© The College of Estate Management 2005

Paper 1405V2-2

Estimating principles

Contents
Aims and Learning outcomes
1. Contractor’s pricing: introduction
2. Definitions and terminology
3. Tendering policy
3.1 Firm’s mark-up target
4. Tendering procedure
4.1 Decision to tender
4.2 Collection of information
4.3 Preparation of estimate
4.4 The tender
4.5 Action with tender results
5. Bidding strategy
5.1 Bidding patterns
5.2 Probability of being lowest bidder
5.3 Optimum bid
5.4 Bidding strategy
6. Overheads
6.1 Break-even analysis
7. Profit
7.1 Profitability of contracts
8. Constituents of a rate
8.1 Labour
8.2 Materials
8.3 Plant
8.4 Profit, general overheads and risk
(Continued)

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9. Resources – Labour
9.1 All-in rate
9.2 Working Rule Agreements
9.3 Build-up of all-in rate for labour
9.4 All-in labour rate items
9.5 Incentive schemes and productivity agreements
9.6 Production outputs
9.7 Factors affecting outputs by operatives
9.8 Methods of establishing output data
10. Resources – Material
10.1 All-in rate
10.2 Quantity of material for a unit rate
10.3 Materials wastage
10.4 Amounts of waste
11. Resources – Plant
11.1 Ownership of plant
11.2 Hire of plant
11.3 All-in rate
11.4 Production output
11.5 Transportation and maintenance
12. Project overheads
13. Subcontracting
13.1 Types of subcontractor
13.2 Labour-only subcontractors
14. Demolitions and alterations
14.1 Demolitions
14.2 Alterations
14.3 Shoring

Aim
The aim of this paper is to explain the process undertaken by the contractor in detail
in order to price tender documents.

Learning outcomes
After studying this paper you should be able to:
z

Identify the factors influencing the decision to tender.

z

State the extent of the information required to price the tender.

z

Understand the reasons for, and the adjustments made to, an estimate in order
to translate this to a tender sum.

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1 Contractor’s pricing: introduction
Because of the individual nature of projects in the construction industry, the function
of design and production have in the past generally been separated although in recent
years the concept of design and build discussed later in this paper has made inroads
into the more traditional concept. A design team is appointed by the client and gives
professional advice on a fee basis, the production process being carried out by a
contractor on a profit basis.
It is part of the design team’s duties to select a contractor, and some form of
competitive selection is usually considered as the best method of obtaining value for
money for the client. The magnitude and complexity of the project will determine the
method of contractor selection, whether open to any contractor or from a selected list.
Occasionally the design team will select and negotiate with a single contractor,
perhaps due to the specialist nature of the construction.
The usual criterion for contractor selection is that of lowest monetary cost, although
the design team must be satisfied that the selected contractor has the resources
necessary to carry out the project.
To provide a basis for selection, the design team will have to ensure that all the
contractors are competing on the same information. This design information may be
documented in the form of:
z
z
z
z

project drawings
specification
bills of quantities
schedules,

which are available to all competing contractors. It is then the duty of the contractor
to predict the monetary payment they require to carry out the project. This monetary
figure, together with time and other conditions, is known as the Tender, and for the
selected contractor becomes the Contract Sum.

2 Definitions and terminology
For those who may not be fully conversant with the terminology used in the
construction industry, definitions follow of the principal specialist terms used by
members of the construction industry. For convenience of reference they are listed in
alphabetical order.
Adjudication
The action taken by management to convert an estimate into a tender.
All-in labour rate
A compounded rate which includes payments to operatives and the costs which
arise directly from the employment of labour. Variable costs, such as travelling
time or abnormal overtime, are normally excluded.
All-in material rate
A rate which includes the cost of material delivered to site, waste, unloading,
handling, storage and preparing for use.

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All-in mechanical plant rate
A compounded rate which includes the costs originating from the ownership or
hire of plant together with operating costs.
Approved contractors
Those who have demonstrated that they have the expertise, resources, ability and
desire to tender for a proposed project. Selection of such contractors is normally
by pre-selection procedures.
Attendance
The labour, plant, materials or other facilities provided by the main contractor for
the benefit of the subcontractor and for which the subcontractor normally bears no
cost.
Brief
The definition of a client’s building requirements.
Buildability
The extent to which the design of a building facilitates ease of construction,
subject to the overall requirements for the completed building.
Consultants
The client’s advisers on design, cost and other matters. Such advisers may include
project managers, architects, engineers, quantity surveyors, accountants, bankers
or other experts relating to the client’s particular needs.
Cost
The term ‘cost’, without qualification, means the estimated cost of the physical
production of work.
Note: ‘estimated cost’ must not be confused with ‘historical cost’; ‘historical cost’
is the cost of construction revealed only after the work has been executed.
Cost records
Records of historical cost and notes of the conditions prevailing when such cost
was incurred.
Domestic subcontractors
Subcontractors selected and employed by the contractor.
Down time
The period of time that plant is not operating. This may be due to breakdown,
servicing time or inability to operate due to external factors.
Estimating
The technical process of predicting cost of construction.
Estimator
A person carrying out the estimating function in a building organisation. Such a
person may be a specialist or may carry out the estimating function in conjunction
with other functions, such as quantity surveying, general management etc.
Firm price contract
A fixed price contract which does not allow for its prices to be adjusted for
fluctuations.
Fixed price contract
A price which is agreed and fixed before construction starts. It may or may not be
a firm price contract.

This statement is normally linked to the tender programme. Mark up The sum added to an estimate in respect of head office overheads and profit. Open competition The method of selecting tenderers and obtaining tenders by a general invitation to contractors to apply for tender documents. plant or materials that may occur during a contract. JCT ‘63 The Standard Form of Building Contract 1963 Edition prepared by the Joint Contracts Tribunal.Estimating principles Paper 1405 Page 5 Fluctuations The increase or decrease in cost of labour. The number of tenderers is not usually limited and reputation and ability to execute the work satisfactorily are not always considered. Management The carrying out of the function of general management and the responsibility for making the decision to tender and for adjudicating the tender. JCT ‘80 The Standard Form of Building Contract 1980 Edition prepared by the Joint Contracts Tribunal. . The apportionment of head office overheads to projects and to the company as a whole is decided by management as part of management policy. Material Material or components. GC/Works/1 The standard form of contract used by central government for all major building and civil engineering works. Labour only subcontractors Subcontractors whose services are limited to the provision of labour. Nominated subcontractor/supplier A subcontractor/supplier who is selected by the architect or engineer and not by the contractor. NJCC The National Joint Consultative Committee for Building. Lump sum contract A fixed price contract where the contractor has undertaken to be responsible for executing the whole of the contract work for a stated total sum. Method statement A statement of the construction methods and resources to be employed in executing construction work. Head office overheads The cost of administering a company and providing off-site services. Gang cost A grouping of labour costs to include principal and supporting labour associated with a particular trade.

Prime cost (PC) When used in bills of quantities and specifications. to enable the main contractor to appreciate the important time and resource considerations of the project.Estimating principles Paper 1405 Page 6 Prequalification The provision by a contractor of information as part of a preselection process. Tender programme The initial version of the master construction programme prepared during the tendering period. facilities and site-based services and other items not included in all-in rates. ability and desire to execute a project. Standing plant Plant retained on site which is not working but which the contractor is still liable to pay for. . size. Tender The sum of money. This suitability is usually determined by preselection procedures. Select competition The endeavour to gain a contract against a limited number of competitors by the submission of a tender. resources. The contractor may also be invited to carry out work covered by a PC sum in certain instances. Tendering A separate and subsequent commercial function based upon the estimate. location and timing of the project. Selective tendering A method of selecting tenderers and obtaining tenders whereby the number of contractors invited to tender is limited to the inclusion of contractors who are considered suitable and able to carry out the work. time and other conditions required by the tenderers to carry out the specified building work. Tender timetable The timetable for the preparation of the estimate. prime cost means work to be carried out by nominated subcontractors or suppliers of materials and goods. site staff. Working Rule Agreement (WRA) National Working Rules for the building industry produced by the National Joint Council for the building industry. Tender documents Documents submitted for the information of tenderers. Provisional sum A sum included in bills of quantities for work anticipated but insufficiently designed or detailed to permit descriptions and measurement in accordance with the requirements of the Standard Method of Measurement (SMM). by the date stipulated in the tender documents. bearing in mind the character. Preselection The establishment of a list of contractors with suitable experience. in terms suitable to the preparation and submission of his tender. all necessary supporting actions and for the subsequent conversion of the estimate into a tender and submission. Project overheads The cost of administering a project and providing general plant.

1 Firm’s mark-up target Assumptions Capital employed Turnover on contracts for year Overheads (offsite administration) Return on Capital required (before tax) £2 000 000 £4 000 000 £160 000 17% Target Contracts must contribute Overheads Return 17% of £2 000 000 £160 000 £340 000 £500 000 Mark-up on production costs 5000 × 100 4 000 000 = 12½% This mark-up or margin over the estimated production costs will be examined by management for each tender.Estimating principles Paper 1405 Page 7 3 Tendering policy For any firm to operate its business in a satisfactory manner. it is necessary for its policy directors to establish clear objectives or a strategy. This will entail the setting up of a mark-up target. eg local authority. . private body etc timing of any change in these aspects of business. package deal etc type of client it will favour. In a construction firm the financial turnover will be mainly derived from carrying out individual construction projects in competition with other contractors. that a policy be established in tendering so that each project contributes to the firm. These strategic objectives will concern the general range and area of operations. over the production costs. therefore. 3. for all contracts to be undertaken. These may be interpreted as: z z z z z the geographical areas in which the firm will operate type of structures it will seek to construct type of services it will offer. eg specialists. type of work to be undertaken and the likely market for the firm. It is necessary. It will then be the task of the executive management to employ the available resources of the firm to the best advantage.

4 Tendering procedure In order that the tendering policy of the firm be maintained it is necessary that a procedure for the preparation of all tenders be established. W R Park).0 percent of the project costs (Strategy of Contracting for Profit. depending on size and personnel. The mark-up on estimated costs may be added either to the unit rates or as a separate total sum in the preliminaries or the final summary page. this has been placed at between 0.Estimating principles Paper 1405 Page 8 Some of the factors considered by management in assessing the mark-up rate on individual contracts will be: z risk { { { { { { { time of year type of construction type of tender (fixed price etc) client design team capital requirements site conditions z current and anticipated work load of firm z location of project z prestige of project z placing in previous tender competitions z competition for this project. 4. The cost of tendering may be further consideration. when a priced bill of quantities is required. The more usual method. but a basis could follow the stages set out in the Chartered Institute of Building Code of Estimating Practice.1 Decision to tender A management decision based on the firm’s position at the time of invitation in relation to: z z z z z z z z production workload future commitments market capital risk prestige estimating workload time for preparation of tender.5 and 2. . This will vary with different contractors. is to add the mark-up to unit rates so that any variations will include the margin.

Estimating principles Paper 1405 Page 9 4. the tender figure can then be determined and submitted. etc. The cost of any on-site administration and services.3 Preparation of estimate Having assembled all the information. the next task of the estimating staff is to build up the cost of the unit rates. These additional costs included. plant and planning departments z Evaluation of alternatives z Preparation of detailed construction method statement and pre-tender programme. These net production costs. using the production details from the pre-tender programme.2 Collection of information If management decide to tender for the project. This requires the calculation of all-in rates for labour. 4. are then submitted to management for adjudication. plant details.5 Action with tender results An analysis of tenders and a comparison of results should be completed for each project to provide a basis for future bidding strategy. plant.4 The tender The management of the firm would consider the mark-up required on the estimated production costs. known as Project Overheads. developed to include production outputs. to cover the firm’s overheads. . materials and extending these. An accurate estimate can only be produced when each element is broken down into its simplest terms and the cost estimated on factual information. gang sizes. is also calculated. profit and risk of the tender. 4. 4. With a successful tender. the estimating staff should assemble information about project costs. cost information during the progress of the work and a final reconciliation of estimated and final account costs should be made. Some of the factors required: z Time scale for tendering with key dates z Examination of contract documents z Assessment of client and design team z Enquiries to suppliers and subcontractors with a time scale z Site and locality visit z Discussion with site management. together with a project appraisal report.

Estimating principles FIGURE 1 Paper 1405 Page 10 .

Estimating principles Paper 1405 Page 11 5 Bidding strategy In a competitive tendering situation. A competitor’s bid could be obtained from the list of tender results and a bidding pattern established. this competitor showed a mark-up of up to 5 percent in 5 percent of the jobs. A bidding strategy may be evolved for determining the optimum bid. As a basis for this. the contracting firm is constantly facing the dilemma of submitting a high price for profit and the resulting shortage of work. 15–20 percent in 25 percent of jobs and 20–25 percent in 5 percent of the jobs. it is necessary to analyse the bidding pattern of competitors and compare these results with the firm’s own estimated production costs over a number of contracts. . between 10 and 15 percent in 40 percent of the jobs. Between 5 and 10 percent in 25 percent of jobs.1 Bidding patterns The bidding pattern for a competitor may be shown graphically as follows: FIGURE 2 From this frequency distribution diagram (histogram) it can be seen that. but allows little profit margin. 5. which will be the relationship between maximum profit and the probability of being the lowest tenderer. in relation to contractor’s own estimated costs. with that of a low price which wins contracts.

a probability curve can be developed.2 Probability of being lowest bidder From the bid frequency distribution.70 probability as 30 percent of his bids were below this. a 25 percent mark-up having no chance of success as all the competitors’ bids were below this. showing that as the mark-up increases the chance of being the lowest bidder decreases. A mark-up of 5 percent would have a 0.95 chance of success as only 5 percent of his bids fell below this range.Estimating principles Paper 1405 Page 12 5. . FIGURE 3 This probability curve shows that a bid at cost will underbid this competitor in every job. The remaining points on the curve are plotted in the same way. A mark-up of 10 percent would have a 0.

and the number of competing firms from the guidance given in the Code of Procedure for Selective Tendering. A bid at 5 percent will give a 4. The identification of competition could be discreetly ascertained in a number of ways. The optimum bid would be a 10 percent mark-up as this gives a 7.3 Optimum bid The optimum bid can be developed from the probability curve by comparing the mark-up with the probability of being the lowest bidder.Estimating principles Paper 1405 Page 13 5. because of contractors’ marketing policies.7) against this competitor. . a contractor will find he is in competition with a limited number of firms for any project in the locality. A bidding pattern could be worked out for his major competitors. each of whose patterns would vary.0 profit probability (10 × 0. If he were able to identify the competition. 5. FIGURE 4 The bidding curve gives the average long term profit resulting from any level of mark-up when in competition with a contractor having these bidding characteristics.95). enquiries to suppliers and subcontractors for example.75 profit probability (5 × 0.4 Bidding strategy In practice. an optimum bid could be ascertained by combining the probability curves for the known competitors and developing a bidding curve for this situation. It shows that a bid at cost or at 25 percent mark-up will produce no profit probability.

125 for three competitors and so on. .50. the concept of a typical competitor’s probability and bidding curve could be established by forming a composite of all known competitors. the usual method of recovery is to express them in terms of a percentage of a previous year’s turnover. These are the costs entailed in administering the company and providing off-site services. it does provide management with a guide to the mark-up percentage. The allocation of general overhead costs to individual projects and the company as a whole is decided by management as part of their policy.25 for two competitors. then: 160 000 × 100 = 8% 2 000 000 As the cost of business and volume of trading fluctuate. This analysis can illustrate the relationship of fixed and variable costs to turnover and can be used to check that the volume of trading is sufficient to cover overheads. but a broad list may include: z z z z z z rent.50 = 0. It is also worth noting that the probability of being the lowest bidder will decrease as the number of bidders increases. 6 Overheads One of the items in the mark-up or margin is general overheads. lighting insurances on office and staff interest on capital borrowed.50 × 0. if last year’s turnover was £2.000 and the fixed costs £160. 0. stationery. The effect of this is to decrease the optimum bid and it may be a worthwhile exercise to demonstrate this graphically. telephones. For example. a useful tool in ascertaining the trading position of the firm is break even analysis.000.Estimating principles Paper 1405 Page 14 If some or all of the competitors were unknown. postage. cars office heating. This is due to the rule that the probability of simultaneous events is their individual probabilities multiplied together. The general overheads will vary with individual firms. and wages for directors and office staff office equipment. salaries.503 = 0. if the probability of under-bidding a single competitor were 0. this would be 0. rates on office and yard fees. For example. They should not be confused with project overheads which are the costs of administering a project and providing on-site services. Each contract must contribute towards these costs.000.

4% of break-even turnover ∴ £76 000 = 100 – 81. In the example. Assuming that production costs are constant in relation to turnover. ratio of production costs to turnover is: 407 000 = 0.1 Break-even analysis Turnover of firm £500 000 Costs: Production costs (variable costs) £407 000 £76 000 Overheads (fixed costs) £483 000 Total costs £17 000 Before-tax profit The break-even point is that at which total income equals total cost.814 or 81.Estimating principles Paper 1405 Page 15 6. it will be the point where the production costs added to the overhead costs of £76.4% of break-even turnover = 18.6% ∴ Break-even turnover = £76 000 0.186 = £409 000 Fixed cost × turnover Turnover – variable cost Alternatively the formula = 76 000 × 500 000 500 000 – 407 000 = £409 000 may be used .4% 500 000 The volume of turnover to break-even = £76 000 + 81.000 will equal the income.

but the method the same. The chart can also be used to demonstrate the effect of varying the fixed costs or the amount of profit or mark-up on the break-even point. FIGURE 5 Sometimes the break-even chart is shown in relation to firm’s operating capacity rather than sales. when a percentage of operating turnover is given as the break-even point. . and it may be a worthwhile exercise to undertake this.Estimating principles Paper 1405 Page 16 This break-even analysis is often shown diagrammatically and indicates that at a turnover of below £409 000 a loss will occur. In this case the units of the horizontal axis on the graph would be different.

This is basically a break-even chart and the example on the opposite page shows a chart for the problem considered in the overheads section of these papers. the investment. and may be illustrated by the examples of two contracts. who will set targets as part of their tendering policy in relation to the capital employed and the turnover of the firm.Estimating principles Paper 1405 Page 17 7 Profit It has been suggested in the introduction to this set of papers that the production process is carried out by a contractor on a profit basis. which is known as profitability. Thus profit is expressed in absolute money terms and means little. the amount of profit and the duration. Profitability depends on three factors. . Of much more value to management is the rate of making profit in relation to investment. Profit may be defined as the surplus of total income over total expenditure. Contract 1 Investment £10 000 Amount of profit £5 000 Duration 12 months Profitability = Contract 2 Investment Profit × 100 12 × Investment months duration £8 000 Amount of profit £6 000 Duration 18 months Profitability = 6000 × 100 8000 × 12 = 50% 18 The profitability of the firm is the responsibility of management. An indication as to whether profit is being recovered at the target rate in relation to turnover is a profit/volume chart. except to indicate that more has been received than paid out.

Estimating principles Paper 1405 Page 18 This chart is also sometimes shown as a percentage of the firm’s maximum turnover instead of amount of turnover. Profit/volume chart Turnover of firm £500 000 Costs Production costs Overheads £407 000 £76 000 Total costs £483 000 Before-tax profit £17 000 FIGURE 6 .

1 Profitability of contracts As the turnover of a contracting firm is usually derived from individual contracts. the profitability of each should be assessed. This means that while the mark-up target is calculated on the basis of a return capital. the investment may be reduced by obtaining a quicker return on income or delaying the expenditure. the mark-up is applied to production costs or turnover. It can be seen that to increase the profitability of the contract. The effects of a time delay in completion of the project may also be demonstrated. The inclusion of profit in a tender is generally as part of the mark-up. the management of the firm decide on a mark-up target and adjust this for the risk on individual projects. FIGURE 7 On this chart the contractor’s investment in the contract is given by the area between the curves. . As described in the section of these papers on tendering policy.Estimating principles Paper 1405 Page 19 7. A diagrammatic illustration is given by an income/expenditure chart. These techniques may be used by management in assessing the profit requirement.

the swing on the bank account during the month could be from a maximum overdraft of £17. This overpayment will in due course be compensated by reduced payments at the end of the contract. but will not highlight the swing on the account: Opening overdraft Receipts Expenditure Closing overdraft £10 000 £8 000 £7 000 £9 000 Therefore. The accumulative effect of such adjustments will of course be to substantially improve the contractor’s cash flow. over-valuation of work in progress or front-end loading.000 to a minimum of £9000 or alternatively from a minimum of £2000 to a maximum of £9000. The forecasts. when pricing the bill of quantities. Front-end loading is the practice at tender stage where the contractor. Cash flow forecasts can be prepared for a daily. This can be achieved in a variety of ways. therefore. when the work in progress is valued in the early valuations on a project.5 days (A Upson. The aim of most contractors is to maintain a positive cash flow throughout the contract period. Financial Management for Contractors) and the equivalent average delay in monthly valuation payments is 36 days. The total receipts expected in the month are compared with the anticipated expenditure. A cash flow forecast is a statement of the estimated cash receipts and payments projected over a future period. The contractor’s credit arrangements will tend to result in a substantial delay in payment and the weighted average delay has been calculated at 33. weekly or monthly time interval but the most common period used by contractors is monthly. including excellent credit facilities. The date on which sales are invoiced or expenses incurred and cheques received or paid out is therefore not relevant. The cash flow forecast does not necessarily give any indication of profit or loss although both profit and loss affect cash balances. adjusts the rates. will indicate the average monthly overdraft or balance. delaying payments.Estimating principles Paper 1405 Page 20 Contractors will use a sophisticated technique and produce cash flow forecasts for each project on a monthly basis. In fact some national contractors fund other activities of their companies from surplus cash generated from contracts. Therefore both income and expenditure will fall within the same calendar month. the contractor will receive enhanced payments. This is achieved when profit and costs are transferred from items occurring late in the contract programme and concentrated on early site operations or ‘safe items’ in the preliminaries. The effect of such adjustments is that. as overpayment will occur throughout virtually the whole contract period. thereby using little if any of their own capital. The forecast can give early indication of shortage or surplus of cash and gives time to: z z z z z z Assess and arrange borrowing requirements Adjust programmes of work to equalise borrowing and avoid peak demand Implement credit control and monitor outstanding monies due Reduce or increase expenditure Move surplus funds to an interest-bearing account Calculate future interest costs on monies borrowed. . The term ‘cash’ is not strictly accurate in that the cash flow forecast is concerned with the date on which transactions are debited or credited to the bank account.

A schedule of labour and plant requirements is sometimes prepared to amplify the programme. It should show the detailed labour and plant requirements for each operation and the production outputs anticipated for these resources. etc and the evaluation of alternative construction methods and sequences. It is interesting to note that the average net profit of the majority of contractors is approximately 2. profit and risk will be considered by management at adjudication before tender submission. such as plant.5 percent on turnover. forward-funded by clients. The task of the estimator is to evaluate the cost of the resources from the programme and to build up a unit rate for each finished work item. A fundamental principle is that unit rates should be prepared net.Estimating principles Paper 1405 Page 21 Where a contract is let on a fluctuating basis and increased costs are to be adjusted using the NEDO formula. costing. which is a measured schedule of finished work items. After consultation with other relevant departments. . a detailed pre-tender programme will be prepared. In these circumstances the contractor will be faced with a choice between improved cash flow and reduced profitability. The programme would be presented as a network or bar chart to show the deployment of resources to constructional elements on a time scale. front-end loading will result in a substantial under-recovery of increased costs. substantially less than that achieved by many other types of business. which are the cost of on-site services. pricing the bill of quantities correctly or back-end loading to improve recovery of increased costs. The amount of detail developed would depend on the complexity of the project and the time available for preparation. An accurate cost prediction can only take place when each item has been analysed into its simplest element and the cost methodically estimated on the basis of factual information. The analysis of the physical resources required for the project and the deployment of these resources will be the task of the planning department of the firm. The reason for this is partly explained by the low capital commitment required for contracts which are primarily funded or. 8 Constituents of a rate A common presentation of design information is in the form of a bill of quantities. The mark-up or margin for general overheads. should be a separate consideration based on the pre-tender programme. as explained above. It is the task of the estimator to predict the cost of construction for these items of finished work. site management. Project overheads.

These physical resources are: FIGURE 8 . It will consist of a prediction of the cost of the physical resources and a mark-up by management.Estimating principles Paper 1405 Page 22 A unit rate based on this methodology will take into account methods of construction and all circumstances which may affect the execution of work on the project.

Estimating principles FIGURE 9 Paper 1405 Page 23 .

9.2 Working Rule Agreements These agreements are administered by the National Joint Council for the Building Industry which is representative of employers and operatives in the Industry. . erection.2 Materials The cost of the materials element will be estimated in terms of an all-in rate for the material or component.Estimating principles Paper 1405 Page 24 8. and is made up of the wages and emoluments paid to operatives and the statutory and sundry costs incurred as a result of employment. and the quantity which has to be purchased. general overheads and risk The mark up for this element is decided by management in accordance with their tendering policy. it is advisable that an up-to-date copy is available to you and that changes are noted. they will be those contained in the National Agreement and a number of Regional Agreements are made giving local variations. SMM7 requires separate items for value related costs (transport.4 Profit. the draft bills may be extended and totalled. 8.1 All-in rate This is cost of employment of labour. dismantling) and the time related costs (hire of plant).3 Plant The cost of the plant element will be estimated in terms of an all-in rate for the particular item of plant and its operating output on the project and is normally included in a tender by pricing in the Preliminaries section. As the Council vary the rates and allowances from time to time.1 Labour The cost of the labour element will be estimated in terms of an operative’s all-in rate. a Working Rule Agreement is used as a basis. When all the unit rates are complete. 9. made up of wages and the costs incurred in labour employment. and the operative’s production output. 9 Resources – Labour The cost of labour element of a unit rate is estimated in terms of an all-in hourly rate for the operatives and the production output. 8. 8. Where references are made in this set of papers to Working Rules. To avoid the necessity of negotiating terms of employment with operatives.

Allowance for inclement weather . National Insurance (employers’ contribution) f.3 Build-up of all-in rate for labour The list of items given below may be used as an indication of the factors likely to be considered. 7. Guaranteed weekly wages b.Estimating principles Paper 1405 Page 25 The sections of the National Working Rules Agreement are: 1. Conditions of service and termination of employment Extra payments Overtime and holidays Shift work and night work Travelling and lodging Trade Union recognition and procedures Safety representatives 8. Holidays with pay (annual and public) h. Sickness or injury payments 9. Guaranteed minimum bonus c. holidays and other interruptions. 5. Site bonus plus rate (30 percent average – Department of Employment statistics) d. In practice the year is often used as a basic unit and an average hourly rate calculated from this. This will take into account seasonal variations. 9. Normal site overtime 2 Indirect costs e. Working hours 3. Basic current wage rate b. Wages 2. an appreciation of the financial implications of the Rules is desirable. For examination and study purposes it is suggested that a weekly basis will suffice. a. Training Board levy g. 4. The estimating policy of the firm may include other factors. Grievances. 6.4 All-in labour rate items 1 Direct costs a. Register of employers 11. Death Benefit cover While a detailed knowledge is not expected in this subject. disputes and differences 10. 9.

These are announced in the national and technical press. persons and property l. the cost of administering the scheme being the firm’s share of the savings in production outputs. h. on the basis that an increase in operatives’ earnings is cancelled out by the extra productivity. f. and z z supervision money and time by trade foremen extra payments under Working Rules are considered with unit rate build-up. you must keep up to date with any changes. c. skill of operative familiarity with operation (learning curve) equipment used motivation human needs security job satisfaction physiology . 9.7 Factors affecting outputs by operatives 1 Human variances a.6 Production outputs The site production output for an operative will be provided on the pre-tender programme for the particular project in question. are usually based on a predetermined sharing between the firm and operatives of the value of savings from production output targets. abortive National Insurance. This is usually ignored in estimating.Estimating principles Paper 1405 Page 26 i. Employers’ liability insurance for injury to third party. 9. e. Death Benefit scheme j.5 Incentive schemes and productivity agreements These schemes. g. when used in the construction industry. The general principles of operating the scheme are set out in the National Working Rule Agreement to which further reference may be made. d. As the contents of this list and the amounts shown in the example may fluctuate. 9. Sickness and injury pay k. b. etc It is suggested that other cost considerations: z z z travelling allowance and fares subsistence abnormal overtime are considered with project overheads. Severance pay and sundry costs – absenteeism.

8 Methods of establishing output data The method of establishing a production output will to some extent depend on the purpose for which the data is required. z Analytical estimating – based on historical data with estimation for anticipated conditions. k. . z Synthetic data – outputs based on historical data with variations for known conditions. l. Some methods are: z Standard data or historical data – direct feedback from previous contracts. m. carried out by timing site operations and adjudicating. z Time study – part of work study. establishing a target for bonusing.Estimating principles Paper 1405 Page 27 2 External conditions i. climate supervision complexity of design site layout and organisation overall mechanisation 9. whether for future estimating. j. or planning purposes. z Activity sampling – a method of assessing productivity by checking the activity on an operation at many random intervals.

Site handling and storage: Labour costs involved in unloading and storage of materials are usually included in a unit rate. It will be the task of the contractor’s purchasing departments to obtain quotations for the current cost of the specified quality of materials from suppliers. 10. The factors involved in producing the cost will be: 1. equipment. Discounts allowed by the supplier a. the measured amounts given are those as fixed in position. The sum quoted by the supplier 2. Transport to site: Any additional transport charges beyond quotation for delivering goods to site. Any special plant. 10. The firm’s policy with regard to purchasing and site management has an important effect on the wastage of materials. from suppliers’ works. postage charges and the return or disposal of packaging. By convention. the source of information as to description will be the project specification.Estimating principles Paper 1405 Page 28 10 Resources – materials As the design team is mainly responsible for the selection of type and quality of the materials used on a project. storage and security would be costed with project overheads due to the difficulty of allocation to unit rates. 4. and to allow for wastage of materials. The cost of the materials element of a unit rate will then be estimated in terms of an all-in rate for the material and the quantity to be purchased. It will be the estimator’s task to calculate the quantity required. The allowance for waste varies from firm to firm and may be only realistically assessed from previous experience of similar production work. at the most advantageous rate.2 Quantity of material for a unit rate The source of the amount of material will be the finished work measurements in the Bills of Quantities. rail head. with the exception of a small number of standard allowances. yard. bulk quantity orders b. . trade discounts or rebates c. Site distribution from storage is usually carried out by labourers attending the craftsmen. cash discounts for prompt payment of account 3. for example.1 All-in rate This rate will comprise the costs involved in providing the material where required on site.

The allowances indicated in the subsequent work sections are in line with this research. hire-purchase or leasing for a fixed long term period may be considered. design.4 Amounts of waste Recent research has indicated that the common allowances given in text books and used in practice have been rather low. d. e. Plant is very expensive to buy. Indications are that wastage in the order of about 10 percent is an average over the range of traditional building materials. and if ownership is essential. Site management will then have the incentive to use and return plant as quickly as possible. The aim of this paper will be to give a general appreciation of the basis of costing the common items of plant use.Estimating principles Paper 1405 Page 29 10. f. The volume of work should be sufficient to prevent the machine being idle for long periods. Selection of an individual item is indicated on the pre-tender programme together with the anticipated production output. 2 Unavoidable waste a. d. 11. c. either by being employed on the firm’s own contracts or through public hire. Most of these factors can be avoided by more effective site management. b. 10. b. . Some firms who maintain a separate plant section debit contracts with a charge for plant supplied.3 Materials wastage 1 Avoidable waste a. ie lack of dimensional co-ordination mistakes – ordering and use vandalism and theft carelessness quality control and work rejection misuse of materials – facing bricks as commons (substitution) incorrect storage. 11 Resources – Plant The efficient use of plant in the construction industry can involve an understanding of plant engineering and cost accountancy. e. these are the finance available and the volume of work for the machine.1 Ownership of plant There are two main considerations in deciding between ownership and hire of plant. irrespective of whether plant is working or not. which are outside the scope of this paper. g. c. cutting to length and size application stockpile residue transit and breakages Though c-d may in part be available if efficient management is applied.

Capital sum based on purchase price and operating life 2. All items of mechanical plant should be estimated in terms of an all-in rate and a production output.13 1500 .3 All-in rate This will be calculated as a standing cost and an operating cost. The main factors in building up a rate will be: Standing cost 1. Two common methods are shown. often depending on the accounting system of the firm. Tax and insurance Operating cost 5. Straight line depreciation Assume a machine costs £8000 with a life expectancy of 4 years and is in operation for 1500 hours per year. Maintenance 4. 11. and others are detailed in text books. without the difficulty of finding work for idle plant.2 Hire of plant Plant is available for hire from specialist plant hire firms. One disadvantage is that it is often more costly in the long term to hire than to own.Estimating principles Paper 1405 Page 30 11. Fuel 7. the standing cost will be comparable to the hire charge. Consumable stores Standing cost 1 Capital sum Various methods are available for the computation of this value. Cost of machine £8000 Less scrap value £1200 £6800 Yearly cost = £6800 = £1700 4 Cost per hour = £1700 = £1. a. Return on capital 3. Skilled plant maintenance and administration on the part of the contractor is not necessary and finance is not tied up. Operator’s emolument 6. The advantages to the contractor are that plant can be obtained for the period necessary. In the case of hired plant.

Writing down depreciation Purchase price £8000 Depreciation initial writing down 60% value after 1st year £4800 £3200 £4800 writing down allowance 25% value after 2nd year £800 £2400 £800 writing down 25% value after 3rd year £600 £1800 £600 £450 £1350. use and maintenance. repairs. The average depreciation per year will therefore be the same whichever method is used. In practice this would be ascertained from plant records. c. This will be part of the cost of ownership of plant and included at current interest levels. In practice. weather conditions and periods between contracts reduce the number of operating hours. . Typical values for common items could be taken as: Concrete mixers Cranes Dumper Excavating plant Hoists Lorries 6–7 years 8–10 years 3–4 years 5–7 years 5–7 years 3–5 years Plant is not in constant use.Estimating principles Paper 1405 Page 31 b. Working life The working life of plant will vary with its type. A typical operating rate may be taken as 1500 hours per year. a firm’s records would give a reasonable indication as to the working life of plant. a return in the form of interest would have been received.00 £450 writing down 25% Book value £6650 Depreciation When the machine is eventually sold the scrap value will presumably be the same as in the case of straight line depreciation and the accounting books will be adjusted accordingly. 2 Interest on capital If the purchase price of the plant had been invested.

and depends on the type of machine. lubrication and grease may be reasonably assessed on the basis of a percentage of the fuel costs. the motor vehicle licence charge and the yearly operating hours. . for example. 4 Tax and insurance Any item of plant which uses a public road will require a motor vehicle licence and all items of plant will require insurance. refuelling and servicing the plant. The cost may be assessed on the annual insurance premium. fire and theft risks only. 6 Fuel Plant may be powered by electricity. Operating circumstances may require the employment of additional labour to assist the operator. 20–25 percent being typical. Operators may be required by the Working Rule to work an extra hour a day at standard rate for starting up. the consumption depending on the size of the power unit and the time it is operated. cables. This labour cost should be considered part of the all-in rate for the item of plant and included as a cost factor. plant records would be used in preference to this percentage. 7 Consumable stores This item consisting of ropes. when using a dragline. As in the case of fuel. Based on initial cost the average annual maintenance could be in the order of Concrete mixers Cranes Dumper Excavating plant Hoists Lorries 10% 20% 20% 25% 25% 15% The cost of a maintenance department of a firm could be considered as part of the general overheads. Accurate records compiled when operating the plant should be used in preference to published data. The monetary value of this is reflected in Working Rule 3. fire and theft risks. petrol or diesel fuel. and site plant. Operating cost 5 Operator’s emolument Operators of mechanical plant are classified as labourers with an additional skill or responsibility. Road vehicles are usually insured against third party. Plant records will indicate the average cost over the life of the plant.Estimating principles Paper 1405 Page 32 3 Maintenance The policy of the firm with regard to maintenance will affect the cost. A list of typical fuel consumptions for a few items of plant is included with the production outputs in the next section and others are given in text books.

14 7T . may be included as a project overhead due to the difficulty of allocation.28 litre -100 -140 -200 -280 size ¼ m³ bucket 1. However. fork lifts.4 Production output The production output for an item of plant will be provided on the pre-tender programme for the particular project in question. General site plant such as dumpers. The value related costs are not affected by the time that the plant spends on site or its output and would give a false value if included in a unit rate. In practice cost records and the methods described earlier in connection with determining labour output would be employed. it is not mandatory for them to be priced and many estimators will include the costs of plant which can be directly related to finished work in the unit rates. These fixed and time related costs are required to be given as separate items in SMM 7. Typical outputs may be taken as: Concrete mixer Rotary drum Batch mixer Excavator Tractor based output m²/hr fuel – litre/hr size m³ 3½ T . Some of the factors which will affect the output are: z z z z z z quantity of work physical condition of site weather conditions continuous or intermittent work experience of operators site management and organisation.00 4.10 5T .0. erection and dismantling) to be separated from time related costs (hire.50 2. Examples would include excavation plant.00 1.20 10T .00 3.00 1.m³/hr face shovel backacter 9.00 6.Estimating principles Paper 1405 Page 33 11. . use and maintenance of plant). concrete or mortar mixes and paint sprayers.00 Textbooks provide the source of information for outputs of other plant items.50 output .0. hoist and tower crane. erection and dismantling of plant) and maintaining plant on site This is to allow value related costs (transport. 11.75 2.5 Transportation and maintenance Bringing to and removing plant from site (transport.0.0.00 fuel – litres/hr 2.00 1.

44 12.44 Operating costs 5 Operator 11/8 hours at £4.20 40 allow 80% utilisation £0.02 All-in hourly rate EXAMPLE All-in cost of a 200 litre concrete mixer Hire rate of mixer quoted at £48. say simple interest at 10% 2250.00 3 Maintenance 25% of purchase price ÷ 5 1125.40 £1.25 Hourly standing cost ÷ 1500 = £5. premium 1.10 + 5p (WRA) 2 labourers filling mixer 2 hours at £4.00 = £1.25 Annual standing cost £8156.67 £8.35 Standing cost of machine 5.40 £1.31 .Estimating principles Paper 1405 Page 34 EXAMPLE All-in cost of a ¼ cubic metre diesel tractor excavator £ Standing cost 1 Capital sum Purchase price Estimated life 5 years Straight line depreciation £22 500 = £22 500 5 4500.25% 281.60 £0.24 £1.00 per week Standing cost £48.83 6 Fuel 2 litres at 70p 1.00 4 Insurance say.19 + 10p (WRA) 4.20 2 litres petrol at 80p say 25% of fuel costs Standing cost of machine £4.00 2 Interest on capital.44 Hourly standing cost Operating cost Operator Fuel Consumable stores 11/8 hours at £4.44 All-in hourly rate £16.40 7 Consumable stores say 25% of fuel cost 0.

the information on time being obtained from the pre-tender programme. travelling and subsistence abnormal site overtime Some of the factors involved in pricing this group of items are: Site staff This item will comprise the emoluments of all the labour not included in unit rates or general overheads. 6. 8. and maintaining site roads. mechanical plant and non-mechanical plant. 11. 4. Other project overheads are value related and estimated in terms of a percentage of work value and will not be able to be evaluated until after the adjudication process by management. 7. 10. The main groups of items to be considered for estimating purposes may be taken as 1. The cost of some of the project overheads are time related and will be estimated in terms of the contract period or length of time on site and the all-in rate for a unit of time. 2. Site transport This item would include the transport to and from the site of huts. 14. . The monetary value of these items must be estimated separately and this is generally included as a lump sum against items in the Preliminaries Bill or the Summary.Estimating principles Paper 1405 Page 35 12 Project overheads The project overheads are the cost of administering a project and providing the general plant. 3. site staff cleaning site and removing rubbish site transportation mechanical plant non-mechanical plant site accommodation and telephone small plant and hand tools temporary services and reinstatement miscellaneous site items welfare and safety provisions final clearance and handover defects liability operatives’ transport. They consist of the items which cannot be satisfactorily allocated to individual unit rates of finished work. 12. It will be costed on the basis of their salary or wages. For simplification of pricing a schedule may be used: Site staff number description salary oncosts allowances weekly total number total of weeks Clearing site and rubbish This item would include the labour and plant for removing accumulating rubbish. facilities and site based services. 5. 13. oncosts and allowances for the duration of their employment on the project. 9.

A comprehensive schedule of project overheads is developed as an Appendix to the Code of Estimating Practice to which reference should be made. postage. Operatives’ transport. Miscellaneous site items The item would comprise of any sundry expenses. The cost again being usually based on historical data. The individual items are estimated in terms of an all-in rate and duration from the programme. and the value is often based on a percentage of the direct project labour costs. It is considered that the costs involved can be more accurately estimated in relation to the project. a typical rate being 1 percent. together with their erection. dismantling and maintenance and provision of a telephone. Welfare and safety provisions The item would include the costs of general site labour. usually in the section dealing with Preliminaries. travelling and overtime The costs involved in this item are related to the labour schedule for the project. dismantling and maintenance and provision of a telephone.Estimating principles Paper 1405 Page 36 Site mechanical plant This item would include all items of mechanical plant not allocated to work sections items or to unit rates. dismantling and ancillary work to ensure their efficient operation. picks etc. together with their erection. Non-mechanical plant The item would comprise the cost of site huts and welfare accommodation on the basis of their duration on the project. . stationery. Site accommodation The item would comprise the cost of site huts and welfare accommodation on the basis of their duration on the project. This duration would be obtained from the pre-tender programme. such as shovels. and security requirements. Temporary services Comprising the on-site services for the project in the form of electricity. water for the works and any temporary site roads. Final site clearance and defects liability costs The costs of this item are related to the workmanship and site management of the project. required for the site. The cost being usually based on historical data. fees etc. first aid provisions safety equipment and protective clothing. Historical data would again provide a good basis. It will be based on the all-in cost for individual items of plant for their duration of employment on the project. together with any costs of erection. than in the all-in labour rate. Detailed build-up of rates for project overheads are provided in most estimating text books. Small plant and tools The item comprises the numerous items of small tools.

and give increased productivity and quality. contractors tend to restrict themselves to a limited market composed of the types of work best suited to their permanent labour force and equipment. It may also enable the main contractor to reduce his supervision and administration costs.1 Types of subcontractor Nominated subcontractor Where the design team requires control in the selection of a specialist. As the main contractor is likely to be familiar with the organisation of the subcontractor. plant. and employ subcontractors for the other work sections. Subcontractors are individuals or firms who enter into a legal contract with the main contractor to complete an agreed part of the project. The design information should include sufficient detail to allow the value of attendance on nominated subcontractors to be accurately estimated. To avoid these unnecessary costs. Traditionally.Estimating principles Paper 1405 Page 37 13 Subcontracting As the production process in the construction industry becomes more complex. The aim of this paper is to outline the financial implications of the employment of subcontractors on a project. and additional items which are expected to attract a cost should be covered in a similar way to that of nominated subcontractors. scaffolding and services disposal of rubbish and packaging protection of finished work during the progress of the project. The costs involved are usually estimated on the basis of historical data. the labour and plant employed should be suitable for the task. The main contractor is instructed to enter into a subcontract with the nominated firm and is allowed at 2½ percent cash discount for administration costs. The main contractor may also require a monetary reward for the risk in co-ordinating the nominated subcontractor into his programme. It would mean the direct employment of a specialist work force and plant for operations which would not be continuous. The main disadvantages are the difficulties in programming and control. they may obtain tenders from selected specialists and include the value as a Prime Cost Sum in the Bill of Quantities. The costs involved in these items may be included as a lump sum or a percentage against a general item of attendance. The terms of the subcontractor’s quotation should be examined to determine precisely what allowances have been made. the general contractor requires an increasing number of specialists. 13. Contractor’s own subcontractors The main contractor may employ his own or domestic subcontractors for specialist work sections or to balance his resources in the short term. or by making an addition to the project overheads. . labour in the construction industry has been employed on a casual basis. giving problems of physical and financial control. Allowances may be needed for: z z z z unloading. The location of a builder’s work is continuously changing and labour is frequently engaged at the commencement of a project and laid off upon completion. the risk and attendance values may be reduced. storage and protection of materials provision of accommodation. The advantages of subcontracting are that due to a limited specialisation.

that one major reason for the growth in its use has been the effect in recent years of the additional legislation bearing upon employment and the increased cost and risks of employing operatives direct. while not unique. As well as changes in technique. affect the demand for labour. however. say. as in other industries. Where a labour-only subcontractor employs the workforce direct. longer working hours. It should be emphasised. This increase comes from improved productivity. as well as any individual self-employed person or partnership. may provide small tools and plant. car or van expenses and the payment. trade unions. operates the PAYE scheme and pays a set wage. higher rates. yet display a measure of variety and flexibility rarely encountered in other industries. It could be argued that to a large extent such fears are unfounded or else that the difficulties have been overcome. however. for example. for the subcontractor to offset against income tax telephone charges. or from a percentage of the earnings of labourers and craftsmen that they themselves employ. the Construction Industry Training Board and both central and local government at the growth in use of labour-only subcontractors. rates. Work on site. of course. independent and adaptable labour force. Labour-only subcontractors may generally be viewed as a substitute for directly employed labour. The term ‘subcontractor’ may apply equally to a private or public company. less depressed industries. it will be apparent that the builder probably receives the greater benefit. to a member of the family for the preparation of accounts. but they will not be responsible for the provision of materials. The economic recession has inevitably led to a fall in the recruitment and training of skilled operatives. coupled with a loss of skilled tradesmen to other. training. mechanisation and industrialised systems have had. generate a resourceful. heating and lighting. In addition there will be tax advantages where it may prove possible. avoidance of payment of income tax or national insurance. The growth of labour-only subcontracting has been of mutual benefit to both employers and employees.2 Labour-only subcontractors Labour-only subcontractors supply their labour and. Concern has been expressed periodically by architects. and conditions of employment. . however. The nature of the building industry does. 13. When examining the benefits and disadvantages of labour-only subcontracting to both the builder and subcontractor. in addition. will view such operatives as subcontractors. with an entrepreneurial spirit. even in the 1990s remains fairly labour-intensive. market conditions at any particular time will.Estimating principles Paper 1405 Page 38 In the construction industry. This in turn has led to systems of employment of labour which. particularly in southern England. an important impact in reducing demand for labour. any corporate or public body. however. Benefits to the subcontractor The main incentive for building trade workers to go on their own and become labouronly subcontractors is the opportunity to increase their earnings. The builder. Although many builders continue to use directly employed labour. a pronounced tendency has developed to employ labour on a subcontract basis. the employee of the subcontractor is in a similar position to the employee of the builder. and continue to have. This concern has been mainly concentrated on quality of work.

Occasionally the builder may raise minor maintenance problems to justify his failure to pay for work executed or to release retention. receivership or bankruptcy. 2 Overheads and administration Administration and overhead costs to the builder will be reduced for such items as National Insurance contributions. will rest with the subcontractor. The subcontractor then has to make the difficult choice of continuing work in the hope of being paid. although occasionally employed on an hourly rate. The subcontractor will also have an increased administrative burden in providing annual accounts for the Inland Revenue. 1 Production costs When employing labour direct the builder is committed to pay his employees. to choose working hours and in certain circumstances to work unlimited overtime. The DSS provide sick pay contributions to the selfemployed. Not least are the risks transferred from the builder to the subcontractor. Many labour-only subcontractors have grasped the opportunity to expand initially to a labour and material subcontractor and subsequently to a general contractor. Self-employed persons generally receive less help from the State in periods of unemployment and sickness. particularly with smaller firms. State retirement pensions are also at a lower level. irrespective of the quantity and quality of their output. Disadvantages to the subcontractor The disadvantages faced by the labour-only subcontractor are numerous compared to those of the directly employed operative. or withdrawing his labour and reducing the probability of ultimate payment. although the cost of any travelling involved will usually be the responsibility of the subcontractor. sick pay. The labour-only subcontractor. As these factors are examined it is important to bear in mind that a major advantage to the builder is that the financial risks of employing labour direct are transferred to the subcontractor. preparing estimates and calculating and monitoring payments to employees irrespective of whether they are self-employed or engaged on PAYE scheme. tool money and redundancy payments. due to inclement weather for example. holidays with pay.Estimating principles Paper 1405 Page 39 Many operatives also welcome the independence and freedom. the builder may be unable to pay owing to cash flow problems. It should be borne in mind that many labour-only subcontractors lack administrative and management ability and therefore find themselves in financial difficulties when employing labour or expanding their gang size. but at a lower level than that paid to an employed operative. Theoretically the subcontractor should make provision for these on-costs in the rates or daywork rate agreed with the builder. builders stand to gain in a number of ways from encouraging selfemployment in the construction industry. Responsibility for loss of earnings and production. . Under the Social Security system no unemployment benefit is paid and entitlement to Supplementary Benefit will only arise when savings are below a predetermined level. There is an added freedom. however. Moreover. This will result in effective cost control for the builder. to choose the location of work. but frequently the provision is inadequate. will invariably be allocated work on a unit rate or lump sum basis and will only be paid for the actual work produced. The subcontractor is dependent on the builder for regular payment for the work carried out. within the limits set by the builder. Benefit to the builder Generally.

more likely to be exposed by the use of subcontract labour. but also up to a week’s payment in hand. 4 Transport costs The subcontractor will be responsible for transporting his workforce to the site and for any travelling time or expenses. particularly when the market is depressed. 5 Quality control It is a commonly stated opinion that the quality of work produced by subcontractors is below the standard of that achieved by directly employed labour. It is the responsibility of the subcontractor to overcome such problems by finding alternative employment during these periods. between one project and the next. In general. forward-thinking and alert. result in a demand for similar increases on other sites. However. particularly bearing in mind the need for continuity of employment.Estimating principles Paper 1405 Page 40 3 Continuity Lack of continuity of work for labour can occur on an individual project. the material and plant requirements. In times of boom. . therefore. including the availability and proximity to the workplace. { not only does the builder hold a retention of from 5 percent to 10 percent. therefore. Therefore. Moreover. or by bearing the cost of the unemployment. of course. has the ultimate control in that no payment need be made for substandard work. { the sense of responsibility held by most subcontractors is such that they will be concerned to retain their reputation as tradesmen. any high rates which by necessity are being paid on one site may. The opposite will also apply. and the release of either will be subject to the subcontractor achieving a satisfactory quality of work. subcontract labour will tend to be more mobile than directly employed labour. by discussion with other subcontractors in that trade. he will take positive steps to establish the nature of the task. therefore. the builder may be expected to make some contribution towards travelling time and costs where he has failed to obtain suitable subcontract labour within the vicinity of the site and a subcontractor is requested to travel an excessive distance. and the contract programme and its impact on flow of work and future workload.) 7 Market conditions Competition between subcontractors may lead to lower rates. to a large extent the converse is true because: { there is a tendency for the more skilled tradesmen to prefer to work as subcontractors. However. The builder. 6 Reduced supervision The subcontractor is motivated by the need to maximise his earnings. or as a result of changes in the location of construction activity. (Any weakness in management is. particularly where pride in workmanship is overshadowed by a potential increase in earnings. the subcontractor will probably develop the ability to work on his own initiative and will ensure that management is positive. and labour-only subcontract rates are sometimes more related to market conditions than to the actual work content.

The difficulties outlined above are overcome by the majority of builders in the terms and conditions under which labour-only subcontractors are employed. 14 Demolitions and alterations 14. the extent to which it is practicable to use mechanical aids 7. but this will probably not offset the cost of delay and disturbance in locating an alternative subcontractor. with resultant bad feeling and possibly bad workmanship. or complete parts of them. the age of the buildings 2. or to obtain improved rates on other sites. or labour is withdrawn. For small incidental demolitions that the ordinary contractor may have to carry out in alteration work. Subcontract labour may be hard to obtain for certain types of work: for example.Estimating principles Paper 1405 Page 41 Disadvantages to the builder The reliability of some subcontractors may be questionable. or where more work is acquired than can be coped with. In such cases directly employed labour may be more versatile and adaptable. is work which is best entrusted to firms which specialise in this field and which have experienced men and machinery for quickly and safely bringing them to the ground on a subcontract basis. type of construction 3. the access 5. particularly where subcontract labour fails to conform to the contract programme. If they are able to ‘overdraw’ on their payments. thus providing a profit or administration surcharge for the original subcontractor.1 Demolitions The general demolition of whole buildings. In either case. The builder also runs the risk of facing contra-charges or requests for daywork payments for standing time. Double or treble subletting of the work may occasionally occur either as a deliberate policy of the subcontractor. small works where both output and continuity are difficult to control. . programming of work may be more complicated. the value of the salvaged materials recoverable. they may withdraw their labour without notice. The result of such practice may often be that the actual operative working on site receives substantially less than an economic rate for individual tasks. Equally. when materials or plant are not available. proximity to public streets 6. The factors that would influence their costs would be: 1. Only extensive practical experience and accurate historical data can really provide the accurate estimate. risk to adjoining properties 4. The builder can of course withhold any payment or retention outstanding. a very rough guide is to assume that it takes about half the time to pull something down that it takes to put it up. the work will probably be relet at a lower rate.

In occupied premises it is sometimes necessary to provide a temporary protection of barriers or screens to prevent accidental injury to the occupants and premises and allowance would be made for these in the item concerned. the pinning up of the existing work over the lintel. 14. The computation of the quantity of materials required for an item will not present any special difficulty. For construction and erection allow carpenter and labourer 18 hours for each m³ of timber used. These factors cannot always be determined by inspection. quoining or squaring up of the jambs. . Taking for example an item of cutting and forming an opening in an existing brick wall.3 Shoring Shoring is highly skilled work. iron dogs etc is required and also the bricklayer’s time of 0. and a plaster wall covering may be so perished that large areas become detached from the vibration set up in cutting away. The most difficult problem is the assessment of the labour and time involved by reason of situation and access problems. but they are not always available. the estimator will have to prepare a small bill of measurements of the amount of cutting away. the concrete lintel.5 hours for each needle hole. some brickwork ‘cuts up’ more readily than another quality. Allowance for bolts. The sequence of the work and any unsocial hours for labour should also be considered. Experienced supervision is also required to ensure the security and stability of the remaining work and to see that no careless demolitions involving avoidable reinstatements are executed. any temporary supports required and other similar items involved. Operatives experienced in alteration work produce better and swifter results than those who have been wholly engaged on new construction. provided it is appreciated that items of cutting away and corresponding making good will exceed in measurement the strict nominal finished size of opening given in the description. Of the many speculative factors involved.2 Alterations Items which fall under this heading are the most difficult of all to evaluate and call for considerable skill and knowledge on the part of the estimator. it may be mentioned by way of example that brickwork built in lime mortar is usually easier to demolish than that built in the stronger cement mixes.Estimating principles Paper 1405 Page 42 14.