Calculating Labor and Material Costs in Construction

What Does “Labor and

Materials” Mean?

“Labor and materials,” also known as time

and materials, is a phrase in a construction
contract in which an employer agrees to pay
the contractor based on the amount of time
spent by the contractor’s employees to
perform the work and for the materials used in
the project.
 Labor Cost vs. Material Cost Mean?

The ability to grasp the difference between

material cost and labor cost is an essential
key to both budgeting well and making a
profit.
While labor and material costs are two very
different entities, they share several
similarities.
Both labor and material costs:
Can be deducted; and
Are calculated during budget planning and are
taken into consideration when determining the
total bill for the end product
Labor cost may be affected by:
The efficiency of construction methods
The need, or lack of need, for overtime hours
The level of quality control you choose to
implement on a specific project
Because labor cost is more flexible than
materials cost, labor is often targeted first if
and when budget cuts may be needed.
Material cost can be influenced by:
- The type and grade of materials used in
the project
- Overhead and margin
- Freight costs, including shipping,
customs fees, import/export fees, and air
freight
- Market competition at the time of
purchase
What Goes Into Direct Labor Cost?
Direct labor refers to anyone directly involved in
the construction project.
This includes the cost of wages and benefits for
employees including the:
Foreman
Laborer
Pipefitter
Rigger; as well as
Any administrative expenses.
Direct labor cost will be figured by determining how
much it costs per day to have each employee on the
job.
This number will then be multiplied by how many days
the job will potentially take.
What Is Included in Material Cost?
Material cost includes all the tangible items
that go into the finished product.
When calculating material costs, both
indirect and direct materials will be taken
into consideration.

Direct material includes things such as:

Wood
Concrete
Steel
Travel expenses
Computer usage charges
Indirect material includes items like:
Nails
Screws
Fasteners
The cost for any equipment that you will
need to lease should also be factored into
the materials cost.

In addition, some contractors will choose

to include the cost of materials delivery
and potential wastage in their material
costs totals.