JOB OVERHEAD

Job overhead can be known as job costs or indirect project costs. These are expenses that can be thought of as the general supervision, administrative, and overhead expenses that result from the building of a specific construction project. They are different from general construction company overhead costs in that they are tied to a specific construction project and not to the general operation of the construction company. Job costs can be usually thought of as charges that meet two criteria. The first is that the cost is directly attributed to the project. In other words, it is an expense that results because the project is being built, and if the project was not undertaken, the construction company would not have incurred that particular expense. The second criterion is that it is a cost that is not directly related to a specific project element. Examples of job overhead include jobsite facilities, utilities, supervision, bonds, and insurance.

Jobsite Facilities

Jobsite facilities are the temporary structures and other enclosures that are used in the management of the building process or construction site. Included are items such as the jobsite office trailer (Figure 6-1), fencing, barricades, guardrails, and portable sanitation facilities.

Very often these resources are rented, and estimating is a simple matter of calculating the rental costs over the time period that they will be used. In addition, there can be other costs associated with the rental such as delivery, setup, and utility hookup.

An additional concept to consider is that even if the portable job trailer were owned by the company and not rented from an outside vendor, the cost for that portable trailer over the time it is used on a particular job would be included in the estimate for that job in a fashion similar if it were rented.

Temporary Utilities

Electricity, fuel, water, and other resources are consumed in the construction process. The cost for these resources needs to be accounted for in the estimate. Just as in the previous example with the portable field office, there may be several separate elements to consider when estimating the cost of a utility on a project. One example of this is electrical power. Electricity is essential to virtually all phases of the construction process and, as a result, is one of the first components installed on the job site. This is usually before any temporary or permanent structure is erected. As a result, there needs to be some temporary method for bringing in electricity. One common method of doing this is to have a temporary power pole installed and then have the electrical lines run from the public utility to the pole and from there to a temporary power panel that would have spaces for the various trades to plug in their power tools (Figure 6-2).

The overall size of the installed temporary power system would depend upon the extent and needs of the project. The larger and more complex a project, the bigger and more expensive the size of the temporary electrical service will need to be. The size of the temporary electrical service for a residential project is usually a single phase 100-amp or 200-amp service. The installation of this service would typically be estimated as a one-time lump sum cost.

In addition to installing the electrical service, there will be a cost for the electricity that is used. Electricity is sold by a unit of measurement known as the kilowatt-hour (kWh). In simplest terms, this is the amount of electricity needed to keep ten 100-watt light bulbs operating for one hour. The cost for electricity per kilowatt-hour can vary widely by geographic location, time of day, and even season of the year. In addition, other charges and taxes may be added to the electrical bill. Figure 6-3 shows a sample electric bill where the contractor has used 1,680 kWh of electricity and has been billed at a rate of approximately eight cents per kWh, for a total energy cost of $134.47. Other charges and taxes have been included to bring the total monthly bill to $160.09.

Estimate Example 6-2 shows the electrical utility costs from the temporary utilities section of the National Construction Estimator. The installation cost for a 100-amp temporary service is calculated at $370.00, and the cost of electrical usage is determined to be approximately 1,000 kWh per month. This is multiplied by the six-month time frame for the project and multiplied again by the rate of fourteen cents per kilowatt-hour. The total estimate for electrical usage is $1,219.00. Estimates for other temporary utilities are calculated in similar fashion.

Supervision

The labor costs for supervising a construction project are also considered part of the job overhead. This is consistent with the concept of job overhead because their efforts are part of moving the overall project forward rather than a specific element of the project. There are a number of different scenarios that could be considered when calculating supervision cost. If a supervisor’s time were wholly committed to overseeing a single construction project, then that supervisor’s total compensation for that given period of time would be considered as part of the job overhead for that project. Other situations are also possible. One example would be the residential project manager who was overseeing the construction of a number of homes at the same time. In this situation, the construction manager’s total compensation for a given period of time would be divided by the percentage of time that the manager spent on each separate project, and that portion of his wage spent on each project would be assigned to that project. An additional possibility would be a supervisor, or contractor, who is involved in the actual physical construction of the project part of the time and part of the time involved in the management of the project as a whole. In this case, the wage for the portion of the time that was spent on the supervision would be assigned to job overhead, and the portion assigned to construction to its particular phase of construction. The example shown in Estimate Example 6-3 shows a situation where a project manager, Jack Hammer, is overseeing the construction of 16 homes in a single year. In this case, 1/16th or 6.25% of his total yearly compensation of $83,214.45 is assigned to one project.

Bonds

Construction owners will often require the contractor to provide a number of different bonds as part of the construction process. A bond is issued by a bonding agent or what is known as a surety. In essence, the bond is a guarantee by the surety that the bonded party will perform in a certain manner, and in the case of default by the bonded party, the surety will step in and make the other party whole by hiring others to complete the project or provide financial remuneration to the owner.

There are three types of bonds that are important to consider as part of the job overhead. The three types are bid bonds, payment bonds, and performance bonds. Bid bonds are provided by the contractor at the time that a bid is presented and guarantees that if the contractor is selected as the low bidder, then he or she will enter into a contract to complete the work bid and provide the required payment and performance bonds. The payment bond guarantees that the vendors, subcontractors, and supplies on the project will be paid. The performance bond guarantees that the contractor will complete the construction project.

The cost of the bond can increase the cost of the construction project but can also provide a measure of security to the owner that the project will be completed and the outside parties paid. The cost of the bond is included in the cost of the project estimate.

Calculating the cost of the bond can be as simple as a percentage of the project cost, or it can be on a sliding scale that, as the bonded amount increases, the cost of the bond as a percentage decreases. This is shown in Table 6-1.

The cost of the various types of bonds are highly variable based upon a number of factors, primarily the bonding capacity of the construction company and the construction company’s track record.

Insurance

A construction company needs several forms of insurance to protect it from financial loss in the event of an unforeseen mishap. At a minimum, three forms of insurance, general liability, tool and equipment, and builder’s risk insurance, should be purchased. The first two, general liability and tool and equipment, are usually estimated as part of the general company overhead, and since they represent costs that are just an ongoing part of doing business, they will be discussed in a different chapter. Builder’s risk insurance is usually tied to a specific job and is the insurance that protects the job in the event of loss due to events such as theft, vandalism, or the destruction of the property due to wind, fire, or other disasters. Builder’s risk insurance can cover the structure itself or other structures on the site such as job and equipment trailers, materials, and supplies that are onsite for building the structure. Builder’s risk insurance usually doesn’t include natural disasters such as earthquakes, floods, or wind along beach areas, unless it is specifically written to do so. It also usually doesn’t cover items such as contractor’s tools and equipment, even though they are onsite for use in the building process.

Cost for builder’s risk insurance can vary greatly based upon the risk factors involved, but it is usually expressed as a percentage of the cost of the project. For example, if the cost was stated as 0.25% of the cost of the project and the total project cost was $100,000, then the builder’s risk insurance cost for the project would be $100,000 × 0.0025 = $250.00.