Cost Estimates in Construction

Cost estimation is a very important department in any construction business because it involves experience, survey, budgeting and other such expertise. A proper understanding of the materials, measurements, physical resource requirements and regulatory restrictions, the builder and/or tradesperson risks losing money on the project or being penalised for non-conformance or miscalculation.

The Bill of Costs/Quantity is the initial document which determines the way expenses will go. This includes everything from head to tail involving labour, raw materials, structures, electricity, hydraulics, water and several other things. When approved, this Bill of Costs helps in the estimation of the construction project at hand.

The specified quantities in conjunction with the working drawings are described in a document called ‘specifications’ which tells the cost of each item against its quantity.

Larger construction projects have a site manager, foreman, site engineer, site planner and all the other support staff such as the clerks, cadets etc. All such positions need to be salaried and factored on the basis of the planned project time and cost.

During the preparatory stage of construction, before estimating and costing of the works can begin, a number of operations must take place. Each of these operations or services will add cost to the tender and must be included in the total cost for the client. The cost will be shown as an ‘item’ on the cost sheet.

When everything has been put together, identified and listed, it needs to be quantified. We can always refer to the working drawings for this purpose because they are used to determine actual quantities. However, it is just a calculation.. Site visitations can help at this stage to get a better understanding or possible costs that the existing conditions may involve.

Cost estimation it is indeed a very tedious job in which detailed cost estimates are used to calculate and produce a list of materials and costs for the project. The estimate is based on the calculation of costs for each trade or component, which will include components such as labour cost, materials cost, plant hire costs, sub-contractor costs and costs for preliminaries.

There are different types of rates for tender purposes in the actual industry including square metre rate, composite rates (apply to identified area of work and are measured in cubic metre), elemental rates (broadly based than the composite rates).

As part of the estimating process, the builder must decide which areas are to be completed by subcontractors and then go about obtaining quotes for that work. As a good habit, get written quotations in response of the tender from each of the contractors.  Lastly, ensure that all Australian governmental requirements are met such as those of environmental protection, waste management, etc.

Having completed take-offs and the various components of works costed, consideration needs to be given to overheads and profit margins. Overhead expenses in this context are those not directly attributable to the cost of construction and for this reason they tend to be overlooked. Accordingly, these costs must be checked carefully to ensure they are included in each estimate.

Overheads are made up of those items that cannot be directly charged in the estimate of quantities and costs. They are very real costs to the builder/sub-contractor, but are not considered to be tangible items of construction. Common items that may be included are tools, rented spaces, communication charges, lodgings, vehicles, insurances and things like that.

Lastly and most importantly, profit margins tend to vary a lot. They are highly speculative because of the way the economy is going in the modern days. If there is very little work available at the time of quoting, then the builder may be forced to quote for jobs with a lesser profit margin just to win the work. Conversely, in times where work is plentiful then the profit margin can be increased with a low risk of losing the contract. Many builders will add a percentage for profit to the net cost of the job, which could vary between10% and 25%, depending on the factors mentioned above.

Once all the individual elements of a construction project have been estimated and costed, the final activity is to prepare and submit the quotation (or tender) to the client. Thus, you are good to go!

To find out more about cost estimates, get in contact with us.

Disclaimer: this guide should not be used as sole guideline for any application, construction or intent to build any development.

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