Cost breakdown

I will try to be constructive. I am not sure what your concern is; but yes, of course you can breakdown the lump sum cost by activity, if you have the lump sum estimate breakdown. Just bear in mind that you might need to distribute part of the overhead directly to activities and part to a new activity that stretches along the project timeframe for overhead that depends on time elapsed (like site office overhead).

Let me ask these questions to try and open up the discussion on this issue: To what extent is the unit price contract used worldwide? in what kind of projects? Do you used the unit price system when estimating a lump sum project? if not, how do you do it?

Eventhough the contract is cost lumpsum basis you can break it down into each activity by using weight percent to each. ie ( based on duration, resources, or units)

Ernesto

in our country mainly all contracts are unit price,due to the fact that when you bid for a state project( which represent the majority of the market), the bills of quantities and the drawing are really very poor ( technically speaking) in this case the unit price is the best type of contract, the lump sum ones are only used for oil and Gaz project.

Even though the Lumpsum projects doesn’t reflect the unit prices for the items, it doesn’t mean that pricing is done on parametric estimating or it is just analogous.

The project is broken down into various work packages (where cost can be monitored) and cost coding is done for each item. Especially, for Lump sum contracts, we need to make a Pre-Start Estimate (PSE) for the project. And based on the cost to be incurred, a commitment is given to the top management, in terms of profit margin (say, 8%, 9% etc.)

For each cost coding, rate analysis is done covering manpower, machinary and material. From all the items, estimate the total expenses incurred. Add Overheads (Site & HO), and other sundry items to the total.

Compare the initial cost considered (while estimating) with this cost and calculate the profit margin to be comitted.

Hope it is clear.

Thanks,

Raviraj A Bhedase

Ali,

In my company, lump sum conract has always its cost breakdown. It comes from the sum of pay items, and each pay item has its unit rate. We derive the rates from "selling rate=BC(material)+BC(labor)+BC(equipment)+OH&P". The overheads (direct & indirect) are defined, and the margin as well.- If you have the cost breakdown, it would be easy during preparation of schedule and in procurement process.

Going back to the questions of Ernesto...unit price contract are usually on EPC projects with no final design.

Regards,

Hernan

The Contract is Lump sum or Unit Rate at the tender Level. When contractor is to start the execution of the project he must have the detail BOQ Of the Project Scope prepared by either Consultant or by the contractor based on the information avialble at that stage at least Project Drawings and specifications.

Once we have the detail BOQ with unit rate we can make the Cost Breakdown as we need. For Lump sum contracts contractor should prepare the detail BOQ as soon as the contract awarded to him to know the Project Budget with Overhead and Profit.

Quazi Asaduddin.