For beginners: how to determine a selling price ?

This is one for estimators at the beginning of their carreer and for those who are struggling with the calculations of their estimation software. Or, when you put it the other way around, how should your estimation software calculate ?

For the clients and architects who want to peep inside the kitchen of a general contractor: a warm welcome as well :o)

Here we go.

STEP 1

In a classic tender you have a list of articles where you have to put a price on.
Read carrefully the specifications and estimate the according costs for labor, material, equipment and subcontractors, article per article.
When finished the software will totalise this. These are the DIRECT COSTS.

STEP 2

As stated in my previous articles on this blog (and elsewhere), there are things you need in order to realise the building but which are not specifically mentioned in the tender.
Not estimating them will certainly result in a furious boss !
Some contractors estimate these costs in a seperate Excel file, some do this in the estimation software. It doesn't matter where you estimate it, as long as the job is done. 

The total sum of these costs are the INDIRECT COSTS.

Usually your boss wants to know how big these costs are related to the direct costs, preferably expressed in a percentage. How much this should be, really depends on what is specifically asked for in the tender: it can go from less than 1% when the architect wants to get a feeling with how a project is actually realised and mount up to 15% when it doesn't interest him at all.

STEP 1 and STEP 2 together is the PROJECT RELATED COST for the contractor.

In a formula:
                        project related cost = direct costs + indirect costs


STEP 3

A contractor has an office, an accountant and all other kinds of costs. 
And these costs remain whether he has a full order book or not. 
These are the GENERAL COSTS (in Dutch: algemene kosten or AK). Usually, these costs are taken into account bij adding a percentage on top of the production cost. 

In a formula:
                        total cost = project related cost x (1 + % general costs)

Some considerations:

• Each contractor has a slightly different view on what is project related and what not.
  E.g. some contractors have a standard all risk insurance which is part of the general cost percentage; others look at the insurance project by project and add its cost to the project related cost.
• Another thing: how big is the contractor you work for ? Does your company has his own engineering department ? In that case the general cost will be higher than the small contractor who only executes what is written down in the tender.

So, for you, as a beginning estimator, it is important to know what your boss exactly means by "general costs". Usually, the percentage is somewhere between 4% tot 8% of the project related cost.

STEP 1, 2 and 3 together is the TOTAL COST for the contractor.


STEP 4

A contractor wants / needs to make a profit. And your boss is not always so sure of the quality of your work. He will therefore add a percentage on the selling price for profit & risk. 

In a formula: 
                         selling price = total cost / (1 - percentage for profit & risk)

When you want to know how many euros or dollars this "dream" percentage for profit & risk is, the formula becomes:

                        profit & risk = selling price - total cost


STEP 5

Now we know what the total selling price will be, but how do we divide it over the articles of the tender ? Again, there are several considerations

• Sometimes, clients indicate a fixed sum for certain articles.
  E.g. kitchens in apartment blocks. The final, individual owner of the apartment gets a fixed sum to buy the kitchen of his dreams (what happens when he wants to buy a more expensive or less expensive kitchen, I'll tell you in one of my next contributions to this blog). In these cases you're selling price is known and needs to be fixed .
  In the direct cost of that particular article you put 80% to 90% of the fixed sum depending on the general cost percentage you agree on with your client ànd the discount you expect to get from the subcontractor who actually will build the kitchen.
  
  When you make your estimation in Excel, add a column where you can add e.g. an asterix (*) to mark these prices.
    
• Sometimes, the client already consulted subcontractors for e.g. windows.
  In other words, your client knows the price of the external joinery.
  
  Two remarks:
  
  1. When the client intends to work with a general contractor, he knows that the coördination of all the subcontractors come with a cost. In my experience clients are willing to pay from 3% up to 15% for it.
  
  2. As a general contractor you will get a better price of the subcontractor than your client because he is a one time client and you are a regular one.
  
  1. and 2. together means that you can put a selling price for these kind of items between 90% up to 110% of the direct cost of that particular article.
  
  Again, when you make your estimation in Excel, add e.g. an asterix (*) in the additional column to mark these prices.

Thus, the first thing you do after you have determined the total selling price, is to deal with the kind of articles mentioned above.

The total of these FIXED SELLING PRICES can be called SP1 (in Dutch VP1, verkoopprijs 1). 
The RELATED DIRECT COSTS need to be totalised as well and can be called DC1
(in Dutch KP1, kostprijs 1).

Secondly, you have to deal with the remaining articles.

The total sum of the REMAINING SELLING PRICES  can be called SP2. 
The total of the RELATED DIRECT COSTS can be called DC2.

The MULTIPLIER (in Dutch "overslag") of the direct costs in order to determine the individual selling prices of the remaining articles can be obtained by dividing the total of the remaining selling prices by the remaining direct costs.

In formulas: 
                         SP2 = selling price - SP1
                         DC2 = direct costs - DC1
                         multiplier = SP2 / DC2

As you can tell from above, the multiplier can have a wide range. When do you need to start worrying ? When the multiplier drops below 1,05 or exceeds 1,35. In those cases you better go and look for mistakes in your estimation :o)

Good news: for the time being, your job as an estimator is done.

STEP 6

It would be nice if the initial bid automatically results in a final contract. Perhaps this is the case in Utopia but certainly not in our daily construction world. Several times you will need to adjust you bid because of new quantities, new items, etc.

Before you make you're first adjustment, freeze all individual selling prices ! If you don't the formulas will start running their own life and you'll end up with different selling prices for articles where nothing changed. And trying to explain this to the client is an annoying thing to do and therefore is to be avoided at all times !
This also means that, in this phase of the selling process, you really need to keep your head cool.

There are several possibilities:

• Only the quantity changes.
  In this case, you only need to adjust the related the direct cost but be aware.
  E.g. a pump to pour concrete will have no different cost if you pour that day a couple of m³ more or less. In other words, the selling price remains the same but the percentage of profit & risk might drop or increase.
  You could keep the same multiplier but all this small changes in individual selling prices of the tender will unnecessary complicate the sales process.
   
• A new but similar article is added.
  In this case you need to apply the same multiplier as the one used with the existing simular articles. The selling price needs to be logical for the client !
   
• A really new article is added.
  Here you have a choice in which multiplier you will use: the same as in the first bid or a different one. To make the choice you have to consider whether this new article has an influence on the indirect costs. It is also an opportunity to correct the dropping percentage of profit & risk due to only changing quantities or to correct a mistake you find in your estimation after handing over the bid to the client

What is important for your boss ? That is simple: how much money is left for profit & risk when the contract is signed ! And he will certainly compare this to the initial "dream" percentage which was set out in the first edition. So it is really important to keep a record of the changes you made throughout the sale process.

Not all that simple, but it surely is the most fun part of estimating !

Kind regards and keep warm this weekend !

Peggy

Explaining BouwData - part 7

Before moving on, it is important to be sure that we all speak the same language. Especially for the interpretation of the NEN 2634 this is important. So here a little lexicon made by the university of Delft:

• COMPLEX (same word can be used as well in Dutch as in English)
  This is a collection of buildings who are somehow related to one another
    
• BOUWWERK or building in English
  This is the complete collection of functional and/or physical objects needed to give a solution to the need of housing (this can be a real house or a factory, hospital, school, etc. but not a road or bridge or solution for traffic)
  
  In the NEN 2634 the division of costs on this level is defined in table 6
  An exemple: 2 bouwkundige werken or, in English, constructional works
    
• ELEMENTENCLUSTER or a cluster of elements in English
  This is a group of elements with related characteristics
  
  In the NEN 2634 the division of costs on this level is defined in table 7
  An exemple: 2A fundering or, in English, foundation
    
• ELEMENT (same word can be used as well in Dutch as in English)
  This is a functional object with a specific purpose belonging to a building without being related to a specific physical solution.
  An element has a one-to-one relation to a building part
  
  In the NEN 2634 the division of costs on this level is defined in table 8An exemple: 2A.13 lagen op grond or, in English, layers on soil, explained as a layer designed to carry 3 t/m² and with a flatness of 5mm over a 2m length
    
• BOUWDEEL or building part in English
  This is a physical object with a specific performance just because of the materials used and the way it is constructed.
  A building part has a one-to-one relation to an element
  
  The layer on soil described as an element can also be described as a building part and it sounds like this: a layer on soil made out of 20cm concrete C25/30 with 25kg/m³ steel fibers on a PE foil of 0,2mm and layers of 5cm sand and 30cm of chippings
    
• COMPONENT (same word can be used as well in Dutch as in English)
  These are the physical objects with a specific performance where building parts are made of.
  
  The NEN 2634 stops at the level of element but when you look beyond the summary of table 1 of SfB you find everywhere on the internet, you see something usefull.
  Especially when you look into the BB/SfB-plus which prof. Frank De Troyer from the University of Leuven published in 2008.
  An exemple: 2A.13.0 - demolition, excavation for layers on soil
    
• ACTIVITEIT or activity in English
  This is a process of putting into work materials using labor and equipment
  
  Here, we enter back into the field of the material code and, as I wrote in one of my previous blogs, STABU is here much more usefull than the table 2 and 3 of SfB.
  One can say that the activities are the molecules of an estimation
    
• MIDDEL or means in English
  This is a general information carrier for building materials, labor or equipment
  One can say that the means are the atoms of an estimation

Sounds interesting, doesn't it ? Certainly when you put it into a nice PPT slide:

I thought so as well when I started to put it into daily practice. 
It didn't take long to figger out that this was all too theoretical.
Let me give you an exemple: 2D.31 exterior wall openings. 
The idea is to have cost knowledge on a very rudimentary level when designing: a cost per square meter opening. This implicates that, when you want to put detailed estimations into a database, that you put the costs for big megadoors, ordinary windows and doors and automatic entrance doors all together in a big blender to generate the cost indicator of the exterior wall openings for that particular project.
So, I did. 
But I ended up spending a lot of time writing down what the result really meant and when I needed to use the database I always felt very insecure.

On top of that, when I looked at table 6, I felt I didn't have the means to make proper distinctions between the different mass studies I had in front of me.

I had to figger out something else.
And the answer was quite easy: move everything one phase up !
So, my nice PPT slide now looks like this:

I'm using it now for a couple of years and it never has let me down !

Kind regards,
Peggy
www.bouwdata.net 

Explaining BouwData - part 6

First there was the sun with outdoor activities and then there were a lot of classic tenders to make a bid on. So, in the past month, my workplace resembled a lot my fancy old office filled with boxes full of paper. Luckily the paperwork was replaced by digital files. But there was another difference: although the projects where very different and for multiple clients, I always felt part of a team. So, to all of these clients: a warm thank you for achieving where my previous bosses failed !

But back to the future and BouwData now. 

The backbone of the different sets of agreements is the object code, a code with focus on function and life cycle cost. It can be used from the early consideration to invest in real estate to the phase of real cost engineering where knowledge about labor, material, equipment and subcontracting is necessary. It is from the object code that you can relate to the material code - the language of the contractor - and to the development code - the language of the developer.

It will take me some "parts" to explain its full depth, though.

The starting point was, as with the material code, the search for the standards to be used. And again the Netherlands proofed to be way ahead of Belgium.

On the highest, most general level, you have the same standard in Belgium and Holland: the NBN B06-003 / NEN 2631. This standard started his life in the Netherlands in 1979 and Belgium followed in 1983, 5 years later. Its focus is on investment costs and sums up, quite precisely, the kind of cost you need to consider :

1. the acquisition of the ground you want to build on and the costs you have to make it ready for the contractor to plug in the socket and start building. Yes, this includes getting rid of trees, bushes and all kind of dirt, making sure that the groundwater has dropped sufficiently  if necesarry and that electricity and water is available on site.
   Why ? Well, these costs can have an influence on you're choice of spot you want to realise your project on, more or less regardless of the design
2. the cost of the building itself including all equipment which is fixed to the building and not related to the production process which will occur when the building is in use.
   Important to notice: in this fairly old standard they already stated that there are different levels and ways to look at these costs: from the point of view from the developer (e.g. if you want to build a hospital, costs are in the earliest phase related to the number of beds), over the point of view from the designer (elements of the model), what you need when tendering to the point of view from the constructor (the sequence of coming to the building site).
3. the cost of equipment related to the use of the building
4. additional costs such as fees for designers, assurance, financing, moving into the building, etc.

Quite I good start and still accurate today but it is lacking detail.

In 2002, they realised this in the Netherlands as well. So they made the NEN 2634 which related the previous standard on investment costs to the international table 1 concerning elements of a new design of the SfB, the international classification system for construction. In this standard they define more precisely all phases of the design and building process and state how costs should be defined in every single one of them.

The object code is also the set of agreements to discuss Life Cycle Cost. 
The previous standards where made in a time where the world of design & construction had nothing to do with the world of facility management. In those days, nobody had ever heard of LCC. So I searched for standards in that world and yes, they also had felt the need of organising their costs. And again, the Netherlands proofed to be ahead of Belgium. They installed the NEN 2632 in 1980 and Belgium followed by taken it entirely over in 1983, calling it the NBN B06-004.

So, looking at all these standards I had sufficient background to relate it to my 15 years of estimating experience.

How ? Read the next part ! And I promise not to wait another month this time :o)

Kind regards.
Peggy
www.bouwdata.net 

Explaining BouwData - part 5

To realise a building you need money. Whether you are a developer, designer or constructor it is the same amount of money you're talking about. The way you look at this sum is, on the contrary, totally different. This I made clear in one of my previous blogs. Therefore, to gain knowledge I created three codes:

• the development code for developers with emphasis on floor surfaces
• the object code for designer with emphasis on functions
• the material code for constructors with emphasis on materials

Today, I'm going to give you some background on the material code.

To the developers and designers who are thinking: "this doesn't interest me at all !" and whose finger is now moving to the little cross in the right top corner of the screen, I would like to ask to hold on a second. Your attitude is typical 20th century. In the 21th century it is all about transparency and communication (*). And in order to communicate properly, you have to know how the other person thinks and what his needs are. So, please, take a good glas of wine and continue reading. You won't regret it :o)

Having this off my chest, let's go back to the material code. This code is all about how and with what kind of material you are going to realise the building. To know what's available on the market, Google is an excellent tool. But for some products you have standard contracts and certain knowhow is the same in every project. This knowhow is sometimes even exclusive for your own company. So, beside a good search engine on the internet,  you also need a little database of your own to store adresses of favourite suppliers and subcontractors, to keep interesting offers which might be interesting for other assignments in the future and to write down the personal knowledge you gain while working your way through several projects. At least, I felt this need and I see that fellow estimators are struggling with the same issues. A lot of them invent their own structure for this database. I prefer to work according to existing standards. And for this problem there are two possibilities: table 2 and 3 of SfB or the STABU from Holland.

At first I tried to work according to the SfB because this is a worldwide spread classification method for construction. This meant analysing every single thing you purchased by material and by form. For concrete this is simple enough: it will be poured on site so according to table 2 we have code E. And it is made out of sand and stones bind together through a chemical process using water and cement. According to table 3 we have code f2. Together you write it down as Ef2. The code of an Argex block is Ff5. But what with a toilet ? In an estimation this is usually offered by a subcontractor for one single price. No problem: in table 2 I had X for complex shapes and in table 3 I had a if I didn't want to specify anything or if I simple didn't know whether the material was made of organic or anorgonic stuff.

Mission accomplished ?

Since I am quite a perfectionist I spend a lot of time to make sure that the Xa category was kept to a minimum and explaining to people why they should use f2 and not f5. 

Now I had a fairly large Excel file and could start sorting. Problem: in alphabetical order I got a list which hadn't anything to do with the order of materials coming on site. And searching on codes was really hard since there wasn't any connection with the word (nor in Dutch, nor in English) so memorising was a nightmare.

Mission failed, yes ! 

And now I also knew why people in Holland so firmly sticked to their STABU :o)

So, I tried it that way but added something to make it even better: I used the coding of STABU chapters and STABU paragraphs and added a 2 to 4 lettercombination. Poured concrete became 21.50.BET (concrete is beton in Dutch), classical wooden formwork became 21.32.HOUT (wood is hout in Dutch), etc. All items concerning pouring concrete on site were gathered in the 21 chapter, all masonry in chapter 22; just as the order you encounter these items while realising the building.

The 2 to 4 letterword had several advantages: it helped to memorise the codes and it allowed me to make distinctions or add items as much as I wanted to. E.g. next to classical wooden formwork, you also have things like Framax, a system of panels to construct the formwork or additional layers to add texture to the concrete surface. These are all different suppliers but are all to be estimated in the paragraph 21.32 contemporary formwork. In the material code I have now:

• 21.32.HOUT bekistingshout
• 21.32.MAT structuurmatten
• 21.32.SYS systeembekisting

And if a contractor wants another category, well, he simply has to search the according STABU chapter and paragraph and add a two to for lettercode to make the distinction with the other categories in the paragraph.

Another exemple: suppose you have a young trainee estimator in your company who needs to estimate pile foundations inside a building which needs to be renovated - or you as designer or developer start getting an interest in technical solutions ;o)

Instead of starting a search on Google, he or she could start her search in the companies database by using the material code 20.32.REN as a key: 

• in the database with adresses he can find the subcontractors the company already worked with
• in the database with company related experience she knows the additional things to pay attention to
• in the database with ancient offers, he can see the level of cost to expect

So before bumping into your office, the trainee already knows the basics and the time spent together can be used to focus on the SWOT of the project itself. Quite efficient !

But on top of that, the material code in combination with the cost type and the number of the supplier or the number of your library also form the "atoms" of an estimation. 

• 21.50.BET.10.000 - labour pouring concrete
• 21.50.BET.20.25/30EE2/EA1S320 - concrete C25/30-GB-EE2/EA1-S3-20mm (**)
• 21.50.BET.30.32 - concrete pump with a reach of 32m
• 21.50.BET.40.XXX - subcontractor who makes component XXX with his own material and equipment

I am now using this code for six years and never find myself in any trouble. A new material gets his own material code and the possibilities of creating "atoms" for my estimation are endless.

So I, like the people from Holland, am 100% pro STABU :o)

The material code in pdf format can be found on www.bouwdata.net under "downloads".

If you want to receive the material code in Excel format, just send me a mail pbo@pbcalcenconsult.be.

Unfortunately the material code only exists in Dutch. So, if anyone who speaks English from when he or she was a todler and learned "construction" Dutch during his professional carrier, please contact me as well ! Because I would love to make an English version of it.

Kind regards and enjoy the sun !

Peggy

www.bouwdata.net or the Linkedin Group "The Art of Estimating"

(*) look around you and read Alvin Toflers "Third Wave" and after that "The New Normal" by Peter Hinssen and you'll know what I am talking about ;o)

(**) another possibility is to use a simpler number after the cost type. We used to do this because in some estimation software you needed to type the entire code manually.  The disadvantage was that if there comes another type of concrete on the market who is something between two existing types, it ends up at the end of the line with the next number. In modern estimation software you "click" or "drag" the code. So it is better to use a longer code which leaves room for new products to find their place between existing ones.

Explaining BouwData - part 4

When I left my fancy office in 2006, I didn't stop estimating. Quite on the contrary. Where estimating was previously merely a necessity to get the contract signed, it is now the end product of my business. And because of this shift in focus, I realised how sloppy me and fellow estimators sometimes worked.

Let me give you an exemple.

Masons are hard to find. And good masons often start their own specialised company. Therefore, general contractors often depend on them to get the job done. So, when estimating a project, you ask their price. Way too often this price is put into the estimation as a subcontractor. But most of the time these people only bring their own trowel. Bricks and mortar are to be bought by the general contractor; vertical and horizontal transport is to be done for them with the centrally placed tower crane.

Important question: how do you know whether this one tower crane is sufficient to get the job done in the most efficient way ? Well, out of the estimation you derive all the labor hours. Devide them by 8 hours per day and you get the number of "labor days". You  think you will hire the tower crane during e.g. 10 months. In one month you have, on average, 17 to 18 days that people work on the site. Multiply the 10 months by 17 or 18 and you have the "crane days". Divide now the "labor days" by the "crane days". When the result is 8 to 10 this means that, on average, 8 to 10 people are working on site at the same time. In this case you will be doing just fine with this one tower crane. With a higher result the men will have to wait to get their material to work with. With a lower result, the tower crane is not used at its full capacity.

Now, suppose we put the masons we hire as a subcontractor in the estimation. When deriving the labor hours, their hours will not be taken into account. But these people expect that you get the material to the spot where they work in time. If not, they will not be able to work at the estimated efficiency and they will lose money. And people who lose money while working, are usually not the people who deliver the best job. So, in the end the general contractor himself is the victim.

Another issue: all kinds of labor are put in the estimation by the same code because it is usually the same price. Suppose that, at the moment of estimation, it looks like it that there will be enough masons in your own company available for the job. When deriving the labor hours from the estimation, the check of the centrally placed tower crane will be done correctly. But suppose that there is a delay and when the project eventually starts, there are no masons available anymore. Now you have to go through the whole estimation and add up manually how many hours were ment for masonry in order to create a separate budget for these hired masons. In our digital age, a real stupid thing to do.

What can we do about it ?

Apply the set of agreements of BouwData on cost types :o) 

Which cost types do we have ?

• the classic MAMO, used when the design is finished and when the budget is made to do the purchases. But there are costs which can't be considered as a MAMO e.g. costs for assurances, taxes, etc. In BouwData the code 00 is used to summarise all general funds in the estimation
  
  - A of "arbeid" which is Dutch for all kinds of labor: the wages of the workers on site as well as the wage of the projectmanager, as well for own staff as for hired people.
  Further distinction is to be made by the material code (will be threated in part 5 of this blog). In BouwData the code 10 is used to summarise all labor in the estimation
  
  - M of "materiaal" which is Dutch for deliveries, costs for materials used in the building or which can't be used afterwards (e.g. the notice board with all the building partners). In BouwData the code 20 is used to summarise all deliveries in the estimation
  
  - M of "materieel" which is Dutch for equipment, costs for all the things which don't remain on site and can be used in a following project. In BouwData the code 30 is used to summarise all equipment in the estimation
  
  - O of "onderaannemer" which is Dutch for subcontractor: people who come on site with their own materials and/or equipment to realise a component of the building.  In BouwData the code 40 is used to summarise all subcontracts in the estimation
  
  
• As I stated in my previous blogs, there are also other costs to be considered while estimating:
  
  - AK of "Algemene Kosten" which is Dutch for general costs not related to any particular project. Usually this is a percentage added to the cost types mentioned above between 5% and 10%
  
  - W of "Winst" which is Dutch for profit: the estimated selling price minus the estimated costs. Usually this is also a percentage added to the cost types mentioned above.
  
  - R of "Risico" which is Dutch for risk: this is an amount of money for unexspected events.  Usually this is considered together with the profit and can go from 0% up to 10%.
  
  - S of "Stelpost" which is Dutch for a fixed sum. This is used when there are no details available for a component which certainly will needed to be build. E.g. a kitchen in an apartment block.
  
  
• But before purchasing, while designing there is also a need for estimations. In this phase it is too soon to go to the market to ask for prices, though. Usually you search in a database with cost ratio's. There are three levels of cost ratio's, all related to the object code and phasing of projects (will be threated in one of my next blogs as well).
  
  - cost ratio related to the "elementcluster", which is used when defining the programm requirements
  
  - cost ratio related to the "element", which is used when making the structural design
  
  - cost ratio related to the "component", which is used when finetuning the design

All eight sets of agreements are related to each other. Don't expect to understand and see all relationships at the first glance. But believe me, once you get the hang of it, it is a very usefull tool to keep your budget under control. And if you have any questions, just ask !

Kind regards,

Peggy

www.bouwdata.net

Praktische richtlijn: gunningscriteria bij offerteaanvraag

Beschouwingen zijn leuk, maar praktische richtlijnen zijn handiger. En ik had beloofd om ook deze laatste via mijn blog mee te geven. Bij deze :o)

Via volgende link vind je gunningscriteria voor een algemene offerteaanvraag.
http://www.pbcalcenconsult.be/gunningcriteria%20bij%20algemene%20offerteaanvragen%20NL.pdf 

Prettig weekend.

Vriendelijke groeten,
Peggy
www.bouwdata.net 

Explaining BouwData - part 3

Another lazy saturday morning after a great evening at Jazz Middelheim. Blog time.

For the last time in these series, let's go back to my fancy office filled with boxes full of paperwork . One of all the documents is the bill of quantities. As an estimator you are expected to put a price after each item mentioned. Quite obvious. 

Unfortunately most of the time the items mentioned only concern products which make up the building itself. Construction involves a lot more than the concrete, bricks and mortar though. Questions like which crane will we use, how many hours do we need for figuring out every detail, is there water and power on site, who are we putting on site to organise everything, etc. ... they all come with a price. And beside these additional costs related to the project, there are also general costs like housing, accountancy, a staff party every now and then, etc. ... to be considered. And there is the issue of profit. Or adding an additional percentage for the risk if you are running out of time and can't check everything to the detail you want to. It's quite some work.

"And a lot of words but give me some figures", I hear you think. Well, the costs of the site installation, the organisation, the general costs and percentage of profit and risk all together mount up between 20% for a big apartment building to 35% for a complicated renovation project related to the sheer production cost.

So when there are no specific items for it in the bill of quantities, you need to add these costs in another way. And here comes the catch. Or better, the commercial thinking pops in. 
Let me give you an example. Suppose you heared that the project developer is considering to take the windows out of the tender and intends to order it directly to the subcontractor. In this case you will add no additional fee to the items suspected to be cut out of the tender. You might be satisfied with less turnover but not with less profit or less money to cover your general costs. And now suppose that your collegue-competitor-contractor doesn't have this information. He will normally split the additional costs equally on all the items mentioned in the bill of quantities.
The result is that you will end up with pricelists very difficult to compare all depending on the commercial view of the contractor on the project.

So here is what I suggest:

• Don't judge by price only. Look at his willingness to share technical support, check the references.
• Treat installation site and organisation on site in the same way as production costs. And do make a difference between fixed costs and costs related to the execution time
• Negociate on the percentage of general costs, profit and risk. General costs between 5% and 10% are normal depending on how many support the contractor can offer (e.g. when he has a whole team available to study stability issues, making BIM models etc it is obvious that he has higher general costs than the contractor who only know how to pour concrete). Percentage for profit and risk go from 0% up to 10%. I usually aim, when working with open books and a real building team for 7% general costs and 3% profit & risk. On top of that I make the deal that further profit gained while actually purchasing is cut in two: 50% for the contractor, 50% for the owner
• When you work with a real building team and open book system, make sure you have a coach and concentrate all administration to one hand. Use groupware and let everyone focus on what he or she is best at. Don't forget that the design team and contractor team are used to be on different sides of the curtain for decades. In a building team it's essential that they are at the same side !

So now you know the history of estimating and got a glimps of the future. 
Next time we'll start discussing the 8 sets of agreements in detail. 

Kind regards,

Peggy

www.bouwdata.net 

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