This assignment requires you to prepare estimates for two alternatives:

Alternative 1: This estimate uses time and cost information from a similar project done some years earlier. Those costs are to be escalated to today’s dollars to indicate what such a project would cost today if the same construction technique was used.

Alternative 2: You are to prepare a new estimate, in today’s dollars, using more specialised equipment that is now available to your company.

Both projects are for excavation of 20 km of trench, and the laying of concrete pipes (supplied and delivered by others) in the excavated trench. Backfill will be by others and will not form part of the estimates. (Examples of excavators and equipment referred to in this assignment are illustrated on the last three pages of this assignment question).

You will compare the benefits of each of the two estimates for cost and practicability and make a recommendation to your manager as to which is the better approach to use. A written report (summary) of no more than one half A4 page is to be part of your evaluation for this assignment submission.

Alternative 1: Previous Project Cost Information

Below is a breakdown of time and cost to excavate and lay a 20 km water supply pipeline taken from records of a project your company completed three years ago. You are to escalate the relevant costs from that project to bring them up to present day values. Inflation indices obtained from Australian Bureau of Statistics indicate an average 5% p.a. increase for that period. You will use that escalated cost to compare the estimated cost of doing a similar project now, using the same construction technique as in the previous project. That project encountered a total of five days of wet weather.

When that was constructed your company was smaller and did not have access to a specialised trenching machine or a rough terrain crane. Trenching for that project was done with a Backhoe that dug the required length of trench each day. After the crew finished their shift the backhoe was used for two hours each day to transport pipes from the stockpile and place them alongside the trench ready for laying. The next day the pipe laying crew lowered and positioned the pipes using shear legs mounted over the trench.

The cost breakdown records, in dollars values of that time, indicate the previous project costs: Time based indirect costs = $ 1500 / week

Work performed on nominal 8 hour day, 6 days per week. Labour and equipment cost rates (Refer shift table below).

Cost of small tools used by workforce = 2% of direct labour cost (include as a Fixed Cost)

Construction technique used:

Hydraulic backhoe as trencher (Plus 2 hours per day used to move pipes from stockpile to trench side).

Backhoe excavated trench at an average of 30 m/hour

Backhoe operating cost = $80 per hour; Ownership cost = $1,500 per day Move in/out of equipment = $3,500 each way

Shearlegs operating cost = Not Applicable; Ownership cost = $ 150 / day

Operator & one assistant worked on overtime (at same rate but paid to full hour above i.e. overtime rate = 1½ normal rate) to complete day’s quota (Foreman was not required during overtime).

(a) Number of crew shifts

Crew of 5 men would lay an average of 25 m of pipe/hour (Therefore laid an average of 25 m/hr for 8 hours shift = 200 m/shift.

Number of shifts to complete = 20 000/200 = 100 shifts

• Total Direct Labour + Equipment Costs (Normal Shifts)
  1. Normal Shifts

100 Shifts                          6800 m/hrs    $203,800        $80,000   $165,000      $0  $448,800

• Direct Costs of Materials, Freight + Subcontracts

Not applicable in this instance. There was no procurement of project material therefore no Direct Costs of Materials, Freight or Subcontracts i.e. no material supply involved.

Alternative 2: Estimate Using Specialised Equipment

Your company is now more substantial and a specialised trenching machine and small rough terrain crane are options that can be considered. The use of both of these machines will depend upon whether or not the project can be done for a lower price and provide a better financial outcome for your company.

Crew and Equipment

Crew: Foreman                  1

Labourers   5

Operator      1 (Mobile Crane)** Operator      1 (Trencher)**

(Assume operators will be paid full hourly wage for whole shift if machines finish early)

** Option: If selective overtime is permitted the same trencher operator could work the crane during normal shift hours and the trencher in overtime hours.

Small Tools are to be budgeted at 2% of Direct Labour costs.

(Small tools could be included in the cost of Direct Labour as they are directly related to it, but for estimating, cost control, and accounting convenience it is preferable that they are treated as a “Fixed Indirect Cost”).

Bucket Wheel Trencher:

• Operating cost $155 per hour
• Ownership $3,750 per day
• Move in/move out trencher $30,000 each way
• Machine can excavate 300 metres per (Contract Specification does not permit trench to be opened more than one day in advance).

Rough Terrain Mobile

• Crane operating costs $85 per hour
• Ownership $1,250 per day
• Small crane + five labourers can handle pipes from stockpiles and lay pipe at the average rate of 45 metres per shift

Note:

• There is no procurement of project materials therefore no Direct Costs of Materials, Freight or Subcontracts e. pipes supplied by others.
• Allowances and Contingency have not yet been covered in course work in this subject and therefore a nominal line item amount is to be used (Refer to Estimate Sub Headings below).

Estimate Sub Headings Required:

• Number of crew shifts
• Cost per Shift (incl. Crew Cost per Shift + Total Direct Labour + Equipment Costs)
• Direct Costs of Materials, Freight + Subcontracts (refer note Alternative 1)
• Total Direct Costs (sum of (a) and (b))
• Time based Indirect Costs
• Fixed Indirect Costs
• Estimated Costs (excluding Allowances & Contingency)
• Allowances and Contingency [an amount of $5,500 is to be used as a line No calculations required (Refer note (2) above)]
• Estimated Total Comparative Costs