Project Price Components

1. Introduction: Hi, Welcome to our first video from a series of Videos demonstrate the Major topics from CAFT, Cost analysis and forecasting Technique. I am Said Soliman Cost Management and ERP Consultant. In this video, we'll talke about the bid price component, the component are the resources required to implement the project, and should be analyzed to determine their estimated value to be used in pricing the Bid items which in total result in the same price of the project as whole. This is the general form of illustrating the bid price component. And we'll give an explanation of each item of them What is they contain and how they can be included in the project price analysis process. 2. Bid Price Components: In this video, we'll talk about the bid price component, the components are the resources required to implement the project and should be analyzed to determine their estimated value to be used in pricing the bid items which in total result in the same price or the project as whole. This is the general form of illustrating the bid price component and will give an explanation of each item of them what is they contained and how they can be included in the project price analysis process. First, the main division of the cost element of the project is two main types variables and fixed cost. What's the difference between them? The variable is a cost that is associated with the amount of goods or services are produced. Project's variable costs increase and decrease proportionally with each production volume or the execution time. And it's expressed in terms of two components, of costs, namely direct costs and indirect costs. That will be clarified later. while the fixed cost doesn't vary with the volume of production, it remains the same even if no goods or services are produced. For example, the execution of Access Roads, which is implemented temporary to connect the main roads to the area of work execution. Whatever the size of the project changes, the cost value of this road will not be affected. So it's considered one of the fixed expenses in the project. But this doesn't mean that it's neglected or not included in our calculations in the pricing of the project. But actually it's considered part of the indirect cost of the project. Now let's talk about the variable cost elements, which namely direct cost and indirect cost, which is the cost attributes to production of activities or projects they are estimated based on detailed analysis of the contract, site condition, resource productivity data and the method of construction being used for every activity actually direct cost is the summation of the cost of labor, equipment, materials, and subcontractors used in all the activities in project. While, labor is the direct labor assigned to execute the activity, when cost estimate depending on their productive rate/unit and wages/day or hours. Material is a direct materials that could be counted for a specific activity easly when cost estimate depend on their usage rate per unit and material unit price. Third is equipment. Equipements are the heavy-duty machines are assigned to execute activity when cost estimate also like labor depends on their productivity rate per unit and rent rate. Last direct elements is a subcontractor, is a company or person who is hired by the general contractor to perform a specific task as part of the overall project. Second, the indirect cost, which reflects the cost of items which can not be directly charge it to a specific work element. This includes the cost of utilities, permits, supervisors, which serve many tasks in the project's BOQ. This cost is not impacted directly by the increase in quantities of work items. For example, the value of supervision. For the execution of reinforced concrete work with a volume of 100 cubic meters, for example, will not change if this quantity is increased to be 120 because the supervision value is the same, they will take the same time to execute additional quantities. But this doesn't mean that it's not affected at all. Sometimes the amount of work may increase by a large percentage, which may result in an increase in the number of supervision team and the subsequent expenses. And here, the indirect cost may be affected by this change in quantity. Usually this percentage value and the condition for each application are included in the terms of the contract, especially in the general condition. So as the indirect cost is related to multiple things within a project, it has been divided into four main groups to facilitate the process of analyzing their costs according to the nature of each group. These groups, are: First, operation indirect cost, financial and legal risk reserve, and finally, the markup. Now let's give any explanation about the nature and content of each group separately as follows. First, the operation indirect cost, which is referred to the indirect costs related to the activity's execution and impacted by the project lifetime. And sometimes it's impacted by the work volume too if the work volume exceeds a specific percentage from the original work volume as mentioned in the contract condition and explained before. This group consists of the following components. First, personnel. Personnel costs are the salaries and benefits of stuff employed by the company to supervise and manage a project execution. They are classified to: field engineer office engineers, quality control engineer, material engineer, and so on. All supervision will manage the project. The second is mobilization, which refer to all activities and the associated cost for The necessary general facilities for the contractors operation at the site, like grading and landscape field offices, temporary access roads. You remember the excess roads as we mentioned, in the fixed costs. We consider this value as indirect, like fencing, workshop building, stores, shades and parking area, and site utilities and similar items like that. Next is general equipment all machinery and the associated, costs, for the general site works which is difficult to be tracked for specific activity, like heavy equipment's rental, light scaffolding and the platform structural Formwork System and others associated cost related to such equipment, like fuel, gas, oils, and maintenance tools will be used for such equipment. Next is consumption. The cost of all indirect materials will be used and fully consumed within project lifetime. And also it presents the costs of some direct materials that's difficult to be tracked and assigned for a specific task. Like small tools and supplies, water consumption for work and Mobilization and other items too for general sites like cables, for site lighting, pipes for site water feeding, and general site expenses for safety. The next is office expenses, which reflects the running cost of expenditures are necessary to support the management of operation like field office expenses, IT expenses, surveying, testing, and the QC expenses and security expenses. Next is consultancy. Consultancy refers to the cost of technical support service like shop drawing, design works, surveying, soil investigation, sometimes legal consultancy, especially in the project. In JVs with other contractors or consortiums that are assigned by outsources experts. Finally, in the operation direct cost is customed clearance. The fees costs and associated for a fright and the custom clearance of the imported material and include transportation fright and custom clearance and the material moving and re-allocation internally from the ports to the site. The second group from the indirect cost is financial and legal, which is mostly a governmental fees. And the estimated value of this group impacted by the contract selling price, as it's almost estimated as a percentage of the expected final sell price. This group consists of the following items. Insurance, which is fees cost for a standard insurance policy that provides coverage for property damage and third-party entry, like third party insurance, social insurance, labor insurance. Next one is the fees and stamps, which reflects the cost of all fees and stamps duties on the contract agreement, financial transactions and administration facilities like permits, bank charges, governmental stamp duties and engineering union fees, something like that. The third one is the bond, the bond is a reserved value by the client to overcome difficulties that have been caused by the contractor. like Performance bond, advance payment, bond and retention bond. Third group from the indirect cost is risk reserve. Risk reserve use to provide a safe guard against uncertain circumstances that are anticipated to affect a project, such as weather, labor problems and so on. and their estimation based on risk assessment analysis, if you have the time to do it. And if we can't make a detailed risk assessment analysis, we can consider its estimated value as a percentage from the expected total selling price. Definitely, this percentage estimated based on the back experience from the estimator in similar projects. the components of this group classified as follow first, contingency. Contingency is an amount of money set aside to cover any unexpected cost is that can arise throughout the project. This one is on reserve and is not allocated any specific area of work. Essentially, contingency acts as insurance against other unforeseen costs. Secondly, warranty. Warranty is a reserve it cost to cover in defects or deficiencies. Will developed in the contract's construction work for a period of a year after handing over to repair or replace any work which is found to be defective or deficient before expiration of the one-year. The last Group from the indirect cost is markup. This group reflects the costs that cannot be directly attributed to a single project and also estimated as a percentage from the expected total sell price. And the types of such costs under this group are classified as follows. First, head office costs, which is being, Project's portion from the general and administration costs from the head office Second, Taxes, this is a reserve cost to cover all the governmental Texas on construction projects like corporate taxes Sell Texas and so on. Third one is the fund interest, which is reflects the expected bank interest on the loan that may be obtained by the contract to fund the project. Finally, the profit. The profit is not a cost. It's the targeted earned venue was decided based on the level of competitions and the contractor needs for winning this particular project. But as we are in the process of calculating the sell price that will be presented to the client throughout the tender procedure, we should consider the percentage of our target profit as the project same price consists of all courses will be spent to execute the project, which is called Budget, plus the profit that we targeted to earn it from such a project. Thank you. And wait us in our next video about tender documents from the series of brief video about cost analysis and forecasting Technique.