Dr.

Farrukh Arif, Assistant Professor, NED UET

CE-591- Cost Engineering

and Control
COST CONTROL DURING
DETAILED ENGINEERING
Bulk Materials

Lecture 8-1

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

OUTLINE

Introduction
Sampling: A Quantity Control Technique
How to Use Sampling Results
Material Takeoffs
Unit Costs
Forecasting Escalations of Bulk Materials
Final Commodity Review
Bulk Material Control
Summary

CE-591 Cost Engineering and Control

Lecture 8-2

Dr. Farrukh Arif, Assistant Professor, NED UET

Introduction

Bulk Materials
Concrete, rebar, and form lumber.
Electrical Cable, wire, and conduit.
Structural Steel.
Paint and special coatings.
Piping, etc.
We will learn, how,.
Budget estimate can be used as a tool for forecasting quantity and costs of bulks.
Budget estimate can be used as a tool for controlling quantity and costs of bulks.

Quantity Control-the factor under the control of the designer.

Cost- the factor under the control if the purchasing agent.

Lecture 8-3

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Technique of selecting the first the first few completed drawings are
compared designed quantities to budgeted quantities.
In case of concrete, for example, first few completed foundation
drawings are compared with the designed volume of concrete to the
detailed budget.
If first sample shows trend towards underrun or overrun, CE must
investigate immediately and determine the reasons.
For example; reasons for an overrun in volume of foundation concrete
might include following;
Minimum depth of footing sets well below the predicted in budget.
Design strength of concrete less than the budget basis.
Earthquake or wind-loading considerations included in the design but not
in the budget.
Actual soil-bearing capacity less than the budget basis.

CE-591 Cost Engineering and Control

Lecture 8-4

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Concrete Example

An illustration of concrete sampling is explained in Table 1.

It summarizes group of samples from an actual project.

Lecture 8-5

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Concrete Example: Analysis

19% underrun in concrete volume, 9% overrun in reinforcing bar.

Rebar normally represents 25% to 33% of the total cost of foundation concrete
materials.
Sample represents financial savings.
Will remaining 94.5% of concrete yet to be designed represent same
savings?
Analysis to determine reasons behind apparent cost underrun:
Underrun was mainly in foundations for towers.
Combination footings: The estimate considered individual foundation for each equipment. The
designer saved appreciable amount of concrete by placing a mat foundation under several
pieces of equipment. Therefore more reinforcement was required that accounted for the over all
overrun in the reinforcing bar.
Allowable soil bearing changed from 3,000 psf to 5,000 psf. Result, overall underrun for all
foundations, specially tower and furnace.
Small reactors: Overrun was due to setting the bottom of foundation 4 ft below grade. The
estimate assumed 2 ft.

Hence, 19% underrun for remaining concrete would not be correct assumption
unless, there are other designed opportunities for combination footings.

CE-591 Cost Engineering and Control

Lecture 8-6

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Sampling Piping Designs

In refineries and chemical plants, piping is the most costly of the bulk
materials.
It will require 25% of the total labor effort.
The detailed budget should list all major lines individually and show;
Pipe size, pipe schedule, number of valves, estimated length, number of fittings.

The size, schedule, number of valves dont vary.

Length of pipe, number of welds, and number of fittings are within
control of piping detailer, thus require sampling.

As soon as initial group of piping layout drawings are complete, the
length and number of fittings should be compared to the budget on a
line-by-line basis.

Generally 25 lines sampling is enough to show significant overdesign
or underdesign.
Lecture 8-7
CE-591

.Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Sampling Piping Designs

When Sampling is used as forecasting tool, results of each sample

and cumulative results of all samples to date should be plotted on a
graph (Figure 1).

CE-591 Cost Engineering and Control

Lecture 8-8

Dr. Farrukh Arif, Assistant Professor, NED UET

Sampling: A Quantity Control Technique

Sampling Piping Designs-Analysis

Individual samples vary widely from budget.
Cumulative trend starts developing at about the 20% complete stage.
Trend becomes stabilized at 80% of the budget by the time 30% of the
piping has been sampled.
A prudent CE may stop sampling and forecast a conservative average
of 10% underrun for all piping, which can be held untill, detailed
takeoff (70% design complete).
Piping samples with large variations should be investigated.
Specially, those of 30 and 36 inch pipes.
Frequently occurring reasons are;
Overconservative allowance (lets say for thermal stress0
Poor equipment spacing due to overemphasis on accessibility and maintenance.
Excessive equipment elevation.
Careless pipe routing.
Arbitrary changes in elevation with changes in direction, in areas of congested piping.
Lecture 8-9

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

How to Use Sampling Results

1.
2.
3.

Deviations

Actions Required

< 5%

Considered Normal

> 5% and < 10%

Bear watching, further sampling required

> 10%

Investigated with corrective action

Information obtained from sampling and subsequent investigation can

be used for following three purposes:
Corrective Action
Cost Forecasting
Budget Adjustments

CE-591 Cost Engineering and Control

Lecture 8-10

Dr. Farrukh Arif, Assistant Professor, NED UET

How to Use Sampling Results

Corrective Action: Sampling information frequently leads to

Relaxation of designed assumptions.
Revisions to arbitrary office standards.
Relaxation of restrictive specifications requirements.
Clarification as to interpretation of specifications.
Identifying isolated design errors.
Misunderstandings among design disciplines.

Cost forecasting: Sampling provides early indications of quantity overruns or

underruns. If sampling is not done, CE will forecast only when the engineering
takeoffs are complete. Which might be very late.
Carefully select representative samples.
Investigate underlying reasons for deviations.
Plot sampling results and establish trends.

Budget adjustment: Sampling uncovers budget deficiencies or

errors. When this happens,
Make every effort to minimize the overrun.
Adjust designers quantity budget through change order.
Advise all concerned of the additional expenditures and reasons for the budget deficiencies.
Lecture 8-11

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Material Takeoff

Designers and material takeoff (MTO) engineers usually make bulk takeoffs
at fixed stages of design completion say, 20,70 and 95%.
Necessary for obtaining approximate quantities suitable for the early ordering
of bulk materials.
20% takeoff implies 20% of the takeoff quantity is from completed drawings
and 80% is estimated or prorated from past projects.
Takeoff made between the 60 and 75% completion points is reliable.
CE can use it to replace his sampling data.
If sampling information differs widely from the takeoff, CE should do some
reconciliation.
The MTO reflects the most recent drawings and changes.
The takeoff methods used will produce reliable results.
The personnel involved are experienced and competent.

When CAD based take-offs using software are taken, CE must check some of
the takeoffs randomly.

CE-591 Cost Engineering and Control

Lecture 8-12

Dr. Farrukh Arif, Assistant Professor, NED UET

Unit Costs

Bulk materials is made up of two parts: quantity and unit price.

Unit prices are generally established, before final design quantities are known.
Usual practice is to predict quantities from budget or sampling data and then
ask for unit price quotations.
Vendors state that their bid prices under the condition that final quantities be
within some range (say 10%) of the predicted quantities.
The probability of quantity variation must be evaluated on the bid tabulation.

Lecture 8-13

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Forecasting Escalation of Bulk Materials

Price at the time of shipment, which is the vendor's favorite approach to

escalation, should be resisted by customers.
the buyer should negotiate for a firm base bid to be escalated by a formula,
and the escalation should be invoiced separately.
If the customer has leverage and is willing to use it, he can normally negotiate
an acceptable escalation clause.

CE-591 Cost Engineering and Control

Lecture 8-14

Dr. Farrukh Arif, Assistant Professor, NED UET

Final Commodity Review

As the design of each bulk commodity approaches 95% completion a final

engineering commodity review should be held.
These reviews is to provide a firm cost forecast based on a near final material
takeoff for each bulk commodity.
The data presented in these reviews are also used to forecast construction
labor work hours and to prepare construction schedules.
The results or each review be presented at a formal meeting attended by both
contractor's and owners project managers.
Each lead commodity design engineer should be responsible for the economy
of his designs and that his work will be measured and compared to the control
estimate.
The final commodity review wraps up each quantity/cost forecast.
It includes allowances for designs not yet complete, field losses, and takeoff
inaccuracies.

Lecture 8-15

CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

Bulk Material Control

The control or bulk materials is not a direct responsibility of the cost engineer,
but it is an allied function.
The problems associated with bulks (i.e., quantity takeoffs, procurement,
delivery, construction site warehousing, and retrievals as required) begin early
in engineering and do not terminate until final turnover.
The CE should be concerned with 6 points while with the following in regard to
bulk material control
Assure that a workable control system and good records exist.
Confirm that good experienced people are involved.
Make periodic appraisals to confirm that the procedures are followed and that the reported
data is accurate.
Confirm that proper allowances have been reflected in material takeoffs.
Compare material takeoff (MTO) quantities to information gathered from sampling.
At the conclusion of each commodity review, the CE should insist that every open order be
revised with a specified maximum quantity and that authority to place requests to the vendor be
limited to one responsible individual.

CE-591 Cost Engineering and Control

Lecture 8-16

Dr. Farrukh Arif, Assistant Professor, NED UET

Summary

Both quantity and price require careful management and

control.
Sampling is the technique used by the CE to get an early
idea as to whether design quantities are trending over or
under the budget.
Formal, final commodity reviews are important control
tools needed to firm up material cost forecasts, estimates
of field work hours, and schedules.
Bulk material control can have a decisive impact on
project costs.

CE-591 Cost Engineering and Control

Lecture 8-17