Chapter 8 Pricing Generally

Objectives Upon completion of this chapter, you will be able to: –Describe the general process of pricing a construction estimate –Explain the concept of risk as it relates to cost estimates of construction work

Objectives (cont’d.) –Describe the two main components considered when pricing labor and equipment –Describe a strategy for dealing with factors that are difficult to assess on a project –Describe the use of cost reports as a source of information for pricing estimates

Objectives (cont’d.) –Describe how materials are classified and priced in an estimate –Identify the problems associated with pricing subcontractors’ work

Introduction Stages of pricing an estimate –Preparing takeoff for pricing –Recap: pricing sorted list of items Labor Equipment Materials Subcontractors Job overheads

Contractor’s Risk Losing money in the process –Actual cost exceeds estimated cost Example: lump-sum contract risks –Takeoff quantities are too low –Productivity does not meet anticipated productivity –Material suppliers fail to meet obligations

Pricing Labor and Equipment Methods: –Use of productivity rates Convert takeoff quantities –Use of unit prices Applied to listed takeoff quantities Risk factors: –Hourly rate of labor or cost of equipment –Productivity of labor or equipment

Wage and Equipment Rates Wage rates –Represent average rates Vary according to location –Include: Base wage rates Payroll additives Equipment rates –Ownership costs and rental rates

Productivity of Labor and Equipment Job factors –Weather conditions –Site access –Storage space –Nature of the project –Other job factors (e.g., large versus small jobs)

Productivity of Labor and Equipment (cont’d.) Labor and management factors –Quality of supervision and labor –Motivation and morale –Tool and equipment quality and type –Experience and records

Use of Cost Reports Database of past job information Key processes: –Priced takeoff items: coded to produce budget –Labor- and equipment-hours: coded –Quantity of work: measured –Wage and equipment rates: applied to hours coded

Project Information with Cost Reports Basic questions: –Why did the estimator choose the original unit price for an item? –Why did the actual unit price vary from the estimated unit price? Final cost report: –Should include explanatory commentaries

Strategy for Pricing Labor and Equipment Adjust unit prices for relatively certain job and management factors –Be optimistic with other factors Some danger involved –Identify estimating risks

Pricing Materials Categories: –Finished structure materials (e.g., concrete) Priced using unit prices against recapped work quantities –Materials consumed during operations (e.g., oil) May be included in price of permanent work

Pricing Materials (cont’d.) Questions: –Do the materials comply with specifications? –Do prices quoted include delivery? –Will supplier’s prices to remain firm? –Does the supplier’s price include taxes? –Will there be any storage requirements? –What are the vendor’s terms of offer?

Owner-Supplied Materials Contractor-supplied material –Most project specifications include descriptions Types, brands, etc. Owner-supplied materials –Specifications may be skimpy Size, weight, and packaging are usually necessary More details may be required

Pricing Subcontractors’ Work Problems: –Not all subtrades offer lump-sum bids Bid unit or hourly prices –Interpretation of what is part of the work of may differ –Subcontractor whose price is used may be unable to perform the work

Summary Pricing an estimate consists of: –Sorting and listing items, then applying prices Costs may exceed estimated prices when: –Takeoff quantities are too low –Productivity does not meet anticipated productivity –Subcontractors or material suppliers fail to meet obligations