With labor being the greatest risk in construction, a full understanding of labor components will provide the estimator with the ability to determine a project’s labor costs as accurately as possible.
The main components of an estimate are labor costs, material costs, general expenses, equipment, overhead and profit. The labor cost on some projects can be as much as 50% or more of the total bid price, so understanding the process of calculating the labor costs is vital.
1st – Labor hours
The total number of labor hours is determined by the following four components:
1. Direct labor hours — These labor hours are calculated by the number of materials multiplied by the appropriate labor units of each material item. These direct labor hours are derived from the material extension and are extended to the direct labor calculation (Table 1).
2. Indirect labor hours — These labor hours are added for additional manpower such as a project manager, non-working foreman, material expeditor, equipment operator, truck driver, etc. Think of indirect labor hours as additional workers. The estimator must determine the number of hours that will be required for each worker under the indirect labor category.
3. Incidental labor hours — These labor hours are added for tasks such as travel time, site meetings, commissioning, job setup, etc. Think of incidental labor hours as times for tasks to be completed rather than people.
4. Project factor labor hours — A project labor factor is a condition that affects labor productivity negatively. A percent of lost productivity is applied to a percentage of the direct labor hours. For example, a secured facility such as a federal building may require daily security checks for workers before entering the facility. If the security check required one hour daily, then lost productivity of 12.50% would be applied to 100% of the direct labor hours. Another example might be inclement weather. In this case, the lost productivity is only applied to the number of hours required to complete the work during the inclement period, not the entire project. A project labor factor might include, but is not limited to, the following: inclement weather, a high-rise building, overtime, occupied facility, secured facility, project location, and crew size. These factors vary from one geographic location to another. These adjustments are cumulative.
In summary, the total labor hours are the sum of the following:
- Direct labor — Derived from the extension totals of the material listing.
- Indirect labor — Additional employee laborers not installing materials.
- Incidental labor — Additional tasks to be performed in support of the project’s construction.
- Project factor labor hours — Project conditions that negatively impact labor.
2nd – Labor rates
Labor rates will vary between prevailing rate and non-prevailing projects as well as geographic location. Labor classes will also have a varying range of hourly rates.
1. Direct labor rates — Once the direct labor hours are allocated to each labor class with appropriate labor rates for each, you will know the blended or average labor rate for your project. Labor classes include, but are not limited to, journeyman, apprentice, foreman, and general foreman. Remember, assigning direct labor hours to a foreman’s rate indicates that you are expecting the foreman to work with the tools 100% of the time (Table 2).
Note: Any non-working foreman time should be added under the indirect labor hours total.
2. Indirect labor rates — This labor rate should include the base rate, burden, and benefits costs for each individual. Indirect labor rates will vary from one individual to another. A project manager would typically have a higher rate than a truck driver (Table 3).
3. Incidental labor rates — This labor rate typically would be very close to the average labor rate from the direct labor hours allocation. As this work will be done by the workers on the project. These are tasks the field workers will complete throughout the course of the project (Table 4).
4. Project labor factor rates — This labor rate typically would be very close to the average labor rate from the direct labor hours allocation. These are labor cost losses due to the project’s labor negatively impacted by the conditions. There are many factors that can impact labor negatively (Table 5).
3rd – Total labor costs
The total labor costs are obtained by adding the direct, indirect, incidental, and project factors labor costs together. During the bidding process, the estimator will do his or her best to assign hours and allocated labor classes. This is done based on company experience and the availability of workers. Company historical labor data is a powerful tool when estimating labor costs.
When a project is bid utilizing apprentices and the direct labor crew allocation is not available when the project commences, this will have a negative impact on the overall labor costs.
Getting the labor hours and labor rates properly set up at the front end of the project is very important.
Let’s look at some key takeaways:
- Have a complete accurate takeoff of the appropriate materials required by the contract documents. With appropriate labor units applied to each material item, this will provide the total direct labor hours.
- Know the productivity of field labor so the direct labor hours can be accurately estimated.
- Apply a realistic crew allocation of journeymen and apprentices.
- Determine as much as possible, the required number of hours to be included for indirect labor and incidental labor
- Consider any applicable project labor factor and calculate the lost productivity percentage of the direct labor hours.
Above all, the ultimate objective is to make proper allowances for labor risks that are related to the project type, schedule, location, and market conditions.
Don Kiper is an independent electrical estimating trainer and consultant based in Niagara Falls, N.Y. He can be reached at [email protected].
