CONSTRUCTION PROJECT COSTS

PROJECT COSTS

Construction Project Costs 

The principal components of a contractor’s costs and expenses result from the use of labors, materials, equipment, and subcontractors. Additional general overhead cost components include taxes, premiums on bonds and insurance, and interest on loans. The sum of a project’s direct costs and its allocated indirect costs is termed the project cost.

The costs that spent on a specific activity or project can be classified as; 

• Fixed cost: costs that spent once at specific point of time (e.g., the cost of purchasing equipment, etc.)
• Time-related cost: costs spent along the activity duration (e.g., labor wages, equipment rental costs, etc.)
• Quantity-proportional cost: costs changes with the quantities (e.g., material cost)

Project direct costs 

The costs and expenses that are incurred for a specific activity are termed direct costs. These costs are estimates based on detailed analysis of contract activities, the site conditions, resources productivity data, and the method of construction being used for each activity. A breakdown of direct costs includes labor costs, material costs, equipment costs, and subcontractor costs.

Project indirect costs 

Other costs such as the overhead costs are termed indirect costs. Part of the company’s indirect costs is allocated to each of the company’s projects. The indirect costs always classified to: project (site) overhead; and General (head-office) overhead.

Project overhead

Project overhead are site-related costs and includes the cost of items that cannot be directly charged to a specific work element and it can be a fixed or time-related costs. These include the costs of site utilities, supervisors, housing and feeding of project staff, parking facilities, offices, workshops, stores, and first aid facility. Also, it includes plants required to support working crews in different activities.

A detailed analysis of the particular elements of site-related costs is required to arrive at an accurate estimate of these costs. However, companies used to develop their own forms and checklists for estimating these costs. Sit overhead costs are estimated to be between 5% – 15% of project total direct cost.

General overhead

The costs that cannot be directly attributed a specific project called general overhead. These are the costs that used to support the overall company activities. They represent the cost of the head-office expenses, mangers, directors, design engineers, schedulers, etc. Continuous observations of the company expenses will give a good idea of estimating reasonablevalues for the general overhead expenses.

Generally, the general overhead for a specific contract can be estimated to be between 2% – 5% of the contract direct cost.

The amount of the general overhead that should be allocated to a specific project equals:

Having defined the direct costs, indirect costs, then the project total cost equals the sum of both direct and indirect costs.