Unit Cost Derivation and Other Expenses

​
CE323 QUANTITY SURVEYING​
​
Unit Cost Derivation​
Unit cost derivation is a fundamental aspect of construction cost estimation. It involves determining the cost
per unit of work, such as per cubic meter of concrete, per square meter of formwork, or per linear meter of
piping. This process ensures that cost estimates are accurate, competitive, and aligned with the project budget.​
​
Significance of Unit Cost Derivation​
- Accurate Cost Estimation​
- Competitive Bidding​
- Project Budget and Control​
- Resource Allocation​
- Risk Management​
​
Components of Unit Cost Derivation​
- Labor Cost​
- Equipment Cost​
- Material Cost​
- Subcontractor Cost ​
​
Material Cost Derivation​
Material cost accounts for all construction materials required for a specific work item.​
Factors Affecting Material Cost:​
-Mark Price – Cost per unit of materials (cement, sand, steel, etc.). It may vary depending on the area, thus,
canvassing must be done to ensure accurate price is used.​
-Waste Factor – Losses due to cutting, breakage, or spillage.​
-Transportation/Hauling Costs – Delivery charges from the supplier to the project site.​
-Storage and Handling – Costs related to storage, security, and possible material deterioration.​
​
Material Cost Formula:​
Material Cost per Unit = Total Material Cost / Quantity of Work Done​
Total Material Cost = Material Quantity x Unit Price x (1+Waste Factor)​
​
Example:​
To produce 1 cubic meter of concrete:​
- 10 bags of cement at ₱280 per bag​
- 0.5 cubic meters of sand at ₱1,500 per cubic meter​
- 0.8 cubic meters of gravel at ₱1,700 per cubic meter​
​
Solution:​
Total Material Cost = (10×280) + (0.5×1500) + (0.8×1700) = 4,910​
Assuming a waste factor of 5%, we multiply by 1.05:​
Adjusted Material Cost = 4,910 × 1.05 = 5,155.50​
​
Thus, the material cost per cubic meter of concrete is ₱5,155.50 per m³.

​
​
Labor Cost Derivation​
Labor cost refers to the expenses associated with workers performing the construction activities.​
Factors Affecting Labor Cost:​
- Wage Rates – The hourly or daily wage of skilled, semi-skilled, and unskilled workers.​
- Productivity Rates – The amount of work a laborer can complete in a given time (e.g., cubic meters ​
of concrete poured per hour).​
- Overtime and Benefits – Additional costs such as overtime pay, social security, insurance, and ​
other benefits.​
- Work Conditions – Weather, site accessibility, and work complexity affecting productivity.​
​
Labor Cost Formula:​
Labor Cost per Unit = Total Labor Cost / Quantity of Work Done​
Total Labor Cost = Number of Workers x Daily Wage x Days Required​
​
Example:​
A contractor hires 5 masons, each earning ₱600 per day, to install 50 square meters of tiles in 2 days.​
​
Solution:​
Total Labor Cost = 5 × 600 × 2 = 6,000​
Labor Cost per Square Meter = 6,000/50 = 120 per m²

So, the labor cost per square meter of tile installation is ₱120 per m².

Labor fringes- refer to additional benefits provided to workers, often mandated by Philippine labor laws:

- 13th-month pay – Required by law for all workers.

- SSS, PhilHealth, and Pag-IBIG contributions – Employer-mandated contributions for social security, health
insurance, and housing funds.

- Overtime pay – Additional wages for work beyond regular hours.

- Hazard pay – Required for high-risk jobs such as working at heights or in confined spaces.
- Meal and transportation allowances – May be included depending on company policies.​
​
Equipment Cost Derivation​
Equipment cost includes the expenses related to machinery and tools used in construction.​
Factors Affecting Equipment Cost:​
- Ownership Costs – Depreciation, financing, and insurance.​
- Operating Costs – Fuel, maintenance, and repairs.​
- Rental vs. Purchase – Whether the equipment is owned or rented affects cost structure.​
- Utilization Rate – The proportion of time the equipment is actually used in production.​
​
Equipment Cost Formula:​
Equipment Cost per Unit = Total Equipment Cost / Work Output​
Total Equipment Cost = (Hourly Rental Rate x Hours Used) + Fuel and Maintenance Cost​
​
Example:​
A contractor rents a backhoe for excavation at ₱2,500 per hour for 4 hours. The fuel cost is ₱800, and ​
maintenance cost is ₱500. The total excavation volume is 200 cubic meters.​
​
Solution:​
Total Equipment Cost = (2,500 × 4) + 800 + 500 = 11,300 ​
Cost per Cubic Meter = 11,300/200 = 56.50​
​
So, the equipment cost per cubic meter of excavation is ₱56.50 per m³.​
​
Subcontractor Cost Derivation​
Subcontractor costs refer to the amount paid to a specialized contractor for performing a specific work item.​
Factors Affecting Subcontractor Cost:​
- Scope of Work – The complexity and quantity of work subcontracted.​
- Subcontractor’s Overhead and Profit – Markup for administrative expenses and profit margin.​
- Market Rates – Industry-standard pricing for subcontracted tasks.​
​
Subcontractor Cost Formula:​
Subcontractor Cost per Unit = Total Subcontractor Price / Work Output​
​
Example:​
A subcontractor charges ₱150,000 to paint 5,000 square meters of wall.​
​
Solution:​
Subcontractor Cost per Square Meter = 150,000/5,000 = 30​
So, the subcontractor cost per square meter of painting is ₱30 per m².​
​
Detailed Unit Price Analysis (DUPA)​
Unit price analysis is a systematic approach used in construction cost estimation to determine the cost of
each work item based on labor, materials, equipment, and subcontractor expenses. For quantity
surveyors and cost engineers, detailed unit price analysis is crucial for making informed financial decisions,
optimizing resource allocation, and ensuring the profitability of construction projects.
 ​
​
Overhead expenses include:

∎ Office operations – Salaries of administrative staff, utilities, and rent.

∎ Project management costs – Salaries of engineers, project managers, and safety officers.

∎ Communication and IT expenses – Mobile phones, software, and other tools.

∎ Permits and licenses – Necessary regulatory fees.

∎ Marketing and business development – Bidding, advertising, and networking costs.

Profit is the contractor’s earnings after covering all costs. It is influenced by:

∎ Market competition – Competitive bidding may reduce profit margins.

∎ Project risks – Riskier projects may demand higher profit margins.

∎ Economic conditions – Inflation, interest rates, and material price fluctuations impact profitability.
Profit margins usually range between 5-15% of the total project cost, depending on project complexity and risk
factors

Taxes applicable in construction projects include:

∎ Value-Added Tax (VAT) – Standard 12% VAT applies to construction services and materials.

∎ Withholding Tax – Typically 2% for contractors.

∎ Income Tax – Applied based on business income brackets.

∎ Local Government Permits and Fees – Include building permits, occupancy permits, and other regulatory fees

Construction insurance is essential for risk mitigation, covering:

∎ Contractor’s All Risk Insurance (CARI)– Covers damages to the project site.

∎ Workers’ Compensation Insurance – Provides benefits for injured workers.

∎ Third-Party Liability Insurance – Covers damages to external parties.

∎ Equipment Insurance – Protects against theft, damage, and loss of construction equipment

Bonds and insurance are financial guarantees that protect project stakeholders.

a. Performance Bond. A performance bond ensures that the contractor completes the project as per contract
terms. It is usually set at 10-30% of the total contract price.

b. Bid Bond. This guarantees that a bidder will enter into a contract if awarded. The bid bond is typically 2-5%
of the project cost.

c. Payment Bond. A payment bond ensures that suppliers and subcontractors are paid. It is usually equal to the
contract amount.

d. Surety Bond. A surety bond guarantees that a contractor will fulfill their obligations, protecting the client
from financial losses due to non-compliance.