TECHNICAL AR TICLE

am a cost consultant and cost esti-

A Spreadsheet Checklist to
I mating project leader for a cost
engineering and project manage-
ment firm; one of our specializa-
tions is preparing building construction
Analyze and Estimate
cost estimates. We are involved mainly in
commercial building construction, and Prime Contractor Overhead
our estimates range from conceptual to
final cost estimates. They are prepared
using one of three cost estimating software
Walter B. Jones, CCC
packages.
As cost estimating project leader, one
of my duties is to prepare the prime con-
tractor overhead cost. To facilitate this
process, I developed a worksheet using PRIME CONTRACTOR OVERHEAD are not directly traceable to the permanent
Microsoft Excel to calculate certain costs installation, yet are required for the order-
and ratios that apply to the different cost Building construction costs are com- ly completion of the installation. These
estimating software packages. I call this posed of indirect and direct costs. Certain costs are indirect costs, and include prime
worksheet the prime contractor overhead material, personnel, and equipment costs contractor overhead. Direct costs are the
spreadsheet checklist. The purpose of this
article is to demonstrate its use in analyz- Table 1—Prime Contractor Overhead Spreadsheet Checklist Organized by Type of
ing and estimating costs for prime con- Overhead Component
tractor overhead.

PRIME CONTRACTOR OVERHEAD

SPREADSHEET CHECKLIST

A prime contractor overhead spread-

sheet checklist is a list of prime contractor
overhead items that usually occur on a
building construction project. The spread-
sheet can perform mathematical calcula-
tions to determine the costs and ratios of
prime contractor overhead.
Using this checklist is analogous to
using assembly or composite pricing.
Assembly or composite-pricing methods
estimate individual items of a certain
building element and divide the total cost
of that element by an appropriate unit of
measure to obtain a composite price per
unit of measure (i.e., $5.50 per ft2 for an 8-
inch/203-mm thick masonry partition).
The total cost of prime contractor
overhead also can be divided by some
parameter, such as direct cost, to obtain a
percentage of prime contractor overhead
to direct cost. Other costs that can be
derived are the prime contractor overhead
cost per month and the prime contractor
overhead cost per gross m2.

22 Cost Engineering Vol. 38/No. 8 AUGUST 1996

costs of installed material and equipment Table 2—Prime Contractor Overhead Spreadsheet Checklist Organized by Type of
elements and material and labor directly Overhead Cost
involved in the physical construction of
the permanent project [1].
Prime contractor overhead can be cat-
egorized many different ways. Deciding
how to organize it is generally left up to
each company. There is no standard
grouping; however, it is a good idea to
standardize within the same organization.

Prime Contractor Overhead Categorized

by Type of Overhead Component
Table 1 is an example of a prime con-
tractor overhead spreadsheet checklist cat-
egorized by type of overhead component.
This prime contractor overhead cost esti-
mate is from one of 20 randomly-selected
cost estimates prepared by a cost engineer-
ing firm in the southeast US. This exam-
ple represents a medical training facility
(1014 gross m2) located in northern
Florida. The project’s duration was 10
months and its direct cost was $1,133,213.
The spreadsheet checklist, which was
developed using Microsoft Excel, calcu-
lates the cost for each prime contractor
overhead item. It also computes the fol-
lowing data:

• the estimated total prime contractor

overhead cost ($138,230);
• the mathematical ratio of prime con-
tractor overhead cost to direct cost
(12.2 percent);
• the prime contractor overhead cost
per month ($13,823); and
• the prime contractor overhead cost
per gross m2 ($136.38).
The overhead items in this spreadsheet
checklist mix the type of cost under the
type of overhead component. A more logi-
cal organization is to combine the same
types of cost. This reduces confusion when
updating and reviewing the cost of over-
head items.
Prime Contractor Overhead Categorized
by Type of Overhead Cost
Another way prime contractor over-
head can be categorized is by the type of
overhead cost, as shown in table 2:
• cost related to the construction dura-
tion or time period;
• fixed costs; and
• cost related to the project’s dollar value.
Cost related to the construction duration or
time period refers to the cost of supervision,
temporary offices, portable toilets, and tem-
porary utilities. These costs are usually esti-
mated as a cost per week or month. The
longer the construction time period, the
higher the total cost for these items.
Fixed costs are not related to the proj-
ect’s duration or dollar value. These cost
items include mobilization, demobiliza-
tion, surveys, initial schedules, and final
cleanup. Although some of these items
may be priced by the hour, day, week, or
month, the overall project time or project
dollar value does not affect their cost.
Cost related to the project’s dollar
value refers to the cost of bonds, permits,
insurance, and home-office expenses.
These costs are usually estimated using
rule-of-thumb measurements such as per-
centages of direct cost. If the direct cost
increases, then the estimated cost for these
items also increases.
Table 2 is the same as table 1, except
the prime contractor overhead items for the
sample project have been organized by type
of overhead cost. The spreadsheet checklist
computes the same data as in table 1.
A MATHEMATICAL COMPARISON
OF PRIME CONTRACTOR OVER-
HEAD COST TO DIRECT COST
Twenty randomly-selected cost esti-
mates prepared by a cost engineering firm
in the southeast United States were used
in this comparison.
Figure 1 shows the prime contractor
overhead cost-to-direct cost percentage
obtained from the spreadsheet checklist for
each of the 20 projects. The mean percent-
age of total direct cost, indicated by the hor-
izontal line, is 10.1 percent. Eighteen of

Cost Engineering Vol. 38/No. 8 AUGUST 1996 23

the 20 cost estimates (90 percent) are with-
in a 3.3 percent difference of the mean.
This would be a difference of $33 for every
$1,000 of project value.
For programmatic and preliminary
cost estimates, an estimator could use 10
percent as a factor of direct cost to deter-
mine the cost of prime contractor over-
head. However, the variability of overhead
percentages to direct cost indicates that
using this type of rule-of-thumb measure-
ment during later phases is inaccurate.
Therefore, it is recommended that a prime
contractor overhead spreadsheet checklist
be used to more accurately estimate a per-
centage of direct cost.

A MATHEMATICAL COMPARISON
OF PRIME CONTRACTOR
OVERHEAD COST PER MONTH

Figure 2 shows the prime contractor

overhead cost per month obtained from
the spreadsheet checklist for each of the 20
projects. As analyzed in the previous com-
parison, the mean cost per month, indicat-
ed by the horizontal line, is $29,669.
Eighteen of the 20 cost estimates (90 per-
cent) are within $15,000 of the mean. This
represents an inaccuracy of $150,000 for a Figure 1—Prime Contractor Overhead as a Percentage of Direct Cost
project with a 10-month duration.
A mean cost per month of $30,000 is
acceptable for a programmatic or prelimi-
nary type cost estimate. However, the
checklist calculates a more accurate cost
per month for later phases of cost estimates.

A MATHEMATICAL COMPARISON
OF PRIME CONTRACTOR
OVERHEAD COST PER GROSS M2

Figure 3 shows the prime contractor

overhead cost per gross m2 obtained from
the spreadsheet checklist for each of the
same 20 projects. As analyzed in the previ-
ous comparisons, the mean cost per gross
m2, indicated by the horizontal line, is
$99.92. Eighteen of the 20 cost estimates Figure 2—Prime Contractor Overhead as a Cost Per Month
(90 percent) are within $50 of the mean.
This represents an inaccuracy of $50,000 THE APPLICATION OF PRIME architect or engineer is within the project’s
for a project with 1,000 gross m2. CONTRACTOR OVERHEAD budget. Sometimes the cost estimate
2
A mean cost per gross m of $100 is SPREADSHEET CHECKLIST establishes the budget for the project. The
acceptable for a programmatic or prelimi- DATA TO COST ESTIMATES cost estimates also can be used to check or
nary type cost estimate. However, the prime compare actual bids received from the
contractor overhead spreadsheet checklist My company prepares cost estimates prime contractors. Therefore, the cost esti-
calculates a more accurate cost per gross m2 ranging from conceptual to final. These mates chosen for the comparisons illus-
for later phases of cost estimates. are used mainly to identify whether the trated here are cost estimates only and do

24 Cost Engineering Vol. 38/No. 8 AUGUST 1996


Figure 3—Prime Contractor Overhead as a Cost Per Gross m2
not represent the actual cost of prime con-
tractor overhead by the prime contractor.
There are many types of cost estimat-
ing software packages available; however,
because of my company’s diverse clien-
tele, we use three packages to prepare cost
estimates: the US Army Corps of
Engineers Microsoft Computer Aided
Cost Estimating System (MCACES), the
US Navy’s Cost Engineering System
(CES), and a cost estimating package used
for the private sector—MC-Squared from
Management Computer Controls.
Each program requires the user to
present prime contractor overhead cost
differently. Of course, all of them allow a
cost estimator to itemize the prime con-
tractor overhead. The contractor bond,
which is part of the overhead costs, can be
estimated as a percentage of direct cost or
as a dollar amount in MCACES. MC-
Squared and CES estimate the bond as a
percentage of direct cost.
Home-office expense, which is also part
of the overhead costs, is estimated as a per-
centage of direct cost in MCACES; CES
and MC-Squared do not offer an option to
enter home-office expense as a separate cost.
Builder’s risk insurance, which is
another item included in overhead, can be
estimated as a percentage of direct cost in
MC-Squared, while MCACES and CES
do not offer an option to enter builder’s
risk as a separate cost.
The remainder of the overhead cost
can be estimated as a percentage of direct
cost or as a dollar amount in MCACES
and MC-Squared, while CES estimates
the remainder overhead cost as a percent-
age of direct cost.
By using a prime contractor overhead
spreadsheet checklist, the cost estimator
can quickly update the current overhead
line items in the spreadsheet checklist and
determine the prime contractor overhead
lump-sum amount, the prime contractor
overhead percentage to direct cost, the cost
per month, or the percentage of any over-
head item to direct cost. The checklist also
is good written documentation for the
development of prime contractor overhead
costs, regardless of the way the estimator
chooses to present the cost in the estimate.
A STANDARD PRIME CONTRAC-
TOR OVERHEAD SPREADSHEET
CHECKLIST CATEGORIZED BY
TYPE OF OVERHEAD COST
The development of a standard prime
contractor overhead spreadsheet checklist
can be helpful in analyzing and estimating
prime contractor overhead cost. The fol-
lowing two ways to organize prime con-
tractor overhead have also been presented:
• by type of overhead component; and
• by type of overhead cost.
Organizing prime contractor overhead
cost by type of cost, as opposed to type of
component, groups the same types of cost
together, making it easy to update and
review them. For this reason, the standard
prime contractor overhead spreadsheet
checklist is organized by type of overhead
cost.
Table 3 shows the standard checklist
organized by type of overhead cost. The
Cost Engineering Vol. 38/No. 8 AUGUST 1996
spreadsheet checklist has been updated for
a project that is 1,000 gross m2, and has a
10-month duration and a direct cost of
$1,500,000.
To use the prime contractor overhead
spreadsheet checklist, a cost estimator per-
forms the following steps.
• Step 1—enter the project size in gross
m2 in the summary section of the
spreadsheet. This amount is used to
calculate the cost per gross m2.
• Step 2—enter the project duration in
months in the summary section of the
spreadsheet. The computer reads the
value in this cell and enters it in the
detail section of the spreadsheet
where months are indicated. If the
unit of measure for the overhead item
is in weeks, the cell value is multi-
plied by four.
• Step 3—enter the estimated amount
of project direct cost in the summary
section of the spreadsheet. This cost is
used to calculate the cost related to
the project’s value and to calculate
the percentage of overhead cost to
direct cost. Microsoft Excel formulas
perform these calculations.
• Step 4—in the detail section of the
spreadsheet, enter zero as the quantity
for the items that are not applicable to
the current project.
• Step 5—review the unit cost in the
detail section of the spreadsheet for
items that are applicable and adjust
them according to the specific proj-
ect’s location type.
• Step 6—in the detail section of the
spreadsheet, enter the price quotation
or enter the factor contained in a for-
mula for cost related to the project’s
value. The factor is usually a rule-of-
thumb measurement such as a per-
centage of direct cost.
After completing these steps, the
prime contractor overhead spreadsheet
checklist computes the following informa-
tion:
• the total prime contractor overhead
cost;
• the percentage of prime contractor
overhead cost to direct cost;
• the prime contractor overhead cost
per month;
• the prime contractor overhead cost
per gross m2; and
25
Table 3—Prime Contractor Overhead Spreadsheet Checklist Organized by Type of • the percentages and costs applied to
Overhead Cost the MCACES, CES, or MC-Squared
cost estimates, accordingly.

The information is used to prepare a par-

ticular cost estimate. If further overhead
cost adjustments are necessary, they can
be accomplished quickly and easily by
using the prime contractor overhead
spreadsheet checklist.

rime contractor overhead can be

P categorized many different ways,

including by type of overhead
component or by type of over-
head cost. Combining the same types of
overhead costs reduces any confusion when
updating and reviewing the cost of overhead
items. Development of a standard prime
contractor overhead spreadsheet checklist
helps to analyze and estimate prime con-
tractor overhead. The costs and ratios gen-
erated from this spreadsheet checklist are
relevant to cost-estimating software pack-
ages; the costs and ratios also can be used in
cost-estimate comparisons. The results from
these comparisons can produce or support
rule-of-thumb measurements.

ACKNOWLEDGMENTS
I would like to thank my wife, Suzie,
for her patience and support in my prepa-
ration of this article. I also would like to
thank Michael C. Ray, PE CCE, for his
inspiration that led to the idea for this arti-
cle. I also wish to acknowledge the assis-
tance and cooperation of Project Time &
Cost, Inc., Atlanta, GA, in providing source
material and background information.

REFERENCES

1. AACE International. Cost Engineers’

Notebook, Vol. 1. Morgantown, WV:
AACE International, 1988.

26 Cost Engineering Vol. 38/No. 8 AUGUST 1996

 Walter B. Jones, CCC,
is a cost and schedule
consultant for Project
Time & Cost, Inc., in
Atlanta, GA. He has
over 14 years of experi-
ence in cost estimating
on a wide range of proj-
ects such as barracks, convention centers,
courthouses, hospitals, prisons, office build-
ings, post offices, and warehouses. Mr.
Jones graduated from Louisiana State
University in 1981 with a bachelor’s degree
in construction technology. He is a certified Index to Advertisers
cost consultant and is a member of AACE
International and PMI. He is currently pur- Reader
suing certification as a project management Response
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Cost Engineering Vol. 38/No. 8 AUGUST 1996 27