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S TEPS IN THE D EVELOPMENT OF A D ETAILED E STIMATE

S TEPS IN THE D EVELOPMENT OF A D ETAILED E STIMATE. BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison. 1. Develop Work Breakdown Structure (WBS) and Cost Code. 2. Planning and Quantity Takeoff.

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S TEPS IN THE D EVELOPMENT OF A D ETAILED E STIMATE

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  1. STEPSINTHE DEVELOPMENTOFA DETAILED ESTIMATE BY Awad S. Hanna Associate Professor Department of Civil and Environmental Engineering The University of Wisconsin - Madison

  2. 1. Develop Work Breakdown Structure (WBS) and Cost Code

  3. 2. Planning and Quantity Takeoff • Project should be completely “build on paper” • Divide the project into phases • Decide how each phase will be built and the “resources” required • Determine quantity takeoff • Decide which phase should be sub-contracted

  4. 3. Determination of Direct Costs • Direct Materials • Direct labor • Sub-Contract Costs • Equipment rentals or owning and operating costs

  5. 4. Determination of Job Overhead Costs Job Overhead Costs A. Job Overhead labor Costs (Indirect Labor Costs) B. Job Overhead  Management Costs

  6. A. Job Overhead Labor Costs (Indirect Labor) • Social Security Tax • State Unemployment Tax • Federal Unemployment Tax • Workers’ Compensation Tax • Benefit • Pension Funds • Apprenticeship Training • Vacation Fund • Other benefits

  7. B. Job Overhead Costs • Job site Salaries of Engineers and supervisors • Job Site Salaries for field office personnel • Job site overhead expenses such as light, heat, telephone, fax, office etc. • Job site office equipment, supplies, and furniture

  8. Overhead Cost for a Contractor Doing a Volume of $1.5 M to 2.5 M Manager/Owner $75,000 Estimator 50,000 Receptionist/Bookkeeper 30,000 Office rent and utilities 16,000 Furniture and fixtures 8,000 Auto expenses 12,000 Computer and Software 4,000 Telephone and fax 6,000 Insurance 6,000 Sales promotions 5,000 Legal and accounting 8,000 Educational seminars 1,500 Office supplies 4,800 Postage and courier 7,200 Association dues and misc. 1,500 TOTAL $235,000

  9. 5. Determination of Markup • Markup is an allowance for: a. Home Office overhead b. Contingency c. Profit • Markup range from 5% to 20% of the total project costs

  10. a. Office Overhead Costs • Home Office rental, maintenance, utilities and expenses. • Home Office equipment, furniture and supplies. • Property taxes, business licenses and auto insurance. • Dues and subscriptions. • Postage and courier, non-job related.

  11. a. Office Overhead Costs (cont.) • Advertising and telephone • Legal and accounting fees • Sales and marketing • President salary and benefits • Clerical staff salary and benefits • Estimators salary and benefits

  12. b. Contingency • To cover unexpected risk, error and omission, and contract risk

  13. c. Profit • Profit varies from 1% to 10% or more • Factors affecting profit • Need for work • Contract type • Total bid value • Risk • Competition • Economic Condition

  14. Determination of Contract Bond Cost • The contract document usually requires as a minimum a “performance bond” and a “payment bond.” • Bond cost ranges from 0.5% to1% of the total contract price.

  15. Example of Determining Total Contract Price • Assumptions 1. Sales Tax = 6% of Direct Material Costs 2. Job Overhead Labor Costs = 25% of Direct Labor Costs 3. Job Overhead Management Costs = 10% of Direct Labor Costs 4. Markup = 20% of Total Project Costs Office O.H. = 10% Contingency = 2% Profit = 8% 5. Bond = 0.5% of 1% of Total Project Costs

  16. Example of Determining Total Contract Price (cont.) • Estimated Directed Job Costs 1. Direct Labor Costs $25,670 2. Direct Material Costs 15,000 3. Direct Equipment Costs 13,000 (Owning & Operating Costs) 4. Subcontract Costs 20,000 5. DIRECT COST SUBTOTAL $73,670

  17. Example of Determining Total Contract Price (cont.) • Job Overhead Costs 6. Sales Tax [6% of (2)] $ 900 7. Job O.H. Labor [25% of (1)] $ 6,418 8. Job O.H. Management $ 2,567 [10% of (1)] 9. Total Job Overhead Costs $ 9,885 10. Total Estimated Job Costs $ 83,555 [(5) + (9)] 11. Total Cost [(10) x 1.2] $ 100,266 12. Bond [0.005 x (11)] 501 13. TOTAL CONTRACT COST $ 100,767 [(11) + (12)]

  18. Example of Determining Total Contract Price (cont.) TOTAL CONTRACT COST 100,767 14. Markup [(11) - (10)] $16,621 Breakdown of Markup 14a. Office O.H. [0.10 x (10)] $8,356 14b. Contingency [0.02 x (10)] 1,671 14c. Profit [0.08 x (10)] 6,684 Bid Factor = = = 1.368 73,670 DIRECT COST SUBTOTAL

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