Construction Engineering 221
Cost Estimating and Bidding II
RPQs
1. The markup or margin is added at the close of the estimating
process and is an allowance for:
A. profit
B. general overhead
C. contingency
D. all of the above
2. In what type of construction are subcontractors used the
most?
A = Building B = Engineering C = Industrial
3. The term “bid rigging” is also known as “price fixing”.
A. True
B. False
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RPQ Answers
1. The markup or margin is added at the close
of the estimating process and is an
allowance for:
A. profit
B. general overhead
C. contingency
D. all of the above
Correct answer is D. all of the above
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RPQ Answers
2.In what type of construction are
subcontractors used the most?
A = Building B = Engineering C = Industrial
Correct answer is A. Building
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RPQ Answers
3. The term “bid rigging” is also known as
“price fixing”.
A. True
B. False
Correct answer is A. True
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Bid Components (L.E.M.O.P.)
1. Labor costs
A. Direct costs
B. Indirect costs
2. Equipment
3. Material Costs
A. Materials that become a part of the finished
structure
B. Material Allowance – What is it? Example?
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L.E.M.O.P. (cont.)
4. Overhead
A. Costs for contractor’s jobsite overhead
general conditions
B. Costs for contractor’s general overhead
1. Main office expenses (rent, utilities, staff)
5. Profit (fee)
Income – Costs = Profit
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Direct Labor Costs




Base hourly wages and salaries paid
employees (easily known)
Productivity of labor - Highest level of
uncertainty in bid
Where is the most reliable labor productivity
information to found?
Contractor’s HISTORICAL COST DATA
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Indirect Labor Costs

What are INDIRECT labor costs?


Expenses that are additional to the basic hourly
rates and are expenses paid by the employer
What are some examples of indirect labor costs?
1. Payroll taxes
2. Insurance
3. Employee fringe benefits – health, vacation,
employee insurance, 401K
4. Employer contribution to social security
5. Unemployment insurance
6. Workman’s compensation insurance
7. Public liability and property damage insurance
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Equipment Cost Estimating
 In what kind of work does the equipment
account for a substantial portion of the total
cost?

Heavy/Highway
 Ownership cost

Costs to own (park it in the driveway)
 Operating cost

Hourly costs: fuel, repairs, grease, lubricants
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Equipment Cost Rates
 What is best means of projecting the cost of
an item of equipment to used on a future
project?

Past historical equipment cost and production
records
 Why is production an important part of
determining equipment cost?

Efficiently use equipment to operate at
lowest cost
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Depreciation
 Depreciation is equipment expense caused
by wear and obsolescence and allows for the
recovery of the invested capital over the
useful life of the equipment.
 Why aren’t tire depreciated on large items
of equipment?
 Many forms of depreciation – what mode of
depreciation is used for job cost accounting?

Straight-line depreciation
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Equipment Production Rates
In regard to equipment production rates what
is meant by a “50 minute hour”?
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Project Overhead vs General Overhead
 Overhead expenses are costs that do not
pertain to any give construction work item
but are nevertheless necessary for the
ultimate completion of the job.
 Two types – project and general


Project – costs incurred at the project site
General – cost incurred by the general
contractor in support of the company’s
overall construction program.
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Markup Components
 Profit
 General overhead
 Contingency
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Subcontracts
 What if a subcontractor’s bid is substantially lower
than any other subcontract for a particular area or
unit of work within the project? What should the
prime contractor do in this case?
 What happens if a prime uses that same
subcontractor for most if not all of this projects that
a bid competitively?
 Assigned and Prepurchasing of subcontractors
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List of Subcontractors
It is a common requirement, especially on
public projects that the prime contractor
must submit, as a part of the bid, a list of
subcontractors whose bids were use in the
preparation of the prime contractor’s
proposal.
Why is this a requirement?
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Balanced vs Unbalanced
What is the definition of a balanced bid?
 Balanced – each bid item includes its own direct
cost plus it pro rata share of the project overhead,
markup, bond and tax.
What is the definition of a unbalanced bid?
 Unbalanced – more project overhead, markup, bond
and tax is added to the early work items of a
project.
Why unbalanced bids?
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Other Bid Components
 Alternates


Owner-designated
Contractor-designated
 Bid Security



Bid bonds (proposal bonds)
Certified check
Two forms of bid bonds


Liquidated damages
Difference-in-price
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Bid Ethics
 What is meant by:

Bid shopping

Bid peddling

Bid rigging
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Responsiveness and Withdrawal
 What is meant by the statement – “An
acceptable bid must be “responsive” to the
invitation for bids and the instruction to
bidders. (proposal form filled out correctly)
 When can a general or subcontractor
withdraw their bids?
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