How to calculate the unit price in cost estimation (construction)? Initially, resource costs are calculated based on the assumption that a company can carry out and complete a project with available resources( Labour, Material & plant) in the construction industry. So at that time, estimators have estimated the project based on this first principle. But there are new realistic approaches that can use to calculate the cost for labour and plant instead of using first principles. Now contractors have understood the importance of accurate valuing of projects based on realistic situations.
Labour rates- Unit Price calculation
CIOB Code of Estimating Practice (COEP) has provided a way to estimate all-in rates for labour. And many parties, including contracting organizations and publications, are treating it as a reliable document to asses labour costs. The following formula will be used here.
- Hourly rate= annual cost of employing an operative/actual hour worked
Furthermore, builders calculating the labour rates on a weekly basis during the 20th century. But it was not including the characteristic of accuracy even the method was easy and straightforward. There are two reasons to calculate the cost and the hours according to an annual basis. They are,
- To be aware of annual and public holidays and, determine the effects arise from such factors on a number of hours.
- We can notice longer working hours during the summer period. So, the overtime will be depending on the type of season.
Moreover, the COEP calculation should be checked periodically. In this case, some issues may arise with the estimate of labour cost. As well as that, the Estimator must face the following questions, and he or she has the responsibility to find the required solutions too.
- Do you have enough operatives in the area?
- Do you need to increase the rate of paying salary for them?
- Is it required to import labour from another area?
- Do the workers receive travelling expense or a subsistence allowance?
- Are there any local union agreements that affect the salary rates?
- Are the bonus payments being self-financing?
Material rates- Unit Price calculation
Usually, many factors affect the total cost of the material. For instance, the transport cost may increase or decrease based on the distance from the supplier’s place and the load size. In building up the material portion of a unit rate, the Estimator may consider the following factors.
- The materials should be following the specifications: The contractor always pays his attention to alternative products if he does not feel satisfaction from the current product that he uses. If it is cheaper, he will buy it instead of the old one. Sometimes, the experience also matters here.
- When you are asking the suppliers to supply small loads, they will ask you to pay the cost of transport. So, you must be aware of the time that you expect such low loads.
- Sometimes, the producers manufacture their products in fixed sizes. The size of that relevant product may be different from the extent that is already available in the market.
- You must calculate the quantities of each material separately for each unit of work. So, estimators use a note of the conversion factors to determine the amount of commonly used materials.
- Two most essential activities in the unit rate calculation are distributing and unloading materials. This should be calculated and priced as general site activities.
- There is a necessity to check samples taken from the material. It is crucial to ascertain the material cost of these samples. Usually, the supplier provides that sample without asking any payment and some suppliers demanding payments for samples supplied. Furthermore, an independent organization takes the responsibility to test those samples. So the estimators should be aware of these tests and costs related to these tests.
- It is tough to estimate an amount as an allowance for waste. In this case, the company must consider several factors here. For instance, the risk of theft, occurring damages during loading, etc.
Plant rates- Unit Price calculation
To assess the mechanical plant to be used, the following steps should be followed at the tender stage.
- Identify certain items of plant. Rates of a production give an idea about the capacity of the machine.
- Obtaining the prices of plants. There are few methods to allocate plants to a specific project. Plants can be purchased for the contract, And some can be the plant that the company-owned, last and least is hiring from external sources.
- Use an equal basis and compare the plant quotations.
Now, calculate the all-in hourly rate. The main factors of this calculation are,
- Consider the cost spent on the machine per hours. For example, depreciation and maintenance.
- The all-In rate of the operator. Because of many reasons, the operators work for many hours than the plant. He may be repairing minor issues, greasing or oiling.
- Fuel and lubricants. The type or the size of the plant affect the amount of consumed fuel.
- Sundry consumables
- Deciding where to price the plant. Based on the experience, Estimator can determine the plant requirement when developing unit rates.