks for unforeseen circumstances and desired profit

qDetailed analysis of the risky components in the project and their impact on the
project in terms of increased time and cost.
qcontactors usually experience difficulties on deciding on a suitable margin to make
their bid competitive against other contractors.

qHence, contractors need to decide on the markup percentage that makes the bid
ü low enough to win and,
ü high enough to make reasonable profit and contingency for risks.

q Generally, contractors often have to maintain methods of assessing a specific

contract markup
 L. MARKUPS
II. Contractor’s Profit
qThe last item to be included in the bid and representing contractor’s return on
investment is the profit.
qThe magnitude of desired profit must be decided by the owner for each individual bid,
depending on
ü local market conditions,
ü competition, and
ü the contractors’ need for new work.
qThe less profit added to a bid, the greater the chance is of being the successful bidder.
qBidding a job with a high profit may mean loosing the chance of getting the job.
qBidding a job below cost with no planned profit or a minimum profit only to get the work is
also no guarantee of being a successful contractor. A contractor can go broke by not
obtaining enough profitable work.
 L. MARKUPS
II. Contractor’s Profit
qTo be competitive, a construction company’s profit should be close to industry norms.
qThe concept of percentage of return on indirect cost investment must also be considered.
qGeneral overhead and profit recovery factors are developed from the annual budget and
reports.
q Different kinds of profits are related to several considerations, including the following:
ü The firm must recoup sufficient profit for return on equity.
ü The profit must be commensurate with industry averages.
ü The profit must consider competitive bidding strategies.
qThe profit must be as high as possible or what the competitive market will bear,
while commensurate with the contractor’s risk.
• Profit = K4 x Direct cost
• Where: K3 is risk contingency factor
 N. UNIT RATE
qIt is based on the resources required and their output rates for each category
of work.
qWorking drawings and specifications are needed to determine the
quantities of materials, equipment, and labor.
qCurrent and accurate costs for these items (unit prices) are also necessary.
qBecause of the detail involved and the need for accuracy, unit price
estimates require a great deal of time and expense to complete properly.
qFor this reason, unit price estimating is best suited for construction
bidding.
qIt can also be effective for determining certain detailed costs in conceptual
budgets or during design development.
qThe unit price of a tender comprises the cost and the markup.
qThe cost includes direct and indirect costs.
qThe markup includes profit margin and a risk allowance margin:
Unit cost/rate = Self- costs + Markups
= Direct cost + Indirect costs+ Markups
= Direct cost + (K1+K2+K3+K4) x Direct costs
Where:
K1 = site overhead constant
K2 = General overhead constant
K3 = contingency
K4 = profit
qThe unit price of a tender comprises the cost and the markup.
qThe cost includes direct and indirect costs.
qThe markup includes profit margin and a risk allowance margin:
Unit cost/rate = Self- costs + Markups
= Direct cost + Indirect costs+ Markups
= Direct cost + (K1+K2+K3+K4) x Direct costs
Where:
K1 = site overhead constant
K2 = General overhead constant
K3 = contingency
K4 = profit
Sample of unpriced bill of quantities
 Summary of works
item
no Description Amount
A. Sub Structure
1 Excavation works 11,639,311.31 Birr
2 Concrete works 14,549,139.14 Birr
3 Masonry works 5,499,322.41 Birr
4 Water proofing works 1,841,549.65 Birr

Total of Substructure work (A) 33,529,322.51 Birr

B. Supper Structure
 B. Supper Structure
1 Concrete work 61,106,384.39 Birr
2 Block work 6,110,638.44 Birr
3 Carpentry works 1,222,127.69 Birr
4 Roofing works 611,063.84 Birr
5 Metal and Aluminum Works 12,221,276.88 Birr
6 plastering works 3,666,383.06 Birr
7 Finishing works 9,165,957.66 Birr
8 Electrical works 4,155,454.73 Birr
9 Sanitary works 1,371,747.29 Birr

Total of Substructure work (B) 99,631,033.99 Birr

Bid Sum Q = (A + B) 133,160,356.49 Birr
 Thank you
Any Questions?