Addis Ababa Science and Technology University

College of Architecture and Civil Engineering

Contract Specification and Quantity Survey

Chapter 4
Project Cost Estimation
Habtamu E.
Jan 2022
 CONTENT
S
 Introduction

 Information Required for Cost Estimation

 Knowledge and Managerial Skills for Cost Estimation

 Types of Costing or Estimation

 Fundamental Approach to Construction Cost Estimation

 Basic Cost Components of a Construction Project

 Unit Rate Analysis

 Valuation and its Concepts

4.1. Introduction
 Project Cost estimation is the process of valuing on monetary

expression, including the cost of all possible entrants necessary for

the planning, implementing and monitoring stages of the proposed
project under consideration.
 Cost estimation is the determination of the probable cost of a

project.
 Project Cost includes:

 Preliminary investigation (project appraisal costs)

 Design and supervision (consultancy cost )
 Construction works (contractor’s cost )
 Land owning cost, and
 Monitoring costs

3
 4.1. Introduction
Cont.
An estimate serves a number of different functions, depending on the
stage of the project, as shown below :
 Bidding Phase: Contractors prepare detailed estimate to submit bids.
 Construction Phase: Estimates are prepared for cost control and for
change order evaluations.
Feasibility Estimate (Conceptual Estimate)
 Needed to make decision go/no go with project
 Costs include:
 Land
 Financing cost
 Consultations/Studies
 Engineering
 Project Management
 Construction
 Operation & Maintenance 4
4.1. Introduction Cont.
Preliminary Estimates and Cost Planning
 The Conceptual Estimate found during feasibility becomes the

initial project budget

 Subsequent design development should remain within the limit of

this budget
 For that purpose, several preliminary estimates are performed as

more details become available through the design.

 Preliminary estimates assign cost to various assemblies (elements) of

the project (Cost Plan). {substructure, superstructure, interior

partitions & doors, exterior cladding ..etc.}
 Preliminary estimates allow for Value Analysis – Compare value of

an element with its cost consider alternatives to select desired option.

5
4.1. Introduction Cont.
 Over all the main purpose of cost estimation can be summarized as

follow:
 know the volume of work in reference to the fund available
 determine actual cost per unit of item
 identifying engineering estimate of the work for bidding purpose
 work out economical use of materials , labor and equipments
 in cases of variations to determine the extra cost to be incurred
 when there is escalation, to work out the escalation in cost

6
4.2. Information required for cost estimation
 The following information is required to define cost per unit of work

 Correct information of the market price of the materials at the

time of need to be used as a basic price
 Correct information of the rates of various categories of skilled
and unskilled laborers as wage rates to be used for daily work
rate
 Output of laborers per day for various types of items
(productivity)
 Correct information of the rates of various categories of
equipments and tools as rental rates to be used for major items of
rates
 Up-to-date knowledge of the construction methods.

7
4.3. Knowledge and managerial skills for cost
estimation
 The following knowledge, managerial talents, and degree of

construction experience make a good estimator.

 Ability to read and understand contract documents, with special
skills in reading construction drawings for all specialties and
related specifications.
 Ability to accurately take off the quantities of construction work
for which he or she is preparing the detail estimate.
 Ability to visualize the future building from drawings, which
usually requires some years of construction site experience.
 Knowledge of arithmetic, basic geometry, and statistics.

8
4.3. Knowledge and managerial skills for cost
estimation
 The following knowledge, managerial talents, and degree
of construction experience make a good estimator.
 Knowledge of building construction methods.
 Knowledge of labor productivity, crew composition, and impacts of
various forecasted site conditions on crew output.
 Possession of office managerial skills in organizing
project- related cost information.
 Ability to work under pressure and to meet all bid requirements
and deadlines.
..\New folder\Ms Project - Crew Formation (for cost calculation).xlsx

9
4.4. Factors Affecting Cost Estimation
 Factors which affect the cost estimation are summarized as follow:

 Type and documentation of the project

 Construction scheduling
 Bidding environment
 Quality and availability of material and labor
(given in
specification)
 Construction facilities /tools and method of construction
 Location of the site: Transportation charges
 Proper management
 Land charges (lease)
 Nature of subsurface condition

10
4.5. Types of Costing or Estimation
 Estimation can be broadly classified as preliminary (approximate)

and detailed.
Preliminary /approximate costing
 This type of cost estimation is required to know the financial

position of the client before costly detailed designs are carried out.
 Such estimates are based on practical knowledge and cost of

similar previous works. Examples of approximate cost estimations

are as follows:
A. Cost per functional unit
 Hospital =cost per bed, Dormitory = cost per student, Cinema or

theatre = cost per seat, residential buildings = cost per area, road
works = cost per kilometer length, culverts or bridges = cost per
meter span, water supply or sewerage projects = cost per head of
population.
11
4.5. Types of Costing or Estimation
Preliminary /approximate costing
B. Plinth area method – cost per m2
 Based on Plinth Area- roof area or external dimensions at the plinth

level (Courtyard & open area shall not be included)

 The rate per meter square is assumed from the cost of
similar
building projects in the locality.
C. Cubical Content method – cost per m3
 Based on cubical contents of various buildings, i.e. Plinth area of the
building x height x cubic content rate.
 Height should be taken from the top of flat roof (or halfway of the
sloped roof) to the top of concrete in foundation.

12
Approximate Estimate
This is done for preliminary studies.
From these preliminary studies, the approximate cost may be
known for the purpose of justifying whether the project is worth
constructing or not. It is mainly prepared by taking practical
knowledge in to consideration along with data collected from other
similar projects.
I. Per number:
 This is applicable for projects whose price can be judged by the
number of users they serve such as stadiums, car parking lots,
hospitals, cinema halls etc.

Example 1: A cinema hall with 500 seats has been constructed

with a total investment of 2,000,000 Birr. What will be the
approximate cost of the same cinema hall if the number of seats is
700?
The Rate of the previous cinema hall is = (Total Investment /
number of seats)
= (2,000,000 Birr/ 500 seats)
= 40000 Birr per seat
The cost of the new cinema hall is = 700 seats x 40000 Birr/seat=
2,800,000.00 Birr
II. Per linear meter:
 This is applicable for projects whose price can be judged by
the length they cover. Typically they have greater length than
the remaining dimensions.
 Roads, irrigation channels, tunnels are good examples.
Example 2:
Rate of the previous road is =(Total investment / total length)
= (600000000 Birr/ 100 km)
= 6,000,000 Birr/km
The approximate cost of the new road taking 300km will be
= 300 km X 6,000,000 Br/km
= 1,800,000,000.00 Birr
III. Per plinth area:
 This is usually used for building projects where the area of the
building is used for calculating the approximate cost of the
project. Currently municipality offices are also using this
method.

Example 3:
The rate of the previous building = Total investment / Total plinth
area
= 1,600,000 Birr/ 300 m2
= 5,333.33Birr/ m2
The approximate cost of the new building with 450 sq.m will be
= 450 m2 x 5,333.33 Birr/ m2
= 2,399,998.5Birr
IV. Per Cubic Content:
 This is applicable for warehouses, where the height is
larger than ordinary buildings

Example 4:
A warehouse resting on plinth area of 20m * 50m has
height of 9m, and it consumed 7,000,000. What would be
the approximate cost of same warehouse which rest on a
630m2 area and having 7m height?
4.5. Types of Costing or Estimation
Detailed Cost Estimate (Based on Item Rate)
 This is the most reliable and accurate type of estimate.

 The quantities of items are carefully prepared from the

drawings and the total cost worked out from up to date market
rates.
 A detail cost estimate thus requires:

 Quantity surveying and

 Analysis of the different rates for the quantities prepared.

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4.6. Fundamental approach to construction cost
Estimation
 Efficient construction cost estimates shall address properly the

required project quality, time for completion of works and of course

the construction cost of the project.
 In deciding to participate in the intended project tender, the
contractor shall carefully assess the impact of the following key
factors:
 Type of project
 Method of tendering
 Type of construction contract
 Number and progress of contracts already at hand
 Resource availability i.e. skilled manpower, plants and
machineries
 Financial position

19
4.6. Fundamental approach to construction cost
Estimation cont.
 Once decision is made to participate in the intended tender, the

contractor shall give due attention to the following major items listed
below
 General and particular conditions of contract contained
in the bidding documents
 Technical specifications
 Drawings
 Estimated bill of quantities
 Method of measurement
 Supporting documents such as information regarding
geological formations and hydrological data
 Site visits
 Construction method statements

20
4.6. Fundamental approach to construction
cost Estimation cont.
A. General and particular conditions of contract
 Proper understanding of the general and particular conditions of

contract is mainly important for construction cost estimation in

identifying the responsibilities and cost implications on the project
 Amount and type of performance security
 Amount of advance payment and type of advance repayment
guarantee
 Time for completion of the whole project
 Limit of liquidated damages
 Retention money
 Claims and disputes settlement

21
4.6. Fundamental approach to construction
cost Estimation cont.
A. General and particular conditions of contract
 Price escalation
 Tax exemptions
 Insurance of the works
 Owner’s risks
 Applicable laws

22
4.6. Fundamental approach to construction
cost Estimation cont.
B. Technical Specification
 Technical specifications specify the following crucial information to

the contractor and it is the sole basis both for the construction
methods to be adapted and the construction cost of the project.
 Quality of materials
 Quality of machineries and plants
 Quality of workmanship
 Erection and installation methods
 Test and inspection requirements and methods

23
4.6. Fundamental approach to construction
cost Estimation cont.
B. Technical Specification
 Technical specifications basically have restricted applications, which

usually define specific work items. Therefore, for a better

understanding and cost estimation of the project, the contractor must
check the given specifications for:
 Technical accuracy and adequacy
 Define and clear stipulations
 Fair and equitable requirements
 Formats which can be easily used during bidding and
construction
 Legal enforceability

24
4.6. Fundamental approach to construction cost
Estimation
C. Drawings
 The contractor mainly understands from the drawings what type of

construction methods to be adapted during cost estimation as well as

construction of the project.
 some of the construction methods which need to be addressed during

cost estimation of this building project are:

 Concrete production
 Concrete transportation and placement
 Transportation of construction materials to different floors
 Methods and type of scaffolding
 Types and methods of shuttering works
 Erection and installation of glazing works
 Temporary access for manpower working at different floors
 Skilled manpower requirement

25
4.6. Fundamental approach to construction
cost Estimation cont.
D. Estimated Bill Quantities
 Estimated quantities of work are also the basis to determine the type
and number of resources to be deployed during construction of the
project.
 Moreover, construction methods shall be selected in such a way the
given quantity of works can be executed during the completion time
of the project.

26
4.6. Fundamental approach to construction
cost Estimation cont.
D. Estimated Bill Quantities
 Based on the estimated quantity of works, the contractor shall decide

the method of construction to be adapted during executing of the

project such as:
 Type and size of crushing plants
 Type and size of mechanical mixers or batching plants
 Type, size and number of machineries such as dozers, graders,
loaders, rollers, dump trucks and so on.
 Skill and number of manpower requirement
 Type and quantity of construction materials
 And so on

27
4.6. Fundamental approach to construction
cost Estimation cont.
E. Supporting Documents
 Supporting documents such as geological formations, hydrological
data and other technical reports like socio-economic studies are
usually provided by the owner to contractors for their own
interpretations for heavy construction projects.
 Therefore, the contractor shall have the technical ability and
experience in interpreting the technical data provided to determine
construction methods to be adapted which directly affects the
construction cost estimates.

28
4.6. Fundamental approach to construction
cost Estimation cont.
F. Site Visit
 In order to prepare competent and reasonable construction cost
estimates, the contractor must visit the project site unless the site is
familiar to the contractor with previous reliable site information.
 Site visits are critically important especially when the contractor is
working with heavy construction project cost estimates such as road
works and hydropower projects.
 The contractor shall prepare his own checklists during the site visit
which shall address, but not limited to, the following issues which
have direct impact on the construction costs of the intended project.

29
4.6. Fundamental approach to construction
cost Estimation cont.
F. Site Visit
i. Location of the site:
 It helps to determine the mobilization and demobilization costs.

 It also helps to determine the transportation cost of materials

from main material suppliers.

 Availability and expected wages of daily labors can be fairly

estimated based on the location of the site.

 Site location also helps to determine the type of camp facilities

required to be constructed such as project offices, living areas, food

accommodations and so on.
 Having proper understanding of site location and local weather

condition helps the contractor to determine salaries and benefits of

staffs, skilled manpower and daily laborers.

30
4.6. Fundamental approach to construction
cost Estimation cont.
F. Site Visit
ii. Location of local construction material
 The contractor shall identify the location and quality of local

construction materials such as quarry area for gravel production,

sand, selected material, water as well as sub base and base course
materials in the case of road projects.
 Moreover, the contractor shall have the general understanding of the

site layout for different plants such as batching and crushing plants.
iii. Access Roads
 Site access roads to the main works, quarry areas, water supply, sand,

and the like shall be identified which incurs additional construction

and maintenance costs. These costs are extremely high, incase of
heavy construction sites such as road works, hydropower projects and
so on.
31
4.6. Fundamental approach to construction
cost Estimation cont.
F. Site Visit
iv. Water and power supply
v. Communication facilities
vi. Environmental protection
vii. Existing facilities
G. Method of measurement
 Contractors shall thoroughly understand the method of measurement

incorporated within the bidding documents before starting any cost

breakdown calculations.
 BaTCoDA Technical specification and method of measurement
 ERA standard specifications
 Civil Engineering Standard Method of Measurement (CESMM)

32
4.6. Fundamental approach to construction
cost Estimation cont.
H. Construction Method Statements
 Construction method statements give the clear picture of each project

activity execution during the construction phase of the project.

 The required quality of works as per the specifications, estimated

quantity of works, safety standards, as well as time for completion

are the sole basis in determining the construction method statements
of a project.

33
4.6. Fundamental approach to construction
cost Estimation cont.
H. Construction Method Statements
 Construction method statements shall clearly indicate the following
crucial construction issues:
 Skill and number of manpower required
 Type and specification of equipments required
 Quantity and quality of materials required
 Proposed working crews
 Estimated crew productivity
 Estimated duration for completion
 Expected defects and remedial measures

34
4.7. Basic Cost Components of a construction project
 Basically the cost of any construction project comprises

 Direct costs, which include the direct cost of materials, labor as

well as equipments and
 Indirect costs, which include but not limited to head office and
site overhead costs.
A. Direct Construction Cost
 Direct construction costs are all costs that can be specifically booked

with an activity in a project.

 The current trend is to assign as much as possible costs to direct costs

as these costs can be budgeted, monitored and controlled far more

effectively than the indirect costs.

35
4.7. Basic Cost Components of a construction project
A. Direct Construction Cost
 The direct costs mainly include material, labor, equipment and

subcontract costs as described below.

 Direct material costs – These costs referring to the cost of
materials, consumables and components used for executing an
activity including the allowances for scrap and wastages.
 Direct labor costs – All costs related to the workers working on a
specific activity such as carpenters, masons, erectors, painters,
plumbers and so on.
 Direct equipment costs – These costs referring to the costs of
machineries and plants used in executing a specific activity.
 Subcontract costs – In case some specific activities are
subcontracted, the subcontract price will be considered as the direct
cost of the activities to be executed by the subcontractor.

36
4.7. Basic Cost Components of a construction
project
B. Indirect Construction Cost
 Indirect construction costs are all costs, which can not be directly
booked under a specific activity in a construction project but required
to keep the whole project operational.
 These costs are also called overhead costs, which mainly include the

head office and site overhead costs.

i. Head office overhead costs
 Head office overhead costs are all costs required to run the whole

operation of the construction company, which usually administers

different projects at a time.
 These costs are not usually associated with specific project but rather

shared proportionally by all projects under the company.

37
4.7. Basic Cost Components of a construction
project
B. Indirect Construction Cost
i. Head office overhead costs
 Some of the checklists for head office overhead costs are given below

with further clarifications.

 Senior management costs – These refer to costs related with salaries

and benefit packages of the senior management in the head office.

 Indirect labor costs – Staffs other than the senior management

members working at the head office such as the technical,

administrative, marketing, finance and supply staffs.
 Head office building costs – In both cases, costs are incurred in such

a way either rental costs will be paid, if the building is rented and
building depreciation will be considered, if the building is owned.

38
4.7. Basic Cost Components of a construction project
B. Indirect Construction Cost
i. Head office overhead costs
 Bidding Expenses – These costs are usually associated with bid

document purchases, site visit expenses, bid bonds and so on. These
costs are sometimes called sunk costs.
 Expertise service costs – These costs will be incurred when

professional services are required such as the services of external

auditors, lawyers, management consultants and external trainings.
 Office furniture and equipments – Different office furniture and

equipments are required depending on the size and standard of the

company.
 Office running expenses – The head office operation requires lots of

miscellaneous expenses such as telephones, fax, internet services,

stationery, mail services and so many others.
39
4.7. Basic Cost Components of a construction project
B. Indirect Construction Cost
ii. Site overhead costs
 Site overhead costs are all costs required to run the whole operation

of a specific construction project at site level.

 These costs are not associated with specific activity in a project but

rather shared proportionally by all activities within the project. Some

of the site overhead costs are listed below with further clarifications.
 Site management costs – These costs refer to costs related with

benefit packages of the site management members in the project site.

 Indirect labor costs –benefits of staffs other than the site

management members working at the project site such as site

engineers, office engineers, administrative and finance staffs, data
collectors and so on.

40
4.7. Basic Cost Components of a construction project
B. Indirect Construction Cost
ii. Site overhead costs
 Mobilization and demobilization costs –These costs are mainly

transportation costs.
 Site offices –site offices are constructed from different materials such

as corrugated iron sheets, prefabricated materials, material packing

steel containers, steel structure and normal hollow concrete blocks.
 Expertise service costs – These costs will be incurred when

professional services are required at the project site such as lawyers,

claim experts and so on.

41
4.7. Basic Cost Components of a construction
project
B. Indirect Construction Cost
ii. Site overhead costs
 Office furniture and equipments – Different office furniture and

equipments are required depending on the size and location of the

project.
 Office running expenses - The site office operation requires different

expenses such as telephones, fax, internet service, mail service and

stationery.
 Radio communications - If the coverage area of the construction

project is vast, hand held and stationed radio communications may be

used within the site and with the head office.

42
4.7. Basic Cost Components of a construction
project
B. Indirect Construction Cost
ii. Site overhead costs
 Camp facilities – The costs of construction and operation of other

facilities such as restaurants, recreational centers and playgrounds are

also included under the camp facilities.
 Access roads – Depending on the topography and location of the

project site, different access roads may be required to construct such

as detour roads, access roads to quarry and disposal areas, etc.
 Water and power supply – All the site offices, camp facilities, the

construction itself requires water and power supply for operating the
whole project properly.
 Workshops garages and warehouses, Bank charges, Transportation

and travel expenses, Insurance charges, etc…

43
4.7. Basic Cost Components of a construction
project
C. Risk Allowance
 Usually contractors incorporate risk allowances in their tender prices

to compensate the negative impacts of different risks such as

contractual, technical, political and economic risks.
 Contractual risks are usually reducing from the contract agreements

with the project owner, subcontractors and suppliers.

 Technical risks are associated usually with the clarification of the

technical specifications, working drawings, construction technology

and difficulties in understanding new method of constructions.
 Political and economic risks reflect the impact of political situations,

stability of economic policies, inflation and price escalation on the

execution of the intended construction project.

44
4.7. Basic Cost Components of a construction
project
D. Profit and Income Tax
 construction projects are executed by contractors whereby these

contractors will commit to invest their capital to get maximum

possible profit from the contracts to be performed.
 A profit margin entirely depends on the market competitiveness and

company strategies.
 If the contractor is registered for VAT, which is usually the case, the

contractor’s construction cost estimate shall also include Value Added

Tax which is 15% of the tender amount in accordance with the Value
Added Tax proclamation No. 285/2002.

45
4.8. Unit Rate Analysis
 Rate Analysis is the process of fixing cost per unit of measurement

for the different item of works.

 Total cost per unit of work (TC): Direct cost (DC) + Indirect cost (IC)

 Direct Cost (DC) includes cost due to material (MC), cost due to labor

(LC), cost due to equipment (EC)

 Indirect Cost (IC) covers overhead costs, and contractor’s profit.

 In order to facilitate estimation Material break down is essential

 Different formats, Excel sheets and software (like CONMIS)

are
used for rate analysis.

46
4.8. Unit Rate Analysis
Example 5: Calculation of indexed hourly cost for carpenter.
 Given:

 Work hours per day = 8

 Standard wage = 300br/day
 Additional payment because of long service in the company
= 10br/hr for ¾ of carpentry crew.
 Overtime = 6hrs with 25% increment from 50 working hours
per week.
 Property creating performance (for 80% of the carpenter
crew job) = 1br/hr
 Take supplements as 10% of wage

47
4.8. Unit Rate Analysis
Solution:
 Standard wage = 300br/8hr = 37.5br/hr

 Additional payment = ¾ * 10 = 7.5br/hr

 OT = (6*0.25*37.5)/50 = 1.125br/hr

 Property creating performance = 1*0.8 = 0.8br/hr

 Supplements = 10% * 37.5br/hr = 0.1*37.5br/hr = 3.75br/hr

 Total indexed hourly cost for carpenter

= 37.5 + 7.5 + 1.125 + 0.8 + 3.75

= 50.675 Birr/hr.

48
4.8. Unit Rate Analysis
Example 6: Calculation of Equipment cost (for 217 m3 of Concrete)
 Given:

 Mixer

 Original Cost = 150,000 br

 Useful life = 5 yrs

 Monthly Repair Cost = 1,500 br

 Vibrator

 Original Cost = 20,000 br

 Useful life = 6 yrs

 Monthly repair cost = 50 br

 Assume: 8 working hours per day, 22 days per month

Interest rate = 6.5%

Concrete production rate = 1.25m3/hr
49
4.8. Unit Rate Analysis
Solution
 Mixer:
 Depreciation = Initial Investment/useful life

= 150,000/(5*12*22*8) = 14.2br/hr
 Interest of return = -------Future values of OA

= = 11,102.6br/yr
 Hourly Cost = 11,102.6/(12*22*8) = 5.26br/hr
 Repair Cost = 1,500/(22*8) = 8.52 br/hr
 Total Mixer Hourly Cost = 14.2 + 5.26 + 8.52

= 27.98 Birr/hr

50
4.8. Unit Rate Analysis
Solution
 Vibrator:
 Depreciation = 20,000/(6*12*22*8) = 1.58br/hr
 Interest of return = = 1,530.5br/yr
 Hourly Cost = 1,530.5/(12*22*8) = 0.725br/hr
 Repair Cost = 50/(22*8) = 0.284br/hr
 Total Vibrator Hourly Cost = 1.58 + 0.725 + 0.284

= 2.59 Birr/hr

51
4.8. Unit Rate Analysis
Type of No. UF Hourly Indexed Hourly Cost
Equip. Cost
Mixer 1 1 27.98 27.98
Vibrator 1 1 2.59 2.59
Total 30.57
Production Rate = 1.25m3/hr Unit Rate = 30.57/1.25
For 1m3 (unit rate) = 30.57br/hr = 24.46br/m3
 Therefore, 1m3 = 24.46 Birr

217m3 = ? X
X = 217m3 * 24.46Birr/1m3
= 5,307.82 Birr
52
4.8. Unit Rate Analysis Cont.
 It is advisable that contractors shall adapt suitable construction cost

estimation formats which enables to see all the detailed cost

breakdowns of the required:
 Direct materials,
 Labor and equipment
 Head office and site overhead costs,
 Risk allowances,
 Profit,
 Income tax and
 Value Added Tax (VAT) or Turnover tax (TOT).

53
54
4.8. Unit Rate Analysis
Cont.
I. Direct Material Unit Cost (E)
 Direct material cost is the total cost of construction materials
required to execute a unit of specific activity in a project.
 In estimating the direct material cost, the contractor shall obtain the
quantity and quality of materials required to produce the specific
unit of an activity

55
4.8. Unit Rate Analysis
Cont.
II. Direct Labor Unit Cost (F)
 In calculating the direct labor cost, contractors need to calculate the
direct labor hourly cost which is the total hourly cost of labor crew
required to execute a specific activity in the project.
 In estimating the direct labor hourly cost, the contractor shall obtain
the:
 Number of labor,
 Skill and labor utilization factor (UF)
 Labor basic salary and
 Labor index from his previous records and the labor market.

56
4.8. Unit Rate Analysis
Cont.
II. Direct Labor Unit Cost (F)
 Labor index is a multiplying factor of the basic salary which

represents the additional benefits whereby a worker gets from the

contractor such as:
 Severance pay
 Annual leave
 Occupational accident expenses
 Occupational disease expenses
 Overtime pay
 Occupational safety, health and working environment
 Benefits resulting from collective agreements

57
4.8. Unit Rate Analysis
Cont.
III. Direct Equipment Cost (G)
 In order to calculate the direct equipment cost, contractors need to

calculate the direct equipment hourly cost which is the total hourly
cost of equipment crew required to execute a specific activity in a
project.
 In estimating the direct equipment hourly cost, the contractor shall

obtain
 The number of equipments,
 Capacity and equipment utilization factor (UF), and
 The equipment hourly cost.

58
4.8. Unit Rate Analysis
Cont.
IV. Site Overhead Cost (I)
 It is easier to express the site overhead costs as a percentage of the
direct unit cost of an activity.

V. Head Office Overhead Cost (J)

59
4.8. Unit Rate Analysis
Cont.
VI. Risk Allowance (L)
 Let’s assume the following factors represent the percentage cost
increment of each cost component and the risk allowance will be
calculated as follows:

60
4.8. Unit Rate Analysis
Cont.
VII. Gross Profit (M)
 As an illustration, if the net profit margin is assumed to be P% of
the breakeven cost (direct costs + indirect costs + risk allowances),
the gross profit (net profit + income tax) can be calculated as
follows, which is X% of the breakeven cost.

61
4.8. Unit Rate Analysis
Cont.
VIII. Total unit price without VAT
 If the contractor is registered for VAT but the contract is VAT
exempted, the contractor’s unit price in his tender is the sum of direct
unit cost (H), indirect unit cost (K), risk allowance (L) and gross
profit (M).

IX. Total unit price without VAT

62
4.8. Unit Rate Analysis
Cont.

63
 4.8. Unit Rate Analysis
Cont. 3: Find the cost of the total backfill around footing and masonry
Example
foundation from borrow pit.
 Total volume of backfill = 750m3
 Labor output = 13m3/day & Equipment output = 14m3/day
 Rental tools (2 in no.) = 1000br/month
 Indexed salary of the Forman = 7500br/month
 Gang leader indexed salary = 6000br/month
 Daily Laborer (4 in no.) indexed wage = 180br/day
 OHC = 15%, Profit = 10%, Vat = 15%
 Selected material cost = 3500/truck
 Truck capacity = 15.5m3 (assume 10% wastage during handling,

loading,..)
 Sludge hammer (1in no.) = 10br/day
 Forman should work with the formwork crew, concrete crew, rebar

crew and office/some paper works.

 The gang leader should work the backfill and concrete work.

64
 4.8. Unit Rate Analysis
Cont.
Solution:
Backfill Analysis Sheet
Project:____________________________ Labor Output: 13m3/day
Work Item: backfill around footing and masonry foundation from borrow pit Equip/tools out put: 14m3/day
Quantity of work item: 1m3 Result:

A. Material Cost B. Labor Cost C. Equip/Tools Cost

Type Unit Qtty Rate
Rate Cost Type No UF **HC
**DC TotHrC
TotDC Type No **HC
**DC TotHrC
TotDC

Selected m3 =1+ 3500/

3500 225.8* DL 4 1 180 =
180/8 =4*1*18
=4*1*22 Sludge 1 10 1*10=
Material (1+
0.1(1+ 1.1 = 22.5 0.5==720
90 Hammer 10
15.5
/15.5
= 248.38
0.1) =
225.8
=
= 1.1
1.1
225.
8
GL 1 0.5 6000/ 1*0.5*25
GL 1 0.5 (30*8)
6000/ = 12.5
1*0.5*20 Tools 2 1000/ 66.67
= 25 =
(30) 0 = 100 (30) =
200 33.33
For 1 0.2 7500/ 1*0.2*31
man
For 1 0.2 (30*8)
7500/ .25 =
1*0.2*25
man = 31.25
(30) = 6.25
0 = 50
250

Total 248.38 Total 108.75

Total (A) 248.38 Total (B) 870 Total (C) 76.67

65
 4.8. Unit Rate Analysis
Cont.
Solution:
 Cost of Backfill = Direct Cost + Indirect Cost
 DC = A + B + C

= 248.38 + (870/13) + (76.67/14) = 320.78br/m3

 IC = 15% (DC) = 0.15 * 257.13 = 48.117br/m3
 Cost of Backfill = DC + IC = 320.78 + 48.117 = 368.9br/m3
 Profit = 10% (Cost of Backfill) = 0.1 * 368.9 = 36.89br/m3
 VAT = 15% (Cost of Bf + Profit) = 0.15 * (368.9+ 36.89)

= 60.87br/m3
 Total Unit Rate = Cost of Backfill + Profit + VAT
= 368.9 + 36.89 + 60.87
= 466.66Birr/m3

Therefore, Total Cost for 750m3 = 466.66Birr/m3 * 750m3

= 349,995 Birr
66
4.8. Unit Rate Analysis
Cont.

67
4.8. Unit Rate Analysis
Cont.

68
4.8. Unit Rate Analysis
Cont.

69
4.8. Unit Rate Analysis
Cont.

70
4.8. Unit Rate Analysis
Cont.

71
Example 4: It is given that 8 bag of cement and 0.26m3 of water are required
for 1m3 of C30 concrete. The general foreman was doing four jobs, the gang
leader spent so% of his time on the concrete work and the site Engineer has
five different jobs including concrete work. After 1:2:3 mix design
preparation the following data is given including wastage.
Resource usage:  Equipment/Tools:
 Labour (No. : Utilization Factor
 Mixer (#2: 1000br/d)
: Indexed Salary):  Lift (#1: 900br/d)
 General forman (#1: 10000br/d)
 Vibrator (#1: 400br/d)
 Site Engineer (#1: 14000br/d)
 Additional tools (600br/d)
 Mason (#2: UF1: 350br/d)
 Material:
 Mixer Operator (#2: UF1: 350br/d)
 1 bag of Cement = 500br
 Vibrator Operator (#1: UF1: 
350br/d) Sand (15.5m 3
cap) = 14,000br/T
 Gravel (15m3 cap) = 12,000br/T
 Lift Operator (#1: UF1: 350br/d)
 Water = 5br/m3
 Mixer Operator (#2: UF1: 350br/d)
 Others
 Gang Leader (#1 : 380br/d)
 Labour/Equip. Out put = 60m3/d
 Working hours per day = 8
 OHC = 15%, Profit = 20% 72
 Concrete C30 Analysis Sheet
Project:____________________________ Labor Output: 60m3/day
Work Item: Concrete C30 Equip/tools out put: 60m3/day
Quantity of work item: 1m3 Result:

A. Material Cost B. Labor Cost C. Equip/Tools Cost

Type Unit Qtty Rate Cost Type No UF **HC TotHrC Type No **HC TotHrC

Total (A) Total (B) Total (C)

73
THANK
YOU!
74