Cost of Project | Direct Cost and Indirect Cost

Cost of project can basically be divided into two categories as direct cost and indirect cost. In this article we share with you "what are the cost of construction project and its type. Also we discuss about net pricing and gross pricing.

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The direct cost

The direct cost is the cost that directly involved in the finished project. Normally the bills of quantities represent this cost. However bills of quantities are prepared according to the gross pricing system. So that, it includes some degree of indirect costs too, such as general overheads and profits etc. Sometimes the Bill of Quantities are prepared according to the net pricing system.

The Net site cost is included when preparing a basic unit rate for an item, the quantities of the relevant items are then multiplied by this rate totaled & the final net site cost is obtained for the entire project. This total amount can clearly be defined as the direct cost of the project.

The indirect cost

The indirect cost may basically be defined as the cost which is not directly involved with the project. The preliminary expenses, overheads & establishment expenses, profit for the contractor.
When preparing the accurate estimate of a project all the expenses that come under the above described, cost are totaled together.

The Cost Information Required For Preliminary Estimate

Cost of a project depends on the place, quality, types of finishes workmanship & durability, etc. After getting information from source a qualified Q.S. makes necessary adjustment to the rates by using slandered factor of adding or did ducting for price fluctuations. In other words the cost information taken from previous constructions can’t be used directly & some degree of modifications will have to be made. The said modifications are main maid for;

> Price indices 

> Location indices

Price Indices

The indices are measured according to the changes in price of the building from time to time. They are used for updating the cost data to be used on precent construction. This can be updated by drawing a suitable graph or by any other statistic technique.

Location indices

These are compiled the price adjustment due to the variation of location. Prices of labour & material also vary from place.

Bills of Quantities are prepared & priced under the net pricing method represent the direct cost of the project. Material cost, labour cost & plant cost of all items involved in the project that can be analyzed item wise. But as a practice bill at quantities are prepared under the Gross Prizing System which includes both direct & indirect cost of a project. In covers the overhead expenses & profits of the contractor at the same time.

Net Pricing

Only the net site cost of the proposed building is calculated under this system. That means only the building cost excluding preliminaries, establishment expenses, profit etc. But it includes all wastage on material, labour & plants for the tendering purposes it should include all the other expenses as well. That is because the indirect cost such as profit & general overheads elements are then calculated as lump sum & given separately.

Gross Pricing

According to this system all direct & indirect cost are included indirect cost are included in the unit rate. Overhead expenses, profit & preliminary expenses are calculated & added to the unit rate on percentage basis. Those gross rates are indicated on the BOQ against relevant items, so that the total tender figure could be worked out.

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estimating and tendering, cost of project, direct cost, indirect cost, preliminary estimate, price indices, location indices, net pricing, gross pricing