Lesson 9: Detailed Estimates (1)

- Pricing Labor & Equipment

Dr. Yong Cho
Georgia Tech
In this lecture…
 Detailed Estimating Process
 Big Picture of Pricing
 Sources of Labor Information
 Labor Rates and Paycheck Rates
 Makeup of labor cost
 Base wage and benefits
 Crew Composition

2
Introduction

3
Phase

Order of Magnitude Estimate

20%

Square Foot Estimate

15%
System/Assemblies Estimate
10%

5% Unit Price
Estimate
1 hr. 1 day 3 weeks

4
Detailed Estimating
 Determine the costs required to complete a project in
accordance with the contract plans and specifications

 Generally prepared by the contractor

 The bid price
 Direct costs (materials, labor, equipment, and subcontract work),
overhead, profit, and contingencies
 Should be high enough to complete the project with a reasonable profit
 Yet low enough to win bid
Tasks in Detailed Estimating
 Determining the probable real cost
 Determining the probable real time to complete the project
 Accomplished by determining production rates for various crews and
calculating the time required to perform individual work items

 Remember! The estimate is, at best, a close approximation of

the actual costs.
 The estimator establishes the amount of money the
contractor will receive for constructing the project
Preparation of Detailed Estimate
 1) A thorough review of the complete set of contract documents (contract
requirements, drawings, technical specifications)

 2) Visit the project site to observe factors that can influence the cost of
construction
 Available space for storage of materials, control of traffic, security, and existing
underground utilities

 3) Material quantity takeoff (from the drawings) and pricing

 Tabulate the quantity and unit of measure of all work required during
construction
 Quantity of material x unit cost of the material = Material cost
Preparation of Detailed Estimate
 4) Equipment and labor cost calculation
 (Quantity of work required by equipment)/(Equipment production rate) x unit
cost of equip. = Equipment cost
 (Quantity of work required by labor)/(labor production rate) x unit cost of labor
= Labor cost

 5) Subcontractor’s cost
 Request a bid from potential subcontractors

 6) Indirect costs
 Taxes (on labor and materials), bonds (typically defined in specs), insurance
(typically defined in contract bid), and overhead costs

 7) Markup: Contingency + Profit

Big Picture of Pricing
Apply Material Prices Material
Cost
Apply Labor Apply Labor
Takeoff Productivity Work Hours Rates Labor Total
Quantities (or Days) Cost Cost
Apply
Apply Equip. Equipment
Equipment
Productivity Rates Equipment
Hours (or
Cost
Days)

Text in Red is Pricing Information.

9
Elements of Project Costs
 Cost elements:
 Labor
 Equipment
 Materials
 Subcontractors
 Job overheads
 The wildcard:
 Contractor’s risks

10
Subcontracting
 Lump sum prices from subcontractors
 Included as a part of the bid
 Transfer risks from the contractor to
the subs
 Typical problems
 Scope of works
 Performance of the subcontractors

11
Overheads and Profits
 Two types of overheads
 Company overheads:
administrative costs such as office
cost, salaries for the management
 Project overheads: project related
cost such as site works,
temporary structure (trailer),
electricity, water, sewer, fence,
signage, and barricades
 Markups: Profit and contingency
 Two options in estimating:
 Add directly to your bidding price
 or apply “O&P” to each takeoff
item
12
RS Means Books
 Annual Construction Cost
Data Books since 1942 for
Both US and Canada
 Gather data from all facets of
the industry
 Organize information in a
accessible format based on
CSI division
 Cover from the preliminary
budget to the detailed unit
price estimate
 Reference book series
 About 36 Different Books
13
Other RS Means Cost Data Books
 Means Mechanical Cost Data
 Means Electrical Cost Data
 Means Plumbing Cost Data
 Means Square Foot Costs
 Means Light Commercial Cost Data
 Means Residential Cost Data
 Means Heavy Construction Cost Data
 Means Site Work & Landscape Cost Data
 Means Assemblies Cost Data
 Means Open Shop Building Construction Cost Data
 Etc.
14
Cost Information
 Bare cost for a wide
variety of construction
work
 Labor
 Materials
 Equipment
 Additional information
 City cost indexes
 Productivity rates
 Crew composition
 Contractor’s overhead
and profit rates
15
Read Everything Carefully

16
Crew Composition

17
Labor Basics
 A Major Part of the Project
Cost
 Critical to the accuracy of the
estimate
 Determined by Two
Components:
 Productivity and labor rates
 Hard to Predict
 Pay rates change all the time
 Productivity fluctuates as well

18
Makeup of Labor Rates
 Base Wage Rate: the paycheck rate

 Labor Burden
 Wage Benefits
 Payroll Taxes and Benefits
 Liability Insurance
 Shift Differentials
 Premium Pay: including the overtime(>40hrs/wk)

19
Shift Differentials
 Reimburse Employees for
Inconvenience of Working
During Undesirable Hours
 Nights and Weekends
 Sometimes Counted as
Premium Pay
 Could be paid as
 A percentage of the base rate
 A flat dollar addition to the base
rate
 or as additional hours

20
Base Wage Rates
 Sources: historical data or cost books
 RS Means Building Construction Cost Data
 Or historical data from your organization
 Annual Rate Surveys
 Varies from One State to Another
 Public projects often use “prevailing rates” from an annual survey

21
Wage Benefits
 Paid Holidays and Vacations
 Sick Leave
 Special Leave
 On-job Training
 Retirement Funds

 A Consideration When
Looking for a Job

22
Payroll Taxes and Benefits –
Employers’ Responsibilities
 Employers have to Pay a “Match” to the
Government for the “Deductions”
from Employees’ Paychecks
 Required by Law:
 Federal Social Security and Medicare (FICA)
 Federal Unemployment Insurance (FUTA)
 State Unemployment Insurance (SUTA)
 Worker’s Compensation Insurance
 NOT Required by Law:
 Medical and Dental Insurance
 Life Insurance
 Short and Long Term Disability Insurance

23
An Example: True Hourly Labor Cost
 Hire a Carpenter, with “Average Wage”: $ 12.77
 From the 2005 base wage survey
 Calculate Labor Burden
 Wage Benefits $ 5.20
 Social Security (FICA) (x 7.65%) $0.98
 Unemployment Insurance (x 6.5%) $0.83
 Workers’ Compensation (x 10%) $1.28
 Liability Insurance (x 3.5%) $0.45
 Total Labor Burden $8.74
 Average Wage $12.77
 Total Labor Wage Rate: $21.51
 Burden Rate: $8.74/$12.77= 68%

24
Composite Crew
 A Crew may include Foremen, Equipment Operators and
Laborers: Refer to RS Means cost data
 Different burden rates for different crew members.
 Composite Crew Rate
 Burden = Burden Rate x Base Wage Rate
 Total Labor Rate = Base Wage Rate + Burden

25
Crew Cost and Paycheck Rate
 If this crew is hired for 30 work days, how much is
your cost?
 Cost = Hours/Day x Number of Days x Hourly Crew Rate
 8 hours x 30 days x $ =$
 At the end of the 30 work days, how much is the
gross pay on the crane operator’s paycheck?
 Gross income is before all taxes and deductions.
 Cost = Hours/Day x Number of Days x Hourly Pay Rate
 8 hours x 30 days x $ =$

26
Man Hour Rate vs. Crew Hour Rate

 Labor Hour (LH) Rate: 1 worker works for an hour

 Crew Hour (CH) Rate: 1 crew works for an hour
 CH Rate = Ave. LH Rate x Number of Crew
 A crew of 5 with average wage of $15/LH
 Crew-hour rate = $15/LH x 5 = $75/CH
27
Summary
 Labor Rates = Base Wage Rate + Labor Burden
 Base Wage Rate: the paycheck rate
 Labor Burden: including wage benefits, taxes, insurance
 Burden rate = Labor burden / Base Wage Rate

 Crew: a group of workers and equipment required to

execute a construction activity
 1 Crew-hour = 1 Labor-hour X Crew Size (# of crew
members)
 Crew-hour rate = Average Labor-hour rate of Crew X Crew
Size

28