Introduction

Introduction
Project Characteristics
 Defined goal or objective stated by the owner and accomplished by
the project team
 Specific tasks to be performed
 Defined beginning and end
 Resources being consumed. The 4 Ms (Manpower, Machinery,
Materials, and Money,)
 As the project progresses, the project team learns more about the
project

Information Time

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Project Life Cycle

The project life cycle may

be viewed as a process
through which a project is
implemented from
beginning to end

 From the owner’s Perspective

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Introduction
Project Life Cycle (Project stages)

As the construction
progresses, the
cost increases while
the influence
decreases

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 Introduction
Types of Contracts
Contracts are classified according to the method of
payment to the contractor

Contracts

Cost based Price based

Cost plus Target Cost Unit price Lump sum

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Introduction
Type of Contracts
What is the difference between cost & price?

Price

Margin Cost
Profit
Indirect cost Direct cost
Risk allowance
Site overhead Labor
Financial charge Office overhead Material
Equipment
Subcontractors
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Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost

Factors favoring the use of a specific contract

 Providing incentive for efficient performance

 Introducing changes during construction

 Allocation of risk between owner & contractor

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Introduction
Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Unit price or Admeasurement contract
 Work items are given in detail (BOQ; Bill of Quantities)

 The contractor set a price for each item; the owner doesn’t know the
details of each item pricing
 Changes are allowed with 25% only
 When new items are added, the price of these items should be studied.
 Claims might arises between owner and contractor.

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Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Unit price contract

Used for typical projects and civil engineering projects where

changes are limited

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Introduction
Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Unit price contract
Advantages:
 Owner aware of the project details

 Widely used; about 80% of projects

 Project period is defined

Disadvantages
 All attention are given to the prices only

 Allows limited design changes

 Errors of quantities leads to disputes

 Disputes may arises when new items of work are added

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Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Lump Sum (‫)ﻋﻘﺪ اﻟﻤﻘﻄﻮﻋﯿﺔ‬
 A single tendered price is given for the completion of specified

work
 Payment may be staged at intervals on the completion

 very limited flexibility for design changes

 Contract final price is known at tender

 This contract may be used for a turnkey construction

 It is appropriate when work is defined in detail

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Introduction
Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Cost-Plus (‫)ﻋﻘﺪاﻟﺘﻜﻠﻔﺔ ﻣﻊ اﺳﺘﺮداد ﻧﺴﺒﺔ ﻣﻦ اﻟﻤﺼﺮوﻓﺎت أو اﻟﺘﻜﻠﻔﺔ واﻻﺿﺎﻓﺔ‬
 The contractor is reimbursed for actual cost plus a special fee

for head office overheads and profit

 high level of flexibility for design changes

 Final price depends on changes and risks

 High level of owner involvement

 The fee may be a fixed amount or a percentage of actual costs

 It may be used when it is desirable for design to proceed

concurrently with construction

 the client wishes to be involved in contract management
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Type of Contracts
1. Unit Price 3. Cost Plus
2. Lump Sum 4. Target Cost
Target Cost (‫)ﻋﻘﺪاﻟﺘﻜﻠﻔﺔ اﻟﻤﺴﺘﮭﺪﻓﺔ‬
 Same as previous type (cost-plus)

 owner and contractor agree on a target cost for the project

 contractor will be paid a share for any saving

 When work is added or removed, target cost is adjusted

 The contractor has an incentive to reduce the cost

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Introduction
Cost Estimating
Cost Estimating may be defined as:
 Estimating is the compilation of all the costs of the elements of
a project within an agreed upon project scope
 it is the production of a statement of the approximate quantity
of materials, time and costs to perform construction decisions
 The basic challenges the construction contractor faces are to
estimate the cost of constructing a project
 The objective of cost estimate is to produce an accurate, cost
effective prediction of what a project will most likely cost and it
needs to be done in different manners at different stages

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Cost Estimating
Required data:
 Detailed plans, specifications, available site data, available
resource data (labor, material, & equipment), contract
documents, resource cost information, pertinent
government regulations, applicable owner requirements an
agreed upon project scope

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Introduction
Cost Estimating is a Probabilistic Activity
An estimate involves calculating the costs of work on the basis of
probabilities:
 Two activities are involved when carrying out an estimate:
 Measurements: all measurements are approximate
 Pricing: the degree of approximation is even greater
because of the difficulty in predicting all the probabilities of
items such as labor productivity and site conditions

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Estimating Purpose
 The purpose of estimating is to forecast the cost required
to complete a project in accordance with the contract plans
and specifications
 There are two distinct tasks in estimating:
 To determine the probable real cost of the project
 To determine the probable real time to build the project
 Because construction estimates are prepared before a
project is constructed, an estimate is, at best, a close
approximation of the actual costs

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Introduction
Estimating Purpose
 The true value of the project will not be known until the
project has been completed and all costs have been
recorded
 Therefore, the estimator does not establish the cost of a
project; he simply establishes the amount which the
contractor will receive for constructing the project.

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 Introduction
Estimator (Quantity Surveyor)
 the person who prepares estimates in the planning, design,
and perhaps construction stages
 Understanding of the principles and methods of engineering
economics
 Estimator decisions are very crucial for his/her company
 An estimator must not spend so much time and effort to
analyze unnecessary details in determining the costs of
insignificant items as the estimating will take time and be
expensive

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Introduction
Estimator Role
 The estimator’s job is to prepare estimates of project costs
 The success of a contractor’s business depends on the
accuracy of these estimates.
 The estimator’s success will be based on his previous
experience and knowledge of the construction industry
 A contractor or estimator lacking this experience may over-, or
under-estimates project costs
 All cost data is acquired from experience. If an estimator does
not have cost data from his/her own experience, he/she must
use cost data from price books and handbooks

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Estimator Role
 The more valid data the estimator has available, the better he
will be able to estimate the probabilities of costs\
 The following factors affect the accuracy of cost estimates:
 Site, location and accessibility
 Subsurface and soil conditions
 Time and season
 Climatic conditions
 Wage agreements
 Market prices of basic materials
 The demand for construction

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Introduction
What Estimator Must Know?
 Estimator should has a thorough knowledge of building trades
 This includes types of construction and methods of
construction
 Be able to read building plans and notes, and understand the
specifications
 If there is any discrepancies between the plans and
specifications, he/she will bring them to the attention of the
architect or owner for solution
 When all the questions are answered and problems are
solved, an estimate can be prepared and finished

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What Estimator Must Know?
 Thorough understanding of the building codes in the area the
building project is to be constructed
 Thorough understanding of construction materials
 Be able to substitute equal quality materials when specified
material are not available
 Be able to project labor cost changes
 Must realize that labor costs may vary in different
geographical areas of the country
 Must also realize and project in his estimates future
increases in labor costs because of upcoming events

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Introduction
Construction Project Costs
 The principal components of a contractor's costs result from
the use of labors, materials, equipment, and subcontractors
 The costs that spent on a specific activity or project can be
classified as:
 Fixed cost
 Time-related cost
 Quantity-proportional cost
 Project direct costs
 Project indirect costs

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Cost Estimating: Indirect cost
Indirect costs comprises project (site); and General (head-office)
overheads

Project overheads
 The cost of items that cannot be directly charged to a specific
work element
 It includes site utilities, supervisors, parking, offices,
workshops, stores, first aid facility, et.
 A detailed analysis of site-related costs is required to arrive at
an accurate estimate of these costs
 Companies use their own forms and checklists for estimating
these costs. Site overhead costs are estimated to be between
5% - 15% of project total direct cost

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Introduction
Cost Estimating: Indirect cost
General overheads
 The costs that cannot be directly attributed to a specific project
 They represent the cost of the head-office expenses, mangers,
directors, design engineers, schedulers, etc.
 Continuous observations of the company expenses help
estimating reasonable values for the general overhead
 For a given project, it can be estimated between 2% - 5% of

the contract direct cost

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 Introduction
Possible Sources of Estimate Errors
 Mistakes in material take-offs
 Errors in carrying forward material from quantity sheets to
summary sheets and from there to direct cost sheets
 Mistakes in estimating labor time required for certain work
 Errors in estimating hourly wages of labor
 Failure to allow for rising costs of materials
 Failure to allow for delays due to breakdown of machines and
other unforeseeable reasons
 Making no provisions to have estimates checked
 Insufficient allowance for overhead or Omission of profit
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Types of cost estimate
 When beginning to prepare an estimate, it is important to
understand its intended use
 An estimate can be prepared at any point through the project life
 Depending on the information available and the time spent
preparing the estimate, the accuracy it provides will vary
 here are four different stages at which estimates take place:
 Conceptual phase
 Schematic phase
 Design development phase
 Procurement phase
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Types of cost estimate: Conceptual estimate
 The owner needs cost information very early on in a project so that
decisions as to the location and scope can be made before money
is spent on design or property purchase
 Prepared with very little information, relying on historical data
 This type of estimate is called a Conceptual , Rough Order
 of Magnitude, top-down or parametric estimate and is generally
prepared long before the construction starts
 Sketch or a brief written description of the project

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Introduction
Types of cost estimate: Conceptual estimate
 Project size is generally known in terms of capacity: number of
beds for a hospital or number of students for a school
 The time needed to prepare this type of estimate is short, generally
in the range of a half day or less
 The presentation of the conceptual phase estimate is generally
used for the purpose of a providing a target budget
 Conceptual phase estimates are often prepared for many different
options so that best alternative(s) can be selected

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Types of cost estimate: Schematic Design Phase
 As the project moves into the schematic stage, the designer and
possibly the construction manager have become involved in the
design and estimating of the project
 The project team may be incorporating different design alternatives
into the basic design
 A schematic estimate will be based on a design that is
approximately 30% designed and include the following information:
 Floor plans, elevations, and sections
 Outline specification for most trade sections
 Drawings for mechanical and electrical systems
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Types of cost estimate: Schematic Design Phase
 This estimate include some area take-off, for major project elements
 At this stage, some of the key sub-contractors might be asked for
input for complicated systems
 At the end of this stage, the presentation of the design to the owner
is accompanied by an estimate of the cost of the project
 Any design alternatives will also be accompanied by an estimate of
the cost of the project
 Before the project team moves on to the next phase of design, the
owner will decide on basic design parameters and on project budget
 Any cost reduction ideas are presented and priced
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Types of cost estimate: Design Phase
 In this phase, much more defined information
 Because of this, the time taken to prepare this type of estimates is
longer, but the accuracy is greater
 The estimate in this stage will be based on a design that is 60%
complete
 Most of the major project items will be quantifiable, and the more
important unit prices should be known at this point
 With the presentation of this estimate, the costs of the materials and
methods will be known and should be compared to past similar
projects
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Introduction
Types of cost estimate: Design Phase
 Network scheduling will begin, allowing a better understanding of
the overall duration of the project as well as when each of the major
project elements is to be constructed
 Major assumptions should be noted and compared to what was
assumed at the schematic design stage
 The estimate at this stage is a tool used to verify that the design is
within the owner’s budget, and to identify any good cost saving
ideas

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Cost Estimating: detailed (Procurement) estimate
 It is also known as a bottom-up, fair-cost, or bid estimate
 Prepared once the design has been completed and all
construction documents prepared
 the estimator must make a complete and thorough job analysis
 For a detailed estimate, a thorough knowledge of labor,
material, equipment, crews, and methods of construction
should be collected

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Introduction
Cost Estimating: detailed estimate
Efficiency
Project
Rates Formation
Task 1
Labors Method (s)
Crew
Quantity

Equip.
Resources Constraints
Cost
……
Duration ……
Material

Subs
Task i

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Types of cost estimate
 Conceptual cost estimates; incomplete project documentation
 Semi-detailed estimates are prepared when parts of the project
have been completed
 Detailed cost estimates are prepared based on fully developed
construction drawings and specifications

Expected
Type of Estimate Construction Document Development
Percent Error*
Schematic Design
Conceptual (Parametric) ± 10-25 %
0-30% Construction Documents

Design Development
Semi-Detailed ± 5-15 %
30-90% Construction Documents

Detailed 90-100% Plans and Specifications ± 2-5%

* Percent error means the expected variation between cost estimate and actual cost
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Types of cost estimate: estimate accuracy

high
Accuracy

low Information
less more

Concept Design Construction O&M

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Types of cost estimate: estimate accuracy

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Cost Estimating: Steps of detailed estimate
Review the scope of project. Consider the effect of location, security,
1
traffic, available storage space, underground utilities, etc. on costs.
Determine quantities. Perform a material quantity takeoff for all work
2
items.
3 Obtain suppliers’ bids.
4 Price material. Material cost = quantity x unit price.
5 Price labor based on their probable production rate.
6 Price equipment based on their probable production rates.
7 Obtain specialty contractors’ bids.
8 Calculate taxes, bonds, insurance and overhead.
9 Contingency and markup. Add costs for potential unforeseen work.
10 Profit. Add costs for compensation for performing the work.

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Cost Estimating: detailed estimate
Example : The daily production rate of a crew is 175 units/day and
the total crew cost per day is $1,800. The material needed for daily
work is 4.5 units of $100/unit:
Calculate the time and cost it takes the crew to finish 1,400 units.
Calculate the total unit cost. Consider an eight hour work day

Solution
Duration = Quantity / Production per unit of time = 1400 / 175 = 8
days.
Crew Cost = Duration x Cost per unit = 8 days x $1800/day =
$14,400.
Total Cost = Crew cost + Material cost = $14,400 + 4.5 units x 8 days
x $100/unit = $18,000
Unit cost = Total cost / quantity = $18,000/1400 = $12.86 / unit.

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Introduction
Quantity Take-off
 A quantity takeoff is necessary to perform a cost estimate
 The quantity of material in a project can be accurately
determined from the drawing
 the estimator must make a complete and thorough job analysis
 The unit cost of different materials should be obtained from
material suppliers
 Cost of delivery and wastage should be included
 The material quantity takeoff is extremely important for cost
estimating

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Production Rates
 To determine the time required to perform a given quantity of
work, it is necessary to estimate the production rates of the
equipment or labor
 A production rate is the number of units of work produced by a
unit of equipment or a person in a specified unit of time
 These rates are subject to considerable variation, depending on
the difficulty of the work, skill of the labor, management
conditions and the condition of the equipment prepared

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Production Rates: Example
 A backhoe with 1 m3 bucket capable of handling 3 bucket-
loads per minute. The average volume per bucket is 0.8 m3
and the backhoe is operating for 45 min/hr. The average output
can be calculated as follows:

The ideal output: 3 m3/min x 60 min/hr = 180 m3/hr

The bucket factor = 0.8
The efficiency factor = 45/60 = 0.75
The combined operating factor = 0.8 x 0.75 = 0.6
The average output = 0.6 x 180 = 108 m3/hr

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