Unit 2: Basic Terminologies

Unit Rate, Direct Cost, Indirect Cost, Overhead Charges, Day Work, Task Work, Piece work, Indent of Material

P R E S E N T E D B Y,
ER. DHANASHRI DHAMDHERE
 UNIT RATE
• A unit rate can be described as the
monetary value allocated to a unit of measurement for a given item in a bill of quantities.

• This can be the

1. cost per square meter of floor area,
2. cost per kilogramme of steel reinforcement,
3. cost per linear metre of timber door frames, etc.

• There are two types of unit rates. These are the

1. hourly rate and
2. item rate.

• Both types depend on

1. a clear identification of all the activities that need to be done and
2. the number of materials that will be spent to perform those activities.
• An hourly unit rate is based on the
1. labour and
2. equipment charges per hour

• while an item-unit rate involves a detailed consideration of

1. construction activities,
2. the length of time they will take,
3. cost of materials,
4. cost of labour and
5. any other important considerations
such as percentages for profits and contractors overheads and value-added tax.

• Uses of a Unit Rate

A unit rate (regardless of whether hourly or item based) can be used for the following purposes:
1. To estimate the cost of planned works.
2. To perform valuations of work done.
3. For pricing bills of quantities and other tender documents.
4. To develop cost plans for the purposes of estimating the cost of a proposed construction project.
 Direct & Indirect Cost
THE DIRECT COST

• The direct cost is the cost that directly involved in the finished project.
• Normally the bills of quantities represent this cost.
• However bills of quantities are prepared according to the gross pricing system.
• So that, it includes some degree of indirect costs too, such as general overheads and
profits etc.
• Sometimes the Bill of Quantities are prepared according to the net pricing system.

• This total amount can clearly be defined as the direct cost of the project.

1. The Net site cost is included when preparing a basic unit rate for an item,
2. the quantities of the relevant items are then multiplied by this rate totaled &
3. the final net site cost is obtained for the entire project.
• THE INDIRECT COST

1. The indirect cost may basically be defined as the cost which is not directly involved with the
project.
2. The preliminary expenses,
overheads & establishment expenses,
profit for the contractor.

When preparing the accurate estimate of a project all the expenses that come under the above
described, cost are totaled together.
• NEED

THE COST INFORMATION REQUIRED FOR PRELIMINARY ESTIMATE

1. Cost of a project depends on the place, quality, types of finishes workmanship & durability,
etc.
2. After getting information from source a qualified Q.S. makes necessary adjustment to the
rates by using slandered factor of adding or did ducting for price fluctuations.
In other words the cost information taken from previous constructions can’t be used directly &
some degree of modifications will have to be made.
Overhead charges

In construction, overhead costs results from the

1. organization structure,
2. size and form of the enterprise,
Overhead costs are all those indirect costs like
1. labor costs,
2. rent,
3. travel expenditures,
4. utilities and communication bills,
5. supplies, advertising,
6. insurance accounting, legal fees, etc
• To calculate the overhead rate,
1. divide the indirect costs by the direct costs and
2. multiply by 100.

• If your overhead rate is 20%, it means the business spends 20% of its revenue on producing a good or
providing services.

• A lower overhead rate indicates efficiency and more profits.

• General Contractors charge for Overhead and Profit (“O & P“) as line items on repair or rebuild
estimates.

• ... Overhead costs are operating expenses for necessary equipment and facilities.

• Profit is what allows the GC to earn their living.

• O & P are stated as a percentage of a total job.

 How to fix up rate per Unit of an item?
• Overheads and Establishment Charges
– There are 2 types of Overheads
General Overheads (Recurring Job Overheads (incur in construction)
known expenditures)

•Office Rent •Go-Down rent

•Salaries of office staff
•Stationary items, printing, postages,
repairs
•Telephone and electric Bills
•Travelling
• Salaries of technical or non-technical staff
• Temporary Sheds•Small tools, planks, ladders, ropes, hand
tools for workmen
•Repairs & depreciation for tools and plant
•Lighting at site
•Mobilization of establishment
•Public Relations
•Labor Welfare & safety
•Workmen compensation, insurance
•Interest on investment
•Theft or loss
 Profit

• Generally 10% profit is considered for ordinary contracts, after

allocating all charges of equipments, establishments.
• For small jobs, profit is 15%
• For large projects Profit is 8%
 Day work, Task work & Piece work

•Day work means by which a contractor is paid for specifically instructed work on the basis of the cost of
labour, materials and plant plus a mark up for overheads and profit.
It is generally used when work cannot be priced in the normal way.

•Task work means the Task assigned

•The capacity of Doing work by skilled labor in the form of quantity per day is called task or out turn work.
Piece work

•work done by the piece and paid for at a set rate per unit.

1. When employers decide they want to pay workers by piece rate (also known as piecework),
2. they're referring to pay based on number of units or pieces created rather than
3. the number of hours worked.
4. In other words, the more “pieces” an employee produces, the more the employee is paid.
 Indent of Material

1. Indent is basically a letter raised by employees of an institute asking for materials needed
which are present in the store.
2. The indents can be raised by any employee when he requires item from the stores.
3. A company document used internally in the purchasing process to authorize the requisition
of materials prior to initiating a purchase order.
4. Purchase indents are audit documents which are used to track the movement
of materials prior to their receipt by the buyer.
 Thanks……………
By Er. Dhanashri Dhamdhere