Question

Which of the following relations are correct for determining different components of a bid price?

1. Bid price = Direct cost + Indirect cost + Mark up amount

2. Direct cost = Project overheads + Common plant and equipment cost + Common work men cost

3. Mark up amount = Profit + Contingency + Allowances for risks + General overheads

1. 1, 2 and 3
2. 1 and 2 only
3. 1 and 3 only
4. 2 and 3 only

Answer 1

Correct Answer - Option 3 : 1 and 3 only

Estimation of bid price or tender cost of a construction project is calculated as the sum of the total cost of construction and mark-up price. Total cost of construction project consists of direct cost and indirect costs for the construction works.

Bid price = Direct cost + Indirect cost + Mark up amount

Direct cost is associated with the activities performed at construction site, i.e. if the activities are not carried out, direct costs are not incurred. Direct cost of construction project includes the cost of materials, labours, plants and equipment.

Direct Cost = Labour Cost + Plants & Equipment Cost + Crew Cost + Materials Cost + Subcontractor Cost

Indirect costs may have incurred even if the construction activities have not been performed. They are associated with expenses on personnel recruitment and their training, research and development required for the construction works.

Indirect Cost = Project Overheads + Common Plants & Equipment Cost + Common Workmen Cost

Project overhead cost has following components

1. Salaries and benefits

2. Insurance cost 

3. Financing cost

4. Conveyance cost, Travel and transfer Cost 

5. Temporary Site Installation Cost

6. Clients and Consultants Requirements 

7. Utilities Cost 

8. Taxes and Duties 

9. Medical expenses due to accident

10. Miscellaneous expenses

Mark-up Cost = Profit + Contingency + General Overheads + Allowance for Risks