Estimation and Construction

Management
Overheads and Profits
 Agenda
• Overheads

• Profits

• Putting the bid together

 Construction Estimates
Profits Percentage

Margins/Subcontracts Percentage

Labour

Equipment

Temporary Materials

Permanent Materials
 Job Overheads or Indirects
• Costs that can be attributed to a given job
but cannot be conveniently allocated to
specific work packages
• Job overheads depend on size and type of
job
• Generally, they increase with duration and
are attributed to the project as a
percentage
 2 Types of Overheads
• Job Site Overheads

• Home Office Overheads

 Types of Overhead costs
• Salaries of Engineering and Supervisory
Personnel
• Salaries of office personnel
– Draftsmen, Secretaries, Guards etc
• Temporary construction
– Access roads
• Buildings and Major Equipment
– Batching plant, project office
• Bonds or insurance that the contractor is
expected to get
• General expenses
– Supplies, stationary, telephone, office furniture etc
 Calculating overhead
• Itemize all overhead costs to the extent
possible
• Develop a percentage figure based on
direct costs to represent these overheads
• Can range from 2-20%
• This “mark-up” is often done by the
management and not the estimators
 Contingencies and Profits
• Always expect the unexpected
– “If you are not ahead, you are behind”
– Too many uncertainties in construction
• Add on a buffer for risks that you think will occur
– Unforeseen ground conditions, price rises etc
• After adding on direct costs, subcontractor costs,
margins and contingencies, add a percentage
for profit
– Reflects the return on investment
– If it is too high, you risk losing the job
– Currently it is often around 10%
– Concepts like ROCE increase “apparent” profit
margins
 Putting the bid together
• Obtain project information and split it into work packages
– Drawings, scope, specifications
• For work to be done in house, estimate the quantities,
and the rates for each activity based on equipment used,
labor productivity, site conditions etc
– Build the project in your head
• Solicit subcontractor bids for outsourced packages
• Consolidate to get direct costs
• Add markups
• Add contingencies
• Add profits
• Submit bid
– Including any other supplementary information such as technical
notes, qualifications
 Sample Bid
Item Description Quantity Unit Rate Unit of Amount
No. Rate (Rs.)

1 xxxx

…. xxxx

Total = Rs. YYYY

Contingency @ a% = Rs. pp
Overheads and Profit @ b% = Rs. qq
Grand Total = Rs. ZZZZ
Thank You