3.

Two approaches for cost calculation

i/ Cost Calculation with predetermined charges

Direct itemized Indirect itemized

cost cost
-Material -site overhead costs
-Labour -General overhead
-Equipment cost
-Subcontractor risk and profit

Unit prices
(Rate)

Bid Sum

Procedure for the cost calculation with predetermined charges

The direct itemized cost will be established in accordance with the

methods and approach illustrated in the previous examples.
However the indirect itemized cost will be a product of the
corresponding direct itemized cost with some fixed charge to be
established by the individual contractors for the particular project.
In our country high-class contractors presume 30-40% of the direct
itemized cost as an indirect cost for the particular item of work. One
can readily establish the corresponding unit prices by just summing
up the direct and indirect itemized costs . The summation of the
price of the whole item which results from the multiplication/unit
price x quantity/ would give the bid sum to the particular project.
Example: Establish the unit price of 1 m3 concrete considered for in
the previous examples. Given that the surcharge for the indirect cost
is 35%.
Material cost= 400.25
Labour cost = 28.78
Equipment cost = 11.04
Direct cost = 440.07
Indirect cost = 0.35 (440.07) = 154.02
Unite price = 440.07 + 154.02= 494.1 Birr/ m3

4.4 Cost calculation through the bid Sum

In this approach, amounts for site overhead costs, general overhead
costs, risk and profit are to be ascertained separately for each
project. Here from surcharges on direct itemized costs result with
different amount for each project;
Four steps for this calculation method:
- Establishing the production costs
- Establishing the bid sum
- Establishing the surcharges on direct itemized costs
- Establishing the unit prices
Eg. Given the following detail for the construction of 5Om long
fence around a site.

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 1/ List of items quantities and direct itemized costs are as given in
the table
No Items of work Unit Quantity Direct itemized
cost
1 Excavation to a depth of M3 40 6
1m
2 50 cm thick masonsy M3 25 185
wall
3 Concrete for tie beam M3 5 425
4 Dia 14 dc formed ban Kg 242 5
5 Dia 8 stirrups kg 132 4.5
6 Formwork tie beam M2 20 45
7 20cm thick HCB wall M2 90 52
Direct cost 14,374 birr

2) Site overhead costs

❖ Site facilities (office, store---) ------------------------------------
2500 birr
❖ Electricity, water & telephone -----------------------------------
800 birr
❖ Salary professionals ------------------------------------------------
2000 birr
❖ Secretarial service ---------------------------------------------------
300 birr

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 3) General overhead cost -----------------------------------------10 %
direct cost
4) Risk & profit--------------------------------------------------------7% of
direct cost

Question: Establish bid sum and unit prices for the itemized works.
Step 1: Establish production cost. (Direct cost + Site overhead cost)
Direct cost :- 14,374 birr
Site overhead cost :- 5,600 birr
Production cost 19,974 birr
Step 2: Establish bid sum [production cost + General overhead cost +
risk & profit]
Production cost ------------------------- ------ 19,974 birr
General overhead cost = 10%(14,374)=1,437.40 birr
Risk & profit ---------------7 %(14374)= 1,006.18 birr
Bid sum without vat = 22417.58 birr
vat 15% = 3362.64
Bid sum with vat = 25780.22 birr
Step 3: Surcharge on direct itemized cost
Surcharge = Bid sum without vat
Direct itemized cost
= 22417.58 = 1.5596 = 1.56
14374
Step 4: Establishing unit prices
Unit price = Surcharge x direct itemized cost
Item of work Unit Qry Unit Amount
price
1. Excavation m3 40 9.36 374.40
2. masonry wall m 3 25 288.53 7213.25
3. Concrete m3 5 662.83 3314.15
4. dia 4 bar kg 242 7.798 1887.116
5. dia 8 bar kg 132 7.018 926.376
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6. formwork m2 20 70.18 1403.6
7. HCB wall m2 90 81.099 7298.91

Bid sum without vat 22417.8

Add 15 % vat 3362.67
Bid sum with vat 25780.47 birr

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