University of Palestine Faculty of Eng. Application
& Urban Planning
Cost Analysis & Management. Construction Management Department
HW1 First Semester 2009/2010
St. Na: Mohammed said khader St. ID :420050051
Submit your work through UPINAR
Any hard copy or direct submission to the lecturer will not be
accepted.
The font size of your writing should be 14
Dead line for submission 31.10.09
Answer the followings:
1. Differentiate between the site overhead and office overhead.
Site Overhead
Contractor project costs are usually grouped either as “direct costs” or
“indirect costs.” Direct costs include labor, material and equipment
installed as part of the work, and construction tools and equipment, all
of which are charged to specific construction tasks. Indirect costs are
those that cannot be identified with a specific construction activity but
support the project as a whole, as, for example, costs of the project site
management staff and the site office. Indirect costs are usually called
“site or project overhead.” They are also called “general conditions,”
since the site management usually performs tasks required by the
general conditions of the contract. Some indirect costs are one-time
costs, e.g. setting up the job trailer, and others are time-related, e.g. the
monthly rental cost for the job trailer or salaries for the project site
management.
Office Overhead
Home office overhead represents the costs of the activities of the
Contractor’s home, or corporate, office necessary to run the business
and to support the projects in the field. These overhead activities
include management, accounting, sales and marketing, rent, utilities,
insurance, and so forth. Usually, the Contractor’s accounting system
does not distribute these costs directly to specific projects. For
example, an accounting clerk may work on several projects during a
day but on the time card enters all 8
University of Palestine Faculty of Eng. Application
& Urban Planning
Cost Analysis & Management. Construction Management Department
HW1 First Semester 2009/2010
hours on one line item called “accounting.” It is also difficult to
distribute home office costs to specific jobs. How does the salesperson
distribute time to different active projects when his or her efforts do
not support any ongoing projects? Therefore, home office overhead
costs are usually posted to accounts that are not project related, and
lumped together, they are called the home office overhead “pool”. The
question remains: What portion of the home office overhead pool is
used to support a specific job? The pool may be apportioned or
allocated among the various jobs using some basis, e.g. based on the
percent of total revenue contributed by each project or on the percent
of total labor used by each project.
2. Explain how indirect office overhead is included in contract
price.
When preparing a proposal budget, always start out assuming that full
indirect costs will be applied. In the event that indirect costs may be
reduced or waived by exception, you might be able to increase your
programmatic budget by rebudgeting from indirect to direct costs.
However, if you present a sponsor with a budget that does not include
indirect costs, and it turns out that indirects are applicable, you will
probably end up having to reduce funds budgeted for program
activities in order to cover indirect costs.
If you think an award might be subject to lower-than-standard
overhead, contact the DANR Office of Contracts and Grants. We can
check to determine if the University has already granted an exception
for an individual sponsor’s program or if a request to waive overhead
in the particular case will be successful.
University of Palestine Faculty of Eng. Application
& Urban Planning
Cost Analysis & Management. Construction Management Department
HW1 First Semester 2009/2010
3. Why contingencies is added to the cost of construction project.
Engineers can estimate project costs using different methods.
Estimates can be developed based on project parameters and major
cost elements. It may include analysis of historical bid data, actual
cost or a combination of methods. Special care must be taken to
make a complete capital cost estimate. A common error in the
economic analysis and budgeting is the underestimation of project
construction and related costs. Contingency funding is a fiscal
planning tool for managing the risk of cost escalations and
covering potential cost estimate shortfalls. Inclusion of a
contingency amount in the cost estimate will minimize the impact
of cost increases inherent in an overly optimistic estimate and
provide for an earlier discussion of how potential circumstances
can be addressed.
4. What is the difference between the capital cost and the
construction cost.
Capital costs are costs incurred on the purchase of land, buildings,
construction and equipment to be used in the production of goods
or the rendering of services. In other words, the total cost needed to
bring a project to a commercially operable status. However, capital
costs are not limited to the initial construction of a factory or other
business. For example, the purchase of a new machine that will
increase production and last for years is a capital cost. Capital costs
do not include labor costs except for the labor used for
construction. Unlike operating costs, capital costs are one-time
expenses, although payment may be spread out over many years in
financial reports and tax returns. Capital costs are fixed and are
therefore independent of the level of output.
construction cost Expense incurred by a contractor for labor,
material, equipment, financing, services, utilities, etc., plus
overheads and contractor's profit. Costs such as that of land,
architectural design, consultant and engineer's fee are not
construction costs.