Compiling a Final Price and Estimate for a Work Activity

Course: HND in Construction and the Built Environment

Executive Summary

PQR Construction Group is a firm that is involved in construction projects over the last 10 decades. The details of the project offered by the firm are explained hereby along with the price and other qualitative and quantitative factors. In addition to these details, the explanation regarding the cost estimation is also provided along with the all in rates charged to the firm relating to the construction activity. It is hereby further mentioned that there may be variations in the estimates that are received by the clients/ stakeholders due to a number of reasons which are also explained in the further sections. This report is bifurcated into several sections and each of the section is described below in the later sections

It shall be hereby noted that all estimates for the price are determined using the current unit pricing reflecting the current intended construction schedule. Along with the submission of the current phase estimates, the major cost shifts and changes are also described and compared for the given situations.

Unit 11 Measurement and Estimating

• Table of Contents
• Executive Summary:
• Introduction:
• Brief of Company:
• Resources Description:
• Elements of the construction work that can be measured and priced:
• Project Description:
• Estimation of cost and final Price of the project:
• Notes:
• Analysis:
• Reason for variation in estimates received by the stakeholders:
• Comparison of Techniques used while formulation of budgets with techniques used in estimating final design cost:
• Evaluation of estimating techniques used for different stages of project's lifestyle:
• Phase 1:
• Phase 2:
• Phase 3:
• Phase 4:
• Factors affecting estimates of unit rates:
• References:

Tender Document for a Construction work Activity

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Introduction:

Brief of Company:

PQR Constructions Group is a construction firm that is committed to safely delivering a quality constructed product on time at a good value. The firm believes in taking projects from concept to reality.

The firm was founded in the 1950's. At that time, it entered in the construction industry as a residential builder only. After that, the firm started commercial building and development as well. Since then, the firm has gained experience in quality residential projects and commercial projects as well. Although the majority of projects undertaken are of new construction, the firm has also completed several challenging renovation and rehabilitation projects with good quality products and feasible prices. (Australia Constriction Industry, 2015)

Resources Description (Materials | YourHome, 2020) :

Material: The material required for construction is being purchased by the firm itself. So, the client needs not bother for the quality of material to purchases for use in construction as the firm will procure the best quality material itself. Further, there will be quantity benefit concerning the price as the firm purchases good quality material in a huge quantity (for other clients also) the price will be much lower in comparison to the price paid by the client for purchasing the same in lower quantity. The price per unit and total cost of the material for the given is depicted in the cost calculation table.

Labor' Human Resource: The firm has its permanent labor for construction instead of contractual labor. Thus, the quality of work performed by the labors is already evaluated and is reliable. Further, the cost of such labor will not fluctuate and price to be paid for the construction of the same can be reasonably estimated. Also, it ensures that the project has sufficient human resources with required skill sets and experience for the project to be completed successfully.

Construction Tools & Equipment: The firmowns a number of the equipment and tools to beused in the construction. It ensures that the required tools are available to get the project completed in the most effective and efficient manner.

Offices/ Branches: The firm has a vast geographical presence by way of the offices/ branches at various locations in the area. The firm hasa branch at the location where the construction project is to be initiated. Thus, supervision work can be effectively done. It will also result in cost reduction as compared to the situation when there is no branch/ office in the project area. The various costs will decrease such as transportation costs to transport the materials to the construction site.

Elements of the construction work that can be measured and priced (Project Management: Time Estimates and Planning, 2020):

A construction contract/ Projectinvolves the following elements that can be measured and the price of which can be estimated:
• The first cost that is incurred in the initial stage of the construction project is the site preparation cost. Site preparation costs are the cost that is needed to be incurred in order to prepare the site being ready for its intended use i.e. usable for construction. It may be possible that the area on which the construction is to be made is occupied by some other existing building, weeds i.e. unwanted plants, waste material etc. Thus, site preparation cost will be the demolition cost i.e. cost to demolish the existing structure, cost to remove the plants, site clearing cost etc. and get the place ready for construction. Such type of cost can be estimated and priced reasonably by seeing the site condition.
• Any kind of construction involves the material such as concrete, bricks in a construction contract. The required quantity of the same can be measured on an estimated basis which will be based on the construction structure and planning. Accordingly, there can be a reasonable estimate of the price to be quoted for the same. In our project as the material will be purchased by the firm itself. The firm can estimate it on past experience and current prices.
• Price to be paid to labor & masonry can also be estimated on a reasonable basis. Such costs will be affected by the demographic characteristics and various laws and regulations prevailing regarding the payments to be made to the laborers. Further, determining such cost will involve forecasting which method will be used for employing laborers and mason.As the labor is employed by the firm on a permanent basis, the price for the same can be determined based on the time duration of the wok. The details of the cost are well depicted in the Cost Calculation section.
• Further, construction contracts will involve the use of glass, wood, Plastics, metals and other furniture and fittings. The price for all these can be estimated on the basis of the estimated requirement of each of such material.
• Cost on legal formalities can be measured and priced as these will be fixed as per the applicable legal and regulatory laws. So, considering these laws, such costs can be priced accordingly. In the project to construct a residential apartment/ building, the cost to get the project approved and contract entering cost shall be estimated.
• Any special equipment or any other kind of contract specific requirement needs to be observed and then can be priced as per the need of the construction.

Project Description:

The offered project involves the construction of a three storied residential building in the xyz City as per the conditions on the land (assume a temporary structure is present on the land) to be acquired by the firm. Each floor will be constructed with 3 BHK customized as per the client's requirement. As already mentioned, the material will be purchased by the firm itself and other services will also be procured by the firm only. Thus the project completed will be provided as ready to use and no modification or addition will be required by the client. The best quality services will be provided by the firm at the lowest possible price as it enjoys economies of scale due to construction works being performed by the firm on a large scale.
The time duration of the project will be 1.5 Years. The bifurcation of the total time duration for each of the activity is well depicted in the Project Schedule summary. There can be a contingency in the total duration but in any case, it will not exceed by 10%.

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Question: Estimation of the work activity costs in compiling a final price to include:
- labour unit rates for this estimate by compiling and processing rate build-up data.
- All in rates for a range of construction activities

Solution: Estimation of cost and final Price of the project:

The cost per unit as well as in total (all in rates for the construction) for the project is calculated and estimated as shown in the below mention table:

Notes:

Note: 1) The site preparation cost will involve demolition of the temporary structure on the site, site clearing cost and site conditioning cost. All these costs will be approximately equal to the $ 3,420/- as per the current cost estimates.

Note: 2) All the mentioned material costs include the loading charges at the place of loading and unloading charges of the material at the site. The price is inclusive of the transportation cost of the material to the site.

Note: 3)Project Schedule summary:
The project is planned to be completed in a time period of 1.5 years i.e. in 18 months. The time duration of the project is affected by a number of factors thus a 10% contingency is considered to be made. The bifurcation of the duration of the project is made as follows:

Foundation:
The total duration for the foundation work will be approximately 4 months. It will consist of time spent on site preparation too. The foundation will comprise of concrete spread footings down to a minimum of 35 inches below the slab.

Structural:
The multi storied building as per the terms will require 11 months. It will further involve concrete and steel framing and the time spent on basement designing/ construction. Further, it consists of the time required for the construction of the floors as per the requirements of the client.

Finishes:

The finishing work will be completed in 3 months approximately. It will involve the interior works to get the project ready. It will further involve the furniture setting time, electrical and water services connection time.

Note: 4) The cost to be paid to labor is estimated on the number of hours to be worked by the laborers. The number of hours is calculated on the basis of the time required to be worked by the workers to complete the work in the given time frame. The hourly price to be paid to laborers is determined on the basis of monthly payments to the workers and time taken from the employment to complete the project.

Analysis:

Reason for variation in estimates received by the stakeholders:

The stakeholders may receive a variation in the estimates provided as a result of the number of reasons. Some of the reasons are as discussed below:

• There will be variation in estimates received by the stakeholders when there is a change in schedule or scope. A change in schedule/ scope during the project construction may lead to a major reallocation of the resources. Such change will require the contractor to provide additional resources or provide the same resources in lesser time. Both the situation will involve additional cost to be incurred to meet the new requirements.
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• Prompt decision making is one of the important factors for the success of the project. Failure to take the decisions on time may result in delay and consequently, the cost estimate will vary.

• Any change in design or specification may result in a high level of variation in the estimates. If changes in design or any new specification are instructed then it will lead to variations in the estimates received by the stakeholders in the construction phase.

• If the contract documents are having a conflict with each other than it will become ambiguous and there can be a misinterpretation of the requirements. Due to this, not only the project will get delayed but also the cost will be affected. Thus, the contract documents shall be clear and precise.

• Unavailability of any equipment to be used in construction can affect the project completion and the cost estimate as well. In case the required tools are not owned by the contractor, the availability of such tools and equipment shall be confirmed in advance.

• In case when the laborers are not permanently employed by the contractor, the availability for the same shall be confirmed. It should be confirmed whether labor will be available as & when required with required skill sets. The shortage of required manpower will result in a level of variation in cost estimates as it is one of the major resources required for the construction project. (Ali Al-Keim, 2017)

FAQ: Interpreting Principles and Techniques for Construction Cost Estimating

• Q: What is construction cost estimating?
• Q: Why is cost estimating important?
• Q: What are the key principles of construction cost estimating?
• Q: What are common cost estimating techniques?
• Q: How do these techniques help compile a final price?

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Question: Comprehensive estimate for this work activity to include:

- Thereasons for the level of variation in estimates received by stakeholders.
- Compare the techniques used for the formulation of budgets with estimating final design costs.

Solution: Comparison of Techniques used while the formulation of budgets with techniques used in estimating final design cost(Watt, 2020):

Formulation of Budget and estimation of final design costs are much related but there are subtle differences between a project budget and a project cost estimation.The differences in techniques used for both the processes are discussed below:

The techniques used while formulating budget involve - i) Traditional technique of Budgeting, ii) Incremental budgeting technique, iii) Zero based budget and iv) activity based budget. Whereas some of the techniques used in cost estimation are- i) Analogous estimating, ii)Parametric estimation, iii) Expert judgment, iv) Bottom up estimation and v) Vendor bid analysis.

In the traditional budgeting technique, the budget is formulated by taking the previous budget as the base and making adjustments with regard to the inflation, specification, market conditions etc. Whereas in the analogous estimating historical data of only similar projects can be considered as the basis of cost estimate and the known differences in the projects will be adjusted to arrive at a final cost estimate.

Incremental budget only considers the adjustment to the previous budget in the form of a percentage. For example, a 10% addition in the previous budget.Parametric estimation makes use of statistical modeling to arrive at a cost estimate. It uses historical data in order to estimate only for parameters such as cost and duration.

Zero based budget starts from scratch without considering the previous budgets. In activity based budgeting the budget targets or the activity outcome are decided first and then the cost drivers to complete the activity are considered. Here the management adopts the top- down approach. Whereas the bottom up estimating works by estimating the cost of each work

The further cost can be estimated by expert Judgment and vendor analysis i.e. by looking over other vendor bids. But the budgets cannot be formulated by these techniques. (William Dorotinsky, World Bank)

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Question: Evaluation for the estimating techniques used for the different stages of the project's lifestyle.

Solution: Evaluation of estimating techniques used for different stages of project's lifestyle:

According to the Project Management Institute, a project estimating life cycle involves 4 stages which are:
i) Prepare to estimate
ii) Create Estimates
iii) Manage Estimates
iv) Improve the estimating Process

The above four stages are involved in the various phases of the project life as follows:

Phase 1:

Project Initiation Phase: It involves preparing, creating and managing the estimates. As in our report in the Phase 1 i.e. in the Initiation Phase, we have compiled the data to prepare the estimates. Then we have to identify the resources that will be required in the proposed construction Project, after which we can begin to prepare the estimates. In the Initiation Phase, we get a rough magnitude in the quantitative terms whether the project is achievable and the likely cost and price for the project. A study regarding each and every factor is required to be made at this stage in order to facilitate further estimation. In the absence of the basic information, estimates cannot be planned. Thus this stage is very crucial and needs detailed analysis. The project team begins to take shape at this stage and contribute at their end towards the planning phase.

Phase 2:

Project Planning Phase: It includes continuing to prepare the estimates and also to refine and manage the Estimates. It is during the planning phase, when we shall consider the cost estimation techniques and approach to a broader and clearer picture of the project estimates. As the estimates are dependent on the market/ economy changes, exchange rates and organizational policies. Once we have assessed these factors, any of the cost estimation technique then can be used to prepare detailed cost/ price estimates.

By using the techniques, a cost baseline is estimated and will be further used by the manager to manage the cost estimation and forecasting. This phase also include documenting the basis of estimates and any assumptions followed. A project plan is created with regard to the activities, tasks, dependencies and time frames. Then the cost are estimated by taking into the consideration of various factors and cost of labour, material, equipments etc. is estimated

Phase 3:
Project Execution Phase: The process involved at this stage is tocreate, refine, manage and improve the Estimates. It is during the Execution Phase in which resources are required to be procured. This will result in more specific price estimates from vendors. As in our report, we have estimated the cost but the actual cost estimation will be made on a more reliable basis when the material will be procured, labor will be paid for the time spent and other expenses also materialize during the execution phase. In that case, we need to update the project forecast with actual expenditure that will allow us to better manage stakeholders' expectations. Progress shall be continuously monitored and any adjustments required shall be made. It involves delivering customized constructed projects as per the specifications of the client.

Phase 4:
Monitor & Control Phase: During this phase, key performance indicators shall be used to measure the success of the project. It is important to improve the cost estimates with the help of lessons learned during the life of the project. Continuous updation regarding the assumptions log, any change in the basis of estimates, cost estimates and variances will ensure that there are minimum surprises at the end of the project and will facilitate transparent dealing between the contractor and the client.

Question: Analysis for the factors that have an effect upon the compilation of unit rates for your estimate.

Solution: Factors affecting estimates of unit rates:

There are a number of factors that affect the unit rate estimates in our project.The preparation of estimates for construction cost for any project is a very complex task as it consists of many variable factors. Some of these factors are as discussed below:

• The price of Materials to be used in construction is affected by the availability, quality, quantity and size of the order of consumables. As mentioned earlier also that the firm purchases the raw material of best quality itself in large scale as it operates a number of construction projects on a large scale. Thus, it enjoys economies of scale. Due to its purchases in large quantities, the best quality material is available at a lower price and thus the unit price of the material used in construction will be comparatively much lower.

• The effect of quality of materials is considered as a high quality material seems to be costly. But the low quality material on the on hand will cost low but on the other hand, it causes higher construction cost as it fails to meet the standard terms. The unit price in our project will be varying with respect to change in the quality of materials used.

• In case, when the required amount of material and labor is available and there is no shortage then the price will be much lower in such a situation. Further, the firm as mentioned in our report is having permanent labor thus, the per unit cost might not be affected by the shortage of manpower in the market. But if the firm had not employed permanent labor, then the labor unit price will subject to a high level of variation and will be more difficult to estimate the unit price in such a situation.

• A construction project can run over a number of years and the situation will not be the same as are at the time of estimating cost. One of the most challenging factors will be the inflation for such long duration project that run over more than a year. During the construction period, the cost of all the elements to be used in the construction project will vary from time to time and thus it will affect the estimate of unit prices.

• Regulatory requirements are a considerable factor that affect the projects cost. The rules and regulations thereunder need to be considered while preparing estimates.

• Location of construction project also affects the unit rates of estimates. When the location of the construction site is far away from the available resources, it will result in increase in the cost. Costs such as transportation of material, labor, supervisors, engineers etc. will vary with the variation in the distance between the construction site and the firm location. In the given case, the firm has a number of branches/ offices at a number of location. The construction site is near the branch office of the firm. Thus, all the above mentioned cost will be lower for the firm and thus per unit price of material, price to be paid to laborers will be reduced.

FAQ: Preparing Estimates for Construction Work Activities

• Q: What is a work activity estimate?
• Q: Why are work activity estimates important?
• Q: What steps are involved in preparing a work activity estimate?
• Q: What are some tools and resources for creating work activity estimates?
• Q: How does a work activity estimate tie into the final project price?

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