Module No.

: 4
Lesson No.: 4
Title: Summary of Total Project Costs
Reporter/s:
Saratan, Laila
Rosete, Roselito
Roluma, Miki
Talisayan, Giljean
Sina, Estefe
Salazar, Marites
Sacala, Paz
Tagaan, Mary Madilyn
Villamor, Honey Babe

Definition of terms: (at least 10 terms)

A. Total Project Costs: The aggregated financial outlay associated

with the entire life cycle of a project, encompassing direct and

indirect expenses, such as labor, materials, equipment, overhead,

and contingencies.

B. Direct Costs: Expenditures directly attributed to the execution of

specific project tasks, including labor, materials, and equipment

costs.

C. Indirect Costs: Expenses not tied to a specific project task but

necessary for overall project operations, such as administrative

salaries, utilities, and rent.

D. Contingency Reserves: Reserved funds set aside to address

unforeseen events, risks, or changes in project scope, providing a

buffer for unexpected costs.

E. Labor Fringes: Additional benefits and costs associated with

employing labor beyond basic wages, including health insurance,

retirement contributions, and other perks.

 F. Material Taxes: Taxes applied to the purchase, transportation,

and use of construction materials or project-related resources,

impacting the overall project budget.

G. Equipment Taxes: Taxes associated with the acquisition,

ownership, or operation of machinery and tools required for

project tasks, influencing the project's financial landscape.

H. Bond Costs: Expenses related to obtaining financial bonds,

serving as guarantees for project completion, including

performance and payment bonds.

I. Insurance Premiums: The costs associated with various

insurance coverages, such as general liability, workers'

compensation, and builder's risk insurance, providing financial

protection against unforeseen events.

J. Profit Margin: The percentage of earnings beyond the total costs

incurred in a project, reflecting the financial reward for successful

project execution and sustainability.

Keywords:
A. Project longevity, cost estimation, financial planning, and project

budget.

B. Specific job expenses, project execution costs, people costs,

purchasing supplies, and equipment prices.

C.Overhead expenses, operational costs, administrative costs, and

unallocated costs.

D. Risk management, unplanned events, project backup plans, and

reserve funds.
 E. Health insurance, retirement contributions, overtime pay, and

employee benefits.

F. Value-added taxes, sales taxes, procurement taxes, and building

material taxes are all examples of taxes.

G. Taxes on operations, equipment ownership, and machinery.

H. Performance bonds, payment bonds, project guarantees, and

financial bonds are all types of bonds.

I. Project insurance; risk minimization; insurance provisions;

premium costs.

Financial remuneration, project profitability, profit margin, and return on

investment are all factors to consider.

Introduction:

A project's complete project expenses summary is a detailed

report that includes every financial detail related to that specific

project. This covers the following: labor, supplies, machinery,

subcontractors, labor benefits, insurance and taxation on supplies

and machinery, expenses for bonds and insurance, overhead, and

profit. One-time costs, ongoing expenses, and any unanticipated costs

that might crop up throughout the course of the project are all

included in the total project costs. Because it offers a clear and

comprehensive picture of the financial commitment necessary for the

project's successful completion, this summary is essential reading for

project managers, stakeholders, and financial decision-makers.

 Planning a budget, evaluating risks, and allocating resources

are made easier when the summary of all project expenses is

examined. Making educated decisions and ensuring that the project

stays within budgetary limitations are all made possible by this useful

tool for decision-makers assessing the project's financial feasibility. A

greater awareness of the financial ramifications is fostered and the

project's overall performance and sustainability are enhanced by the

summary's capacity to promote communication and transparency

among project teams and stakeholders.

Title 1: Labor, Materials, Equipment, Subcontractor

The passage discusses the importance of efficient project

management in construction, emphasizing the need for optimal

utilization of labor, materials, and equipment. It highlights the

continuous pursuit of improving labor productivity as a critical aspect

of cost control in construction projects. Special attention is given to

material handling processes, including procurement, inventory,

fabrication, and field servicing, with the aim of reducing costs.

The text acknowledges the impact of innovations and

technological advancements on construction practices. While some

construction techniques remain unchanged for decades, there are

ongoing improvements in traditional materials and methods. The

passage suggests that organizations failing to adapt to these changes

risk being marginalized in the construction industry.

 The construction industry in the United States is noted to face

challenges such as environmental restrictions, community

participation requirements, labor laws, regulatory policies, and global

competition. The passage emphasizes the need for the industry to

recognize the erosion of its technological edge and adapt to remain

competitive.

Labor productivity in construction is defined as output per labor

hour, with a focus on the overall effectiveness of utilizing labor,

equipment, and capital. The discussion delves into factors influencing

job-site productivity, including labor characteristics, project work

conditions, and non-productive activities. Various factors affecting

labor efficiency, such as age, skill, experience, leadership, and

motivation of the workforce, are outlined. Additionally, the passage

explores the impact of project work conditions, such as job size,

complexity, site accessibility, labor availability, equipment utilization,

contractual agreements, climate, and cultural characteristics.

The text suggests that the construction industry should engage

in strategic planning to bring about revolutionary improvements in

productivity. It encourages exploration of new ways to enhance

productivity, considering the limitations of existing operational

planning. The passage concludes by emphasizing the importance of

decisions for action over plans in shaping the future outcomes of the

construction industry.
 The passage discusses various aspects of on-site worker's time

utilization and labor relations in the construction industry. Here are

the key points:

On-Site Worker's Time Utilization:

- An example by R. Tucker illustrates the time allocation for a

typical craftsman on the job site.

- Productive time: 40%

- Unproductive time:

- Administrative delays: 20%

- Inefficient work methods: 20%

- Labor jurisdictions and other work restrictions: 15%

- Personal time: 5%

- The estimate suggests that as much time is spent on delays

due to management and inefficiencies as on productive work.

Labor Relations in Construction:

- The construction industry experiences fluctuating market

demand, leading to a need for flexibility in hiring and laying off

workers.

- Labor and management relations involve both unionized and

non-unionized operations.

- Craft unions work with construction contractors, and

dramatic shifts in unionization can occur.

- The decline in trade union members in the construction

industry is noted, emphasizing the changing landscape.

 - The passage discusses unionized and non-unionized

construction, with a focus on "merit shops" that operate under

contractors' associations.

- Merit shop contractors are claimed to have advantages such

as managing their own workforce, making timely decisions, and

emphasizing local labor usage.

- The role of the Associated Builders and Contractors

association in the growth of merit shop construction is highlighted.

Problems in Collective Bargaining:

- Collective bargaining in the organized building trades

involves international unions and local unions negotiating with

contractors' associations.

- Issues such as jurisdictional disputes and the structure of

collective bargaining agreements are discussed.

- Proposed solutions include regional bargaining, multicraft

bargaining, and improvement of bargaining performance.

- The need for better organization and professional staffing in

local contractors' associations is emphasized.

Materials Management:

- Materials management is crucial in project planning and

control to minimize procurement costs and avoid delays.

- Poor materials management can lead to capital tie-up,

interest charges, and delays in construction.

- Computer-based systems, such as materials requirements

planning, are effective in managing materials procurement.

 - Benefits of materials management systems include cost

reduction, improved productivity, and decreased warehouse costs.

Material Procurement and Delivery:

- The main sources of information for material procurement

control are requisitions, bids, purchase orders, and invoices.

- Materials are classified into bulk materials, standard off-the-

shelf materials, and fabricated members or units.

- The process of delivery, transportation, and field storage

varies for each class of materials.

- Prefabrication of components or entire rooms is mentioned

as a strategy to simplify field assembly and reduce direct labor costs.

Contract time is the duration in which all physical project

work, including any authorized additional or extra work, is to be

completed. It involves detailing construction operations and applying

anticipated production rates to the construction operations to

estimate their duration. This determination may require close

coordination between the designer and construction personnel.

Labor Cost Factors. The cost of labor is determined by many

factors including the following:

 Wage Rates: After the amount and type of labor is established, the

pay level for the labor must be found. This is somewhat complicated

since Idaho does not have a prevailing wage law that requires

contractors, on state funded projects, have a minimum wage rate.

However, prevailing wage determinations are enforced on federal

projects.

Availability of Labor: Existing construction work within the region

of the proposed construction contract will determine the availability of

local residents for employment by the contractor, if the contractor has

to hire people to supplement his own staff.

Location of the Project: Prevailing wages vary by region, so the

location of the project plays a factor in determining appropriate wage

rates.

 Overtime: Overtime pay should be considered possible for the

following

circumstances:

Tight Schedule- Due to some particular situations, the contract

may be

scheduled on a fast-track work effort.

Location- Because of the location of certain particular construction

work, the contractor may have access to the area only at certain times

of the day or night requiring work to extend beyond the normal 8-hour

workday.

Availability of Labor: Existing construction work within the

region of the proposed construction contract will determine the

availability of local residents for employment by the contractor, if the

contractor has to hire people to supplement his own staff.

Night Work: Shift differential pay due to crews working night

construction. Night construction may also impact the production rate

and require additional equipment.

 Specialized Trades: The type of work to be performed within the

project may require the use of specially trained workers whose wage

rates may be higher than wage rates anticipated for most other

elements of the contract.

 Labor Indirect Costs and Benefits: The contractor pays different

amounts of fringe benefits, taxes and insurance to various agencies on

the workers behalf.

Resources to Identify Labor Requirements: Possible resources

for identifying labor requirements are the inspection staff, RS Means

Publications, contractors and observation of construction operations

in the field.

Materials required in highway construction can be placed in two

broad categories. One category is the material that stays in place

when a project is complete. The other is temporary material needed to

build the work. Prices for temporary items such as concrete formwork

and shoring need to be included.

Material Cost Factors

 Accuracy: The take-off is a matter of skilled plan reading and

measuring. If the quantities are incorrect, the entire estimate is

incorrect.

Material Behavior: The estimate needs to account for how the

properties of a material changes when disturbed and handled by

equipment.

Specifications: Recognize that the requirements in a material

specification are important since each requirement generally adds cost

to the material.

Tax: Sales taxes are a direct part of material costs. Unless it is

confirmed that taxes are specifically excluded, they need to be added

to the net prices.

Delivery to the Job site, Unloading, Storing and Protecting: It is

important that the estimate indicates if the quotes received are FOB

(freight on board)source or FOB job site.

Waste Allowance: The amount of waste should be taken into

account since bidders will have to compensate for the additional

expense of the material wasted.

Sources of Materials: Records from past construction projects

can be used to identify sources. It may be helpful to contact source

owners located near the project to get an average price.

Identify Required Equipment: To establish what type of

equipment a certain task needs, the estimator will have to depend on

personal experience or the experience of others such as field

personnel.

Equipment Cost Factors: For the purpose of estimating,

equipment cost is classified as bare equipment (without operator or

fuel), ownership cost including depreciation, indirect costs, and major

repairs.

Equipment Usage: Estimate the rental cost for equipment down

to cost metrics such as per day or even per hour by evaluating the

extent the equipment will be used. If the equipment will be needed on

a regular basis on the project, it may be more appropriate to use the

published monthly rental rate.

Resources: Once the equipment needs have been established,

the estimator needs to know how much it will cost to have the

equipment on the job.

A subcontractor, however, describes any contractor hired by a

party other than the owner. Subcontractors may be hired by the GC or

by another subcontractor. These contractors usually specialize in a

specific area of work. They are commonly known as specialty

contractors or trade contractors.

What is a subcontractor?

To the world outside the hammers, nails, excavators, and

drawings, “contractor” tends to describe everyone who builds

anything. But the term “contractor” applies to anyone hired to perform

work or services under a contract.

A company that enters into a contract with a project owner on

any type of construction project, whether a residential building, a

commercial entity, or a municipality, is known as a prime or general

contractor (GC). This is the person or company hired by the project

owner to organize and run the project.

A subcontractor, however, describes any contractor hired by a

party other than the owner. Subcontractors may be hired by the GC or

by another subcontractor. These contractors usually specialize in a

specific area of work. They are commonly known as specialty

contractors or trade contractors.

Here’s an example of the organizational structure between contractors

on a construction project:

Owner: The owner hires the GC to oversee and manage the

project

General contractor: The GC hires specialty contractors as

subcontractors to complete specific tasks on the project.

Subcontractor: A specialty contractor hired to complete a

certain task on a construction project, such as electrical wiring,

drywall installation, or steel framing.

Sub-subcontractor: On very large or complex projects, a

subcontractor may hire a sub-subcontractor to complete an even more

specialized part of the contract scope.

 Different types of subcontractors

Site Preparation

Before a project can start, some GCs will hire a site preparation

contractor to prepare the site for building. This type of contractor will

bring heavy equipment to the job site, prepare a driveway, remove

trees, level the property, and excavate the area for the foundation. On

smaller projects, the GC might handle this task themselves, or a

concrete specialty contractor might hire their own sub-subcontractor

to handle the job.

Concrete

The subcontractor that pours the foundation, footings, or other

cementation structures is the concrete contractor. Generally, this

contractor enters into a contract directly with the GC to lay the

groundwork for the project. They might also pour the driveway

concrete or walkways and patios on finished projects.

Concrete contractors may also work with and install precast

concrete materials such as walls, beams, and culverts. Precast

concrete is a process in which concrete building components are

poured in an offsite location and then delivered to the site to be

installed.

Structural and framing

A building's structure and framing could be made from various

types of materials including wood, steel, and concrete. Some GCs may

handle wood framing themselves, but they may also hire a framing
subcontractor to build the structural components for the walls and

roofs of the project.

Framing and structural contractors may also install exterior

sheathing, windows, and exterior doors. On large projects glass, metal

siding, and roofing may be performed by other types of

subcontractors.

For large steel structure projects, a steel erection contractor will be

necessary, and they’ll typically hire a crane company as a sub-

subcontractor.

Roofing, siding, and sheet metal work

When it comes to drying-in the building envelope, the process of

sufficiently enclosing the building and protecting interiors from

external weather conditions, GCs will typically hire subcontractors to

do the job.

These roofing, siding, glazing, stucco and sheet metal

contractors specialize in this line of work. Many of these contractors

work with prefabricated materials they build in their shop prior to

installation. By having prefabricated windows, wall panels, and roof

sections, they can move quickly to enclose the building so interior

build-out can begin.

Plumbing

The primary focus for plumbers is to get water into and out of

the building. Plumbing contractors will install the waste lines, vents,

and water pipes in a building or renovation. They’ll also tie into the

city water lines or well water. They may also hire a septic contractor or
excavation contractor to install tanks and leach fields, though the GC

might hire them themselves. Mechanical contractors will often take on

the plumbing scope of a project in addition to HVAC and gas.

HVAC

Heating, ventilation, and air conditioning (HVAC)

subcontractors are responsible for ensuring a building's climate is

safe and comfortable for occupants. Interior climate control requires

very technical knowledge and experience, and it’s a job best left to the

HVAC contractor.

These contractors will install boilers, furnaces, ductwork, air

conditioners, and other mechanical equipment to help keep the

building comfortable. HVAC contractors are often referred to as

mechanical contractors, and they may also take on other scopes such

as plumbing and gas.

Electrical

Electrical contractors are necessary on every job site. This

contractor installs electrical panels, wires, fixtures, generators,

transfer switches, and other electrical gear for which a GC doesn’t

carry a license.

For new or highly renovated projects, electrical contractors are

also responsible for setting up temporary power to be used during the

building process. Electricians interact with every trade on the job and

need access to every drawing section including mechanical schedules,

architectural elevations, and shop drawings to coordinate equipment

feed size and locations.

Carpentry

While the bulk of the structure is typically performed by the framing

contractor or GC, much of the interior work goes to the carpentry

subcontractor. Carpenters take on various types of interior finishes

work from mill work – such as trim, cabinetry, and interior doors – to

floors and decorative interior accents.

Carpenters may specialize in different types of interior work

based on their size. For example, a subcontractor may only do doors,

trim, and cabinetry but not flooring.

Masonry and stonework

The brick and stone surfaces on a project are typically left to

contractors who specialize in the trade. Masonry and stonework

contractors have the job-specific tools and equipment to work with

these tough materials and the knowledge and skill required to lay

courses of brick or blocks in straight lines. A masonry contractor may

take on small scale or repair concrete work as well.

Drywall

Drywall contractors specialize in the installation, repair, and

finishing of drywall. Most types of construction projects – whether

residential or commercial – require interior drywall, so their services

are in high demand.

Drywall contractors are responsible for installing the panels of

drywall onto the framing of walls and ceilings, using screws and joint

tape to secure the panels in place. Sometimes drywall contractors will

also perform light gauge interior framing. Depending on a drywall's

capabilities and how the GC contracts the project, these contractors

may also apply texture and paint or wallpaper to the drywall.

Painting and paper hanging

When it comes to bringing a space to life with color and patterns, the

GC will hire a painting and paper hanging contractor. Painting

contractors specialize in painting both the interior and exterior

surfaces of all types of projects. They begin their process by preparing

surfaces for painting, including masking, sanding, priming, and

caulking. Painting contractors have a keen eye for detail and a deep

understanding of the various types of paint and coatings, as well as

the techniques required to achieve a high-quality, long-lasting finish.

Tile setting

Any of the tile work, whether it be flooring, shower spaces, back

splashes, lobbies, or accent walls, will go to a specialty tile-setting

contractor. Like other specialties, this contractor has the job-specific

tools to handle the project. They also know which materials work best

and how to get their hands on rare or unique tiles. Sometimes tile

setters will specialize in laying other types of flooring such as wood or

vinyl.

Total Project Costs: The aggregated financial outlay associated

with the entire life cycle of a project, encompassing direct and indirect

expenses, such as labor, materials, equipment, overhead, and

contingencies.
 Direct Costs: Expenditures directly attributed to the execution

of specific project tasks, including labor, materials, and equipment

costs.

Indirect Costs: Expenses not tied to a specific project task but

necessary for overall project operations, such as administrative

salaries, utilities, and rent.

Equipment Taxes: Taxes associated with the acquisition,

ownership, or operation of machinery and tools required for project

tasks, influencing the project's financial landscape.

Material Taxes: Taxes applied to the purchase, transportation,

and use of construction materials or project-related resources,

impacting the overall project budget.

There are 3 kinds of subcontractors in the construction industry

 Nominated subcontractors

 Domestic subcontractors

 Named subcontractors

Domestic subcontractors

Subcontractors who directly appointed by main contractors are

called as domestic subcontractors. An agreement will be formed

between the main contractor and subcontractor at the appointing

process. The domestic subcontractor will not have any contract or

communications with the client. But all appointed domestic

 subcontractors have the responsibility to execute the works according

to the client’s requirements and expected quality.

Most of the selected domestic subcontractors will be paid

measure and pay basis. But on rare occasions, some specialized

subcontractors will be paid lump sum basis. All payment terms will

negotiate between the main contractor and domestic subcontractor,

and the subcontractor gives any discount will be held by the main

contractor (the main contractor is not liable to reduce discount

provided by the subcontractor from the main contract).

Nominated subcontractor

Nominated subcontractors are appointed when the client wants

to maintain the cost and quality of the works. Apart from that

nominated subcontractors are used when full details are not designed

and state at the tender stage. It allows the client to start the project

with immediate effect until the design team finalizes full details. So

clients will be used provisional sum or prime cost sum at the tender

stage (for works which are not available at the tendering stage).

Some clients desire to appoint nominated subcontractors based on the

previous relationship between each other.

Examples,

 Specialized, Costly items which have long lead time to procure and

deliver such as Lifts, Escalators, Plants etc.

 When clients want to involve specialized subcontractor to design and

deliver particular specialized works.

 Based on the client’s preference for products. (for generators, AC

systems etc.).

Nomination process

The client or client’s representative will appoint nominated

subcontractor after negotiation. The main contractor will not part at

the per-contract stage of selecting the nominated subcontractor.

Client’s representative will send all details and tender documents to

identified subcontractors who selected as the nominated

subcontractor. After choosing a suitable subcontractor client’s

representatives will ask the main contractor to sign a contract with

the selected subcontractor.

Mostly payment will be made through the main contractor, but

in most of the cases contract will allow the client to pay direct

payments to the nominated subcontractor if the main contractor was

failed to pay any due amount. Relationship with each other (client,

main contractor and nominated subcontractor) can depend on the

contract agreements formed between each other. But most of the time

in the nomination process, the nominated subcontractor will have

direct communication between the client and his representatives. And

nominated subcontractor will provide direct warranty to the client for

works carried out. Therefore contracts using to appoint nominated

subcontractor can be varied and complicated.

Named subcontractors

Some forms of contracts are not allowing clients to appoint

nominated subcontractors. In these kinds of situations, client’s are

naming a suitable subcontractor to specialized works. The client will

handle the selecting process of the named subcontractor, but the

contract will be formed between the main contractor and selected

subcontractor. Otherwise, the client can state a few suitable

contractors (for carrying out specialized works) in the tender

document. So the main contractor can negotiate and finalize without

involving the client.

A project's success in the field of project management is mostly

dependent on the efficient coordination of labor, supplies, machinery,

and subcontractors. Both expert and unskilled workers needed for a

variety of duties, from project design to implementation, are included

in the term "labor." Determining the appropriate staffing level and

making sure their qualifications meet the project's requirements are

both essential components of effective workforce management. The

physical resources required for production or building are called

materials, and the timely acquisition and quality assurance of these

resources are critical to the schedules and results of projects. A task's

instrumental assets, such as tools and machinery, are referred to as

equipment. Project efficiency is increased and possible delays are

reduced when equipment deployment, maintenance, and utilization

are optimally coordinated.

By permitting specialist outside companies to contribute their

skills, subcontractors significantly increase project flexibility. The

principal project team can concentrate on their core expertise by

hiring subcontractors to handle certain project tasks, including

plumbing or electrical work. Planning, communication, and

supervision must be done with great care to guarantee that labor,

materials, equipment, and subcontractors are integrated in a way that

meets project goals and schedules. Succeeding project delivery is

based on a well-coordinated approach to these components, which

also increases total project productivity.

Title 2: Labor fringes, Taxes and Insurance costs

 Labor Fringes is a benefits employees receive in addition to the

wages. It must be payroll taxes, medical insurance, vacation. These

extra compensation companies give their employees.

FRINGE BENEFIT RATE

total fringe benefit of an employee get

Fringe Benefit Rate=( )×100
annual salary of the employee

TAXES

Is the financial charge on the tax payer that impose by the

government. In Quantity Surveying we have:

 Material Taxes- it is the taxes rate for materials will vary

depending on the location. Generally, the tax on materials will

range from 3 to 6 percent. The estimator should include the

appropriate amount of tax in the summary of the estimate.

INSURANCE

Is the means of protection of financial loss in which in exchange

for a pay. The following are two types of insurance:

 Basic Builder`s Risk- covers the project that is being

constructed (loss from fire lightning damages)

  Public liability and Property Damage- covers action of the

contractor’s employee while performing their work of the job site

(injuries)

THE COST OF LABOR

The worker formally paid for the straight time wages plus any

overtime pay or their total wages, their fringe benefits and payroll tax.

Addition with that we have the SSS or the Social Security Tax,

Workers Compensation Insurance, Public Liability and Property

damage insurance and Unemployment Compensation Tax.

LABOR WAGE

Wage Rate vary considerably with the location of the project and

the various type of crafts and it determine by one of three means:

 Union Wage-represents the collective interest of workers,

bargaining with employers over such concerns as wages and

working conditions.

 Open-shop Wage- an open shop is a place of employment where

workers are not required to join or financially support a union

as a condition of hiring or continued employment.

 Prevailing Wage- a prevailing wage is the basic hourly wages

and benefit paid to a number of similarly employment workers

in a given geography.
SOCIAL SECURITY TAX

Federal Government Requires Employers to be taxed for the

providing retirement benefits for employees. The rate is equal to 7.65%

of the total earnings (average wage) up to $76,000/year of employee

wage. The employee contributes an equal amount through the

employer.

UNEMPLOYEMENT COMPENSATION TAX

This tax is collected by the State to compensate workers during

period of Unemployment. Usually, it is 3% of total earnings (Avg.

Wage) of the Employees.

PUBLIC LIABILITY AND PROPERTY DAMAGE

This insurance protects the contractor against injuries to the

general public or damage to public property due to actions of the

employee while waiting during construction. Premium is specified in $

per $100 of Base Wage and vary depending on Company`s record of

accidents.

FRINGE BENEFITS

Federal the contractor often pays benefits in terms of:

 Health Insurance

 Pension Plans

 Training Program

 Paid Holiday
  Vacations

Generally, the cost is a percent of base wage.

total fringe benefit of an employee get

Fringe Benefit Rate=( )×100
annual salary of the employee

PRODUCTIVITY RATES FOR LABOR

A production rate is defined as the number of units of work

produced by a person in a specified time, usually ab hour or a day.

Productivity Rates depend on:

 Labors

 Projects

 Climatic Condition

 Job Supervision

 Complexities of the Operation

Title 3: Material and Equipment Taxes

Material and equipment taxes are important concerns in project

cost estimating and financial planning, since they affect the entire

budget and financial feasibility of a project. These taxes apply to the

acquisition, transportation, and use of goods and equipment, adding

an extra expense that project managers must account for. Material

taxes are frequently sales taxes or value-added taxes levied by

government authorities on the purchase of building materials or other

project-related resources. These taxes differ by jurisdiction and can

have a substantial impact on the project's financial bottom line,

needing a detailed awareness of local tax legislation and effective

budgetary allocation.

Equipment taxes, on the other hand, are levied on the

purchase, ownership, or use of machinery and tools necessary for

project work. These taxes may be assessed depending on the value,

kind, or usage of the equipment. Incorporating equipment taxes into

the project budget guarantees that the financial plan appropriately

represents the overall cost of ownership and operation, avoiding

unanticipated financial pressures. Material and equipment taxes must

be understood for project managers to make educated procurement

decisions, maintain budgetary control, and comply with tax

requirements, all of which contribute to the project's overall financial

success and sustainability.

TYPES OF MATERIALS AND EQUIPMENT TAXES

1. Sales tax

2. Excise tax

3. Value-added tax(VAT)

4. Use tax

5. Property tax

1. Sales tax
is a tax paid to a governing body for the sales of certain goods and services.

Usually laws allow the seller to collect funds for the tax from the consumer at

the point of purchase. When a tax on goods or services is paid to a governing

body directly by a consumer, it is usually called a use tax.

TYPES OF SALES TAX

 General Sales

When most people think about sales tax, they are thinking about general

sales tax. General sales tax is when the tax is a percentage of the product

or service that is added at the point of sale and paid for by the customer.

The retailer then has the responsibility to pass, or remit, the tax along to

the government. General sales tax can be found on basic merchandise,

clothing, restaurant bills, and most point of sales purchases.

 Retail Transaction

A retail transaction occurs when a consumer purchases a product or

service from a retailer. The product does not originate from the retailer

and has taken several stops and transactions prior to ending up at the

retailer. This is important because when sales tax is paid by the consumer

at a retail transaction, the product that is being taxed has already been

bought and sold before. Take the example of a man's necktie. The tie is

made by a manufacturer who sells the ties in bulk to a wholesaler. The

wholesaler turns around and sells the ties to different retailers at a

marked up price and in smaller quantities. The retailer then sells the ties
 to the consumer at another marked up price. So when the tax is applied

to a retail transaction it's being applied to the product at its highest price

point.

 Vendor Privileges

Some states collect sales tax directly from the seller which is called seller

privilege or vendor privilege. The difference is that the tax is collected

from the vendor instead of the vendor passing the tax from the customer

to the state. In vendor privilege states, the seller can include the tax as

part of the price or state the added tax at the transaction.

Example:

Let's say you purchase a construction materials with an orig price of 50,000

and the sales tax rate is 15%.

Sales Tax = Original Price × Sales Tax Rate

= 50,000 × 0.15

= PHP 7,500

2. Excise tax

are taxes levied on specific goods or services like fuel, tobacco, and alcohol.

They are primarily taxes that must be paid by businesses, usually increasing

prices for consumers indirectly. Excise taxes can be ad valorem (paid by

percentage) or specific (cost charged by unit).

 TYPES OF EXCISE TAX:

1. Specific Tax – refers to the excise tax imposed which is based on weight or

volume capacity or any other physical unit of measurement

2. Ad Valorem Tax – refers to the excise tax which is based on selling price or

other specified value of the goods/articles

MANNER OF COMPUTATION:

1. Specific Tax = No. of Units/other measurements x Specific Tax Rate

2. Ad Valorem Tax = No. of Units/other measurements x Selling Price of any

specific value per unit x Ad Valorem Tax Rate.

3. Value-added tax(VAT)

is a consumption tax paid when goods are purchased and services rendered.

It is a multi-stage tax. VAT is borne by the final consumer. All goods and

services (produced within or imported into the country) are taxable except

those specifically exempted by the VAT Act.

VAT = OUTPUT TAX - INPUT TAX

Example:

Assume that Raju is the owner of a hotel. He bought construction materials

worth ₹ 100,000 and an input tax of 10% was imposed on construction

materials. Therefore, the total input tax incurred by him becomes 10% of ₹

100,000, that is, ₹ 10,000.

VAT = Original Price of Construction Materials × Input Tax Rate

 = ₹100,000 × 0.10

= ₹10,000

Therefore, the total input tax incurred by him becomes 10% of ₹ 100,000,

that is, ₹ 10,000.

Now after selling food that was made using those raw (construction)

materials, he was able to earn a total of ₹ 200,000. If we consider the total

output tax to be 10% of the earnings, then the total output tax becomes 10%

of ₹ 200,000, that is ₹ 20,000.

So, we can easily ascertain the total VAT payable by Raju by deducting the

input tax from output tax.

Therefore, VAT= 20,000-10,000, that is ₹ 10,000.

4. Use tax

is a form of sales tax that you must pay for goods and services you intend to

use in a state where you'd normally pay sales tax and purchase anywhere else

where they aren't required to collect sales tax.

Example:

Let’s say a company purchased a construction materials for use in its

business. The construction materials cost $300,000, including shipping. They

had it sent to their office and were not charged tax during the purchase. How

much use tax does the business owe?

Solution:
 First, find the business’s local tax rate. Let’s assume the local rate is 8.0%.

Use tax = Purchased Amount × Use tax

= $300,000 × 0.08

= $24,000

Then, the business would then owe $24,000 in this scenario outlined by the

state government.

5. Property tax

is a tax paid on property owned by an individual or other legal entity, such as

a corporation. Most commonly, property tax is a real estate ad-valorem tax,

which can be considered a regressive tax.

Real estate tax, also called real property tax (RPT), is an annual tax that all

property owners need to pay. Under sections 197 to 283 of the Local

Government Code, LGUs and municipal governments in the country are

authorized to impose a real property tax

Example 1:

Suppose the assessor determines that your property value is

$500,000 and the assessment rate is 8%. The assessed value

would be $40,000. The assessment level is 20% with a tax rate

of 4%.
 Solution:

Assessed Value of the Property: 500,000 × 0.08 = 40,000

Assessment Level: 20%

Tax Rate: 4%

Property Tax = Assessed Value × Assessment level × Tax Rate

= $40,000 × 0.20 × 0.04

= $320

Example 2:

Assessed Value of the Property: PHP 3,500,000

Assessment Level: 20%

Tax Rate: 1%

Property Tax = PHP 3,500,000 × 0.20 × 0.01 = PHP 7,000

Title 4: Bond and Insurance Costs

Bonding and insurance expenses are critical components of risk

management in many businesses, particularly construction and

project management. Bonds are financial securities that serve as an

assurance that a project will be completed in accordance with the

terms of the contract. Payment bonds safeguard subcontractors and

suppliers by guaranteeing they get payment for their services, whereas

performance bonds assure project owners that contractors will meet

their contractual duties. The cost of acquiring bonds is impacted by

factors such as the size and complexity of the project, as well as the

contractor's financial viability. Bond expenses must be properly

managed for contractors to secure contracts and develop confidence

with customers, and it offers financial security for all parties involved.

Bond Costs: Expenses related to obtaining financial bonds,

serving as guarantees for project completion, including performance

and payment bonds.

Types of Surety Bond

 Commercial Surety Bonds

These are usually used for businesses and contractors to

guarantee the performance of a contract. Examples include bid

bonds, payment bonds, and performance bonds. Additionally,

they can also be used for licensing and permitting purposes.

 Contract Surety Bonds

 These are typically used by governments to guarantee the

compliance of a contract between two or more parties. Examples

include bid bonds, performance bonds, payment bonds,

maintenance bonds, and supply bonds.

 Court Surety Bonds

These are used in court proceedings to guarantee the

performance of a contract, payment of a debt owed, or other

legal obligations. They can also be used to secure the release of

someone from jail before trial. Examples include appeal bonds,

probate bonds, and replevin bonds.

How is the Bond Cost Calculated?

Surety bonds are a form of financial guarantee required for

many types of businesses in the United States. The cost of a surety

bond is determined by several factors, including credit history and

score, business credit and experience, licensing history, and moral

character. Each of these components will be discussed in detail below.

1. Credit History and Score

Before a surety company provides a bond, they will check any

applicants' credit history and score. The higher an applicant’s credit

score, the lower their bond cost will typically be. Those with poor or

no credit may still qualify for a bond but at a significantly higher cost

than someone with excellent credit.

2. Business Credit and Experience

In addition to an individual's credit score, surety companies

also consider the applicant’s business credit and experience. A

bond provider will want to know how long the business has been in

operation, what type of assets it holds, and it is overall financial

standing. The more established a business is, the more likely they will

receive a lower rate on its surety bond.

3. Licensing History

The licensing history of an applicant also plays a role in

determining the cost of a surety bond. If there are past problems with

a contractor’s license, such as unresolved disputes or violations, it

may lead to higher costs or even denial of the bond application.

4. Moral Character

Finally, surety companies will review applicants' moral

character before providing them with a bond. The provider wants to

ensure that their clients follow all applicable laws and regulations and

conduct business ethically. Those with high moral standards are more

likely to receive lower rates for their bonds than those who do not

meet these expectations.

Insurance Premiums: The costs associated with various

insurance coverages, such as general liability, workers' compensation,

and builder's risk insurance, providing financial protection against

unforeseen events.

Common types of insurance

1. Health insurance: Helps you pay for doctor fees and sometimes

prescription drugs. Once you buy health insurance coverage, you

and your health insurer each agree to pay a part of your medical
 expenses — usually a certain dollar amount or percentage of the

expenses.

2. Life insurance: Pays a beneficiary you select a set amount of

money if or when you die. The money from your life insurance

policy can help your family pay bills and cover living expenses.

There are different types of life insurance. One is term life

insurance, which pays a benefit only if the insured person dies

during the term of the policy (usually from one to 30 years).

Another is whole life insurance, which pays a benefit whenever the

insured person dies.

3. Disability insurance: Protects individuals and their families from

financial hardship when illness or injury prevents them from

earning a living. Many employers offer some form of disability

coverage to employees, or you can buy an individual disability

insurance policy.

4. Auto insurance: Protects you from paying the full cost for vehicle

repairs and medical expenses due to a collision. In most states, the

law requires you to have auto insurance when operating a motor

vehicle.

5. Homeowner’s or renter’s insurance: Covers your home and the

personal belongings inside in the event of loss or theft; helps pay

for repairs and replacement. If you have a mortgage on your

property, most lenders require you to have homeowner’s insurance.

If you’re renting, the landlord might require you to have renter’s

insurance.
 The cost of insurance is critical in limiting any financial risks

connected with project execution. Construction projects, for example,

typically necessitate a variety of insurance coverages, such as general

liability insurance to protect against third-party claims, workers'

compensation insurance to cover employee injuries, and builder's risk

insurance to protect against property damage during construction.

Insurance rates are determined by criteria such as project size,

nature, and location. Integrating bond and insurance expenses into

the total project budget is critical for proper financial planning, risk

reduction, and ensuring that the project is sufficiently covered against

unanticipated obstacles, all of which contribute to the venture's

overall success and sustainability.

Title 5: Overhead and Profit

Overhead and profit are two essential components in project

management that contribute to a venture's overall financial health

and success. Overhead costs are defined as indirect expenses spent

during business operations that are not directly related to a specific

project. Rent, utilities, administrative salaries, and other basic

operating expenditures may be included in these costs. Overhead

expenses must be accurately calculated and allocated in order to

determine the real cost of a project, since they add to the overall

financial burden that must be carried by project profits. When

developing project budgets, project managers must carefully evaluate

overhead expenses to ensure that the pricing structure accurately

reflects the entire financial picture and provides for a healthy profit

margin. The percentage of overhead may range from 7-20% of the volume of

work based on the size of the contractor. Some contractors may factor an

overhead cost on labor and equipment and have a separate mark-up rate for

materials. Whatever the case may be, decide on the level of appropriate

overhead and apply consistently to the estimate. The table below can be

used to review the many possible general and special overhead

considerations. Few projects will require all of the items. To avoid double

counting, thoroughly review the contract documents because some of the

costs listed in the table are occasionally specified under sections within the

contract specifications as an outside resource, average overhead costs for

many of these indirect job expenses can be determined by cost data

publications such as RSMeans.

Profit Margin: The percentage of earnings beyond the total

costs incurred in a project, reflecting the financial reward for

successful project execution and sustainability.

 Profit in project management refers to the amount gained over

and above the total expenditures expended, which includes both

direct project costs and overhead. Profit is the return for the risks

taken, the expertise utilized, and the successful completion of the

project. Striking the correct balance between competitive pricing and a

healthy profit margin is critical for a business's long-term viability.

Adequate profit margins not only give financial benefits to the firm,

but also assure the availability of resources for continuing expansion,

innovation, and investment in personnel and infrastructure.

Successful project management necessitates a strategic approach to

overhead and profit, with the goal of achieving a reasonable return on

investment while remaining competitive in the market.

Profit is difficult to specifically quantify. Profit margins generally

range from 3-10% of the sum of the total project cost, but this level

can vary greatly depending on the risk of the project, competition and

the actual time that it takes the contractor to complete the job. As a

good practice, keep a consistent benchmark and estimate profit at the

same level on all items on all projects. Periodic adjustments to the

benchmark may be needed depending upon information learned and

through experience. Along with keeping the percentage of profit and

overhead constant, it is also a good practice to be consistent with

where profit and overhead are applied. It is recommended that profit

and overhead are assessed on a per item basis. The reason for this is

the fact that every item within an estimate may not be estimated using

a cost-based method. Therefore, if a global profit and overhead are

used, the mark-ups may inadvertently be applied twice on the same

project since historic bid item estimates already have mark-up

included. Also, to truly have a benchmark cost per item, all costs of a

particular item should be included. Having all of the mark-up in one

pay item such as the mobilization pay item is not an accurate

depiction of how the cash flow for the project will actually occur and

can distort the true cost history of a work item.

Summary

To ensure project success, numerous factors such as personnel,

supplies, equipment, and subcontractors must be effectively

coordinated. Labor, which includes both skilled and unskilled labor,

need careful human management and skill alignment. Materials,

which are essential for building or manufacturing, need prompt

purchase and quality monitoring. Equipment, from machinery to

tools, must be deployed optimally for maximum efficiency.

Subcontractors provide specialized experience, which helps to

streamline certain processes. Integrating these factors necessitates

thorough planning, communication, and monitoring in order to

achieve a harmonic partnership and improve overall project efficiency.

Managing labor fringes, taxes, and insurance expenses, on the other

hand, is critical in project financial planning. Labor fringe benefits,

which include advantages other than salaries, account for a sizable

component of labor expenditures. Direct and indirect taxes and

insurance expenses all contribute to financial commitments and risk

mitigation.

Meanwhile, material and equipment taxes play a critical role in

project cost assessment, necessitating a thorough awareness of local

rules. Finally, understanding bond and insurance costs is critical for

risk management in industries such as construction. Bonds serve as

assurances for project completion, whilst insurance protects projects

from unforeseen catastrophes. Integrating these expenditures into the

total project budget is critical for proper financial planning as well as

the overall success and sustainability of the endeavor.

References : (at least 10 references)

 Building blocks student handout. Retrieved from

https://www.fhi360.org/sites/default/files/media/documents
/cfpb_building_block_activities_whatisinsurance_handout.pdf?
fbclid=IwAR3O9idPmaag2xgyC8r4ldnAuhSD1e8MZAWCl_3ecY
BDDSfM4YTyfh57A8M.
  Bureau of Internal Revenue, (2014). Excise Tax. Retrieved from
https://www.bir.gov.ph/index.php/tax-information/excise-
tax.htmlwww.bir.gov.ph.
 Idaho Transportation Department, (2020). Construction Cost
Estimating Guide. December 18, 2023 from
https://apps.itd.idaho.gov/apps/manuals/Const-Cost-
Estimating-Guide.pdf.
 Nelson N. (2021). Understanding sales tax rules for the
construction industry. Retrieved from
https://www.wolterskluwer.com/en/expertinsights/understan
dingsalestaxrulesfortheconstructionindustry?
fbclid=IwAR0pun3kNIVv03CCywbDOkEIxtwwEoXIvmCJnItheQ
q9ENlarMzZdQKueg.
 PAISABAZAAR, (2023). Value Added Tax (VAT). Retrieved from
https://www.paisabazaar.com/tax/vat/.
 Reuters T. (2023). What is the sales tax?. Retrieved from
https://tax.thomsonreuters.com/blog/what-is-sales-tax/.

Questions (Multiple Choice): (at least 10 questions)

1. ______ is the duration in which all physical project work,

including any authorized additional or extra work, is to be
completed.
a. Contract time b. Wage Rates c. Labor d. Equipment

2. The amount and type of labor is established, the pay level for the

labor must be found.

a. Contract time b. Wage Rates c. Labor d. Equipment

3. Prevailing wages vary by region, so the location of the project plays

a factor in determining appropriate wage rates.

a. Location of the Project b. Overtime c. Scheduled. Resources

4. Once the equipment needs have been established, the estimator

needs to know how much it will cost to have the equipment on the
job.
a. Location of the Project b. Resources c. Schedule d. Wage

5. It represents the collective interests of workers, bargaining with

employers over such concerns as wages and working conditions.

a. Union Wage b. Open-shop Wage c. Schedule d. Wage

6. An open shop is a place of employment where workers are not
required to join or financially support a union as a condition of
hiring or continued employment.

a. Union Wage b. Open-shop Wage c. Schedule d. Wage

7. ______ must pass this tax onto your customers as part of the
material cost. Do not itemize it separately on customer invoices.

a. Contractors b. Supplies c. Materials d. Bond

8. The financial gain a business receives when revenue surpasses

costs and expenses.

a. Contractors b. Profit c. Percentage d. Expenses

9. The percentage of overhead may range from _____ of the volume of

work based on the size of the contractor.

a. 7-20% b.8-20% c.5-20% d. 4-20%

10. ____ a fee associated with certain types of life insurance, such as
variable and universal life insurance. Different from premiums,
these charges are billed to pay for administration, mortality and
other responsibilities of the insurer.

a.Unit Cost b. Insurance Cost c. Materials Cost d. Bond Cost

Answer Key

1. a
2. b
3. a
4. b
5. a
6. b
7. a
8. b
9. a
10. b