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Costs associated with Construction

Facilities

The capital costfor a construction project includes the expensesrelated to the initial establishment of the facility:

Land acquisition, including assembly, holding and improvement; Planning and feasibility studies

Architectural and engineering design;

Construction, including materials, equipment and labor;

Field supervision of construction;

Construction financing; Insurance and taxes during construction;

Owner's general office overhead;

Equipment and furnishings not included in construction; and

Inspection and testing.

The costs of a constructed facility to the owner include both the initialcapital costand the subsequent operation and maintenance costs.Each of these major cost categories consists of a number of costcomponents.

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The operation and maintenance costin subsequentyears over the project life cycle includes the followingexpenses:

Land rent, if applicable;

Operating staff;

Labor and material for maintenance and repairs;

Periodic renovations;

Insurance and taxes;

Financing costs;

Utilities; and

Owner's other expenses. (Site/Head Office Expenses)

Costs associated with Construction

Facilities (Cont)

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The magnitude of each of these cost componentsdepends on the nature, size and location of the project.The owner is interested in achieving the lowest possibleoverall project cost that is consistent with its investment

objectives. It is important for design professionals andconstruction managers to realize that while theconstruction cost may be the single largest component ofthe capital cost, other cost components are notinsignificant. For example, land acquisition costs are amajor expenditure for building construction in high-density

urban areas, and construction financing costs can reachthe same order of magnitude as the construction cost inlarge projects such as the construction of nuclear powerplants.

Costs associated with Construction

Facilities (Cont)

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Data required for Estimation

1. Plans, sections and other relevant details of the work.

2. Specifications indicating the exact nature and class of

materials to be used.

3. The rates at which the different items of work are

carried out.

To enable an estimator to take out the quantities

accurately, the drawings must themselves be clear,

true to the fact and scale, complete, and fully

dimensioned. The estimator has also to bear in mind

certain principles of taking out quantities.

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In most construction budgets, there is an allowance forcontingencies for unexpected costs occurring during construction.This contingency amount may be included within each cost item orbe included in a single category of construction contingency. Theamount of contingency is based on historical experience and the

expected difficulty of a particular construction project. Forexample, one construction firm makes estimates of the expectedcost in five different areas:

Design development changes,Schedule adjustments,General administration changes (such as wage rates),Differing site conditions for those expected, andThird party requirements imposed during construction, such asnew permits.

Contingency

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Contingency (Cont)

Contingency is normally itemized in total as a separate cost

component of the estimate. Contingency is normally itemized

in total as a separate cost component of the estimate.

Contingency may also be added up due to un predictable

events, such as storms, floods, strikes, price changes,

small design changes,

errors in estimation,

other unforeseen expenses

3-5% Contingency is added up in Detailed Estimates.

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THANK YOU

We have merely scratched the surface of the

store of knowledge which will come to us.Thomas Edison