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Why are contractors expensive?

These are the legit construction companies if you will build a house.

What are the things they consider on their price?

My tip for you is I will show you how to get the unit cost.

This is what the contractor uses when they're pricing.

We will see if your budget is enough on the price of a contractor.

For those who don't know me yet, I am Donald Deniega.

I am a Professional Civil Engineer.

The purpose of this vlog is for information only.

The tips I am giving are based on my personal experience.

What is the basis of contractors on the price they give?

These are the legit construction companies.

The meaning of legit is, they have their own office.

Because they have their own office, they have regular employees.

They have their own engineers, site engineers, estimator, office boy, and secretaries.

Because these are regular employees, rain or shine, even if they have project or not

they have a monthly salary.

All of that is in the overhead.

There are also expenses in the office, like electricity, water, papers, and ballpen.

That’s where OCM comes in.

What is OCM?

This is the Overhead, Contingencies. and Miscellaneous.

It isexcept in the profit.

I will explain to you what is OCM.

I will also show you how to compute the unit cost.

This is what the contractor uses in the price that they are giving.

"Engineer, there are contractors who don't have an office, but their price is still expensive."

This is what we called a "small-scale company."

They don't have an office, but they have a company name.

Because they have a company name, they are paying tax.

But they still have OCM.

For you to have an idea so that when the contractor gives you a price

you will not be surprised.

I'm always saying the price of it when you're building a house

aside from the design you want, the material you will use, and the workers who will build your house.

If a legit construction company will build you house

the technology or the process in building your house is a bit advance

like the materials and equipment that will be used in your house.

They have a process like progress billing.

What is progress billing?

This is the way of their billing based on the percentage they have finished.

Meaning, you will less experience losing money even if you're house is not finished.

If you want to know about progress billing, I have a vlog about that.

I will put the link in the description box below.

Watch it.

Another process of a legit construction company in giving a price is

they are giving the schedule of work like this one.

The start of the project is in there, from mobilization to execution.

You will also see the activities, how many days the project will be completed

and the total duration, if how many months and year will they do your house.

"Engineer, it's only for high-rise building and for big constructions."

It's is true because there's a budget involved.

Meaning, the contractor must hire a planning engineer to make a schedule.

It's not free.

Meaning, it is an additional cost in the overhead.

So, the percentage that the contractor needs to consider for the price they will give will increase.

Even the equipment that the contractor will use has a price.

It has a budget in the unit cost.

Of course, in return for this, you will have security

less stress in building a house, and the quality also

because they have a process in building a house.

"Engineer, the wholesale workers, and small-scale constructions has also quality."

I'm not saying that the wholesale workers and small-scale construction have no quality.

There's just a problem if your budget is limited

because the contractor will match the price or your budget.

He will decrease the price so that he will get the project

so the risk that your house will not be finished increases

because the things that need to be considered like contingency was neglected.

You will notice in small-scale constructions that the workers have no safety gear.

I can't blame them because their budget is limited.

If the contractor will consider that, he will put miscellaneous for the safety gears of the workers

the price that he will give to you will increase.

In that situation, you will say that "A contractor is expensive."

Now, let's talk about how to compute the unit cost.

What is OCM, and what does it consider?

Getting the unit cost and analyzing it is like this.

This is the BOQ or the Bill of Quantities.

This is what the contractor gives to you when he's contracting your house.

This is different from BOM or Bill of Materials.

Because in the description of the Bill of Materials, it states the materials you will need.

For example, you need cement, hollow blocks, and tiles

that's what written here in the description of BOM because those are the material you will be needing.

So you will notice in the Bill of Materials or BOM, the unit here is not square meter

the unit here is per piece.

For example, how many steels and hollow blocks

and in unit cost is the price of it in the construction supply.

That's what written in the BOM.

Unlike in BOQ, what is written in the description are the works that the contractor will do.

For example, CHB Laying.

This is the laying of hollow blocks.

How will the contractor price that?

That's what written in the unit cost.

So you will notice that the unit here in BOQ or Bill of Quantities is per square meter

because those are the activities or work that the contractor will do.

I will just take a sample.

Let's just make this simple so that it can be understood easily.

For example, here in masonry works, the written there is CHB laying.

This is what the contractor or the workers will do

How much will he price the 10 square meter CHB laying?

Now, in analyzing, this is the format.

The three items, which are material, labor, and equipment, are included there.

This format will not be changed.

This is always the format in analyzing the unit cost.

The written here in the unit cost is CHB Laying, and its quantity is 10 square meters.

You will put all the material you need to finish 10 square meters of CHB Laying in the materials column.

There's CHB because of course, you need hollow blocks for CHB Laying.

There's the cement and sand for the mortar.

You will put all the materials here.

Your basis in materials 10 square meters.

For example, in quantity, how many pieces of hollow blocks do you need to finish 10 square meters?

It's the same in cement and sand.

So you will notice that even the empty sack and nylon string you will use is written there.

Put in the materials column all materials that you need to buy to complete the 10 square meters.

Here in the unit cost column, write the price of the construction supply for that material.

If how much per piece did you bought it.

What other contractors do is, here in materials, if how much is the total for materials

they're putting a mark up right away.

Sometimes, 10% or 20% because the price of materials is changing.

We don't know.

Personally, I'm not doing that.

I'm putting it in the OCM.

I will explain later what is OCM.

Now, these are the materials you will need for 10 square meters.

Let's proceed in the labor.

This is the labor you need to complete the 10 square meters wall or the CHB Laying.

Of course, you need a mason, and the mason needs a helper or labor.

In the number column, it's the number of workers you need to complete 10 square meters

and how much is their rate.

There's ₱650 and ₱550 for the labor.

This rate depends on the location.

In the province, maybe it's a bit low-priced.

In the city, maybe it's a bit expensive.

Their prices are different.

In the number of days column, if how many days will you do 10 square meters.

In equipment...

We don't have the equipment because, for example, you will just build a bungalow

It's just one floor, so you don't need equipment to carry hollow blocks.

But if it's the third floor and above, you need equipment

so you can put the equipment here if there's any.

We have no equipment, so it's zero.

In equipment, number, rate/day/ and number of days are written here

so it's like the labor.

How many equipments do you need?

How much is its rate per day, or how much is its rent?

And is how many days will you use the equipment.

You will also put that in this section.

If you got the total direct cost

that's the DC, the ₱8,460.

Its OCM of 10% of the DC is ₱846.

OCM is the most important of all that you need to consider.

Others, if they have no OCM, their price is low, but the risk is high.

The same as overhead

if you have expenses in overhead like you have engineer, timekeeper

and you did not consider it there, you will be short of budget.

Second is the contingency.

It is important.

Contingency is the activities that can happen, but you don't know when

but it can't be avoided.

For example, the increasing price of materials.

It can happen, but you don't know when, and you can't avoid that.

You will get the budget in contingency.

The second example is in the place where you're building a house, they closed the road.

The supply of materials will be affected, and your project will be delayed.

You will make temporary access, you will spend

you will also get the budget for that n contingency.

Another example is, you're digging a foundation

you lay steels for the foundation, you also put columns, and you will pour today.

It suddenly rains.

Your foundation is filled with water again.

What would you do?

Your work stopped, you will remove the water from your foundation tomorrow

you will clean the steels

it's an additional cost.

What likely to happen when you did not consider contingency

is you will get a budget from other items.

What will happen is you will be short of budget.

That's the situation where you have no budget anymore, but your house is still not finished

because you're not considering the contingency.

Many can happen on the site.

It depends on the situation.

So sometimes, if the contractor is not analyzing carefully his price on contingency

he will really be short of budget.

The thins included in miscellaneous are your expenses on site

in office or, for example, ballpen, and snacks.

So sometimes, if you will go to your house that you're building

and the contractor gave you snacks

and you're happy because you think it's free.

It's your money that is written in miscellaneous.

That's what the contractor spends that he considers in OCM.

This 10% depends on the contractor.

It can be 10% or 15%, it depends on how he will analyze it.

So the unit cost in every contractor is different.

They're not the same.

So you will wonder when you're asking for the quotation of every contractor

they're giving different prices.

There's a low price, and there's an expensive price.

It depends on how they're analyzing it.

So if they want to lower the price, they will lower it here.

They will lower the percent. They will make it as 3%.

It can be 5%.

He will remove the overhead cost

because the contractor will be the site engineer, purchaser, and quality control also.

So the price of OCM will decrease.

In profit which is 5%, 5% of its direct cost, and 5% of its OCM.

So the total profit that he considered here is ₱465.30.

The profit is also not fixed.

It also depends on the contractor, if how many percent will he consider.

It can be 5%, 6%, or 7%.

It depends on him.

Here, in value-added tax, it does not change.

This is really the percentage of value-added tax because this is the tax you're paying to the government.

What's written here is 12%.

Look.

Let's remove the OCM and profit.

The 12% that the contractor considers in the price is a huge amount of money.

So sometimes, you're wondering why the contractor is expensive.

The 12% markup is a huge amount of money.

So the ₱10,943.86 total cost is the total cost for 10 square meters.

To get the price per squaremeter, divide ₱10,943.86 to 10 square meters.

You will get ₱1,094.39

This is your multiplier in the items in BOQ.

For example, let's go back to BOQ.

We got ₱1,094.39

You will use that as a unit cost in the project that you're pricing.

If the project is 30 square meters big

he will still use this as a unit cost.

The total cost will be ₱32,831.57

That's the way to compute the unit cost.

I just want to flex Kristina Manuel.

She's one of the reasons why I am on YouTube.

Maybe, you can support her also.

Ruzel builders.

If you want quality and stress-free, this is their Facebook page.

Visit it.

Their office is located in Daang Hari, Alabang.

The owner of this is Ricardo Rick Reyes and Hazel Reyes.

Hazel Reyes has a YouTube channel.

Please, support her.

That's all.