L12 Flashcards
4 TYPES OF PERCENTAGE PROFIT BASIS
- NOT MANDATORY TO STUDY FOR THIS CLASS! ADDED INFO ONLY!
1- Fixed-price contract (COMMON ONE)
2- Risk percentage
3- Cost-plus basis
4- Time-and-material basis
OVERHEAD AND PROFIT?
- additional amount a contractor
- adds to the project costs to cover business expenses (overhead)
- and make a financial gain (profit).
- It’s the extra percentage or fixed amount added
- to ensure the contractor can run their business and earn a return for their work.
2 TYPES OF COSTS FOR O.H & PROFIT?
1- DIRECT COSTS
2- INDIRECT COSTS
DIRECT COSTS ? (project)
- everything that are not gonna remain on the site once the workers leave. equipment will leave, crew will leave but the gypsum to install a wall will stay there
- expenses that can be directly attributed
- to a specific construction project
INDIRECT COSTS (office)
- expenses not directly linked
- to a specific project or anyone project but
- necessary for the overall operation of the business.
eg: hyrdro, internet , phones for employees, hr person. receptioniist, etc.
1- DIRECT COSTS 3 EXAMPLES
Materials: Concrete, steel, lumber, etc. (not sure)
Labor: Wages of construction workers on the project site.
Equipment: Rental or purchase of machinery used on the project.
installation
2- INDIRECT COSTS 3 EXAMPLES
U.o.A
Administrative Salaries: Pay for office staff.
Office Supplies: Paper, pens, computers.
Utilities: Electricity, water, and internet for the office
How much should a contractor charge in indirect overhead? FORMULA!!! %
put in your aide memoire!
The percentage for indirect overhead varies, but a common range is between 10% to 20% of the total direct costs. This ensures the business covers its operational expenses and remains sustainable.
** Company overhead % = [(Company overhead COST/YR / Total project construction costs per year )] x 100
When is profit higher
when:
The project has a high margin due to efficient management, lower-than-expected costs, or premium pricing.
The contractor has a strong reputation and can charge more.
There is high demand for construction services, giving the contractor leverage to negotiate better rates.
When is profit lower
when:
Costs overrun due to unforeseen circumstances or poor project management.
The market is highly competitive, forcing the contractor to lower prices to win contracts.
The project scope changes significantly, leading to increased costs that weren’t originally accounted for.
“Haven’t we seen this before?
yes, part of gen req.t
WHY BID SO LOW? INVERSE OF BIDDING HIGH
- THEY DESPERATELY WANT THE PROJECT
HIGH: VARIES! DEPENDS! THE BIGGER THE PROJECT THE HIGHER RISK.
P.P.P?
PUBLIC
PRIVATE
PARTNERSHIP
- GROUP OF COMPANIES COME TOGETHER AND COME UP W/ A PROPOSAL AND GOV’T WILL ANALYZE WCH COMPANY WOULD WANT TO DO THIS KIND OF PROJECT?
EXAMPLE OF PPP?
CHUM HOSPITAL = 1 B$
HOW DARE YOU GOVT TO SPEND 1 BILLION $ FOR A HOSPITAL TO REDUCE BAD RX FROM PPL!!! REDUCE RISKS! PARTNER!
WHY PPP CAME INTO PLAY? PRO
GOV’T MIGHT WANT TO PARTNER WITH PRIVATE COMPANIES TO REDUCE THE RISK
- SPREAD OUT THE 1B$ , REDUCE IMPACT ON GOV’T BALANCE SHEETS!
- ANY BUILDING PROBLEMS ARE NOT THE GOV’T PROBLEM FOR THE NEXT 30 YRS, IT’S THE PRIVATE!
