Cle 433 - Bidding and Estimating...2010

8/8/2019 Cle 433 - Bidding and Estimating...2010..

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CYPRUS INTERNATIONAL UNIVERSITY

CIVIL ENGINEERING DEPARTMENT

BIDDING AND ESTIMATING

CLE 433

LECTURE NOTES

Prepared by: Prof. Dr. Tahir elik


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September, 2010

CHAPTER 1

BILL OF QUANTITIES

1.1 Documents of Construction Contracts

A contract describes comprehensively what the works are and how payment isto be made. The works are often quite complex, involving the contractor inthousands of different operations and requiring him to buy hundreds of differentmanufactured items and materials and to employ a wide variety of men andmachinery.

The construction contracts bind the contractor to construct the work and theemployer to pay to the contractor for them. Hence the contract itself comprisesa number of documents as follows.

a)Contract drawingContract drawings pictorially show the works to be built, their dimensions andlevel, etc.

b)SpecificationSpecification describes in words the work to be built, the quality of materials,workmanship to be used and method of testing etc.

c)Bill of quantitiesBill of quantities gives the expected measure of each operation of constructionas calculated from the drawings and classified according to trade or locationwithin the proposed works.

d)General conditions of Contract

General conditions of contract define the liabilities, responsibilities, and powersof the employer, contractor and engineer. And also cover the method ofpayments, insurance, liability of parties to the contract.

e) Tender

Tender is the signed financial offer of the contractor to construct the worksaccording with (a, b, c, d) above.

a) Letters of Explanation

They cover the matters, which are agreed between the parties of the contract toelucidate their intentions.

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g) Legal Agreements

Legal agreements documents that are signed by both parties, owner andcontractor, confirming their intentions as defined by all foregoing documents.

1.2 Specifications

While the drawings show the extend and quantity of the work, the specificationsdefine the quality and standards of it. Specifications are prepared by anengineer while contracts are prepared by lawyers. Specifications are supposedto be specific and not general.

In a satisfactory specification, following characteristics should be covered.

a) Balance Composition: The specification should contain all therequirements consistent with the result desired.

b) Definite requirements: There must be directions, not suggestions that maylead to uncertainty. Do not use indefinite expressions like Reasonable or BestQuality and defined the days as working days or calendar days.c) Accuracy: Non-accurate and misleading information will not take place inthe specifications. Repetitions in text are sources of error.d) Practicability: Use standard sizes and patterns as much as possible. Theimpracticable requirements let the contractor to add an extra safety factor toprotect himself.e) Presentation of conflicting requirements: They are sources of error.f) Fairness: Do not impose the contractor harsh and unfair conditions and donot conceal difficulties from him. The risk, increases the cost of the construction.

The specifications are generally divided into two.

i) General specificationsii) Technical specifications

1.2.1. General Provisions

They related to the whole work, to the standardized materials, the control of thework and references to contract drawings.

Such as

a) Drawings: (If the contractor will prepare the drawings) they must be exactand suitable to the drawing techniques. Details on large scale must be

prepared. The contractor should check all dimensions. He has the responsibilityof for all discrepancies.

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b) The sequence of the work: The sequence of the work should bedetermined by the contractor. But when the owner or public interests indicatethe necessity for a definite sequence of operations, details should be given inspecifications.

c) The progress schedule: Periodical reports to the engineer provide themeans for direct control and coordination of the whole work. A new schedule isrequired when the construction time is extended.d) Control of materials: The contractor is required to furnish all samples andbear all expenses for their sampling, transportation and testing.

e) Space: In specifications, the space for constriction operations and storage ofmaterials should be written explicitly.

f) Information: Information on water, light sources and costs should be givenand also the expenses for their use must be written.

g) Facilities to the engineer: The contractor will be required to furnish at hisown expense the facilities necessary for the engineer (field office etc.) and itmust be given in how many weeks after commencing of work those facilitiesshould be prepared.

h) Warranties: The work must be free from defects for a special period (usually

one year from the acceptance date of the work).

i) The owners right to use: The owner; right to use completed portions of thework should be stated. Such portions will be accepted by the owner and thecontractor will be relieved from his responsibility for maintaining them.

1.2.2. Technical Provisions

They contain the service and quality requirements of the work and technical

requirements for inspection and test during the construction. Sections aredivided to different works, equipment and materials following the order of thepracticable sequence of the construction operations.

Technical provisions (specifications) are divided as

a. Specifications for materialsb. Specifications for workmanshipc. Specifications for performance

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a. Specifications for Materials

After an examination of their suitability and costs, the material should bespecified by their properties, which are capable to be tested (Physical andchemical properties). The type of the tests must be specified (standard test if

possible). The tests may be omitted if the qualities of the materials are easilydetermined.

b. Specification for Workmanship

Result will be specified and not the methods (the latter will be selected by thecontractor). The normal procedure is,

Specifications of the results, tolerance Construction methods or procedure necessary for particular purposes. Limitations or restrictions on the contractors method in interest of the

coordination of the work. Precautions to protect the work or adjacent property. Methods of inspection and test.

c. Specifications for Performance

The desired operating characteristics and the working conditions are specifiedand provisions are made for tests, inspections and warranties to guaranteedurability and avoid defects.

1.3 Bill Of Quantities

Bill of quantities is a list of numbered items where each of them describes thework to be done in a civil engineering or building contract. Each item shows thequantity of work involved. The bill is issued to tenderers, who return it with aprice opposite each item. This priced bill of quantities constitutes the tenderer'soffer. It is possible for the bill to include the specification.

Bill of quantities is a contract document to define the quantities of work to bedone in each type of the activity of the contract. The quantities are notapproximates, they are EXACT being measured as accurately as possible fromthe drawings. When the work is constructed the quantities are replaced by themeasurement of the actual quantity of work the contractor carries out undereach item. Again this must be an accurate calculation.

1.3.1 Items

For large works it may be necessary to divide bills of quantities into separateparts of the job, each group being subdivided into its various trades as listed in

some standards or perhaps as listed below:

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Demolition work (if a major item in the contract)Excavation and fillingPipe-laying (if a major item in the contract)Roads (if a major item in the contract)

Concrete-in situ- Reinforcement- Shuttering- Pre cast- Pre stressed

Brickwork, Masonry, Water proofing work, Steelwork and iron work, Roofing andcarpentry, Joinery, Flooring, Plastering, Glazing, Electrical, Plumbing, Painting,Fencing.

The order given is not strict; it may be changed as seems reasonable. Besides,some of the trades listed above may not exist in a particular contract. So it is ausual practice to divide the job into its main sections. For example, the main billsections for a bridge might consist of:

i) Piersii) Abutmentsiii) Superstructureiv) Approach roads and surfacing

v) Miscellaneous

Within each section the items would be taken in order grouped under trades-Excavation, compacting bottom soil, reinforcement, shuttering concreting etc. Asense of proportion must be retained when billing quantities. If, for example, amain civil engineering work for a bridge is likely to cost ten billion TL, it is awaste of everyones time to bill every little quantity involved in constructing afew ancillary roadside manholes on the approach roads such as, excavation formanholes; concerting to manholes bases; brickwork to walls of manholes;

providing and setting manholes covers. However, if these manholes are more orless similar they should be specified comprehensively in the specification andshown on the drawings, and can then be billed in a single item: Constructmanholes as specified on the drawings.

1.3.2 Numbering of Items

The engineer who prepares the bill may find that an item or two has beenmissed out. Even if his work is perfect, others may ask amendments involvingaddition to the quantities. If the items have been numbered right through from

beginning to end it is then difficult to add a further item which has been

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forgotten at the proof stage of producing the bill of quantities because thismould involve renumbering all items subsequent to the insertion and checkingto see that all cross-references are corrected. The only possible way to avoidthis difficulty is to insert the forgotten items as an A item, e.g. Item 38 A or to

collect these as Late Items at the end of a bill.

A useful way of numbering the original bill items is to use a letter prefix to eachnumber, using different letter for each section of the bill. Thus, Excavation itemsare numbered A1, A2, A3 etc; Concreting items, B1, B2 etc; Reinforcementitems C1, C2 etc. and so on. Hence if, before the bill is printed, additionshave to be made to it the additional items can at least be added at the end theircorrect section without disturbing the numbering.

The pages in a bill of quantities are divided, into columns. See fig.3.1. Thedescriptions of the work are printed clearly to enable the contract to price everyitem. Each priced page in totaled and carried to a collection, and all thecollections relating to a section of the work is carried to a summary. Finally allthe summaries are collected at the back of the bills of quantities under aheading of General Summary.

1.3.4 Costing

Accurate costing of civil engineering construction work is very undertaking

separate classes of work such as concerting, bricklaying, shuttering etc; orfinding out the cost of undertaking separate portions of the work-such as thecost of access roads, subsidiary building, main buildings installation ofmachinery etc. Costing involves finding charges for , material, plant andoverheads.

To apportion charges it is necessary for the workmen, or the section foremanacting on behalf of the men in his team, to fill up time sheets showing the hoursspent each day by each day by each man on the various type of work. The

hours entered on these sheets must be priced out so that the cost can then beallocated under the different headings by the cost clerk. Difficulties arise indealing with:

(i) Overtime and other miscellaneous wage payments, and(ii) The time sheets of men such as fitters, time-checkers, flag-men, night-watchmen, chairmen, storekeepers, etc., whose work cannot be directlyallocated to a specific site operation. Decisions have to be made (in advance ofsetting up the costing system) as to how such mens time sheets are to beallocated. They may be separated out into different categories, of they may allbe put under the heading site on-costs.

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The allocation of charges for materials presents further difficulties, since thepaper work on site is usually concerned only with checking the inflow ofmaterials against the suppliers invoices, and none of the basic records may

show where the materials have been used in the separate parts of the job. Thebill-of-quantities measurements can be of assistance for calculating quantities(and therefore price) of materials used in the permanent works, but there aremany more materials, such as timber for shuttering, scaffolding, small tolls,diesel oil and fuel oil, nuts and bolts, etc., which are not used in themeasurement records. As with wages which cannot be directly charged to anyspecific operation, so materials which cannot be coasted out to particular partsof the job will have to be charged as part of site on-costs. Provided the plant-hire charges are known, the allocation of plant charges is relatively easy on thebasis of the daily returns of plant usage provided by the plant foreman.

In addition to the items already mentioned, it is necessary to add in the varioussite administration charges to the account for site on costs-waters of generalforeman, engineers, site clerk, waters clerk, agent and sub-agents, etc.,together withal such other charges as telephone, water supply, messing,sanitation, insurance of works, petty cash, etc.

The result of all this is that a heavy proportion of the total cost virtually cannotbe analyzed and has to be put under the general heading of site on-costs. A

further difficulty then reveals itself, namely that the ratio of these site on-costs tothe direct charges varies from week to week of the job according to the output,amount of overtime worked, amount of temporary works being built at any onetime, and so on. On-cost expenditure at the beginning of a job may be severaltimes the cost of the direct (or productive) expenditure because of the largeproportion of and materials used on preliminary works, such as access roads,power and water supply, etc., etc. When productive effort is in full swing the on-cost drop to their lowest, but they tend to rise again towards the end of the jobas productive work tails off and site clearance, removing sheds, transporting

plant off the site, etc., takes place.

The reader will not be surprised to learn that in consequence few, if any,contractors cost works in the manner outlined above. The actual cost of aportion of a job, or of a particular operation, is never known. What is known isthe estimated charge as set out in the bill of quantities according to the quantityof work actually done and measured?

It is only possible to find out the cost of separate parts of operations on a jobby using the estimators figures put in the bill of quantities, and the only way

these estimated figures can be checked against the real figures of actual

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expenditure is by comparing the total estimate against the total expenditure. Ofcourse, the direct costs involved in any particular operation can be ascertainedwithout difficulty. The number of men and the hours they spent on thatoperation, together with the materials and plant they have used, can be

carefully noted that apply; but the indirect costs, representing a heavypercentage addition, can never be exactly apportioned out; they can only beapplied as a general percentage added to all the operations. Hence contractors,if they do costing at all, carry it out on a different basis from what the layout of abill of quantities seems to imply.

The practicable headings under which a contractor can expect to analyze hisexpenditure are more likely to be: gross waters paid, transport of men, non-productive hours (i.e. plus rates for overtime), cost of wet-time; materials usedin permanent works, materials used in temporary works, materials used inshuttering; equipment, scaffolding, small stores; fuel and power; plant hire, plantrepairs; temporary offices and services; site staff and administration expenses.To check any estimate submitted against a bill of quantities, the sum total of thetendered prices in the bill will be compared with an estimate based on theexpected number of men and machines required for the job, together with acalculation of the cost of the materials to be used in the permanent works, towhich are added all the other on-costs applicable, as judged from costingrecords of other jobs undertaken as outlined above.

Thus, the price submitted individually in a bill-of-quantities contract may notrepresent the actual separate cost to the contractor of each such item, but theyshould in total represented the total expenditure to be incurred, including anallowance for profit.

CHAPTER 2

ESTIMATING

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2.1 Introduction

Client or promoters of the construction rely on competitive tendering to justify

the awarding of contracts. Most construction contracts are awarded after anumber of contractors have submitted a tender. Constructor contractors basethese tenders on an estimate of the cost to the contractor, of executing the workdescribed in the contract documents. The estimating department is therefore ofcentral importance to the commercial success of the contracting organization.

2.2 Estimating in Large and Small Organizations

Figure 2.1 shows a schematic representation of the nature of the predominant

estimating practices that can be associated with different types of constructionand related organizations. The client and design consultants often typically relyon approximate estimates to make decisions at the early stages when thescope and scale of the project are being formulated. The gradual progressionof the major contractors role from a traditional works contractor towards themore managerial work-package integrator has resulted in a shift in emphasison estimating from first principles. Increasingly, such major contractingorganizations aggregate price quotes from work-package contractors andprovide adjustments for attendances, identified risks from both the quoted

prices and other allied project factors and margins.

Figure 2.1 Estimating practices in different types of construction organizations.As such, the type of data collected for the estimating exercise is largely

influenced by the nature of the contractors organization. The smallercontractors who often deliver the work packages have to compute their

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the project, the duration and sequence of the key activities, and approximateresource totals for and plant.

iv) Buyers are usually responsible for purchasing materials and placing orders

with plant wire companies and sub-contractors. They provide quotations formaterials, plant hire and sub-contractors.

v) Plant managers are responsible for the companys plant department andsupply estimators with current internal hire rates and advice availability ofcompany owned-plant.

vi) Temporary works designers are responsible for designs of majortemporary works such as bridge, false work etc. Estimators would take adviceon the nature of the temporary works.

vii)Site management is the personnel who are employed to take responsibilityfor the execution of projects on site. This expression covers agent worksmangers, engineers and surveyors. The contribution of site management toestimating is to provide advice to the estimators on methods of construction.

2.3.3 External Organizations

Material suppliers, plant hire companies and sub-contractors all get involved in

the estimating process. They receive and respond to enquiries for quotationsfrom contractors.

2.3 The Estimating Process

Figure 2.2 shows a generic model of the estimating and tendering processwithin a construction company. The process involves both the planning andestimating departments. The estimating process commences with an invitationby the client for the contractor to submit a tender for a proposed project.

Estimating practices within construction companies have in the past been basedonly on the Bill of Quantities (BOQ) type of contract. Although this is still veryrelevant today, there are a number of variants to the BOQ approach, such asestimating for work packagesthat are finding increasing popularity.

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Figure 2.2 Activity flow showing the role of estimating in the tendering process

of construction.

2.4 BOQ estimating

BOQ estimating is undertaken for contracts that rely on client-prepared contractdocuments and a bill of quantities. This is still the most common type of contractin the UK. The contractor's role is to estimate how much it will cost to do theproject so that it can be priced reasonably.

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The process undertaken to produce a cost estimate, which can be used as thebasis of a tender, is described in the following steps:

The basic steps of estimates are:

a) Decision to tenderb) Programming the estimatec) Collection and calculation of cost informationd) Project studye) Preparing the estimatef) Site overheadsg) Estimators reports

2.4.1 Decision to Tender

The decision to tender for a particular contract is mainly the responsibility ofsenior management; there are three possible points during the estimating andtendering process where this decision must be made. The first is during the pre-selection stage, if a pre-selection procedure is being used. This decision wouldbe based on pre-selection information provided by the clients' staff orrepresentatives and would include such information as:

Name of the job

Name of the client architect and quantity surveyor or consulting engineers Names of any consultants with supervisory duties Location of the site General description of the work involved Approximate cost range of the project Details of any nominated subcontractors for major items Form of contract to be used Procedure to be adopted in examining and correcting priced bill{ s) Whether the contract is to be under seal or under hand

Anticipated date for possession of the site Period for completion of the works Approximate date for the dispatch of tender documents Duration of the tender period Period for which the tender is to remain open Anticipated value of liquidated damages (if any) Details of bond requirements (if any} Any particular conditions relating to the contract

The contractor may have signified their intention to submit a tender at the pre-selection stage, but has a further opportunity after receiving all contract

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documents to review them and consider, in the light of fuller information,whether they wish to proceed or not. The third and final point of decisionwhether to submit a tender is after the estimate has been prepared and thecontractor is ready to submit. A decision at this stage not to tender is rare but

allows the contractor to review the events of the intervening four to six weeksand the changes in workload that have occurred in that time.

The decision to tender is based on such factors as:

The companys current workload, turnover and recovery of overheads

The companys financial resources

The availability of resources to undertake the work

The type of work

The location of the contract The identity of the client or promoters and his representatives

A detailed examination of the contract documents

2.4.2 Programming the Estimate

After the contract documents have been received and a decision made totender, the tasks required to complete the estimate are program and a scheduleof key dates established to monitor progress. This is essential as the time to

submit a tender is limited. The two main tasks that can now take place are thecollection and calculation of the cost information, required to prepare theestimate, and a study of the project to gain the required appreciation of thework involved in the contract. These two tasks take place in parallel and areinterrelated.

2.4.3 Collection of Cost Information

The cost information required for, labor, plant, materials and subcontractor will

be collected.

2.4.3.1 Labor

The estimator is required to calculate the all-in' rate for each category of , whichis an hourly rate covering all wages and emoluments paid to the operative, allstatutory costs incurred and allowances for holidays and non-productive

overtime. As an alternative to the hourly rate, the all in rate may be calculatedas a daily or weekly rate. An example of this calculation is set out below. As the

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all-in rates are calculated by the estimator, they can be established early andaccurately in the estimating process.

The basis of this calculation is to determine the total worked hours in a year and

the total cost for the working year and hence the cost per worked hour. Thecalculation is complicated by the difference between the hours worked and thehours paid, which exceeds the hours worked by such items as overtimeallowances, public holidays and inclement weather.

The calculations set out in this example are based on a real example andcontain data that are available in the Working Rule Agreements, assumptionsmade by a contractor's estimator and the data relating to statutory obligations.

Working times

The guaranteed minimum earning period for construction workers is 39 hours.This is based on a 5-day working week for the site works. During the 44-week '

summer' period, the daily hours are 8.00 a.m. to 5.30 p.m. This gives a workingday of 8 hours plus 1 hour overtime for Monday to Thursday; and 7 hours plus 2hours overtime for Friday, making up in all a working week of 39 hours plus 6hours overtime. During the 8-week 'winter' period, the daily hours are 8.00 a.m.to 4.30 p.m. This gives a working day of 8 hours for Monday to Thursday, and 7hours plus 1 hour overtime for Friday, and giving a working week of 39 hours

plus 1 hour overtime.

2.4.3.2 Plant

The hourly or weekly cost of plant can be either as result of internal calculationor as a result of quotations. Methods of calculating hire rates are given in CLE491 Construction Plant Management Lecture Notes. Quotations for hire can beeither internal rates from the plant department or the contractor's plantsubsidiary, or external hire rates from an independent plant hire company.

Calculated rates or internal rates can be established very early in the estimatingprocess. External hire rates may take a little longer to obtain, but it is unusual tosuffer serious delays in receiving quotations.

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2.4.3.3 Materials

Materials quotations are more problematic in that materials not only form asignificant percentage of the works but, because of the volatility of materials

prices, contractors have to send out unique enquiries for almost all materials inevery estimate prepared. The materials enquiries include information such asthe quantities required, the specification the approximate delivery dates and theterms and conditions upon which the quotations are being invited.

To enable these enquiries to be sent out, the estimator must go through the billof quantities and specification, extract the relevant information and prepare a listof required materials. Because of the time taken to send out and receivequotations, this task of preparing the materials lists is undertaken very early inthe estimating process. In some companies, a 'buyer1 may send out the

enquiries, chase the suppliers who fail to respond and check and compare thequotations. In other companies, this task may be undertaken by the estimators.

Enquiries sent to suppliers normally include:

Specification of the material Quantity of the material Likely delivery program including both the period for which supplies would

be needed and the daily or weekly requirements

Address of the site Means of access Traffic restrictions and conditions affecting delivery Period for which the quotation is required to either remain open for

acceptance or to be firm Date by which the quotation is to be submitted Name of the person within the contractor's organization to whom any

reference concerning the enquiry should be made.

Buying departments usually have standard letters or forms for issuing enquiriesand, where convenient, parts of the contract documentssuch as extracts fromthe specificationare photocopied to accompany the enquiry. As the estimatoris responsible for completing the estimate an enquiry index or progress chart isusually kept so that the stage of each enquiry can be readily monitored.When checking quotations, the estimator is required to ensure that quality andquantity of materials meet the specification of the contract documents, and canbe delivered to the site at the times required by the construction program. Inaddition, the contractual obligations to be entered into for the supply of thematerial must be satisfactory.

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The determination of the materials prices for inclusion in the direct cost estimatemaybe considered to be one of the most precise aspects of estimating. Theprocess of obtaining materials prices, as has been described, can be seen toconsist solely of contacting suppliers who have the material available and

negotiating a suitable rate under satisfactory contractual conditions- In addition,the estimator has to undertake the more difficult task of determining allowancesfor material wastage, damage, theft, delivery discrepancies and handling insofaras they affect the costs of the works.

2.4.3.4 Subcontractors

For the traditional BOQ approach, subcontractor enquiries also have to be sentout early and the estimator will prepare lists of the items and work that will besubcontracted. As with materials, these enquiries may be dealt with by a 'buyer'.

Following receipt, the quotations must be compared and the subcontractorsselected. The rates for the selected subcontractors will be included in theestimate together with allowances for attendance and other services. The profitto be added to the main contractor's own subcontractors and to the nominatedsubcontractors may be included at the estimating stage or left until the finaladditions following the tender meeting. The difference between materials andsubcontractors is that in most cases the materials costs are combined with plantand to produce costs rates for items of work, whereas the subcontractors1 rates

in many cases will stand on their own together with an allowance forattendance.

As part of the preliminary study, the work that is to be subcontracted wouldhave been identified by the estimator. The factors that control the decision ofwhich works to subcontract are mainly the specialization of the work involvedand the size of the contract. Most contractors establish by practice the type ofwork they normally subcontract. In undertaking contracts larger than usual, acompany may wish to subcontract some work they would normally undertake

themselves, the reason being to offset some of the financial risk. The absenceof a direct financial risk in subcontracted work is not a total security because ofthe indirect risk of losses caused by delay and disruption to the main works ifthe subcontractors default. For this reason, effective control of subcontractedoperations is important and this control begins with the selection ofsubcontractors. Most companies keep a list of approved subcontractors forvarious classes of work as a guide to estimators in the comparison ofsubcontractor quotations.

Since the 1980s, there has been an enormous growth in the use of

subcontractors by the main contractor. The reason for this developmentprimarily was to enable the contractor to take on additional workload without the

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need for increasing internally the level of employment and capacity required toexecute the extra workload, thus ensuring greater flexibility. The need for thisdegree of flexibility by the contractor derived from the volatility in the industry'sworkload. The use of subcontracting transferred some of the financial risk

associated with maintaining the additional capacity to the subcontractor.

The trend towards the use of subcontractors continued through the 1990s. Thismeans that the relative importance of the areas of risk associated with usingsubcontractors increased. This risk is acknowledged by contractors, who rely ontheir vetting and selection procedures to reduce it to acceptable levels. Thecontractor who bases a tender on a subcontractor's quotation merely because itwas the lowest would be unwise. Since the beginning of the 21st century,changes in employment laws and taxation have reduced the advantageassociated with subcontracting for -only arrangements (LOSC), Under thesechanges, the main contractor is still responsible for ensuring statutoryentitlements of all the LOSCs it employs. The following briefly views the riskareas associated with the use of subcontractors.

Attendances

Estimating attendances, such as equipment, scaffolding and tools, whencomparing and selecting subcontractors is assuming a greater priority inestimating work. Not all quotations are consistent in the attendance requirement

and comparing the simple quotations is inadequate. Very often, a subcontractorwill by negotiation take on more onerous attendances within the stated price.Estimating attendances may in itself prove critical in winning a contract orindeed in being able to execute a contract profitably.

Materials

The importance of material costs is that they represent above 50% of the costprofile of the construction industry A small percentage cut in materials costs

could bring a sizeable increase in profits. For example, a 2% cut in materialscould increase profits by much more than that which could be achieved by a2% cut in overheads.

The estimating of material cost in any tender is, therefore, an important elementand an inaccuracy in their estimates is likely to affect the outcome of the tenderand the profitability of the subsequent contract. Furthermore, it is obvious thatany appreciable waste is a significant item of cost and represents a great loss toboth the nation s resources and the main contractor.

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Any problems related to the security of the site Description of the access to the site Topographical details of the site Description of the facilities available for the disposal of soil

Description of any demolition works or temporary works to adjoiningbuildings.

2.4.4.3 Method statement

Method statements are descriptions of how the work will be executed withdetails of the type of labor and plant required and a pre-tender program. It is inthe preparation of these method statements that alternative methods ofconstruction are considered, together with alternative sequences of work,differing rates of construction and alternative site layouts. As these evaluations

progress, the preferred method of construction is chosen and the pre-tenderconstruction program illustrating this is prepared.

In preparing the method statements, the estimators and planners work closelyand also consult with site staff, plant managers and temporary works designers.The pre-tender program prepared will show the sequence of all the mainactivities and their durations, as well as the duration of the overall project. Fromthis pre-tender program, approximations of the labor and plant resources will becalculated. This pre-tender program is not an exercise carried out once only

and left, but is subject to continual refinement and modification as both theestimator and planner become more and more aware of the implications of theproject details. Thus, throughout the preparation of the estimate the estimatorand planner remain in close consultation. In many contracts, the pre-tenderprogram is prepared in the form of a bar chart; in some of the larger and morecomplex projects some form of network analysis is used. Networks are alsoused in smaller contract companies, who have become skilled in theirpreparation and use and aware of their advantages.

2.4.5 Preparing the estimate

The estimator's task is to determine the cost to the contractor of executing thework defined in the contract documents. This cost estimate will be modified bysenior management in consultation with the estimator to determine the tender orselling price. The estimator is required to establish the direct cost rates for eachitem in the bill of quantities. A direct cost rate is a rate for the labor, plant,materials and subcontractors, but exclusive of additions for site overheads,head-office overheads and profit. These will be assessed and included later.

Determining a direct cost rate involves selecting the appropriate resources oflabor, plant and materials for the item of work (either a single bill item or a

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group of bill items), selecting the output or usage rates for each resource ordetermining the elapsed time that each resource (labor and plant) will beemployed and combining this with the cost information collected. Thiscombination of the unit cost of resources, together with the usage of resources

to produce a direct cost for the work described in the bill item or group of billitems, is illustrated in Fig 2 . 3 .

Figure 2.3 Selection of production rates and cost data and their combination toproduce cost rates.

2.4.6 Site Overheads

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The estimator assesses the site overheads

i) Site staff and clearing the siteii) Site transport facilities

iii) Mechanical plant not previously included in the item ratesiv) Scaffolding and gantriesv) Site accommodationvi) Small plantvii) Temporary servicesviii) Welfare, first aid and safety provisionsix) Final clearance and handoverx) Defects liabilityxi) Transport of men to sitexii) Abnormal overtimexiii) RiskThe costs of these site overheads are frequently allocated to the preliminary'section of the bill, but may sometimes be allocated, at least partially, to bill itemrates.

2.4.7 Estimators Reports

On completion of the estimate, the estimators prepare a set of reports forconsideration by the senior management. These reports contain,

(i) A Brief Description of the project(ii) A description of the method of construction(iii) Notes of any unusual risks, which are not covered by the condition ofcontract or bills of quantities.(iv) Any unresolved or contractual problem(v) An assessment of the state of the design proves and the possiblefinancial consequences thereof.(vi) Notes of any major assumptions made in the preparation of the

estimate(vii) Assessment of the profitability of the project(viii) Any pertinent information concerning market and industrial conditions.

The cost of work include in the estimate are reported to senior management incost reports that give the details of:

Main contractors

Main contractors plant allocated to rates and in preliminaries

Main contractors materials

Main contractors own subcontractors

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Sums for nominated subcontractors

Provisional sums and dayworks

Contingencies

Amount included for attendance on domestic and nominated

subcontractors Amounts included for materials and subcontract cash discounts.

In addition, a bill of quantities marked up with the direct cost rates showing the,plant, materials and subcontractor breakdown for each rate may form part of thereport.

As well as reporting the costs estimated for labor, plant and materials, theestimators also assemble the total hours for each category of labor and the

total hours or weeks for each major item of plant and total quantities formaterials. These resource totals are compared with the planners' calculatedresource totals and any difference reconciled. Figure 4.4 shows an example ofsuch a report showing resource totals and costs.The estimators may also calculate the cash flow for the contract based on arange of assumed mark-ups, which will assist senior managements judgmentas to what is the appropriate markup to select.

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Figure 2.4 Resource consolation report

2.5 Estimating in management contractingManagement contracting is a form of procurement strategy in which a contractoris appointed manage and provide leadership for the project during the pre-

construction stage, usually after the preliminary design and project definitionhave been completed. The main advantage of such an arrangement derivesfrom the experience that the contractor brings to the project to ensure greaterbuildability and more effective project management. A contractor engaged insuch a role is described as a management contractor, and performs acoordinating rather than the traditional construction role associated withcontractors. Under the NEC: ECC Option F, the management contractor'sresponsibilities for the construction work are the same as those under pricedcontract or target contracts. However, other contractors that are appointed inthe role of subcontractors or work-package contractors undertake theconstruction work as a series ofwork packages. ECC Option F [20.2] requires

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that all work packages that must be subcontracted should be clearly identified.All other works not to be subcontracted are covered by the fee of the manage-ment contractor- With the exception of the managerial role, the managementcontractor is allowed to subcontract any other work package not identified in the

list of work packages. These may include site preparation, the provision oftemporary works elements and other general and specific attendances commonto all the work-package contractors.

From a management contractor's perspective, the estimating functiondescribed for the BOQ type of contracts plays a lesser role in the tenderingprocess. This is because the work-package contractors perform the detailedestimating function. The management contractor's estimate for the actual costof the works is made up of all the estimates from the work-package contractors.The management contractor tenders a fee for the coordinating services inaddition to the estimated total of the prices for all work-package contracts. Thefee is usually based on the actual costof the work packages defined in OptionF [11.2(22, 26)]. The actual cost comprises solely the payments due to workpackage contractors for those work packages identified in the contractdocuments. Where additional works not identified in the contract documentsare subcontracted, this is covered by the fee of the management contractor.

A typical management contracting tender submission will comprise thefollowing:

Confirmation of acceptance for the conditions and any specific detailsdefined in the tender documentation of the proposed project

Fees to cover the management role performed during the pre-constructionphase of the project

Fees to cover the management of the construction phase of the project Proposed project team and the management structure Project strategy, detailing execution plans, overall program and method

statement

Project budget estimates covering costs of providing works not identifiedin the work packages Project budget estimates for work packages defined in the tender

documents from the work-package estimates submitted by work-packagecontractors

Confirmation of acceptance of conditions is based on the contractor's decisionto tender for the project, which is arrived at after detailed examination of thetender documents, establishing the potential workload and resourcerequirements for the project and evaluating the conditions of contract for themanagement service to be provided. In particular, the scope and responsibilities

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of the management contractor as defined in the conditions of contract will havean impact on the level of fees in order to adequately cover all risks to thecontractor. The management decision to tender or decline the offer is takenbased on the same factors as in the BOQ approach for tendering.

2.5.1 Estimating the management contractor's fee

The management contractor's fee comprises four main elements. These are:

Profit Corporate overheads Other specific items Project and business risks

2.5.1.1 Profit

The level of profit is set to reflect the contractors long-term business objectivesand the conditions prevailing in the industry with respect to common practiceand extent of competition. The level of profit is a managerial decision that istaken at the tender adjudication.

2.5.1.2 Corporate overheads

This covers all overheads not charged directly to the contract. The corporateoverheads comprise general head-office expenses such as companyadministration, market research and business development, tendering,accounting and auditing, head-office support for regional offices, legal services,professional indemnity and public liability insurance. The level of overheadcharges is set either as a percentage of the project costs or as lump-sum itemsto cover each specific overhead by taking account of the size, duration and theextent of support envisaged for the contract.

2.5.1.3 Specific itemsCosts included in the specific items comprise project-related services requiredfor the efficient management of the contract. They include

Site-based services such as: Inspections Safety advice, planning and supervision Preparation of documentation for cost plan, safety plan and quality plan Industrial relations management Post-contract administration

Project-related insurances to cover:

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Physical works Third party Plant and equipment Guarantees

Other client interests Bonds:

Bid bond Performance bond

Additional works: Any non-management work not defined as part of the project's work

packages.

2.5.1.4 Risk

The risk associated with each of the following risk elements will be estimatedand included as part of the fee:

Cost overrun on lump-sum work or management elements to cover anyfuture cost escalation or estimating error

Fee that is not recovered as a result of variation to the project Defective work Neglect of duty by work-package contractors Bankruptcy of work-package contractors

Liquidated and ascertained damages not recovered from work-packagecontractors

2.6 Types Of Estimates

An estimate can be prepared at any point in the life of a project. Estimates aredeveloped early in the design process so that the owner and designer have costinformation to guide the design. They are also developed during later stages ofdesign to ensure that costs are within a given budget. During bidding, the owner

uses estimates to check that the bids are a fair cost for the work. At bid time,the most extensive estimate is done by the contractor. This bid represents theactual costs as the project goes forward into construction. Estimates continue tobe used during construction in case there are changes on the job or to helporganize a specific set of activities.

A series of estimate types has been developed that serves each of these sit-uations. The differences among these estimates are a function of the infor-mation available at the time of the estimate. Generally, estimates done in the

later stages of design and during the bidding period are more accurate thanones done early.

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2.6.1 Estimating during Design

Design estimates are important tools for the owner and the project management

team as they develop the project's scope of work. The discipline of providingcost information throughout the design phase makes cost a significant driver forthe project team. Designers, in their zeal to provide exciting solutions to theprogram, sometimes lose sight of the budget parameters. Owners can also getcaught up in the excitement of desirable design features that in reality couldcompromise the budget or mean cutting the project in other areas. By providingcost information early and updating it throughout the project, cost professionalscan keep the project team well grounded in the realities of cost.

2.6.1.1 Rough Order of Magnitude Estimates

In the conceptual stages of a project, very little is known about specifications.Design information may only contain sketches or concepts. Descriptions aregenerally in terms of capacity, such as the number of hotel rooms, hospitalbeds, or parking spaces. Rough order of magnitude (ROM) estimates typicallyestablish a cost per unit of capacity (see Figure 2.5). These units are developedmainly from past projects. Examples are cost per bed for a hospital, cost perapartment, cost per pupil for a school, or cost per mile for a highway. Bymultiplying this cost times the number of units proposed for the project, a

preliminary number can be established. If the costs are developed according toa national average, they must be adjusted using the appropriate city cost index.Costs taken from past projects must be adjusted to current or future dollars. Ifthe project is smaller or larger than normal, the cost is adjusted for size. Anappropriate contingency should also be applied to allow for scope adjustmentsand economic or market conditions.

As with all estimates, the accuracy of a ROM estimate depends on the quality ofdata used. If the company doing the estimate has a good historic data base of

similar projects, that is the best source for that information. If this data is notavailable, there are nationally published data bases that can be consulted.

One advantage of a ROM estimate is that it can be calculated quickly, often in afew hours, and is typically assumed to have an accuracy of plus or minus 20percent. This quick turnaround can enable an owner to look at several optionswithout having to invest too heavily in any one. These estimates are often thefirst costs that an owner sees. Although they are normally accomplished withlittle information, the number put forward at this time tends to be the numberthat the owner remembers; and consequently all estimates that follow are

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compared to this. It is therefore important for the estimate to be qualified. Allassumptions should be listed and all information considered identified. In the

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Figure 2.5 Rough order of magnitude estimate (From Means Assemblies DataBook, 2001).

early stages of project development, this type of estimate is an important tool,but its limitations must be fully understood and articulated.

2.6.1.2 Square Foot/Cubic Foot Estimates

Once a design has reached the early schematic stage, it will start to producefloor plans, elevations, and building sections. This information makes possiblethe calculation of floor areas or building volumes, which can then be multipliedby appropriate unit costs to produce a square footorcubic foot estimate. Theappropriate unit costs are derived from either in-house sources that track pastsimilar projects or outside data sources. This base cost is adjusted to reflectmore project-specific factors. Any actual project data that can be folded into thehistoric data will improve the accuracy of the estimate, Information regardingstructural systems, building height, exterior closure, and overall footprint of thebuilding are all factors that will be assumed by the estimator if real data are notavailable.

A square foot or cubic foot estimate, while more complete than a ROM es-timate, is still quite schematic in detail. It is, however, easy to prepare, takingonly a couple of hours. The general assumption for accuracy is plus or minus 15percentbetter than the ROM estimate because it is based on more project-

specific information.

Example - Problem

Estimate the cost to construct a 55,000 square-foot motel. The motel will be atwo-story building. The exterior wall will be made of decorative concrete block,and the building will use a precast concrete floor system. Other features include150 ceiling smoke detectors, 10 nickel-cadmium emergency lights, and a 500-square-foot gunite pool.

Solution

Refer to the 2001 Means Square Foot Cost Data Book, pp. 162 and 163 (seeFigures 2.6 and 2.7). This two-page model is one of seventy different types ofcommercial, industrial, and institutional models included in the Means databook. Examples include a factory, a jail, and a warehouse.

The first page of the model displays a pricing breakout by size and exterior walland structure. At the bottom of the first page are the prices of some commonbuilding additives. The second page provides a detailed breakout of one of thebuilding models (notice the highlighted $111.15 on the first page)-, a 49,000-

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square-foot, three-story motel. This page provides a good overview of what isincluded In the $111.15 per square foot price.

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Figure 2.6 Model of costs for constructing a motel: Pricing breakout by size andexterior wall and structure; detailed breakout for a 49,000ft2, 3-story motel.

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Figure 2.7 From Means Square Foot Book, 2001.

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Notice that the general contractor's overhead and profit and a 6 percent designfee are included in this price. Also notice that any site work beyond theexcavation and backfill for the foundation is not included.

Calculation

1. Interpolate a base price between $111.15 (49,000 square feet) and$110.15 (61,000 square feet). The interpolation can be set up as follows:

$110.15 61,000? 55,000

$111.15 49,000

111.15 ($6,000 x 1.00) / 12,000 = $110.65

The base cost for the building = $110.65/square foot x 55,000 square feet= $6,085,750

2. Add the costs of the pool, smoke detectors, and emergency lights.

150 smoke detectors x $149/each = $23,35010 emergency lights x $655/each = $6,550500-square-foot gunite pool x $50/square foot = $25,000

Total additive cost = $53,900

Total project cost (with additives) = $6,139,650

This cost assumes a construction start in early 2001 in a national averagelocation. The price does not include the cost of land purchase or any substantialsite work.

2.6.1.3 Assemblies Estimates

In the later stages of design, when more information is available, it is possible toconfigure estimates into a series of systems. This method, called assembliesestimating, uses system or assembly units of a project. In a ROM estimate theunit is the number of beds or miles of road. In a square foot estimate, the unit isthe square foot area of the project or gross areas of the project. In an assembliesestimate, the unit is the foundation, the roofing, the electrical system, and so on.Since the units are smaller, the estimate becomes more flexible but also requiresmore designer input, takes longer, and costs more money to prepare. However,its accuracy is in the 10 percent range.

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As the project design develops, the systems estimate is updated to inform theproject team of design decision impacts. As long as good data are available, thedesigner should be able to look at the costs of different alternatives and make aselection based on cost as well as durability over time. Take, for instance,

choices for flooring: vinyl tile, carpet, terrazzo, quarry tile, ceramic tile, and manymore. By comparing cost, intended use, and maintenance issues, the choicesbecome clarified. Terrazzo is the most expensive of the options but will last thelongest and keep its finish. However, if the terrazzo is laid in an area where therewill be renovations, it is not easy to patch. Vinyl tile, on the other hand, usuallyhas the least first cost but over time wears down. Assemblies estimating allows aproject team to prepare this sort of analysis.

2.6.2 Estimating during Construction

Once the design documents are complete, companies interested in actually per-forming the work price the project. Estimators working on this type of bid hopeto win the job with the most competitive number while maintaining a reasonableprofit for the company. This estimate is the most detailed of all estimate typesand is also the most important. It carries with it legal implications. If its bid isaccepted, a construction company is legally bound to a specific price for aspecific scope of work. During the actual construction, however, there is giveand take over the individual prices of each piece of the construction. The con-tractor must continually negotiate with suppliers and subcontractors over these

prices throughout the procurement stage. If the contractor is a good negotiatorand has priced the project with an adequate contingency, then the final outcomeshould give the company a fair profit.

Especially on large complex projects, the scope of work is a continual focus ofdiscussion between the contractor and the designer. No matter what type ofcontract is signed, someone is always at risk. Wherever that risk exists is whereteam members hotly debate about what is reasonable to include and whatshould be accepted as a change. Contractor can help this situation by listing

any qualifications when bid is submitted. Thus, discussions about the real scopeof work can happen before there is any legal commitment regarding costs.

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Figure 2.9 Partition assemblies listed are differentiated by the type of framing,

thickness, type of drywall, and whether or not insulation is used. (From MeansSquare Data Book, 2001).

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Many factors affecting costs lie outside the scope of work. There are owner-requested changes, unforeseen conditions, and new regulatory requirements.These also must be priced as they emerge. Because the pricing established atbid time is done on a unit basis, it can help the contractor give information

quickly to the owner about the cost impact of each change.

Detailed estimates take weeks to prepare and involve people from manydifferent disciplines. A general contractor who is preparing a bid, requestsproposals from subcontractors and quantifies (takes off) and prices work thatwill be done by his or her own work force. Quotes from material suppliers (alsocalled vendors) are used where possible to get precise material prices. Whenquotes cannot be obtained, contractors use company records and publishedcost data. Current wage rates and perceived worker productivity are figured into

these costs. The estimator must, in essence, build the project on paper.Hypothetical methods of construction; logistics of the site, with its constraints forstorage and maneuverability; delivery strategies; and the schedule of activitiesall must be understood before a realistic price can be assembled.

2.6.2.1 Organization of the Estimate

Good organization is key to preparing reliable estimates and avoiding mistakes.Preparing a detailed estimate is a complex organizational task. Many people,both inside and outside the company, are involved. Information comes from a

variety of sources and must be carefully catalogued. The estimating team's goalis to minimize the number of company hours involved while preparing acompetitive estimate.

To begin, adequate space is set up, the right mixture of senior and junior teammembers are assigned, and procedures and forms are assembled. A notebookor file system is set up to track all activities. Much of this tracking is done withcomputer estimating software.

The most important information for the estimating team comes from the contractdocuments, which explain the scope of the work, the quality of the work, theconditions the contractor is expected to meet, the legal requirementsof the job,and the schedule of completion. Of all sources of information received duringthe bid period, these require the most careful consideration and handling.Drawings and specifications, which make up the contract documents, areusually available from the owner or architect for a refundable deposit. By settingup a plan room in the office or some other central location, the contractor makesthese documents available to subcontractors. When the contractor receives theset of documents, the first task is to verify that a full set has actually beenreceived. The drawings are numbered by discipline and the specifications

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separated by trade. Addenda, which are issued during the bid period, need tobe carefully tracked and the information made available to the subcontractors.

2.6.2.2 Quantity Takeoff

Once the estimating tasks are identified, categorized, and organized, the teambegins the quantity takeoff. This is the foundation of the estimate. Its purpose isto accurately determine the quantity of work that needs to be performed on theproject. Every work item is measured and quantified, separating the work intounits of labor, material, and equipment. Most estimators use the CSI's sixteendivisions (see Figure 2.8). The goal of the quantity takeoff process is tocalculate every item of the projectno more and no less. To effectivelyaccomplish this, the takeoff must use the correct units. The process requires a

thorough understanding of the work involved in each of the different disciplinesof the project. Often the best approach is to build the project item by item on thetakeoff form and then quantify each item. Preprinted takeoff forms, whichidentify all estimate items, can serve as checklists.

2.6.2.3 Unit Pricing

The next task is to determine how much each unit will cost to produce, deliver tothe site, accept and store at the site, install in the correct position, and maintainuntil the project is turned over to the owner. Production of the product and

delivery to the site are included in the material unit price. The cost of installingthe product is part of the labor unit price. The equipment necessary to move theunit into place and install it is included in the equipment unit price. Projectoverhead covers the costs of accepting the material, storing it at the job site,and protecting it until the project is accepted. Company overhead includes thecost of preparing the estimate, marketing the company and providing broadbased technical and administrative support for the project.

2.6.2.4 Material Costs

Of all the prices that need to be identified, the material prices are usually themost straightforward to determine. The most reliable source is the supplier.However, the estimator must ensure that the price quoted actually covers all thespecification requirements and the estimator's assumptions. The followingpoints must be verified:

The material quoted is the correct model number, color, andfinish.

The price is valid until the scheduled delivery time. The price includes delivery to the job site.

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Adequate warranties and guarantees are provided. The lead time fits into the scheduled need on site. There is adequate stock available. Payment terms, discounts, and credits are well documented.

2.6.2.5 Labor Costs

The price of labor is the most difficult factor to determine because both thehourly wage rate and crew productivity must be considered. The wage rate is afactor of the rates paid to a specific trade. Union rates are available from theunion locals and employer bargaining groups. Nonunion labor rates are de-termined by each company and depend on the geographic area. In either case,wage escalation must be factored in, particularly on long-term projects. Union

rates are generally negotiated for one to three years by each trade, so theseagreements need to be researched. Factors to consider include the following:

Expiration dates of the union agreements Amount of overtime anticipated Availability of skilled labor in the area Amount and nature of any hazardous conditions

The expiration of a union agreement probably means increases in labor ratesand could, with disputes, mean interruption in the project. For projects with anaggressive schedule, overtime is likely; and if the project is in a remote area,there will be increased costs in bringing in labor. If the conditions have anyspecial hazards, the rates will also be higher to compensate for the increasedrisk.

Once the quantity of work is known and the hourly wage determined, the laststep in determining labor cost is to estimate how long the activity will take.Determining crew durations or productivity requires experience and the ability tovisualize how the work will be done in the field. An estimator needs to know the

following:

Expected efficiency rate Other work occurring at the same time that could interfere withthis activity Expected weather conditions Specific conditions of the work: that is, working on ladders or scaffolding

versus working on the ground Duration and frequency of overtime

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Past project experience is essential in determining these factors. Thus, in mostoffices the quantity takeoff may be assigned to a junior estimator, but seniormembers almost always determine the unit prices.

2.6.2.6 Equipment Costs

Equipment, which includes small tools needed to complete specific tasks, arecovered item by item. However, large, mechanically driven machinery such ascranes, lift trucks, and the like are usually covered on a project basis since theyoften are used throughout the project for different activities. Equipment costs fallinto two general categories: the equipment itself and the cost of operating it.The first category covers ownership, lease or rental, interest, storage, insurancetaxes, and license. If the company owns the equipment, these costs aredetermined in-house. If not, the equipment supplier provides a quote. The

second category includes gasoline, oil, periodic maintenance, transportation,and mobilization. The cost of the operator is normally covered under the laborline item.

2.6.2.7 Subcontract Work

The contractors bidding on the project break down the job into work packagesand request bids from prequalified subcontractors for each package. Mostgeneral contractors do some of the work with their own work force and thereforedo not request bids in these areas. It is important for the estimator to be in

contact with the subcontractors during the bid period. This communication canminimize misunderstandings about the scope of work assumed by thesubcontractor. It also encourages the subcontractor to put in a fair bid. Whenthe bids arrive from the subcontractors, a debriefing session should take placeto ensure that commonly missed items have been picked up. When theestimator is starting to apply overhead and profit to the base costs, it isimportant to be able to separate subcontractors' work from the contractor's.Because subcontract prices include tax, insurance, and overhead and profit, theadjustment on this price will be different from the adjustment done for the work

of the contractor's own forces.

2.6.2.8 Overhead

In the CSI format, Division 1 is general requirements- This line item is alsocalled project overhead. It picks up the costs associated with operating the jobsite and some home office expenses. Job site costs include the field officepeople, safety security photography and cleanup. These costs are typicallyitemized, with quantities and unit prices figured exactly. Figure 2.10 lists typicalgeneral requirements. One of the line items on this summary is for main officeexpense. This is usually carried as a percentage and includes costs such as

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office rent or real estate costs, vehicles, engineering support, clerical staff, topmanagement salaries, marketing, legal, and accounting fees.

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Figure 2.10 A checklist of common overhead items.

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2.8 Reports

Figure 2.4 presents a typical layout from a computed operational estimate.Printed reports available include:

Bills of quantities giving the labor, plant and materials breakdowns, indirects costs rates and rates including mark-ups; Fig. 2.11 is an example

The same listing without the labor, plant and materials breakdowns Direct cost summaries; Fig. 2.12 is an example Resource reconciliation reports; Fig. 2.4 is an example.

Figure 2.11 Bill of quantities listing with, plant, materials and subcontractorbreakdowns.

Bill of Quantities listing

Figure 2.12 Direct cost summary.

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CHAPTER 3

TENDERING

3.1 Tendering Adjustments

Based on the reports prepared by the estimators, the staff charged with theresponsibility of submitting the tender will assess the estimate and decide on theadditions to cater for risk, company overheads and profit. The groups of staffconcerned, sometimes referred to as the tender adjudicating panel, will compriserepresentatives of senior management and representatives of the estimatingteam. It is the responsibility of this panel to satisfy themselves that the estimate isadequate. This is done by studying the reports prepared by the estimator and

interrogating the estimator on the underlying assumptions and decisions. It doesresult on many occasions that the estimate is adjusted, usually in the form oflump-sum additions or subtractions.

The additions for risk, overheads and profit are frequently referred to as the'mark-up' and are allowances for:

'Risk' if the chance of probability of making a loss is assessed as beinggreater than that of breaking even

'Company overheads1

to cover the central head-office costs that areinvolved in administering the contract The profit considered to be possible in the existing market.

The manner in which contractors assess these additions varies enormously fromcompany to company. These additions are incorporated into the tender in avariety of ways, including lumpsum additions and subtractions and pro rataadjustments.

The discounts' taken on materials and subcontract quotations are sometimesconsidered as an extra source of profit and it is not unknown for a contractor invery poor markets to submit a tender with a zero or negative profit allowance andrely on such discounts to produce the profit required. Thus, strictly speaking, the'discounts1 should be considered as part of the tender additions.

3.2 Submitting the tender

The tender figure arrived at above is entered by the estimators into the contractdocuments in the manner required by the contract documents, which is either as

a priced bill of quantities or submitted on a form of tender with no bill ofquantities.

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3.2.1 Tendering with a priced bill of quantities

In submission of a tender with a priced bill of quantities the direct cost ratescalculated for each item need to be amended to take account of both the

estimate adjustments and the mark-up. As previously stated, the estimateadjustments tend to be made as lump-sum additions or subtractions: logicallyhowever, they require the adjustment of the direct cost rates. In apportioning themark-up there are a variety of practices such as:

Marking up all items by a percentage calculated to cover overheads andprofit.

Including the mark-up additions as lump sums in the preliminary section ofthe bill.

Marking up the bill items by different percentages to create some elementof rate loading in order to create a favorable cash flow;

The preliminary section of the bill is frequently used to include site overheads,estimate adjustments and the balance of the mark-up. In some cases, lump sumsare included in the preliminaries and the remainder of the mark-up additions areapportioned over the bill items.

3.2.2 Tendering without a bill of quantities

In cases where tenders require only the submission of the form of tender, thecontractor need y submit the global sums as required. If the submitted tender isseriously being considered, then the completed bill of quantities maybe called forby the professional quantity surveyor. This practice is frequently used in buildingcontracts.

3.3 Calling For Tenders

An employer may publicly advertise (by press) that he is open to receive tenders.

It is usual for the engineer to draft this notice so that it contains a brief butadequate description of the proposed works and their location, so that contractorcan judge whether they are interested in tendering. It is also usual to state thatno expenses incurred in tendering will be reimbursed and that the employer doesnot bind himself to accept the lowest, or any ender. Contractors are normallyrequired to pay a deposit, before they get a set of tender file.

An alternative procedure to public advertisement of tender is to invite certaincontractors only to submit tenders. Probably the best way to do this is to

advertise that contractors may if they send in their qualifications and experience,apply to be placed on a list of selected tenders. This is called pre-qualification,

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and it saves time for both contractors and the engineer and employer. Thus, forthe construction of a bridge, a public advertisement might be issued invitingcontractors, experienced in bridge building to apply to be placed on the list ofselected tenderness. Applications would be asked to provide details of their past

experience, present force, plant, and equipment, and to give the names ofprevious employers they have worked for.

However, sometimes the engineer may himself draw up a list of selected tendersin consultation with the employer, without resorting a public advertisement. Butthis may not be fair to certain contractors.

3.4 Comparing Tenders

It is the engineers job to recommend to the employer which contractors offershould be accepted. It should be noticed that, the engineer does not accept theoffer, or does he make the final decision. The engineer recommends, theemployer decides and acts.

The first criterion is of course, the sum total offer made by each contractor. It isimportant to see whether each contractor is, in fact. Some tenders may besubmitted with certain reservations which are contrary or additional to theconditions give in the tender documents. Some tenders may contain arithmeticalmistakes or mistakes of interpretation of the documents. All these matters arelisted side by side and where necessary, adjustments made to the total sumsoffered. After this comparison 3 or 4, offer are selected and examined in detail. Ifthe tenders are based on bills of quantities, the detailed prices submitted bydifferent contractors for the same portions of the work are compared. This willreveal relatively high or low unit prices for certain types of work, so that theengineer can decide what trouble could be in certain parts of the work. Theengineer will not like a contract making high profit from some part of the work andhigh loss from the other part.

3.5 Choosing a Tender

With the completion of the close check, and comparison, the engineer may inviteone or two of the lowest tenderness to his office, to discuss certain points of theiroffer. Principally he may wish to be provided with further evidence from atendered, such as, proposed methods of construction, and his proposedprogram. The engineer will not of course reveal to any contractor the pricesoffered by others. Meantime, the engineer Amy made private contract with thereferees named by the contractors. Then the decision is made as to which tender

should be recommended for acceptance.

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3.8.2 Performance Bond

Performance is a kind of guarantee given by the contractor to the client that, thecontractor will do the job according to the contract signed between the client and

the contractor and the quality of the job is guaranteed by the contractor for aspecific duration of time mentioned in the contract. This duration is one year inmany construction projects.

The amount of performance bond is normally about 10% of estimate cost. Butwhen a company signs a contract, the bid bond is transferred as performancebond, which is 5% of tender where it is half of the performance bond. The rest ofthe performance bond is cut from the payments. At each payment, 10% of thepayment is cut transferred to performance bond.

Example:

Tender: 10,000,000.- TLBid Bond: 10,000,000 * 5% = 500,000.- TLPerformance bond: 10,000,000 * 10% = 1,000,000.- TL

Although bid bond is transferred to performance bond, to complete performancebond another 500,000.- TL is necessary. And that amount will be cut frompayments as 10% of the payment.

Suppose: 1st payment 1,750,000.- TLAs performance bond 1,750,000TL x 0,1 = 175,000TL is cut2nd payment = 2,500,000 - TL 2,500,000 x 0,1 = 250,000TL is cutSummation of Performance bond = 425,000.- TL

To complete performance bond another 500,000 425,000 = 75,000TL must bededucted (only) from the 3rd payment.

1st payment: 1,750,000 175,000 = 1,575,000TL 2nd payment: 2,500,000 250,000 = 2,250,000TL

3rd payment: 3,000,000 75,000 = 2,925,000TL

From the rest of the payments no money will be cut as performance bond.

The contractor can take back his performance bond if

The permanent acceptance of the work is done

The contractor brings a certificate from social Insurance office to rove that

all the insurances of the s are paid.

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3.9 Types Of Bidding

a- Closed biddingb- Open bidding

c- Limited biddingd- Bargaining

3.9.1 Closed Bidding

There are two envelopes one inside the other one. First envelope (other one)contains, name, address of company, and other documents of bidding. If thereare any missing among them the second envelope is not opened, and thecompany is asked to complete. Otherwise the second envelope is opened and

the signed tender is read. This bidding is used specially for large jobs.

3.9.2 Open Bidding

There is only one envelope, and every documents and signed tender are in thatenvelope. It is used for small jobs.

3.9.3 Limited Bidding

If the job requires a certain quality, the tender of all contractor companies are notaccepted and a limitation is required. It may be open or closed bidding.

3.9.4 Bargaining

It is used for,i) Small, urgent jobii) Jobs that can be carried out by only one company.iii) Under forced conditions (such as earthquake, flood war etc).

iv) Jobs not planned but urgent.Bids with no offer or offers above expected value.

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APPENDIX A

Unit Prices announced by Chamber of Civil Engineers and Chamber of Architects

of Cyprus Turkish Union of Chambers of Engineers and Architects.

MMARLAR ODASI VE NAAT MHENDSLER ODASIYNETM KURULLARINCA BELRTLEN

1 TEMMUZ 2010 30 EYLL 2010 TARHLER ARASINDAYAPI BRM MALYETLER

S.No: YAPI TRLERBRM

MALYETLER1 Konut ( IV. Snf ) 616.-TL./M2 Konut ( III. Snf ) 1155.-TL./M

3 Konut ( II. Snf ) 930.-TL./M4 Yardmc Binalar ( I. Snf ) 595.-TL./M5 Apartman Tipi Konut 908.-TL./M6 Sendeli Dkkan 908.-TL./M7 Sendesiz Dkkan 792.-TL./M8 Okul 808.-TL./M9 Yurt 994.-TL./M

10 Ofis Tipi Binalar (Standart) 774.-TL./M11 Ofis Tipi Binalar (zellikli) 974.-TL./M12 Yanlar Kapal Garaj 616.-TL./M

13 Fabrika (Atlye Tipi Binalar) 616.-TL./M14 Sthane, Salhane 697.-TL./M15 Frn 932.-TL./M16 Otel I 1154.-TL./M

Otel II 1320.-TL./MOtel III 1473.-TL./M

17 Bungalov 980.-TL./M18 Yzme Havuzu 1074.-TL./M

Yzme Havuzu Olimpik 1186.-TL./M19 Sinema, ok Maksatl Salon 1297.-TL./M

20 Gazino, Lokanta 1106.-TL./M21 Benzin stasyonu 764.-TL./M22 Oto Tamirevi 616.-TL./M23 Al 306.-TL./M24 Kmes 306.-TL./M25 ats sa veya atermit tr duvarlar yma basit yaplar 591.-TL./M26 Otopark ( Yanlar Ak) 570.-TL./M27 Bodrum (Otopark, Depo) 615.-TL./M28 Snak Amal Bodrum 764.-TL./M29 Snak (Blok) 646.-TL./M

30 Parselasyon 215.-TL./M31 Telleme 113.-TL./M

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32 Bahe Duvar 260.-TL./M33 Kapal Havuz 1618.-TL./M

APPENDIX B

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EXAMPLE FOR BILL OF QUANTITIES

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Dimension Quantity

Ite

m Description of work

Num

ber Length Width Height Unit + - Total

A Earth work A1 Excavation footing T1 4 1.00 1.00 1.00 m3 4.000A2 Sand under footing T1 4 1.00 1.00 0.10 m3 0.400A3 Compacted soil 1 5.80 5.80 0.25 m3 4x.25x.1x.1 8.410

A4 Hard core 1 5.80 5.80 0.15 m34x.25x.1x.15 5.046

B Concrete work

Plain ConcreteB1 Footing T1 4 1.00 1.00 0.60 m3 2.400B2 Slab on grade 1 5.80 5.80 0.10 m3 4x.1x.1x.1 3.364

B3 Concrete pavement 2 6.80 0.30 0.20 m3 0.8162 6.20 0.30 0.20 m3 0.744 7.324

Reinforced ConreteB4 Footing T1 4 1.00 1.00 0.30 m3 1.200B5 Ground beam 2 6.20 0.20 0.50 m3 4x.1x.1x.5 1.240

Ground beam 2 5.80 0.20 0.50 m3 1.160B6 Column 4 0.30 0.30 2.65 m3 0.954B7 Slab concrete 1 5.80 5.80 0.15 m3 5.046

B8 Beam concrete 2 6.20 0.20 0.40 m34x.1x.1x.25 0.992

2 5.80 0.20 0.40 m3 0.928

B9 Parapet bottom 2 6.60 0.20 0.15 m3 0.3962 6.20 0.20 0.15 m3 0.372

Parapet sides 2 6.60 0.10 0.15 m3 0.1982 6.40 0.10 0.15 m3 0.192

12.678C Formwork C1 Ground beam 4 6.20 0.50 m2 12.400

Ground beam 4 5.80 0.50 m2 4x2x.1x.5 11.600C2 Column 16 0.30 2.65 m2 12.720C3 Beam sides 4 6.20 0.25 m2 6.200

Beam sides 4 5.60 0.25 m2 4x2x.1x.5 5.600Beam bottom 4 5.60 0.20 m2 4.480

C4 Slab 1 5.80 5.80 m2 33.640C5 Parapet bottom 2 6.60 0.20 m2 2.640

Parapet bottom 4 6.60 0.30 m2 7.920Parapet sides 4 6.40 0.15 m2 3.840

C6 concrete pavement 4 6.8 0.2 m2 5.440 106.480E Brickwork E1 20cm brick

(A-A),(1-1),(2-2) 3 5.60 2.65 m2 2x1.6x1.2 33.000B-B 1 5.60 2.65 m2 1x1x2.2 12.640

45.640

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Item Description of work Number Length Width Height Unit + - Total

F Plastering

F1Internal Plastering

(3 coats)

(A-A),(1-1),(2,2) 1 5.60 2.65 m2 6x1.6x1.2 33.000

B-B 1 5.60 2.65 m2 1x1x2.2 12.640

Ceiling 1 5.80 5.80 m2 33.640

Columns 8 0.10 2.90 m2 2.320

Beams 4 5.60 0.25 m2 5.600

87.200

F2External Plastering (2

coats)

(A-A),(1-1),(2,2) 3 6.20 3.20 m2 6x1.6x1.2 48.000 B-B 1 6.20 3.20 m2 1x1x2.2 17.640

parapet bottom 2 6.60 0.20 m2 2.640

parapet bottom 2 6.20 0.20 m2 2.480

parapet sides 4 6.60 0.30 m2 7.920

parapet sides 4 6.40 0.15 m2 3.840

parapet top 2 6.60 0.10 m2 1.320

2 6.40 0.10 1.280

85.120

G Tiles

G1 Floor tiles 1 5.80 5.80 m2 4x0.1x0.1 33.600

G2 Wall skirts 4 5.60 m 4x0.2 1 22.200

G3 Window sill 6 1.60 m 9.600G4 Stairs (1m) 1 1.00 pcs 1.000

H Painting

H1 Internal painting m2 87.200

H2 External finish spirit m2 85.120

I Aluminum works

I1 Aluminum door (1*2.2) 1 pcs 1.000

I2 Aluminum window 6 1.60 1.20 m2 11.520

J Isolation for slab 1 6.60 6.60 m2 43.560


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Description Reinforcement Quantity Reinforcement Bar Sizesof Diameter No: Similar: Length: 8 10 12 14 16 18 20 22 24

Item activity Weight per unit length(kg/m) 0.395 0.617 0.888 1.208 1.578 1.998 2.466 2.984 3.551

SubtotalD Steel Reinforcement

D1 Footing ReinforcementT1 16 16 4 1.156 73.984

D2 Starting Columns R.A1,B1,A2,B2 16 4 4 1.962 31.392

8 5 4 1.128 22.56

D3 Ground beams R.BK 20/50 14 4 4 6.374 101.984

8 29 4 1.328 154.048

D4 Column reinforcement 16 4 4 3.300 52.8A1,B,A2,B2 8 17 4 1.128 76.704

D5 Reinforcement for slabK1