Andy Farrell asks the question: do you know the cost of your estimating labour rate for construction work?

When it comes to pricing a job it’s the responsibility of the estimator to accurately calculate each aspect of the project and provide a detailed report of their findings.

There are three essential elements required to accurately price a plumbing project, these consist of labour, material and plant/excavation costs. These elements are used to create a library of standard rates, which are the catalyst for estimating. The material and excavation components often remain relatively consistent as the quantities within a standard rate rarely change. Labour on the other hand can be affected by many external factors, and as such, should have a higher level of focus when pricing a job.

The key to covering the labour component on an estimate is to first calculate the ‘actual’ cost of employing a qualified tradesman and dividing it by their total productive hours (on the tools) over a year.

For example, calculate the total cost of employing a tradesman by adding their wage, allowances, workers compensation, superannuation and any redundancy payment schemes to determine a total ‘yearly’ cost.

Secondly, determine the projected ‘productive’ hours by calculating the total hours per year (52 weeks x 40 hours/ week = 2080hrs) and then deducting the days off due to annual leave, public holidays and sick days (approx. 8 weeks).

Basic labour rate calculation sheet sample

Most projects should have a consistent labour rate, but may change due to an additional site EBA allowance. In these cases, simply fill out a new Labour Rate Calculation Sheet and enter the figure into your estimating program.

As mentioned above, for estimating purposes we always use the labour rate for a qualified tradesman as the standard for pricing project work. The theory behind sticking with the one labour rate is to ensure we have continuity and efficiency.

The reasoning behind this theory is that when we build a standard rate, the labour component is calculated using an experienced tradesman to perform the work at a rate of 100% efficiency. For the sake of estimating we presume an apprentice will be less efficient (for this example, 20% less efficient) than the tradesman and will take longer to complete the same task. As it is less expensive to employ an apprentice (for this example, 20% cheaper) the cost to complete the same work ‘in theory’ should be equivalent.

The main variance that may occur in relation to labour is the allowance of time you have provided to perform a task.

For example, if you are installing drainage in an open area and clear site, then it’s reasonable to assume you will be more efficient compared to completing the same work within a confined space or tight area. The cost of an hour’s labour will not change, but the duration of work will increase. Therefore, when pricing the latter works, additional hours need to be added to compensate for the reduced efficiency.

The whole premise of implementing an estimating system is to improve the accuracy and consistency of pricing plumbing work, and an important element to achieve this is to determine the actual cost of labour to ensure you are covered.