Preliminaries: What Are They?

In construction industry, we know that there are fixed costs and estimated costs. Fixed costs are the costs
which we can calculate and price them, this includes materials, labour, plants and equipments cost.
Sometimes contractors called it as direct costs. While estimated costs are the costs which due to their
unpredictability and uniqueness, we cannot calculate and price them precisely. Preliminaries is one of the
latters example. Preliminaries in construction industry can be defined as
requirements/components/facilities which are need to be provided prior to commencement of actual
implementation of physical work. But this is the general definition of preliminaries.
Now, what items which are constituted the preliminaries? Following are the items that normally will be
considered by the contractors for many projects as preliminaries:
Preliminaries
The Factor Affecting Contract Sum
Seng Hansen
Master Student of Construction Contract Management UTM
Email: hansen_zinck@yahoo.co.id
No Items No Items
1 Site Supervision Site Agent, etc 13 Protection and casing of finished work
2 Toilets 14 Safety Measures
3 Code of welfare conditions 15 Telephone
4 Temporary roads 16 Temporary compounds
Preliminaries & Contingency: The Differences
The definition of preliminaries is different with contingencies. Contingency is an estimated allowance for
the cost of unknowns or changes. It also includes escalation and estimating error. So basically it is an
anticipated allowance for any cost which may be incurred during the construction process. It can vary in
amount depend on the project size and type. While preliminaries are estimated allowance for the cost of
things which are known but we cannot priced them precisely due to their uniqueness and vastness.
Preliminaries & Overhead: The Differences
Overhead is defined as indirect expenses that cannot be charged to individual costs or bid items. Overhead
covers items such as directors, secretariat, marketing, equipment not only for project necessity but also for
headquarters necessity. Usually the overhead is expressed as a percentage and added to tender cost. Since
it cannot be charged as an individual cost, we cannot find this item in Bill of Quantities. While preliminaries
as a cost can be find in Bill of Quantities.
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4 Temporary roads 16 Temporary compounds
5 Temporary fencing, hoardings, screens, gantries and
walk-away
17 Notices and fees to local Authorities and Public
Undertakings
6 Setting out 18 Attendance on clerk of works
7 Watching and lighting 19 Temporary Power and Site Lighting
8 Insurances 20 Travelling time fares
9 Additional overtime 21 Transportation to site
10 Maintenance of the public and private roads 22 Temporary offices, storage sheds, man store
11 Weather protection and precautions 23 Cleaning out Buildings
12 Testing materials 24 Temporary water on site
How to Priced Preliminaries? Contractors Point of View
It is very difficult to price preliminaries. Besides, not all preliminaries items need to be priced, some are still
unpriced. Another difficulty is that there is no specific rule or standard way to pricing preliminaries. Actually
SMM (Standard Method of Measurement) also discusses about preliminaries item in section B of the book,
but it only discusses the general description and regulations, not the specific way to measure and price this
item.
In Bill of Quantities prepared by contractors, we usually find this item in Lump Sum unit. There is a risk in
deciding this item to be priced in Lump Sum unit. If the actual projects preliminaries is below the
estimation stated in Bill of Quantities, then it will become the contractors profit. And the opposite principle
applies. If the actual projects preliminaries is higher than the estimation, then it will become the
contractors loss. So as a quantity surveyor (regardless you are working for employers or contractors), we
need to calculate this item efficiently so that it will give enough allowance for the costs, not too much or
too low.
I think the best method to price preliminaries is to look the similar projects that have been done before. But
this method needs contractor/estimators experience to decide and adjust the actual preliminaries cost of
the executed projects with the current proposed projects condition. Another method which is commonly
used by contractors and estimators is by percentage of tender value, normally 5% up to 10%.
Major Problems in Pricing Preliminaries
Since preliminaries item is such a vast and unique item to be priced, there will be many problems in pricing
it. Moreover, every project is unique and that means they will need preliminaries cost which differ one
another. So we can say that the uniqueness of project is predominantly materialized in preliminaries cost.
Factors which influence the preliminaries item are: Factors which influence the preliminaries item are:
1. Location of the proposed project
Where is the projects location is it inside the city area or outside, is it safe or not from stealing, etc.
2. Site conditions
What are the sites conditions is it winter or summer, do we need to clear the site before starting the work
or not, how about the access to the site, etc.
3. Type of contract that is used
What is the type of the contract - is it a simple contract or a complex one, is it based on a negotiated or
competitive tenders, etc.
4. The length of time in using resources
The length of time in using resources is very crucial. The contractor has to ensure that if there is a projects
delay and extension of time is granted, the additional cost incurred must be reimbursed. The cost of heavy
equipment, the cost of the project team member and all other costs need to be priced according to the
length of time they are on site. This must be included in preliminaries.
5. The market conditions
Will there be any inflation or not, will there be many projects or not, etc.
6. Contract particular
Understanding of contract particular can contractors claim variation, how about the insurance clause, how
about the period of retention, the advantages and disadvantages of the contract clauses, etc.
7. Availability of resources
Do contractors need to hire labour outside the city or just hire locals, do contractors need to import
material or just use local materials, etc.
8. Local Authorities Obligation
Is there any obligation imposed by local authorities, is there any public undertakings, etc.
9. Obligation or Restriction Imposed by Employer
To what extent the employers want the contractors do their quality control, management of works, safety
and security, maintenance, etc.
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How Does It Affect to the Overall Contract Sum?
After we are talking what is preliminaries and how to priced it, now we come to the discussion about how
does it affect to the overall contract sum? Normally, preliminaries will constitute about 5% up to 10% of the
overall contract price. In this competitive business world, contractors need to do various efficiencies in their
tender price so that their bids can compete with others. The employers usually will choose the best tender
price after considering contractors qualifications. And the best price usually is the lowest tender price.
Since the quantity of a project cannot be manipulated, contractors commonly do efficiency in their
preliminaries cost. They will count only the items which they need with an eye to win the tender. And this
action will bring us to a next question, will it be a risk if they underpricing the preliminaries?
Conclusion: Preliminaries as a Risk
In my opinion, preliminaries is a risk in contract sum estimation. And because it is a risk, so basically the
decision to submit a tender price by contractors will be based on their experience in the field and discretion
of contractor managerial board. Efficiency done by contractors in order to win the tender can be a
boomerang for them if they miscalculate the items in preliminaries. If they are underpricing it, the project
can be a complete failure and they must bear the loss. But if then they can manage it so that it is not
underpriced, they can make a profit. And again, to submit a tender price is a managerial levels decision.
Eventhough the contractors knew that they will lose profit from it, some projects need to be executed due
to other factors such as political, social or monumental aspect (to make their companies well known).
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