Resource Costs: Labour, Materials and Plant

Chapter 12
Resource costs
Labour, materials and plant
Introduction
There was a time when the unit costs of labour and plant were calculated from first principles, the
assumption being that the company employed operatives in sufficient numbers to carry out the
work and provided its own plant. A more realistic approach today would be to find the current
market rates paid for labour near the site and look at the market prices for plant hire. This
information is readily available as feedback from current jobs, while plant hire rates can be obtained
from plant specialists. Another change has come with computers. The importance of establishing
accurate rates for labour, materials and plant, before pricing the bill of quantities, has reduced
because computer programs allow the estimator to change unit rates for resources at any stage of
the tender period.
Labour rates
A method for calculating all-in rates for labour is given in the CIOB Code of Estimating Practice, sixth
edition (COEP). This has been adopted by many publications, professional bodies and contracting
organizations as a reasonable basis for calculating the cost to employ an operative. The example
given in the COEP uses the formula:
Hourly rate = annual cost of employing an operative / actual hours worked
During the first half of the twentieth century, builders calculated labour rates by looking at weekly
costs. This was a little easier to do but lacked the precision of the current method. The main
Copyright © 2016. Routledge. All rights reserved.
reasons for calculating costs and hours on an annual basis are:
1 To include the effect of annual and public holidays on the number of hours for payment.
2 Overtime working often depends on the proportion of summer and winter working, because
longer working hours are available and used in the summer period.
The COEP calculation is clearly a theoretical approach that should be checked periodically against
recorded costs. The main variance is commonly the amount paid for ‘bonuses’, such as attraction
money, plus-rates for semi-skilled operatives, spot bonuses and locally agreed payments.
The estimator needs to be aware of some of the difficulties associated with calculating labour
costs, and should answer the following questions:
Brook, Martin. Estimating and Tendering for Construction Work, Routledge, 2016. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/bcu/detail.action?docID=4767492.
Created from bcu on 2018-10-14 22:48:34.
178 Resource costs
1 Are there enough skilled operatives in the area? If not, will they need to be paid increased rates
to work on the site or is there a need to import labour from outside the area?
2 How many operatives will be paid travelling expenses and will any key people receive a
subsistence allowance?
3 Will there be any local union agreements which affect the wage levels, such as those found in
large-scale projects for airports or nuclear power stations?
4 Will bonus payments and enhanced wages be self-financing? Overtime scenarios can be tested
in the spreadsheet model given in Figure 12.1.
CB Construction Ltd LABOUR RATES 2015/16
Entry Working Paid In accordance with Working Rule Agreement and Enter
WORKING HOURS
cells hours hours CIOB Code of Estimating Practice hrs
Duration (Summer) 30 weeks * 1,170 1,170 * All calculations based on 39 normal working hours 44
Overtime 5 hrs/week 150 225
Annual holidays adjustment 15 days -132 -15 For overtime deduct 14 days/5 days x 5 hrs
Public holidays adjustment 5 days -44 -5 Good Friday, Easter Monday, Early May, Spring
and Summer Bank holidays
Duration (Winter) 22 weeks 858 858 39
Annual holidays adjustment 7 days -55 0
Public holidays adjustment 3 days -23 0 Christmas Day, Boxing Day and New Year's Day
Sickness (winter) 6 days -47 -23 Assuming 50% is paid

Potential working time 1,877
Bad weather 3% -56 Can be illustrated on a weather map of the country
Actual working time 1,821
Paid hours total 2,210
HOURLY RATE
Craft General BATJIC Weekly rates Basic from 29.5.15
operative Operative (39 hrs week) £
Basic wage £448.50 £337.35 General operative 337.35
Bonus or enhancement £40.00 £15.00 S/NVQ2 Intermediate 386.10
Total weekly rate £488.50 £352.35 S/NVQ3 Advanced 448.50
Hourly rate (39th) £12.53 £9.03
ANNUAL EARNINGS
Craft General
operative Operative
Annual wage 2,187 hrs £27,389 £19,755
Sick pay 23 hrs £74 £74 Sick pay is £125/week 3.21
National insurance 13.8% £2,670 £1,617 Currently (2015/16) 13.8% above £156/wk threshold
Stakeholder pension 1.0% % £216 £140 (Net pay plus holiday pay - £5,824) x 1.0%
Severence pay and sundries 1.00% £303 £216 Severence pay and death benefits
sub-total £30,652 £21,802
OVERHEADS ON PAYROLL
Training levy 0.5% £137 £99 (Net pay + holiday pay) x 0.5%
Employers Liability and
2.0% £613 £436
Third Party insurance
TOTAL ANNUAL COST £31,402 £22,336
COST PER HOUR

Craft General
operative Operative Also consider:
TOTAL ANNUAL COST £31,402 £22,336 Storage of tools maximum liability £750pa
Actual working time 1,821 1,821 Subsistance allowance £36.00 per night
ALL-IN HOURLY RATE £17.25 £12.27 Travelling Time and Daily Fare Allowance
Figure 12.1 Calculation of all-in rates for labour using spreadsheet software.
Resource costs 179
Some organizations, typically those that employ their own regular labour force, build up labour
rates for every job. This allows changes to be made for the type of work, time of year and location.
It must be said, however, that in recent years the nationally agreed wage rates have not reflected
the rates paid in the marketplace. Where skilled labour is scarce, labour costs rise; during times of
recession, labour rates fall. There is an argument that an estimator will price work quicker if a
constant labour rate is used for several months. Global adjustments can always take place at the final
review stage, providing an analytical approach to pricing is used. Where computer databases are
used, fine-tuning of the labour element can take place at any time before tender submission.
Figure 12.1 illustrates the all-in rate calculation using a spreadsheet model. Travelling and
subsistence costs have been omitted on the assumption that they are better assessed when calculating
the preliminaries. Changes can be made to any of the figures; the following are the items that might
change from job to job:
1 Time of year – the proportion of work carried out during ‘summer’ weeks.
2 Number of hours worked each week – the normal working hours are 39 per week throughout
the year, but in the summer more working hours can be achieved.
3 The allowance for bad weather – depends on time of year, exposure to the weather and height
above sea level.
4 Attraction bonus – is the non-productive element needed to match the going rate for skilled
and semi-skilled people?
5 Trade supervision – rarely included in the all-in rate today because it is better to consider all
aspects of site supervision while assessing preliminaries.
6 Extra payments for special skills – the Working Rule Agreement specifies many additional
payments (to be added to the labourer’s rate), principally for driving mobile equipment and
working in difficult conditions.
7 Employer’s liability insurance – although related to the labour value, this may be part of a
general assessment of liabilities in the preliminaries schedule.
Spreadsheets are used for these repetitious calculations because various combinations can be tried
out, hence the phrase ‘what-if calculations’. In Figure 12.2, insurances have been removed so that
they can be considered in pricing preliminaries. A longer working week is envisaged during a
35-week summer period, with 50 hours working time each week. The overall effect is a slightly
higher hourly rate.
For the analysis of rates throughout this book, the labour rates have been rounded off to £18.00/h
for craftsmen and £13.00/h for labourers. These are the labour rates calculated from first principles in
this chapter and reflect rates during the period June 2015 and May 2016.
CB Construction Ltd LABOUR RATES 2015/16
Entry Working Paid In accordance with Working Rule Agreement and Enter
WORKING HOURS
cells hours hours CIOB Code of Estimating Practice hrs
Duration (Summer) 35 weeks * 1,365 1,365 * All calculations based on 39 normal working hours 50
Annual holidays adjustment 15 days -150 -33 For overtime deduct 14 days/5 days x 5 hrs
Public holidays adjustment 5 days -50 -11 Good Friday, Easter Monday, Early May, Spring
and Summer Bank holidays
Duration (Winter) 17 weeks 663 663 39
Annual holidays adjustment 7 days -55 0
Public holidays adjustment 3 days -23 0 Christmas Day, Boxing Day and New Year's Day
Sickness (winter) 6 days -47 -23 Assuming 50% is paid

Potential working time 2,088
Bad weather 3% -63 Can be illustrated on a weather map of the country
Actual working time 2,026
Paid hours total 2,538
HOURLY RATE
Craft General BATJIC Weekly rates Basic from 29.5.15
operative Operative (39 hrs week) £
Basic wage £448.50 £337.35 General operative 337.35
Bonus or enhancement £40.00 £15.00 S/NVQ2 Intermediate 386.10
Total weekly rate £488.50 £352.35 S/NVQ3 Advanced 448.50
Hourly rate (39th) £12.53 £9.03
ANNUAL EARNINGS
Craft General
operative Operative
Annual wage 2,515 hrs £31,503 £22,723
Sick pay 23 hrs £74 £74 Sick pay is £125/week 3.21
National insurance 13.8% £3,238 £2,026 Currently (2015/16) 13.8% above £156/wk threshold
Stakeholder pension 1.0% % £258 £170 (Net pay plus holiday pay - £5,824) x 1.0%
Severence pay and sundries 1.00% £351 £250 Severence pay and death benefits
sub-total £35,423 £25,243
OVERHEADS ON PAYROLL
Training levy 0.5% £158 £114 (Net pay + holiday pay) x 0.5%
Employers Liability and
0.0% £0 £0 Insurances priced in preliminaries
Third Party insurance
TOTAL ANNUAL COST £35,581 £25,356
COST PER HOUR

Craft General
operative Operative Also consider:
TOTAL ANNUAL COST £35,581 £25,356 Storage of tools maximum liability £750pa
Actual working time 2,026 2,026 Subsistance allowance £36.00 per night
ALL-IN HOURLY RATE £17.57 £12.52 Travelling Time and Daily Fare Allowance
Figure 12.2 Calculation of all-in rates for site working 50 hours/week with an extended summer period of 35
weeks and insurances priced in preliminaries.
Resource costs 181
Material rates
Quotations should be obtained for all materials, not only because prices can fluctuate unpredictably,
but also because the haulage rates to various sites could be different, depending on their distance
from the supplier; and the size of loads can dramatically affect the transport costs. The following
factors are considered by the estimator in building up the material portion of a unit rate:
1 Check the materials comply with the specification – the estimator may consider the use of an
alternative product if it is cheaper and from experience is a satisfactory choice that the contract
administrator is likely to accept. A common example is the use of cement replacements and
additives in ready-mixed concrete – which ironically are readily accepted by the Department
of Transport and water industry and sometimes rejected by architects for building work. Many
specifications envisage the use of alternatives with the statement ‘subject to the approval of the
contract administrator’, for example.
2 The supplier may want payments for the costs of transport or small load charges. Ready-mixed
concrete suppliers, for example, impose extra payments for part loads. The cost can be
significant, and must be considered where small concrete pours are expected.
3 Some products are manufactured in fixed sizes that are the minimum that can be ordered. An
estimator may have received a price of £3.00 per metre for polythene pipe for a job which
needs only 15 m. If the minimum coil size is 30 m then the estimator must consider the
likelihood of using the pipe on another site that might involve a storage cost. Alternatively, it
might be more realistic to allow £6.00 per metre (including waste) in this tender.
4 The quantity required for each unit of work must be considered for each material. Estimators
should keep a note of the conversion factors they need for commonly used materials. For
example: a half brick wall has 60 bricks per m2; 2.1 tonnes of stone may be needed for each
cubic metre of stone filling; and 0.07 litres of emulsion paint might be the coverage for work
to plastered ceilings.
5 Unloading and distributing materials are activities that can be priced in the unit rate calculation
or dealt with as a general site facility in the preliminaries. Often a combination of both is
needed. With facing bricks, for example, the price for bricks will include the cost of mechanical
off-loading; whereas distributing bricks around the site could be catered for by including a
forklift and a distribution gang in the preliminaries schedule.
6 If the specifications, or preliminaries clauses, call for samples of certain materials, the estimator
needs to ascertain the cost. Usually a supplier will provide samples without charge. Testing of
materials, on the other hand, is usually undertaken by an independent organization, and as such
must be specified or preferably included as an item in the bill of quantities. The cost of testing
will be assessed when the preliminaries are calculated.
7 An allowance for waste is difficult to estimate. The standard methods of measurement state that
work is ‘measured net as fixed in position unless otherwise stated’ (NRM2 3.3.2(1)(a)) and the
‘Net quantity measured shall be deemed to include all additional material required for laps,
joints, seams and the like, as well as any waste material’ (NRM2 3.3.2(1)(b)) and overlapping
of materials (fabric reinforcement, NRM2 11.37 for example). CESMM4 Section 5 states that
the quantities shall be calculated net using dimensions from the drawings and that no allowance
shall be made (in the quantities) for bulking, shrinkage or waste.
8 The questions that the estimator must consider are: Is there a selection process needed on-site
to achieve the quality specified (such as picking facing bricks to produce a specific pattern)?
Are materials likely to suffer damage in the off-loading and handling stages? Is the design going
to lead to losses in cutting standard components to fit the site dimensions? Is the site secure
182 Resource costs
from theft and vandalism? Will the finished work be protected from damage by following
trades? Has the company had previous experiences with the materials? Will some materials be
used for the wrong purpose, such as using facing bricks below ground level to avoid ordering
a few cheaper bricks?
An estimator will need help in making these decisions. Guidance can be found in price books or
research papers and the company should collect information from previous projects.
Plant rates
The plant supply industry can provide a wide range of equipment throughout the United Kingdom.
It can offer hire or outright purchase, and in some cases lease and contract-rental schemes. The
following steps can be taken at tender stage to assess the mechanical plant to be used.
Step 1
Identify specific items of plant needed by looking at quantities and methods. The machine capacities
can be found by assessing the rates of production required. Examine the tender programme for
overall durations.
Step 2
Obtain prices; the sources of plant are:
• purchase for the contract;

• company-owned plant;
• hire from external source.
In practice the sources of prices are:
• calculate from first principles;

• internal plant department rates;
• hirers’ quotations;
• published schedules.
Step 3
Compare plant quotations on an equal basis perhaps by using a standard form (the COEP provides
a typical Plant Quotations Register).
Step 4
Calculate the all-in hourly rate for each item of mechanical plant. The main parts of the calculation
are:
• Cost of machine per hour (including depreciation, maintenance, insurances, licences and
overheads).
Resource costs 183
• All-in rate for operator (the operator may work longer hours than the plant because of the time
needed for minor repairs, oiling and greasing; the National Working Rule Agreement suggests
how much time should be added to each eight-hour shift; it also lists extra payments for
continuous extra skill or responsibility in driving various items of plant).
• Fuel and lubricants (the amounts of fuel consumed will depend on the types and sizes of plant;
the average consumption during the plant life is used).
• Sundry consumables (where, for example, the plant specialist is unable to accept the risk of tyre
replacement on a difficult site or any costs beyond ‘fair wear and tear’).
The cost of bringing plant to site is usually assessed in the preliminaries when the transport of all
plant and equipment is considered.
Step 5
Decide where to price plant – either in the unit rate against each item of measured work or in the
preliminaries. This decision might be made for the estimator if the company’s procedures dictate
the pricing method. Plant that serves several trades should be included in the preliminaries, such as
cranes, hoists, concrete mixers, and materials handling equipment. Estimators also price the erection
of fixed plant in the preliminaries together with the costs of dismantling plant on completion.

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Chapter 12

Hourly rate = annual cost of employing an operative / actual hours worked

reasons for calculating costs and hours on an annual basis are:

CB Construction Ltd LABOUR RATES 2015/16

Sickness (winter) 6 days -47 -23 Assuming 50% is paid

COST PER HOUR

Sickness (winter) 6 days -47 -23 Assuming 50% is paid

COST PER HOUR

• purchase for the contract;

In practice the sources of prices are:

• calculate from first principles;

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