Project Costs

A budget for expenditures on deployed plant , labour , materials , site supervision , office overhead , temporary works , temporary diversions , permits and licenses , suppliers , sub-contractors , safety , environmental protection , financial charges and insurances should be well prepared for guidance of the project cost . The budget for a new project could be forecast based on the past job(s) of similar nature , with cost data to be adjusted to bring the cost to an updated value . The general issues are as follows : -

a) Purchased Plant : plant cost , maintenance , fuel , mobilization , plant operator and storage area .
b) Hired Plant : availability , hire rate , hired period , fuel , mobilization and de-mobilization .
c) Labour : directly employed , sublet by daywork , overtime work , shift work , various trades , and numbers required at high / low seasons .
d) Materials : material cost , delivery lead time , shipping cost , customs , storage area , internal transportation , wastage and disposal .
e) Site Supervision : directly employed , sublet by package , shift work and size required at high / low seasons .
f) Office Overhead : size required at commencement , during execution and after completion of works .
g) Temporary Works : timber-made , steel-made , pre-fabricated , by erection and dismantling , ICE certifications for work , to be re-used , make good works , transportation , storage area and disposal .
h) Temporary Diversions : utility diversion , road diversion , signages and barriers , Temporary Traffic Management Scheme ( TTMS ) and reinstatement .
i) Licenses and Permits : application fees .
j) Suppliers : minimum order quantity ( MOQ ) , downpayment , schedule of shipments and follow-up payment terms .
k) Sub-contractors : lump sum price , on re-measurement basis , advance payment , retention money , schedule of payments and final account .
l) Safety : complying with the contract requirements , tool box talks , safety promotion , signage , labels and safety audits .
m) Environmental Protection : complying with the contract documents , measuring equipments , cost of tests and reinstatement .
n) Financial Charges : bank bond , interests , taxation and inflation .
o) Insurances : Contractor’s All Risks ( CAR ) , plant insurance and Employee’s Compensation Scheme .

Running Cost
After preparation of the budget with itemized costs , an expenditure schedule of running costs on the basis of contract period and programmed works should be listed out for financial evaluation . This is a good time to re-assess whether some other part of the works should be subcontracted instead of executing by direct labour in order to alleviate the financial burden at the peak time .

Cost Centres
This is a kind of payment terms that lays out a series of fixed payments ( partial payments of the contract sum ) to be certified at various status of completion of works as required by the Contract . The works that require to be completed may be part of the permanent works , or provision of temporary work , or approval of the trial erection , or receipt of the major material on site , etc .
In this case , the estimator is quite easily to predict the forthcoming income if the programmed works are being executed on time . In some cases , the re-scheduling of programmed works might help to achieve these cost centres earlier in order to release the financial burden of the running cost .

Cash Flow Forecast
Movements of cash either into or out of the project account are all regarded as cash flows . With reference of the above running costs schedule , cost centres and milestones , the estimator could then prepare a cash flow forecast on the basis of probable incomes ( valuation of workdone ) , retention money and predicted expenditures in accordance with the works programme . This forecast will help the commercial staff to determine the amount and time that are required for financial supports .

Fluctuation
Fluctuations are the changes in the price of wages and materials during the period of construction and are based on the monthly publication of “ Index of Wage Rates ” for the building industry by the Census and Statistics Department of the Hong Kong Government . These indices of wage rates are evaluated and averaged from the preceding 3 months wages return submitted by the main contractors of prevailing major projects in Hong Kong .

If the percentage of increase / decrease is less than 10% , no adjustment will be made to the contract sum ; but if the percentage of increase / decrease is more than 10% , the contract sum will then be adjusted by the net amount that exceeds 10% .

Previously most contracts , particularly for large sized project , are having a clause for fluctuations . However nowadays , the employer would rather shift the risk of wages and materials fluctuations to the contractor to consider at the tendering stage and remove this clause from the contract documents .

Auditing
For a large sized project , there are so many trades of works to be dealt with . Every issue existing on a construction site will affect the profit and loss of a contract , no matter it is huge or tiny . For instance the drinking water for the workers , it is crystal clear that the cost of provision of soft drinks is higher than bottled mineral water , in turn is higher than the bulk mineral water and in turn is higher than the boiled tap water being cooled overnight .

Thus , internal audits or independent audits are essential to keep the works and progress ( technical audit ) , the incomes and expenditures ( financial audit ) and the safety issues ( safety audit ) in good order and in an efficient manner . The sophisticated review of these audits will surely help to complete the project economically and efficiently .

Project Bonus / Penalty
For commercial projects , sometimes there is an offer of bonus stated in the contract if the whole of project is completed on time or earlier than the target date . This bonus clause may encourage the contractor to keep a close eye on the progress and coordination of the works , and even could make use of this clause to voluntarily accelerate the works to achieve an early completion should the contractor finds beneficial and profitable . On the other hand , the penalty clause is being used to push the contractor to finish the works on time .

Nowadays , these bonus / penalty clauses are also commonly applying to the safety issues on a construction site by which to encourage the main contractor to keep the site in a safe manner and without or with low accident frequency .