Direct cost: materials, labour, equipment
- Materials: the net quantity from the drawings, plus a waste allowance suited to the material, at a current supply price delivered to site.
- Labour: the gang’s daily cost divided by its daily output for the item.
- Equipment: operating or hire hours for the plant the item needs, including transport and operation.
The sum of the three is the direct cost per unit.
Indirect costs
Costs that do not belong to any single item but are needed to deliver the project: site management and supervision, site offices, insurances, bank guarantees and safety requirements. They are usually applied as a percentage of direct cost.
Profit and risk
Profit is added after indirect costs. Where specific risks exist, volatile material prices, incomplete documents, it is better to state them in the assumptions or price them as a declared contingency item than to hide them inside unit rates.
The formula
Sell price = (Materials + Labour + Equipment) × (1 + indirect %) × (1 + profit %)
VAT is calculated on the total at the rate applicable in the project’s country; it is not built into unit rates.
Comparing two quotations
- Compare quantities first: many differences in the total come from quantities, not unit rates.
- Check each quotation’s assumptions and exclusions, what one excludes the other may include.
- Ask for the source and date of material prices.
- Treat a strikingly low price with care; it can mean missing scope or execution risk.
How we work
In our bills, the cost elements of every item are shown as live Excel formulas, each quantity carries its drawing and page reference, and every figure is tagged by source, so any rate can be audited and adjusted without rebuilding the sheet.
