Calculate Materials and Labour Costs

Previously, you identified the construction project's building materials by reading the construction drawings and specifications. Now, it is time to determine how much of each material is needed for the project. To do this, you will produce a materials and consumables quantity list. Materials are physical substances with which construction work is done, including manufactured products, such as components and fillings, and naturally occurring materials, such as timber, thatch, and stone. On the other hand, consumables are non-durable goods that are expected to be used up quickly, including office supplies, packaging, paper and paper products, and cleaning products. 

The process of estimating how much of each building material is needed for a construction project can be done by looking at the construction drawings and specifications which is called quantity take off. A list of the materials and consumables with the quantities of each required for the construction project is produced during quantity take off. The measurement of the materials, whether in number, length, volume, area, or weight, is also noted in the quantity list.

A quantity list may look like this:
 

Today's technology makes it possible to produce a materials and consumables quantity list by merely scanning construction drawings or inputting a project's specifications into software such as AutoCAD. 

Building materials calculators used to estimate the appropriate quantity of certain building materials have also grown in popularity to eliminate the need for manual calculations. Other digital technologies that aid in estimating quantities needed for a project include the following:
 

• Electronic take off

It is possible to produce estimates of quantities with just the click of a button using certain digital software. Quantity take off done through digital means is called electronic take off.

• Electronic bidding/estimate prep

Some estimation software is synced with take off systems so that quantities are automatically linked to labour assignments. With this technology, you can account for what-if scenarios and adjust estimates accordingly.

You must follow the procedures for producing a materials and consumables quantity list set by your organisation.Suppliers provide the materials and consumables for a construction project. They are often contracted by the organisation in charge of the construction project. The process of obtaining a price from the supplier may vary between organisations; however, it is often done by submitting a copy of the quantity list to them and asking for an estimate of how much each item in the list would cost.

The procedure for obtaining prices from a supplier may look like the sample situation below:

John asked for the contact details of the organisation's suppliers to inquire about the prices of the materials needed in the construction project. The XYZ Corporation supplies the concrete mix and hot rolled structural steel while the QRS Corporation supplies the laminate glass and plasterboard. He submitted the relevant quantity list to each supplier and requested for estimated. 

Upon contact, John was able to get the following estimates:
 

Obtaining the quantity and supplier prices of the materials and consumables needed in a construction project is essential to the overall goal of identifying and producing the estimated cost of a construction project. This process will give you an idea of how much the overall cost will be.

Some elements or components of a construction project can be completed in a different location from where the construction site is. This process is called off-site production. In off-site production, planning, design, fabrication, and assembly are done in purpose-built off-site factories. Once the component has been completed, it will be transported from the factory to the construction site and assembled in its place. As with all transported resources, the finished components' delivery to the construction site means additional delivery costs.

The specifications may specify that some elements of the construction project be produced off-site. It is important to identify which components of a construction project will be constructed off-site. Not only does this mean additional cost to account for during the estimation of the project cost, but it also means that there are potentially fewer tasks for the workers to do hence fewer labour hours.

The process for estimating off-site production costs vary between organisations. Your organisation may use a digital application to produce estimated off-site production costs or be partnered with another organisation that will manufacture the building component. Access and review your organisation's policies and procedures for estimating project costs and make sure to follow them. 

Policies are guidelines set by your organisations. These are principles that influence decision making and guide day-to-day actions and strategies. On the other hand, procedures describe the steps that should be taken for specific instances. These are step-by-step instruction established by your organisation that must be strictly followed to achieve the desired outcome. Procedures are typically set to ensure that policies are being followed. 

Example

For building ABC, the specifications call for the roof deck to be manufactured off-site. John takes note of this and, following organisational procedures, inputs the roof deck's details, including its dimensions and building materials, into digital software. After input, John produced the following estimate for the off-site production of the roof deck of building ABC:

The workers are one of the essential resources necessary for a construction project to finish. Without anyone doing the construction works, nothing would be done even if there is an abundance of materials and physical resources. However, too much human resource may result in overspending and unequal work distribution. Your job is to identify the appropriate number of contractors, sub-contractors, and employees needed in a construction project according to your organisation's scope, process, and requirements. 

The scope of an organisation defines the extent of the services that they offer. It describes the work the organisation is involved in and the key features and expected deliverables of the organisation. The organisation's process and requirements in using employee and subcontract labour depend on the organisation's scope. The organisational requirements refer to conditions that people-in-charge in the organisation must comply with when using employee and sub-contractor labour. Your organisation will prescribe a process for using labour in a construction project. Your organisation establishes this process to ensure that employees and sub-contractors are operating within the organisation's scope.

The contractor of a construction project is the person who will enter into a contract of services with the client under which they will carry out the building work or arrange for building work to be carried out. The contractor is the person that delegates construction works to sub-contractors and employees in a construction project.

Employees refer to the paid workers of a construction project. Employees are employed under the contractor/contractor's organisation who determine where, when, and how they do their work. Among other things, employees are differentiated from contractors in that employees cannot pay for someone else to their work, whereas contractors can subcontract or delegate work. 

When there are specific skills required to carry out construction work in the project, and the contractor has no employee with the skills necessary, the contractor may use sub-contractors to carry out these construction works. Sub-contractors are typically specialists in specific types of construction work, including piling, roofing, cladding, steelwork, plumbing, and so on. 

Your organisation will likely specify project and work rates in their policy for using labour. The project and work rates are how much the organisation will pay each contractor, sub-contractors, and employees working on a construction project. These rates are subject to minimum wage regulations as enforced by the Fair Work Ombudsman via the Fair Work Act 2009.

Your organisation will also have set procedures for determining the appropriate number of contractors, sub-contractors, and employees according to factors identifiable in the construction drawings and specifications. You must refer to your organisation's policies and procedures when identifying the appropriate number of contractors, sub-contractors, and employees in a construction project.

Example

John is identifying the number of contractors, sub-contractors, and employees required for building ABC's construction. According to his organisation's policy, for a building less than 220m2 in area and less than two storeys, one contractor and 25 construction labourers should be assigned to the project. Of the 25 construction labourers, there will be three supervisors working in shifts. His organisation also specifies that two sub-contractors each should be hired for the plumbing and roofing of the building. 
 

Contractors, sub-contractors, and employees in a construction project are paid by how much they work on the project. Calculating labour costs means estimating how long each construction work in the project will take and identifying the costs that come with hiring labourers such as insurance and taxes.

The number of hours necessary to complete a construction activity is referred to as a construction project's labour hours. The process for estimating labour hours may vary between organisations. Your organisation may have set estimated labour hours for different construction activities or may use digital software to make the estimations. These procedures are set to ensure that downtime, or unproductive time, is accounted for when estimating labour hours, including the minimum employee entitlements enforced by the National Employment Standards (NES). Make sure to follow your organisation's procedure for estimating labour hours.

Example

John is estimating the labour hours that it would take to finish laying the foundation of building ABC. Following organisational procedures, John inputs the details of building ABC into a digital software, including the dimensions of the building's foundation and the number of workers associated with the construction activity. The software produces a breakdown of the tasks associated with activity and the labour hours it would take to finish each task, applying a 10 per cent downtime allowance to account for unproductive time.
 

Since John's organisation has its construction workers work in eight-hour shifts, this means laying the foundation will take around two weeks or 14 days to finish.

Labour costs refer to the costs to the employer related to the employment of a worker. These include wages and salaries, on-costs, worker insurance costs and so on. On-costs refer to the labour costs, other than wages and salaries that the employer has to pay when they employ someone, such as superannuation and other employee benefits that the employer offers to their employees. 

Included as an on-cost is the worker's compensation, a compulsory statutory form of insurance for all employers in all the states and territory of Australia that protects workers if they ever suffer any work-related injury or disease. Your organisation may offer another form of worker's insurance to its employees. If so, this should also be accounted for when calculating the labour costs of the project.

As with the estimation of labour hours, this procedure may vary between organisations. Make sure that you are following your organisation's policies and procedures for calculating labour costs, including on-costs and worker insurance costs.

Example

After estimating the labour hours for laying the foundation of building ABC, John can now calculate the task's labour costs. Eight workers are assigned to the task, one of which is a supervisor. Supervisors have an hourly rate of $32.60, while the rest have an hourly rate of $15.40.

Following the organisational procedure, John takes the total hourly rate of the workers involved in laying the foundation of building ABC and the total labour hours it will take to finish laying the foundation of building ABC and inputs the data into digital software. The software applies the on-costs and worker insurance costs to the product of the total labour hours of laying the foundation and the total hourly rate of the workers assigned to the construction activity using the formula below:

Labour Cost, Inclusive of On-costs and Worker Insurance Costs =

(Total Hourly Rate × Estimated Total Labour Hours) + ((On-costs of Worker Level A + Worker Insurance Costs of Worker Level A) × Number of Worker Level A) + ((On-costs of Worker Level B + Worker Insurance Costs of Worker Level B) × Number of Worker Level B)

The total on-costs and worker insurance of a construction worker working under John's organisation per day are $45.60 and $24.40, respectively. For a supervisor, these are $63.70 and $24.40, respectively. Since laying the foundation will take 14 days to finish, these values are multiplied by 14. With the provided formula, the software produces the following estimated labour cost for laying the foundation of building ABC:

Labour Cost, Inclusive of On-costs and Worker Insurance Costs =

($140.40 per hour × 107.8 hours) + (($45.60 per day × 14 days + $24.40 per day × 14 days) × 7 construction workers) + (($63.70 per day × 14 days + $24.40 per day × 14 days) × 1 supervisor)

= ($15,135.12) + (($638.40 + $341.60) × 7 construction workers) + (($891.80 + $341.60) × 1 supervisor)

= $15,135.12 + ($980.00 × 7 construction workers) + ($1,233.40 × 1 supervisor)

= $15,135.12 + $6,860.00 + $1,233.40

= $23,228.52

John concludes that the labour cost for laying the foundation of building ABC is $23,228.52.