Construction Costing

Construction contracts

Name

Roll number

Topic

Srinivas K

49

Introduction & definition.

Shruti N

44

Procurement of contract.

Virupaksha

56

Contract analysis.

Zakir

58

Cost estimation.

Sharada

40

Types of payments.

Sangameshwar

36

Types of costs.

Saroj

38

Collection of costs.

Shilpa S

42

Indian example.

Soumya B

47

International example.

Construction contract A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

Construction contract is a formal agreement for construction, alteration, or repair of buildings or structures (bridges, dams, facilities, roads, tanks, etc.). A construction contract is distinct from a contract to assemble, fabricate, or manufacture.

Contract costing Contract costing is defined as “the form of specific order costing which is undertaken for customer’s special requirements and each order is of long duration, the work is usually constructional and in general the method is similar to job costing”

Procurement methods of contract •Traditional •Design and Build

• Two Stage Tendering • Management Contracting

• Construction Management • Framework Agreements

Analysis of construction company project

•Plan •Secure •Achieve

Factors • Plan:Plan is developed to describe activities associated with the project .The resource required to achieve the best possible outcomes for it &must be agreed on by all key characters. • Scope < Time < Cost < Quality < Human resource < Communication < Risk < Procurement.

• Secure: Once the project team is established they should secure the project. It means maintaining control over where the project is and where it is headed. • Achieve: Completing the project goals and objectives. Achieving the goals set out at the beginning of it ,with a successful project outcome. • Example : NICE construction company

Cost Estimation : The costs in a construction contract includes both the initial capital cost and the subsequent operation and maintenance costs. Each of these major cost categories consists of a number of cost components.

Initial Capital cost

• –Land acquisition –Planning and feasibility studies –Construction, including materials, equipment and labor –Insurance and taxes during construction

Operation and maintenance cost

• –Operating staff –Labor and material for maintenance and repairs –Utilities –Periodic renovations –Insurance and taxes

Unexpected cost during construction

• –Design development changes –Schedule adjustments –General administration changes

Types of construction cost estimates •Design

Estimates

–Screening estimates (or order of magnitude estimates) –Preliminary estimates (or conceptual estimates) –Detailed estimates (or definitive estimates) –Engineer's estimates based on plans and specifications •Bid Estimates –As a contractor, a bid estimate is submitted to the owner either for

competitive bidding or negotiation. •Control

Estimates

–Budget estimate for financing –Budgeted cost after contracting but prior to construction –Estimated cost to completion during the progress of construction.

TYPES OF PAYMENTS Upfront payment/deposit: • Upfront payments or deposits will generally be used for jobs where high level of material cost is found Periodic payment: • It is based on the interim valuation of the work • The main contractor then makes a down stream payment

Stage payments: • Depends on events rather than time • The parties agree at the out set that payment will be released on completion of the agreed stages of work. Milestone payment: • It is a derivative of stage payment • It will be setout in a schedule to the contract & the contractor will notify the employer when it considers that all work to be performed for a milestone.

Retention payment: Retention payments act as an incentive for the contractor to finish the job.

Types of costs • • • •

Direct Materials Direct Labor Indirect Costs Direct expenses

Direct Materials. Provide a consolidated priced summary of individual material quantities included in the various tasks, orders, or contract line items being proposed and the basis for pricing (vendor quotes, invoice prices, etc.). Include raw materials like sand, stone, cement, and steel to be produced or performed by others

Direct Labor. workers who are engaged directly in the construction process. Provide a time-phased (e.g., monthly, quarterly, etc.)

.

• Indirect Costs. Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project

• Direct expenses. all other costs other than the above mentioned costs (e.g., architects, designs, carriage inward, ) and provide bases for pricing.

Collection of cost Material cost: • Materials required for contract are purchased and delivered at the site • Materials in stock are valued and credited to the contract account ,the contract account gets debited by the value of material consumed during the year Labour cost: • Depending upon the contract, wages are paid directly at the site • Allocation of wages to various sub units is easy

Plants & Equipment cost: • They are purchased or hired • Depreciation on owned plant & equipment are debited to the contract account • The written down value is carried over as a balance to the next accounting period in which it is credited

Sub contracts cost : • Specialised nature tasks are assigned to the sub contractors • They are paid at agreed rate. • Direct expense • Contract account is debited on the basis of invoice received from the sub contractor

Godavari rail bridge

Godavari Rail Bridge is a bridge over the river Godavari connecting Rajamandri and Kovur in Andhrapradesh. • Inaugurated in 2003. • Length : 2730m. • Constructed by : Hindustan Construction Company (HCC). • Total cost: Rs. 1.5 cr.

DIRECT EXPENSES: DIRECT MATERIAL: DIRECT LABOUR: DIRECT EXPENSES: PRIME COST INDIRECT EXPESES: OVERHEADS: POWER INSURANCE TRANSPORTATION FIELD ENGINEERS DESIGN ENGINEERS

44,10,000 15,75,000 7,77,000 67,62,000

2,10,000 4,20,000 3,25,500 5,28,000 4,72,500

MANAGERS SALARY

7,68,000

SECURITIES SALARY

3,84,000

CONTRACTOR’S FEE

6,30,000

Hamilton construction company undertook the construction of Winchester Bridge in Roseburg, Oregon, USA.

Winchester Bridge • • • •

Built:1923 Crosses: North Umpqua River. Total length :269.4 m Construction costs: $29,40,000

Particulars

Amount

Direct materials:

$ 16,80,000

Direct labour:

$ 8,40,000

Direct expenses:

$ 2,80,000

Prime cost:

$28,00,000

Overheads: Power:

$35,000

Transportation:

$20,000

Supervisor’s salary:

$25,000

Engineering:

$30,000

Fuel:

$15,000

Other expenses:

$15,000

Assumption • Power: @ $2/unit for 10000 units. • Supervisors salary @ $2000/ month. Absorption of overhead • % of Direct Material=8.33% • % of Direct Labour= 16.6% • % of Prime Cost= 5%

Sources • Principles and practice of cost accounting: Asish K. Bhattacharyya. • Cost Accounting: Jawahar lal. • Cost accounting: Tukaram. • Websites: • www.wikipedia.com • www.futureaccountant.com • www.slideshare.com

Thank you