CHAPTER 4: SUMMARY OF TOTAL
PROJECT COST
4.1 Labor, Material, Equipment and
Subcontractor Cost
Reporters: BSCE 3B
Duarte, Jullie Ann
Juanites, Sandryll
TOTAL PROJECT COST
Refers to the complete amount of money
required to successfully complete a construction
project. This includes all expenses related to:
1. Labor Cost
Wages and benefits for all workers involved
in the project, such as project managers, engineers,
and construction laborers.
2. Material Costs
The cost of all materials needed for the
construction, including raw materials and purchased
parts.
3. Equipment Costs
Expenses for purchasing, renting, and
maintaining construction equipment.
4. Subcontractor Costs
Payments made to subcontractors who
provide specialized services and trades, such as
plumbing, electrical work, and consultancy.
a. The end unit method is based on the cost per unit
of a similar project.
For example, if a hotel with 1,000 rooms cost Php
100 million to build,
Php 100,000,000
= Php 100,000
1000 rooms
then a hotel with 1,500 rooms,
(Php 100,000)(1,500 rooms) = Php 150,000,000
would be estimated to cost Php 150 million using the
end unit method.
b. The physical units method is based on the cost
per square meter of a similar project.
For example, if a 1,000 square meter villa cost Php 3
million to build,
Php 3,000,000
= Php 3,000
1000 sq. m.
then a new 850 square meter villa
(Php 3,000)(850 sq. m.) = Php 2,250,000 would be
estimated to cost Php 2.55 million using the
physical units method
2. Definitive Cost Estimation
Definitive cost estimation methods are more
accurate than conceptual cost estimation methods.
They are based on detailed information about the
project, such as the drawings and specifications.
There are five classes of definitive cost estimates,
with class one being the most accurate and class five
being the least accurate.
COST ESTIMATION
Bill of Quantities (BOQ)
Process of predicting the total expenses
required to complete a project, and it relies heavily
on accurately estimating each of these individual cost
elements. There are two main types of cost
estimation methods: conceptual and definitive.
1. Conceptual Cost Estimation
Conceptual cost estimation methods are used
to get a rough idea of how much a project will cost.
They are based on historical data, such as the cost of
similar projects. There are two examples of
conceptual cost estimation methods: the end unit
method and the physical units method.
A Bill of Quantities (BOQ or BQ) is used on
construction projects and consists of a list of
materials and services required to perform a project.
The list includes materials, labor, and quantities of
each, and is often prepared by the engineer or
architect after project design is complete.
Once prepared, the BOQ is given to
contractors to provide pricing for the project.
Because the materials and quantities are already
given, this allows them to focus on pricing instead of
doing takeoffs. After it’s complete, the pricing is
returned to the owner for review and contractor
selection.
The bill of quantities is also used to clearly
define the scope of work on a project. Since
quantities and amounts are provided, there’s no room
for misinterpretation and less chance of
mathematical errors. This helps ensure that
contractor pricing is accurate.
It also helps project owners with cost controls
and cost predictions. Based on the project schedule
and the breakdown provided on the BOQ, the owner
can anticipate the amount of work that will be
completed in each billing cycle. This enables them to
prepare for their cash flow needs as the project
progresses.
3. Add up the cost of each element to get the
total project cost.
Aside from pricing, the bill of quantities also has
other uses such as material scheduling and
construction planning.
Estimating Labor Cost
Labor is dependent on two different variables
known as productivity and wage rate. While wage
generally remains constant during construction,
productivity often fluctuates and varies from person
to person. Thus, an estimator with a lot of experience
and a good historical record is necessary in order to
have an accurate estimate of the labor cost.
To solve for productivity, we need the formula:
Productivity = quantity of work produced / time
duration
From the formula above, we can solve the work
hours using:
Total work duration = quantity of work /
productivity rate
Using this, we can solve for the cost of labor using:
Cost of labor = total work duration x wage rate
Sample Problem 1.
A bricklayer has a daily production rate of 175
bricks/day and wage rate of ₱800/day. Calculate the
time and cost it takes to finish a project that requires
1400 bricks.
A. Duration
Total work duration = quantity of work / productivity
rate
Steps in Preparing the Bill of Quantities
Total work duration = 1400/175
1. Break down the project into the four main
cost elements, namely labor, material,
equipment and subcontractor cost.
2. Estimate the cost of each element. This
involves estimating quantities of each
element and its corresponding rates.
Total work duration = 8 days
B. Total Cost
Cost of labor = total work duration x wage rate
Cost of labor = 8 x 800
Cost of labor = ₱6 400.00
Sample Problem from the Practice Plan
If a tile setter with a productivity rate of 8 sq.m/day
and a wage rate of ₱1000.00 per day does the tile
work for the terrace shown below, determine the cost
of labor.
Total work duration = 3.13
Total work duration = 4 days
Cost of labor = total work duration x wage rate
Cost of labor = 4 x 1000
Cost of labor = ₱4 000.00
Estimating Material Cost
Unlike labor cost, material cost is often easier
to estimate since the price of different materials are
generally fixed. In most cases, material cost is the
highest among the four main cost elements.
Therefore, good material management, which will
help minimize the cost of materials, is necessary.
In order to estimate the cost of materials, we need the
formula:
Cost of materials = quantity of material x unit cost
Sample Problem:
Calculate the cost of materials in creating a pathway
that is 2 m wide, 10 m long and 0.1 m thick using
mixture class A. The price of cement per bag is
₱260.00, sand is ₱1435.00 per cubic meter, and
gravel is ₱1310.00 per cubic meter.
Solving for the quantity of each material:
V=lxwxt
V = 10 x 2 x 0.1
V = 2 cu.m
Using Class A Mixture:
1. Cement:
No. of bags = 2 x 9
No. of bags = 18 bags
Area = l x w
Area = 8.5 x 2.95
Area = 25.075 sq. m
Total work duration = quantity of work / productivity
rate
Total work duration = 25.075/8
Cost of cement = quantity of material x unit cost
Cost of cement = 18 x 260
Cost of cement = ₱4680.00
2. Sand
V = 0.5 x 2
V = 1 cu.m
Cost of sand = quantity of material x unit cost
Cost of sand = 1 x 1435
Cost of sand = ₱1435.00
3. Gravel
V = 1.0 x 2
V = 2 cu.m
Cost of gravel = quantity of material x unit cost
Cost of gravel = 2 x 1310
Cost of gravel = ₱2620.00
Total Cost = cost of cement + cost of sand + cost of
gravel
Total Cost = 4680 + 1435 + 2620
Total Cost = ₱8735.00
Sample Problem from the Practice Plan
Calculate the total cost of materials for the tile work
of the terrace shown below using the following unit
costs.
MATERIAL
UNIT COST
CERAMIC MOSAIC TILE
₱ 90.00 / pc.
PORTLAND CEMENT
₱ 260.00 / Bag
WHITE CEMENT
₱ 50.00 / Kg
Area = l x w
Area = 8.5 x 2.95
Area = 25.075 sq. m
1. Ceramic Mosaic Tile
From Table 7-1:
25.075 x 10.76= 269.82
use 270 pcs
Cost of tiles = quantity of material x unit cost
Cost of tiles = 270 x 90
Cost of tiles = ₱ 24 300.00
2. Portland Cement
Referring to Table 7-1
25.075 (0.076) = 1.91 kilos
use 1 - 40 kg bag.
Estimating Subcontractor Cost
There are two ways in order to estimate the
subcontractor cost. We can obtain the cost from the
subcontractor, or we can use historical data.
To solve for the total subcontractor cost, we can
utilize the same formula.
Subcontractor cost = quantity of work x unit cost
Cost of portland cement = quantity of material x unit
cost
Cost of portland cement = 1 x 260
Cost of portland cement = ₱ 260.00
3. White Cement
Referring to Table 7-1
25.075 x 1.0 = 25.075
use 26 kg.
Cost of white cement = quantity of material x unit
cost
Cost of white cement = 26 x 50
Cost of white cement = ₱ 1 300.00
Total cost = cost of tiles + cost of Portland cement +
cost of white cement
Total cost = 24 300 + 260 + 1 300
Total cost = ₱ 25 860.00
Estimating Equipment Cost
The equipment cost in a construction project
may vary depending on if the company owns or rents
the equipment. It is necessary to determine the best
option among these two in order to minimize the cost
of projects.
To compute the equipment cost, the same formula
will be utilized.
Equipment cost = quantity of work x total unit cost
Sample Problem:
If a dump truck that has a 10-ton capacity and a unit
cost of ₱1200.00 / hr is used to transfer 40 tons of
filling material to a site that is 1 hour away, calculate
the total cost.
Equipment cost = quantity of work x total unit cost
Equipment cost = 2(total number of trips)(time for
one trip) x total unit cost
Equipment cost = 2 x (40/10) x 1 x 1200
Equipment cost = ₱9 600.00
Sample Problem:
Calculate the total cost for the framing work of a 115
sq. meter house if the unit cost from the
subcontractor is ₱2500.00.
Subcontractor cost = quantity of work x unit cost
Subcontractor cost = 115 x 2500
Subcontractor cost = ₱287 500.00
REFERENCES:
Fajardo, Max Jr. B. (1995). Simplified Construction
Estimate, 3rd Edition. 5138 Merchandizing
Publisher.
Peterson, Construction Using Excel, 2nd Edition
4.2 LABOR FRINGES, TAXES, AND INSURANCE
COST
QTYSUR 301/311 – BSCE 3B
Reporters:
1. Amador, Nikolai
2. Lacsi, Danielle Kaye
non-taxable perks defined by law).
These rules apply to all employers, including
individuals, corporations (taxable or not), and
government agencies.
I. DISCUSSION
Under Section 143(e) of the Local Government Code,
LGUs may impose business taxes on contractors
based on gross receipts for services rendered within
the locality.
LABOR FRINGES
● Fringe benefits are a form of pay, often from
employers to employees, and are considered
compensation for services beyond the employee's
normal rate of pay. These employee fringe benefits
can be property, cash, cash equivalents, discounts,
savings accounts, and even non-tangible benefits
like experiences. Cash equivalents, such as savings
bonds, can be turned into cash relatively quickly.
● In general, the term "fringe benefit" means any
good, service, or other benefit furnished or granted
by an employer in cash or in kind, in addition to
basic salaries, to an individual employee (except
rank and file employee as defined in these
regulations) such as, but not limited to the following:











Housing
Expense account
Vehicle of any kind
Household personnel, such as maid, driver
and others
Interest on loan at less than market rate to the
extent of the difference between the market
rate and actual rate granted;
Expenses for foreign travel
Holiday and vacation expenses
Educational assistance to the employee or his
dependents
Life or health insurance and other non-life
insurance premiums or similar amounts in
excess of what the law allows
Membership fees, dues and other expenses
borne by the employer for the employee in
social and athletic clubs or other similar
organizations
Fringe benefits provided by employers are generally
subject to final withholding tax based on their
grossed-up value. However, exemptions apply if [as
per the amended National Internal Revenue Code
(NIRC) Sec. 33 (C)]:
● The benefit is necessary for the employer's
business or for their convenience.
● It falls under special laws exempting it from
tax.
● It is given to rank-and-file employees
(covered under different tax rules).
● It is part of retirement, insurance, or
hospitalization plans paid by the employer.
● It qualifies as de minimis benefits (small,
TAXES
- The maximum rate is 2% of gross receipts.
- The tax is collected by the city or
municipality where the work is performed,
regardless of the contractor’s principal office
location.
DEPARTMENT OF FINANCE
LOCAL FINANCE CIRCULAR NO. 3-95
SECTION 1. Coverage. - In order to ensure the
uniform application by cities and municipalities of
the provisions of Sections 143 (e) and 151 of the
LGC and Articles 232 (e) and 237 of its IRR, the
guidelines herein prescribed shall govern the levy
of business taxes on construction contractors such
as, but not limited to, general engineering, general
building and specialty contractors as defined under
Republic Act 4566 (as amended), known as the
Contractors Licensing Law and other applicable laws.
SECTION 2. Definition of Terms. - As used
herein, the term (a) Contractor - shall include persons, natural or
judicial, not subject to professional tax under Sec.
139 of the LGC, whose activity consists essentially
of the sale of all kinds of construction services for a
fee, regardless of whether or not the performance
of the service calls for the exercise or use of the
physical or mental faculties of such construction
contractor or his employees.
(b) Construction Contractor - shall refer to the
principal contractor who has direct contract with the
contractee for a specific domestic project.
(c) General Engineering Contractor - is a person
whose principal contracting business is in connection
with fixed works requiring specialized engineering
knowledge and skill, including the following divisions
or subject: irrigation, drainage, water power, water
supply, flood control, inland waterways, harbors,
docks and wharves, shipyards and ports, dams
hydroelectric projects, levees, river control and
reclamation works, railroads, highways, streets and
roads, tunnels, airports and airways, waste reduction
plants, bridges, overpasses, underpasses, and other
similar works, pipelines and other system for the
transmission of petroleum and other liquid or
gaseous substances, land levelling and earth moving
projects, excavating, grading, trenching, paving and
surfacing work.
(d) General Building Construction Contractor is a person whose principal contracting business is in
connection with any structure built, for the support,
shelter and enclosure of persons, animals, chattels
or movable property of any kind, requiring in its
constructing the use of more than two unrelated
building trades or crafts, or to do or superintend the
whole or any part thereof. Such structure includes
sewers and sewerage disposal plants and systems,
parks, playgrounds and other recreational works,
refineries, chemical plants and similar industrial
plants requiring specialized engineering knowledge
and skill, powerhouses, power plants and other
utility plants and installations, mines and
metallurgical plants, cement and concrete works in
connection with the above mentioned fixed works.
(e) Gross Sales or Receipts - shall include the
total amount of money or its equivalent representing
the contract price, compensation or service fee,
including the amount charged or materials with the
services and deposits or advance payments actually
or constructively received during the taxable quarter
for the services performed or to be performed for
another person excluding discounts if determinable
at he time of sales, sales return, excise tax and
value dded tax (VAT) paid by the taxpayer.
(f) Subcontractor - is a person whose operations
pertain to the performance of construction work
requiring special skills and whose principal
contracting business involves the use of specialized
building trades or crafts.
(h) Domestic Construction Project - refers to a
project bidded out and implemented within the
territorial jurisdiction of the Philippines by any
foreign or domestic contractor.
(i) Overseas Construction Project - shall mean a
construction project undertaken by a construction
contractor outside the territorial boundaries of the
Philippines, paid for in acceptable freely convertible
foreign-currency, as well as construction contracts
dealing in foreign-currency denominated fabrication
works with attendant installation works outside of
the Philippines.
SECTION 3 - Rate and Manner of Imposition
(a) As provided for in Section 143(e) of the LGC of
1991, as implemented under Article 232(e) of the
IRR, municipalities shall impose a business tax on
contractors and other independent contractors
accordance with the following schedule:
The taxable gross receipts shall be the amounts
received by the principal contractor as the total
contract price less the amount paid to a subcontractor under a subcontract arrangement, if there
is any. The said sub-contractor, however, shall also
be subject to the business tax imposed herein.
(b) The rate of business tax that cities may levy
exceed the maximum rates prescribed in paragraph
(a) above by not more than fifty percent (50%)
thereof.
National and Local Taxes
A. National Taxes (BIR-administered)
1. IVAT – Most construction services are VATable
at 12%, unless the contractor is non-VATregistered (then subject to 3% percentage tax).
2. Withholding Tax – Clients (e.g., government
agencies) withhold tax from contractor payments:
a. 2% Expanded Withholding Tax
(EWT) on payments for construction
services.
3. Documentary Stamp Tax – Applied on contracts,
loan agreements, or lease agreements related to
projects.
B. Local Taxes (LGU-administered)
1. Business Tax (per LFC 3-95) – Based on gross
receipts.
2. Real Property Tax (RPT) – On land and buildings
owned.
3. Permit Fees – For building permits, occupancy
permits, electrical/mechanical inspections, etc.
INSURANCE COST
CONSTRUCTION INSURANCE
● A construction project must have adequate
insurance cover. This is to protect the interests of
the physically built works, risks to the parties of the
contract, persons engaged on a project carrying out
their duties and the existing built environment within
the vicinity of a project. Project insurances need to
provide adequate financial protection to cover the
cost of rectifying an incident.
● Loss or damage by or from war, invasion, foreign
hostilities and similar listed political situations
● This includes any incident created naturally or as
the result of an accident or developing from a
situation involving risk or by the creation of an
occurrence associated with the project that would
cause financial harm and loss to a person or
business if liable for the incident.
● Disappearance or shortages if only revealed
when an inventory is made or not traceable to an
identifiable event.
● Insurance is a complex field and a well-researched
project will recognize insurance needs within the
contract form. The contract should reflect the
requirements as well as the parties’ responsibilities
for obtaining policies to ensure there are no gaps in
the insurance cover.
RANGE OF INSURANCES AS A MINIMUM
REQUIREMENT FOR A CONSTRUCTION
PROJECT
● Insurance for the works including new works and
existing structures
● Injury to Persons
● Damage to surrounding property
● Joint Fire Code
● Professional indemnity insurance
● Off-site materials insurance
● Public and product liability insurance
1. Insurance for the works including new
works and existing structures
Insurances for the works include protection
for what contracts refer to as “specified perils” and
“all risk insurance”.
A “specified perils” policy is an insurance
cover for one or a number of named events
specifically mentioned in the contract, e.g. fire,
lightning, floods, explosions. It excludes “excepted
risks” caused by circumstances considered unlikely,
e.g. pressure waves caused by aircraft.
The policy covering “all risk insurance”
generally applies for cover for the physical loss of
works already constructed that are damaged or
destroyed because of an accepted risk causing an
incident. It does not apply to incidents caused by
unaccepted risks to property resulting in costs to
repair, replace or rectify works or goods because of:
● Wear and tear or obsolescence of an item
or part of an item
● Deterioration including rust or mildew
● Works or materials lost because of defective
design and specification criteria
● Expected risks.
2. Injury to Persons
Insurance is required for persons going about their
business on a project to cover the unfortunate event
of an incident giving rise to personal injury or death.
In general, if a supplier of services or goods and
services is injured whilst carrying out their duties,
giving rise to an insurance claim, it is a contractor’s
responsibility to provide insurance.
3. Damage to surrounding property
During construction operations, there could be risk
of damage to existing buildings resulting from
events such as ground heave, subsidence and plant
machinery operations that can cause damage by
vibration or impact.
Contract insurance provisions usually require the
employer to provide a policy to cover damage to
neighboring properties should any event damage the
stability or integrity of surrounding buildings.
4. Joint Fire Code
The Joint Fire Code considers the risk of an outbreak
of fire on a project in relation to the locality and
construction methods used, e.g. timber frame
construction or the widespread use of acetylene.
The code is not associated with the completed
structure and is intended to deal with risks
associated with the construction process itself from
design through to completion.
5. Professional indemnity insurance
When a contractor provides a design for the works,
a separate policy (or policies) is required to
indemnify the employer in the event of an error,
breach or omission creating defective design that is
incorporated into the works.
In general, professional indemnity insurance
protects the employer from incurring liability as a
result of a claim following an event it had no control
over that is attributed to a defect in the design. This
may only become apparent over time and years into
the life of a building, e.g. the failure of constructed
foundations.
6. Off-site materials insurance
Where materials will be held by suppliers until the
site is ready to take delivery, responsibility for
insuring these materials will depend on the supply
agreement if the storage is at the supplier’s risk, a
contract works policy will not provide cover;
however, if the storage is at the insured’s risk then a
contract works policy would provide cover subject to
the insurer being satisfied with the details of the
storage.
7. Public and product liability insurance
Public and products liability provides coverage for
third party injury or property damage that you might
cause. The difference is that Public liability relates to
injury or damaged while you’re on the job while
products liability relates to injury or damage caused
by any products distributed, supplied and
manufactured by the company.
Common types of contractor insurance you
can find in the Philippines:
Contractor’s All Risks (CAR) Insurance: This is
like the Swiss Army knife of contractor insurance. It
covers a wide range of risks associated with
construction projects, including damage to the
building itself, materials, and equipment. Pioneer
Insurance offers CAR insurance that protects your
assets from various construction-related risks.
Erection All Risks (EAR) Insurance: Similar to
CAR insurance, but EAR insurance is specifically
designed for projects involving the erection or
installation of machinery, plant equipment, and steel
structures.
Public Liability Insurance: This protects you if
your construction activities cause injury or property
damage to third parties. It covers legal costs and
compensation claims.
Workmen’s Compensation Insurance: This is a
mandatory insurance that provides benefits to your
employees if they get injured or die while working
on a construction project.
Professional Indemnity Insurance: This covers
you if you make errors or omissions in your
professional advice or design work that lead to
financial losses for your client.
Equipment Floater Insurance: Protects your
heavy equipment and machinery from damage or
loss, whether it’s on the job site or in transit.
Surety Bonds: Though not technically insurance,
surety bonds offer financial guarantees that you’ll
fulfill your contractual obligations. If you fail to do so,
the surety company will compensate the project
owner.
II. PROBLEM SOLVING
HOW TO CALCULATE FRINGE BENEFIT
Total Fringe Benefits
Fringe Benefit =
x 100
Annual Salary
1. Fringe Benefit Rate Calculation For a
Salaried Employee
Suppose your salaried employee earns $80,000
per year. The total annual fringe benefits of the
employee are $20,000 that are broken down as:
 $1,300 for unemployment tax
 $4,080 for retirement benefits
 $1,000 for worker's compensation
 $1,160 for employer portion of Medicare tax
 $4,960 for employer portion of Social Security
tax
 $7,500 for employee's life, disability, and health
insurances
Divide the annual fringe benefits of an employee of
$20,000 by their annual wages of $80,000 as follows:
$20,000 / $80,000 = 0.25
Then, multiply the total by 100 to determine the
fringe benefit rate percentage as follows:
0.25 X 100 = 25%
The fringe benefit rate for this salaried employee is
25%. It means that your business is paying an
additional 25% to the employee besides their base
wages.
2. Fringe Benefit Rate Calculation For An
Hourly Employee
Suppose you have a full-time hourly employee who
is paid $25 per hour. The hourly employee has the
following annual fringe benefits:
 $800 for unemployment tax
 $2,200 for retirement benefits
 $722 for worker's compensation
 $754 for employer portion of Medicare tax
 $3,224 for employer portion of Social Security
tax
 $3,740 for employee's life, disability, and health
insurances
So, the total fringe benefits of an hourly employee
are $11,440. Divide the total fringe benefits by the
annual wages of an employee.
To determine the employee's annual salary, multiply
the hourly rate by the number of hours worked per
week and the number of weeks in a year as follows:
$25 hourly rate X 40 hours X 52 weeks = $52,000
in annual salary
($11,440 / $52,000) X 100 = 22%
The fringe benefit rate for this hourly employee is
22%. It means that your business is paying an
additional 22% to this hourly employee beyond the
employee's salary.
3. A construction company, ABC Builders, earned
₱5,000,000 gross receipts for a building project in
Quezon City. Under Section 143(e) of the Local
Government Code, Quezon City imposes a 2%
business tax on contractors. How much is the local
business tax due?
Solution:
Business Tax = Gross Receipts × Tax Rate
= ₱5,000,000 × 2%
= ₱100,000
4. XYZ Construction earned ₱8,000,000 from a road
project in Manila. The project is subject to:
 2% local business tax (per LFC 3-95)
 12% VAT
 2% EWT
Compute:
VAT amount
Local business tax
EWT withheld
Net payment from client (excluding VAT)
Solution:
a. VAT:
₱8,000,000 × 12% = ₱960,000
b. Local Business Tax:
₱8,000,000 × 2% = ₱160,000
c. EWT:
₱8,000,000 × 2% = ₱160,000
d. Net Payment (excluding VAT):
₱8,000,000 - ₱160,000 = ₱160,000
I. MATERIALS
● Materials are parts, components,
ingredients, and raw materials that form the
actual product.
● They are essential inputs to production and
can be:
Direct Materials – directly used in the
manufacturing of the product.
Indirect Materials – not directly traceable
to the final product.
● May be durable or perishable, depending
on the end product.
II. EQUIPMENT
● Tools, machinery, and devices used in
production.
● Tangible, durable, and often
technologically advanced.
● Treated as long-term business assets and
subject to depreciation.
2.​
Import Duties
❖​
Import duties are levied on materials
brought from abroad. These duties depend on
the type of material and its country of origin.
❖​
Import duties need to be included in
the cost estimates for projects utilizing
imported materials, as they can substantially
increase the total expense.
3.​
Environmental Taxes
❖​
Additional taxes may be imposed on
materials deemed harmful to the
environment.
❖​
Choosing environmentally friendly
materials can reduce tax liabilities and
promote sustainability.
EQUIPMENT TAXES
1.​
Sales Tax / VAT on Equipment
Purchase
III. TAXES
Tax is a fee that people and entities need to
pay to the government to fund various social
services and infrastructure crucial for nation
building and economic growth. In the
Philippines, the National Internal Revenue
Code (Tax Code) lays down the rules on
taxation.
MATERIAL TAXES
1.​ Sales Tax / Value-Added Tax (VAT)❖
​
Sales tax or VAT is applied to
the purchase of construction
materials. This tax varies by region
and can significantly impact the cost.
Quantity surveyors must incorporate
these taxes to ensure accurate
projections.
❖​
Similar to materials, equipment
purchases are subject to sales tax or VAT.
❖​
These taxes must be factored into the
equipment budget.
2.​
Import Duties on Equipment
❖​
Imported construction equipment is
subject to import duties.
❖​
Including these duties is essential for
accurate cost estimation.
3.​
Depreciation and Tax Deductions
❖​
Equipment depreciation can provide
tax benefits over time, affecting the net cost.
❖​
Understanding depreciation and tax
deductions helps in planning and reducing
net costs.
EXCISE TAX
➢​
An excise tax is a legislated tax on
specific goods or services at the time they are
purchased. Goods subject to excise taxes could
be fuel, tobacco, mineral products and quarry
resources. Excise taxes are intranational taxes
imposed within a government infrastructure
rather than international taxes imposed
across country borders.
Types of Excise Tax
1.​
Specific Tax – refers to the excise tax
imposed which is based on weight or volume
capacity or any other physical unit of
measurement
Specific Tax = No. of Units/other measurements x
Specific Tax Rate
IV.EQUIPMENT AND MATERIALS
Article 8: General
1.​
All materials and equipment must
comply with applicable laws (8.01).​
​
2.​
Contractor is liable for delays due to
non-compliance (8.01).​
​
3.​
If laws change affecting cost/time,
Owner must adjust contract (8.01).
Article 9: Equipment
1.​
Named equipment in specs does not
exclude equivalent products (9.01).​
​
2. Ad Valorem Tax – refers to the excise tax
which is based on selling price or other
specified value of the goods/articles.
2.​
Contractor may propose substitutions
with Owner’s written approval (9.02).​
​
Ad Valorem Tax = No. of Units/other
measurements x Selling Price of any specific
value per unit x Ad Valorem Tax Rate
3.​
Requests must be in writing, with full
data, and judged by the Owner.​
Article 10: Contractor-Furnished Materials &
Fixtures
1.​
Samples must be provided when
specified (10.01):
○
3 labeled samples, with quality/type
details (10.01[a–b]).
○
Include printed installation directions if
required (10.01[c]).
○
Must include transmittal letter in
triplicate (10.01[d]).
2.​
Owner must act within 7 days unless
exceptions apply (10.08).​
3.​
Materials may be ordered without
approval only if specs allow (10.01[e]).​
​
4.​
Substitution of trade-specified items
requires written approval (10.02).​
5.​
Concrete materials like cement,
aggregates need Owner approval (10.02[d]).​
6.​
Owner tests samples; Contractor
covers testing costs if they supply samples
(10.03).​
7.​
All materials must be new unless
specified otherwise (10.04).​
8.​
Owner provides storage space;
Contractor ensures quality (10.05).​
9.​
Contractor bears moving costs if
relocation is required (10.05[c]).​
10.​
Defective materials must be replaced
and cannot be used until approved (10.06).​
11.​
Imported materials may justify time
extension if delay is not contractor's fault
(10.07).​
Article 11: Owner-Furnished Materials &
Equipment
1.​
Supplied as scheduled.​
2.​
Contractor must report defects or be
liable for damages.​
​
Article 12: Royalties and Patents
●
Contractor pays for patented materials
they furnish and defends related claims.​
​
●
Owner pays for patents related to
Owner-supplied items.
Article 13: Manufacturer’s Directions
●
All installations must follow printed
instructions.​
●
Contractor must submit required
number of instruction copies.​
V. SECTION 5 – SITUS OF TAX
Definitions:
●
Head Office: Officially registered main
business office.
●
Branch Office: Local business extension.
●
Project Office: On-site office at
construction site.​
Tax Allocation Rules:
1.​
Projects handled by branch: Taxed
locally.​
2.​
Without a branch:
○
30% taxed at head office location.
○
70% at project office location.
3.​
Multiple project sites: 70% prorated by
actual cost per locality.​
4.​
Overseas projects: Not subject to local
business tax.​
5.​
Prefab work abroad: Taxed at 50% of
standard rate.​
6.​
Relocation of offices: LGUs must be
notified 15 days in advance.
VI. SECTION 6 – ENACTMENT OF TAX
ORDINANCES
1.​
Must be enacted via ordinance by
Sangguniang Panlungsod or Bayan.​
2.​
Requires prior public hearing and
written notice to affected contractors.​
3.​
Non-compliant ordinances are void
and punishable.​
​
VII. SECTION 7 – TIME OF PAYMENT
●
Taxes due within the first 20 days of
January or quarterly.
VIII. SECTION 8 – BOOKS EXAMINATION
1.​
LGU Treasurer may audit contractor
records.​
2.​
Only once a year for the previous year,
during office hours.​
3.​
Exam limited to verifying summary of
transactions.
VIIII. FINAL PROVISIONS
●
​
Section 9: Repeals conflicting rules.​
●
Section 10: Effective immediately; BLGF
to disseminate.​
​
Chapter 4: Summary of Total Project
Cost
4.4 BOND AND INSURANCE COST
BONDS AND INSURANCE IN
CONSTRUCTION
The ongoing growth of the Philippine
economy leads to more activities in the
construction industry such as The
Construction Industry Authority of the
Philippines (CIAP).
The Construction Industry Authority of
the Philippines (CIAP) is a government
agency attached to the Department of Trade
and Industry (DTI) for policy and program
coordination to promote, accelerate, and
regulate the growth and development of the
construction industry.
Both bonds and insurance provide financial
security for businesses and their customers
in the event of unexpected setbacks and both
solutions offer peace of mind when surprise
setbacks occur.
BONDS VS. INSURANCE
Bonds are similar to insurance in the sense
that they provide financial protection,
primarily for a project’s owner, in the event
of particular types of non-performance.
However, bonds are not insurance. One
important difference is that a surety who is
obligated to make a payment under a
bond has the right to recover the amount
paid from the non-performing party on
whose behalf the bond was issued. An
insurer who pays a claim generally cannot
seek to recover that payment from the
insured on whose behalf the payment was
made.
CONSTRUCTION BONDS
●​ A construction bond is a type of
surety bond used by investors in
construction projects.
●​ Construction bonds are a type of
surety bond that protects against
disruptions or financial loss due to a
contractor's failure to complete a
project or failure to meet contract
specifications.
●​ These bonds ensure a construction
project’s bills will get paid.
BENEFITS
BONDS
OF
CONSTRUCTION
●​ Financial protection for owners
The financial benefits of
construction bonds for owners are
straightforward. When a contractor
takes out a construction bond, the
owner is financially protected from a
construction business that walks
away from a partially finished job or
can’t complete the job as contracted.
●​ Guarantees project completion
In order to obtain a
construction bond, a construction
company must submit to rigorous
vetting by a surety company, which
will investigate the firm’s track
record, credit score, and overall risk
profile. The contract bond guarantees
the company is able to complete the
construction project as contracted.
If the contractor fails to
complete the project, the owner will
be compensated and be able to seek
another contractor to finish the work.
●​ Assurance from Owners
By increasing the owner’s
comfort level and managing the
overall risks in the project,
construction bonds can make a
contractor seem like a safe bet and
increase professional opportunities.
PARTIES INVOLVED IN A
CONSTRUCTION BOND
●​ THE OBLIGEE
-​ The project owner. The company
or organization that requested the
construction work.
●​ THE SURETY
-​ The company who is financially
guaranteeing the bond.
●​ THE PRINCIPAL
-​ The contractor. The company
managing the construction work
TYPES OF CONSTRUCTION BOND
●​ BID BOND
●​ PERFORMANCE BOND
●​ DOWN PAYMENT BOND
●​ WARRANTY BOND
BID BOND
-​ acts as a guarantee that the contractor
will honor their bid, and will sign a
contract for the project at the amount
stated in the signed contract.
-​ are obtained to protect the owner
during the procurement phase of the
project. The bond is triggered if the
successful bidder on a project
improperly refuses to enter into the
construction contract.
-​ guarantees that the contractor will
get an additional bond known as
PERFORMANCE BOND
PERFORMANCE BOND
-​ acts as a guarantee that the principal
purchases to act as a surety that the
construction company will finish the
project under the stipulations of the
contract.
-​ protect the owner during a project’s
construction phase. The bond is
triggered if the contractor fails to
complete the work. Not to be
confused with liability insurance that
responds to a claim for improper or
defective work, performance bonds
are designed to deal with unfinished
work.
-​ guarantee the surety company will
either see the project finished or
reimburse the obligee if the
contractor defaults.
SAMPLE PROBLEMS
(CONSTRUCTION BONDS)
Sample Problem 1
A Php 14,000 Bond Amount for
construction must be obtained. What is the
Annual Premium amount required for the
project? Consider bond rates of:
(a) Bid Bond – single and standing
(b) Performance Bond
(c) Payment Bond
(d) Warranty Bond
DOWNPAYMENT BOND
-​ acts as a guarantee that the principal
will use the down payment in
relation to the project.
-​ will be required by the client if the
contractor requests advance payment
to help them meet significant start-up
or procurement costs that may have
to be incurred before construction
begins.
-​ the surety indemnifies the obligee for
misappropriated down payment.
WARRANTY BOND
-​ relevant only once the building is
completed
-​ acts as a guarantee that the principal
will come back and fix defective
work or material should an issue
arise during the warranty period
specified in the contract.
-​ the most important reason to work
with contractors who acquire
warranty bonds is the assurance of
having recourse after the project is
complete and accepted.
Given:
Bond Amount = Php 14,000.00 Bond Rates
(from Schedule I Rate for Bonds up to Php
15,000.00)
Bidder’s Bond – single = 0.480
Bidder’s Bond – standing = 0.960
Performance Bond – for construction =
1.920
Payment Bond – for construction = 2.880
Warranty Bond = 2.880
Required: Annual Premium Amount
Solution:
a. Bid Bond – single = Php 14,000.00 x
0.480%
Bid Bond – single = Php 67.20
b. Bind Bond – standing = Php 14,000.00 x
0.960%
Bind Bond – standing = Php 134.40
c. Performance Bond = Php 14,000.00 x
1.920%
Performance Bond = Php 268.80
d. Payment Bond = Php 14,000.00 x 2.880%
Payment Bond = Php 403.20
e. Warranty Bond = Php 14,000.00 x
2.880%
Warranty Bond = Php 403.20
Sample Problem 2
A Php 125,000 Bond amount for
construction must be obtained. What is the
Annual Premium amount required for the
project? Consider bond rates of:
(a) Bid bond–standing
(b) Performance Bond
(c) Payment Bond
(d) Warranty Bond
Given:
Bond Amount = Php 125,000.00 Bond Rates
(from Schedule Rate for Bonds up to Php
125,000.00)
Bidder’s Bond – standing
= 0.288% + Php 312
Performance Bond (for construction)
= 0.288% + Php 1,104.00
Payment Bond – for construction = 1.824%
Warranty Bond = 1.824%
Required: Annual Premium Amount
Solution:
a. Bid Bond – standing = Php 125,000.00 x
0.288% + Php 312
Bid Bond – standing = Php 672.00
b. Performance Bond = Php 125,000.00 x
0.288% + Php 1104.00
Performance Bond = Php 1,464.00
c. Payment Bond= Php 125,000.00 x
1.824%
Payment Bond = Php 2,280.00
d. Warranty Bond =Php 125,000.00 x
1.824%
Warranty Bond = Php 2,280.00
CONSTRUCTION INSURANCE
-​ is a broad categorization of insurance
policies that provide protection
during construction projects. Certain
types of construction insurance
policies are required for many
projects.
-​ typically covers a range of risks,
including property damage, bodily
injury, theft, and damage caused by
natural disasters or accidents.
-​ is critical for ensuring that a
construction project is adequately
protected, minimizing the financial
risks associated with construction
projects.
BENEFITS OF CONSTRUCTION
INSURANCE
●​ Protection against injury
●​ Protection against property damage
●​ Asset and employee protection
●​ Covering legal fees
●​ Covering costs and damages
According to CIAP Section IX Article 31,
the following are required of the
contractor:
●​ CONSTRUCTION ALL RISK
INSURANCE
o​ Builders Risk Insurance
o​ Course of Construction
Insurance
●​ GENERAL LIABILITY
INSURANCE
o​ Commercial
General
Liability Insurance
o​ Contractor General Liability
Insurance
●​ WORKERS’ COMPENSATION
INSURANCE
o​ Accident Insurance for
Workers
CONSTRUCTION ALL RISK
INSURANCE
-​ coverage for buildings and other
structures in the event of property
damage, third-party injury or damage
claims, while they are under
construction.
-​ Builders risk policies will usually
have options to cover the following
types of property:
a. Building materials
b. Foundations
c. Temporary structures such as
scaffolding
d. Paving, fencing, outdoor fixtures
e. Lawns, trees and plants installed
by the builder
Formula for Construction
Insurance Cost:
All
Risk
GENERAL LIABILITY INSURANCE
-​ is a class of insurance that provides
liability protection to businesses in
the case of bodily injury, death, or
property damage during the course
of business.
-​ General liability insurance policies
will usually cover a broad range of
damages, including:
a. Faulty workmanship
b. Job-related injury
c. Advertising injury/defamation
Formula for General Liability Insurance
Cost:
WORKERS’ COMPENSATION
INSURANCE
-​ insurance coverage designed to
protect businesses and contractors
when their employees are injured
while on the job.
-​ the contractor shall pay the
appropriate premiums without any
cost to those covered by the policy.
-​ It does this by covering the following
costs after a covered incident:
a. Medical expenses
b. Missed wages
c. Ongoing recovery costs related to
an injury
d. Legal fees when an injured person
sues the policyholder
e. Funeral costs and death benefits
Formula for Workers’ Compensation
Insurance Cost:
Premium Rate = 1.75% * 3(first 3 months) +
0.075% * 9 (remaining months)
Premium Rate = 5.25% + 0.675%
Premium Rate = 5.925%
​
As determined by the National
Council on Compensation Insurance
(NCCI) in California, the classification rate
differs with the employee class codes. The
more dangerous the work, the higher the
rating. The experience modification rating,
also determined by NCCI, varies depending
on the risk taken.
​
If the EMR comes in at 1.00 then it
is considered as average risk. A small
difference can have a major impact on price.
​
>1.00 = higher than average risk
​
< 1.00= lower than average risk
Solving for total insurance cost:
Insurance Cost = [Project Cost] x [Premium
Rate]
Insurance Cost = [Php 5,709,160.05] x
[5.925%]
Total Insurance Cost = Php 338, 267.73
Sample Problem 2
(General Liability Insurance)
​
EMR, or experience modification
rating is a calculation used by insurance
firms to price the cost of workers’
compensation premiums.
A Grocery Store is expected to generate Php
2 million in sales over the next year. The
exposure base as dictated by business type
ISO’s Classification Class Code is
Php4,000.00. If the premium rate is 2%.
How much is the insurance cost?
SAMPLE PROBLEMS
Given:
Sample Problem 1
(Construction All Risk Insurance)
Exposure Base = Php 4,000.00
A Php 5,709,160.05 site work and building
costs of a commercial project for
construction
were
provided
with
Construction All Risk Insurance by L.K.
Construction with an applied rate of 5.25%
premium for the first 3 months. If the work
exceeded 3 months, it would charge a
premium rate of 0.075%. How much is the
total insurance cost for the project when the
project duration is 1 year?
Premium Rate = 2%
Given:
Insurance Cost = Php 160,000.00
Project Cost (Sitework and
Subtotal) = Php5,709,160.05
Gross Sales = Php 2,000,000.00
Building
Premium Rate, for first 3 months=1.75%;
for succeeding months=0.075%
Project Duration = 1 year (12 months)
Required:
Total Insurance Cost
Solution:
Solving for total premium rate:
Required:
Insurance Cost
Solution:
Insurance Cost = [Exposure Base] x [ Gross
Sale/1000] x [Premium Rates]
Insurance Cost = [Php 4,000.00] x [Php
2,000,000.00/1,000] x [2%]
Sample Problem 3
(Workers’ Compensation Insurance)
ABC Construction has two workers having
different experience modification ratings.
Worker A has a Php3,000 payroll, a
classification rate of 3.25, and an EMR of
1.00. Worker B has a Php3,000 payroll, a
classification rate of 3.25, and an EMR of
1.30.
(a) Which worker will receive a higher
workers’ compensation insurance cost?
(b) How much does each worker receive?
Given:
Payroll = Php3,000
Classification rate = 3.25
Experience Modification Rating (EMR),
​
Worker A = 1.00; Worker B = 1.30
Required: Insurance Cost
Solution:
Insurance Cost = [Payroll] x [Classification
Rate] x [Experience Modification Rating]
Solving for Insurance Cost of Worker A:
Insurance Cost = [Php 3,000] x [3.25] x
[1.00]
Insurance Cost = Php 9,750
Solving for Insurance Cost of Worker B:
Insurance Cost = [Php 3,000] x [3.25] x
[1.30]
Insurance Cost = Php 12, 675
Answers:
a) Worker B will receive a higher worker’s
compensation insurance cost.
b) Worker A will receive a worker’s
compensation insurance cost of Php 9,750.
Worker B will receive
compensation
insurance
Php 12, 675.
a
worker’s
cost
of
transaction or work project.
QUANTITY SURVEYING
4.5. OVERHEAD AND PROFIT
Francis Baculinao 3-B
Geomel Bedonia 3-B
OVERHEAD
Overhead in construction encompasses all the
costs necessary for your organization to stay in
business.
A direct cost is a price that can be directly tied to
the production of specific goods or services. A
direct cost can be traced to the cost object,
which can be a service, product, or department.
Direct costs examples include direct labor and
direct materials.
FORMULA FOR PROFIT:
FIXED MONTHLY EXPENSES
For instance, office and warehouse spaces to
perform business tasks and store materials may
account for monthly fixed costs like rent or
mortgage payments, utility expenses, insurance
payments and credit obligations.
INDIRECT COSTS
Another element of overhead in construction is
indirect cost. A company's indirect costs often
account for both fixed and variable expenses
necessary to remain in operation. Some
examples of variable expenses a construction
business covers include office supplies and
company vehicle expenses. Fixed indirect
expenses can include
salaries for administrative staff,
obligations and employee benefits.
DIRECT COSTS
tax
FORMULA FOR OVERHEAD:
𝐎𝐕𝐄𝐑𝐇𝐄𝐀𝐃 = (FIXED MONTHLY EXPENSES) + (INDIRECT COSTS)
PROFIT
Profit in construction comprises all of a
company's
earnings
after
deducting
overhead and direct costs. Companies
typically calculate profits after completing
construction projects, when they can
determine total profits from a project's final
cost.
PROJECT COST
Project costs are the total funds needed to
monetarily cover and complete a business
𝐏𝐑𝐎𝐅𝐈𝐓 = (PROJECT COST) − (OVERHEAD + DIRECT COSTS)
OVERHEAD VS PROFIT
Unlike overhead that accounts for the cash flow
that moves out of a business, profits represent
the revenue companies retain after deducting
overhead and other expenses. Depending on
the company's activities, though, profit
calculations can account for additional
deductions that pertain to specific projects.
How to calculate overhead and
profit in construction:
Using the overhead formula overhead = (fixed
monthly expenses) + (indirect costs) and the
profit formula profit = (project cost) (overhead + direct costs), follow the steps
below to calculate overhead and profit in
construction:
1. Total all monthly fixed expenses
To determine your overhead, combine all fixed
expenses your company covers each month.
EXAMPLE
2. Add up indirect costs
Indirect costs can include both variable and
fixed expenses, and to calculate overhead
accurately, you must account for both types of
costs if your company has them. The company
then combines all variable indirect costs, such as
any equipment maintenance or extra office
supplies and adds these values to its fixed
indirect costs.
3. Combine monthly fixed expenses and
indirect costs
After calculating all fixed expenses and indirect
costs your company covers each month, you can
combine these values together. The result gives
you the total overhead and can provide you with
valuable insight into your organization's
spending patterns.
𝐎𝐕𝐄𝐑𝐇𝐄𝐀𝐃 = (FIXED MONTHLY EXPENSES)
+ (INDIRECT COSTS)
𝐎𝐕𝐄𝐑𝐇𝐄𝐀𝐃 = $21,150.00 + $34,100.00
𝐎𝐕𝐄𝐑𝐇𝐄𝐀𝐃 = $𝟓𝟓, 𝟐𝟓𝟎. 𝟎𝟎
4. Determine total direct costs
To calculate total profits from a completed
project, you must calculate the direct costs your
organization contributes to a project. Similar to
overhead and indirect costs, direct costs in
construction can include both variable and fixed
costs.
5. Subtract overhead and direct costs
from project cost
Once you determine your overhead and total
direct costs, you can calculate the potential
profit your company can generate per project.
𝐏𝐑𝐎𝐅𝐈𝐓 = (PROJECT COST) − (OVERHEAD
+ DIRECT COSTS)
𝐏𝐑𝐎𝐅𝐈𝐓 = $150,000.00 − ( $55,250.00
+ $14,500.00)
𝐏𝐑𝐎𝐅𝐈𝐓 = $𝟖𝟎, 𝟓𝟎𝟎