#7 Task cost estimate; mark-up, overhead, profit, competitive advantage

The preliminary cost estimate with subcontractor, material, component, including mark-up and labor costs, and general conditions items including temporary facilities, mobilization, on site testing and onsite management staff, will reach a development stage where further refinement produces minimal change and or time pressure to submit a bid establishes completion (at this time) of the cost estimate.

The cost estimate represent for the GC a prediction of the direct cost of performing the work of the contract, but does not include the cost of managing or funding the project

Overhead
Portion of home office expenses directly assigned to the project as a percentage of project cost
-Administrative staff and costs
-Office rent, lease or mortgage
-Utilities, insurance
-Cost of money; line of credit, direct borrowing, opportunity cost.

Profit
The GC's gross profit is the difference between all expenses to complete the project and the contract cost as expressed in the bid or negotiated with the owner/developer. A discussion on net profit is better left to accountants and tax professionals, and will in part be a function of the ownership structure of the GC.

The GC will establish a gross profit target to produce a cash surplus beyond the overall cost of the project. Part of the gross profit will be assigned to GC's expenses not directly allocated to the project; marketing, administrative cost for bids including those the GC does not win, accounting, legal costs...

The project target profit will be assigned as a percentage of the cost estimate and overhead.

Competitive advantage/disadvantage

An adjustment to the project bid price which may be a result of multiple cost factors including;
-Prior history of other bidders competing for the project
-Prior history of Owners project team including ability to timely meet financial obligations.
-Project time and location pressures
-Local political environment
-Local organized labor environment
-Local, regional and national economic environment including current economic and political events;

Philadelphia Stops Paying Vendors, Citing Cash Crisis
2:28 pm ET 07/17/2009- Dow Jones

By Peter Loftus Of DOW JONES NEWSWIRES PHILADELPHIA (Dow Jones)-

-Philadelphia's city government has stopped paying its vendors and suppliers, citing a cash crisis. Mayor Michael Nutter on Friday blamed the drastic move on the failure of the Pennsylvania legislature to act on his request for authorization to raise the city sales tax and change the formula for the city's contribution to its employee pension plan. Nutter says these items are necessary to help close a projected city budget deficit of $1.4 billion over the next five years. The sixth-largest U.S. city by population will delay spending on anything other than payroll, debt service and emergencies, until passage in Harrisburg of a state budget and laws related to the sales-tax and pension proposals. Philadelphia's sales tax would increase by one percentage point to 8% for five years under the proposal.


A cost adjustment for competitive advantage or disadvantage will be an adjustment to profit. assuming the GC is confident that a competitive advantage over other bidders will provide for a increase in profit and still keep the bid price in a wining position; the GC may be able to realise an increased potential profit.
Factors that may place the GC at a competitive disadvantage may result in reduction in potential profit or a bid price that is not in a wining position.

Wishful thinking may cause a GC to ignore or minimize disadvantages and exaggerate advantages.

Coming next;
#8 Project bid cost estimate and documents required with bid
Chapter 7 Bidding and Procurement in Construction Project Management by Gould and Joyce

#9 Schedule of values /Project Schedule

#10 Payment voucher/cash flow
Chapter 11 Controlling Project Cost, Time and Quality; Construction Project Management by Gould and Joyce