Elements of builder's costsRate quoted by a builder have to cater for the following :
Basic
costs
|
Indirect
costs
|
Materials,
|
Overheads,
|
Labours,
|
Establishment
charges,
|
Tools
and plant.
|
Profit.
|
Materials
Cost of materials will include the price charged by suppliers, transportation/haulage to site of work, unloading mandand storing. Allowance has also to be made for waste, pilferage, breakages, offcuts due to nonstandard sizes specified, depreciation due to bad storage, returning empty cases, compaction/loss in bulk, and for cash/trade discounts available. Another important consideration will be payments on account of state / interstate sales tax, octroi, custom duty, royalty and the like.
Labour
Requirement of labour can be met with by the builder either by entering into agreements with labour sub-contractors by negotiating net rates payable per unit of each different item of work or getting work executed by directly employed labour, or by a judicious mixture of the two methods.
The system of labour
subcontractors is usually found to be cost-time effective, but may tend to
compromise on the aspect of quality. Reputed builders usually opt to execute
important activities like curing of concrete etc. and 'finishing items' of work
through directly employed labourers and the remaining bulk of work through
labour subcontractors.
Due allowance as
applicable has to be made for idle/travelling time, overtime, holidays with
pay, attendance on Regional Labour Commissioner, compliance with provisions of
labour compensation act and other labour regulations, minimum fair wages,
irrecoverable advance payments to labourers, and the like.
In situations where
labour has to be imported, aspects like fares, paid leave, increments in
scales, medical attention, free messing/living accomodation, visa, passport,
airport fees etc. may also come into play.
The element of labour in
the basic rate therefore, is not calculated on the actual wages paid but on a
previoulsy worked out 'all-in' rate for each category of labourer/artisan or
item of work giving judicious weightage to all the factors mentioned above.
Tool plant and machinery
Plant used on site is subdevided into :
1.
Plant used for specific
items of work which enables charging cost of its use to the basic rates of
particular item of work like brickwork, concrete etc.
2.
Plant like cranes,
hoists, scaffolding etc. the cost of which cannot be broken down and allocated
to individual items of work and therefore has to be accounted for in the
overheads.
Cost of plant has to
include for 'standing charges' consisting of interest on
capital outlay and depreciation to cater for replacement cost, maintenance and
repairs, 'running costs' consisting of fuel, oil, lubricants
and the operator's pay and 'variable costs' consisting of setting
up the plant, temporary site work required in connection with use of the plant,
shifting location etc.
Overheads
Overhead charges denote
expenses incurred for a particular job/site by the builder but which cannot be
conveniently included in the basic cost of specific items of work such as
brickwork etc.
Overhead charges are
subdivided into 'fixed' or 'one-time' overheads
and 'variable' or 'time-related' overheads.
Fixed or one-time overhead
charges should include for all costs incurred in the initial setting up of an
efficiently operating work site, such as providing temporary site-offices,
storage sheds, labour camp, canteen, ablution places, fencing, approach roads,
mixing/casting platforms, water tanks, curing tanks; obtaining
telephone/electrical/water connections and for demolishing and clearing all
these temporary site works on completion. All expenses in connection with
shifting tools, plant, machinery, and fares paid to employees for shifting to
the new site are also treated as fixed one-time overhead charges.
Variable or time related
overhead charges should include for finance charges on the rolling capital
employed (or loans/overdrafts from Banks) which will remain locked up during
the period of construction and the amount of security deposit until the end of
defects liability period, site office expenses like salaries of engineers,
supervisors, time keepers, clerk, cashier, watchmen, storekeepers, drivers of
jeeps/staff bus, stationery, postage, telephone/electricity/water bills, tea
and refreshments served at site, maintenance of site offices including
furniture/equipment put up for builder's employees as well as supervising
agencies working in behalf of the employer, repair and unkeep of all temporary
works like mixing/casting platforms, storage sheds, water/curing tanks.
approach roads, fencing, labour camp, canteen, ablution places, petrol/disel
lubricants for jeeps, staff-bus and pumps for pumping construction water, rents
for hired accomodation if any and similar other expenses.
Owning and using costs
or lure charges on general plant like cranes/hoists/scaffolding, pump for
pumping constructing water and the like will also figure in the variable or
time related overheads.
Maintaining a skeleton
team of workers and supervisor for attending to defects cropping up during the
defects habits period, may depending on preference of the builder, be included
either as a time related overhead or assessed on lump sum basis as included in
the fixed or one-time overhead charges.
The following items
should not be lost sight of when toting up the overhead expenses :
1.
Turnover tax, Income
tax, and Sales tax (if the law requires the work to be treated as a finished
article solve by builder to the employer) as applicable.
2.
In tendering for works
for which an impossibly short period of completion coupled with penalty or preasses
liquidated damages are stipulated, the builder may have to reluctantly work out
the likely penalty/damages in advance an include them in the overheads.
3.
Builders being a
pragmatic community may also have to accept facts of life and allow for the
likely expenses on entertaining and any inevitable extent of 'greasing' of
officials in the employer's organisation.
Establishment Charges
Expenses incurred on
running the permanent head office of the builder's firm (as distinct from the
site office meant for a particular job) are termed as establishment charges.
Establishment charges
include salaries of head office clerical staff like clerks, secretary and
cashier, low grad employees like peons, messengers, drivers of office cars,
attendants, cleaners etc., specialist staff like accountant, estimate quantity
surveyor for working out tenders, and administrative staff like Directors
(fee/salary as applicable) or working partners (their salary being distinct
from share in net profit). Other incidental expenses incurred by the head
office establishment a telex/telephone/electricity/water bills/stationery,
postage, depreciation of office furniture and equipment like computers/tele
machines/typewriters etc., rent/repairs of office premises, theft/fire
insurance, legal fees to lawyers and professional fees pay to chartered
accountants and consultants.
The percentage addition
for establishment charges to be made in each tender submitted by the firm is
decided by comparing the annual turnover of the firm during the previous year
with the total expenses of the head office during previous year.
Profit
Simply stated, profit to
a builder, similar to any other commercial transaction, is the difference
between all-inclusive construction cost and the contract amount paid by the
employer.
Building contracts
provide for interim or on-account payments at fixed intervals of a month (or
less). The rolling capital required by the builder on a particular job
therefore is only a fraction of the total contract amount. The net profit in a
building contract may be (say) only 10 % but the return on the rolling capital
employed can turn out to be as large 120 % per annum, or even more. (As an
example consider a contract for Rs. 60 Lacs to be completed in 12 months with
stipulation for monthly on-account payments. If the tender allows for 10 %
profit, the yield on the initial rolling capital about 5 Lacs inclusive of the
cost of site mobilisation will be Rs.6 Lacs or 120 % per annum.)
Any extent of care
exercised in working out the legitimate costs involved in a work cannot
neutralize risk element like meeting unfavourable strata in foundations,
inclement weather, strikes, labour and political unrest, or for that matter
gravest risk of the owner (employer) going bankrupt half way through. The
percentage mark-up for profit by the builder therefore considered as inclusive
of the risk elements.
