Estimating Day Work Rates 2nd Edition

A PRACTICAL GUIDE TO ESTEMATING DAYWORK RATES Bob Jones, FCCA, FCIS, MIMC

International Thomson Business Publishing

London, NW3 3TP.

Published 1986 This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Revised 1988 © International Thomson Business Publishing ISBN 0-203-21509-5 Master e-book ISBN

ISBN 0-203-27148-3 (Adobe eReader Format) ISBN 1 85032 010 1 (Print Edition) A “Building and Construction” Book

Contents

Introduction Page

1

Chapter 1:

Tables of Labour Rates, Turnover and Overheads Analysis, Operative to Staff Ratios, Sub-Contractors: Labour only and supply and fix (and their discounts)

4

Chapter 2:

Materials and Plant

11

Chapter 3:

Building-up labour rates, Tables of Working Rule Allowances

15

Chapter 4:

The calculation of Daywork rates

36

Chapter 5:

Site and office overheads and profit

41

Chapter 6:

Additional National Insurance

44

Index

47

Introduction

When it comes to the addition of costs to the standard hourly rate bald statements such as 13p for absences, sickness and time lost through inclement weather, 11p for the extra cost of non-productive overtime, 100 per cent to cover site and head office overheads and 5 per cent of turnover for profit are unacceptable unless they are supported by detailed calculations capable of being checked and approved, or disproved. In this book the foundations of the calculations are illustrated in tables showing such items as the hours worked in a year by an operative, compared with the hours he/she is paid, coupled with detailed descriptions of the labour-rate build-up with and without overtime, and split between craft operative and labourer. All these are based on the current National Joint Council for the Building Industry wage agreement and working rule agreement. Tables are used to discuss turnover, site and head office overheads, profit and operative/staff ratios. To cater for all eventualities the tables giving the daywork rates are split into three. Table 2 allows nothing for overtime, bonus or plus rates, and fares and daily travelling are provided at their lowest levels, giving and hourly rate of £9.86, i.e. the addition of 143 per cent to the standard hourly of £4.05. Table 2A and 2B using the same basic formula include plus rates and/or bonus and/or

2 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

Working Rule Allowances at increasing levels giving rates with and without overtime from £10.25 to £13.74 per hour. In all rates calculated in this book, 100 per cent of the total prime cost of labour is included for site and head office overheads and 5 per cent of turnover for profit. All rates can be easily adjusted to allow for different levels of recoveries of site and head office overheads and profits. It is important to note that an addition of 10 per cent to the cost of materials is equivalent to 2 per cent on turnover, or 11.1 per cent of labour. As the profit on turnover recommended in the book is 5 per cent, (27.78 per cent on labour) any profit added to materials is unlikely to achieve an adequate recovery of site and head office overheads or provide a realistic profit. There are varying views about the importance of the dayworks labour rate to a major contract. There are those who consider that dayworks are small and unimportant in relation to a large contract, and others who have discovered from experience that dayworks can amount to significant sums. Some believe that since site and head office overheads are already covered in the contract price there is no necessity to recover them again. Another viewpoint is that site and head office overheads and profit should be fully recovered on all labour costs, wherever they arise, because dayworks can erode the time taken to complete a contract, and cause additions to time-based site and head office overheads, “Time” being one of the fundamental elements of profitability. In addition an important factor in the profitability of a construction organisation as a whole is the employment of as much productive labour as is practicable and justifiable, because it is on the basis of labour, whether directly employed or “labour-only subcontractors”, that site and head office overheads are recovered, and a profit made. At those times labour is in short supply, its use should be put to maximum effect, and dayworks could interfere not only with the programme of “Contract A” on which it is currently employed, but also that of “Contract B” to which it would have moved had not dayworks on “Contract A” postponed the transfer.

INTRODUCTION 3

Nothing is included in examples for lodging or distant travelling allowances and fares. The current lodging allowance is £12.12 per night. Lodgings for 12 nights, spread over two working weeks (78 hours) amounts to £1. 86 per hour. To the foregoing must be added return fares home each fortnight, say 70p per hour, plus up to 8 hours each way travelling allowance at the basic rate (say 58p per hour when spread over 78 hours) and the employer’s contribution to National Insurance on 58p at 9 per cent (say 5p)—a total of £3.19 per hour. National Insurance increases when gross emoluments reach £155 from 9 per cent to 10.45 per cent. The increase is applicable to the whole of the gross pay, not merely the excess over £155. Chapter 6 explains and Table 23 illustrates the effect of this additional cost to the employer ranging from 5p to 13p per “Worked hour”.

A CORRECT LABOUR RATE IS IMPORTANT Too high a labour rate could lose estimated work. Too low a rate could eliminate profits. A 1p error is equivalent to £17 per annum per operative, and £1,700 for 100 operatives. An error of 10p is equivalent to £170 per operative and £17,000 for 100 operatives.

Chapter 1 TABLES OF LABOUR RATES TURNOVER AND OVERHEADS ANALYSIS OPERATIVE TO STAFF RATIOS SUBCONTRACTORS: “LABOUR ONLY” AND “SUPPLY AND FIX” (AND THEIR DISCOUNTS)

Even 50 and more years ago labour-only sub-contraetors were widely if not exclusively employed on development sites. In recent years the practice of employing labour-only sub-contractors on contract work has increased considerably. At the present time a bricklayer labour-only subcontractor in the home counties working normal shifts can earn over £300 a week, and in London £350 per week. Even more can be earned by carpenters and wet plasterers. This brings their hourly dayworks costs to a basic £7–£9 per hour before adding site and head office overheads and profit. Additions of 61.1 per cent of overheads and 11.1 per cent for profit would bring their dayworks rates to the exhorbitant totals of £12 to £16 per hour. Site and head office overheads must be recovered in one way or another, and a profit made. There are few means in which this can be done for dayworks when employing labour-only sub-contractors, and the best answers seem to be to give a fixed or measured-work price for variations whenever possible or employ direct labour on dayworks. The usual profit provision in respect of “Supply and fix subcontractors”, whether nominated or domestic, is no more than a discount of 2.5 per cent. This is equivalent to

TABLES OF LABOUR RATES TURNOVER AND OVERHEADS ANALYSIS 5

TABLE 1: TURNOVER, SITE AND HEAD OFFICE OVERHEADS, PROFIT AND OPERATIVE/STAFF RATIOS

12 times 2.5 per cent, equals 30 per cent per annum in terms of interest/discount earned. In Table 1, sub-contractors account for 40 per cent of turnover, and when the 2.5 per cent is applied to that 40 per cent, sub-contractor’s discounts provide the equivalent of 1 per cent of turnover (40×.025 equals one), or 5.6 per cent of labour costs. Sub-contractors discount is a reward for prompt payment. Whether it is taken into consideration in reducing the overheads recovery on labour by 5.6 per cent in computing the percentage additions for site and head office overheads and profit is for decision by each construction organisation. The above percentages and those which follow are applicable to the full prime costs of labour, including employer’s National Insurance, public holidays, bonuses,

6 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

plus-rates, travelling allowances, fares, and any other Working Rule Allowances to which operatives may be entitled in the circumstances of a particular contract. They are not to be applied to the “Standard Hourly Base Rate”. Some contractors treat as site overheads items which others include in their head office overheads, e.g. contract managers, site agents, surveyors, buyers, storekeepers and clerks. In this book site and head office overheads are combined, which should provide better comparisons between the large and smaller contracts. In all construction work a reasonable average ratio of operatives to staff is between 5 and 6 to 1. General foremen would be included among operatives, otherwise working directors and all other site and head office personnel would be included as staff. In the case of jobbing, small works supervisors might be included with operatives, not only for the purposes of calculating the ratio, but also for charging clients. In national contractors organisations the operative to staff ratio can sometimes be lower than 3 to 1. Where the ratio differs from between 5 and 6 to 1, it is usually due to the inclusion in staff of personnel only indirectly concerned with construction, such as architects, negotiators, property salesmen, personnel, marketing, training and safety officers, plant and joinery managers, and among operatives, services staff such as mechanics, off-site drivers and joinery machinists and bench hands. Pro rata to their value, the administration attaching to dayworks is considerably more than for measured work. There are variation orders, instructions to and the supervision of operatives, requisitions and buying, dayworks sheets to be drafted, checked, fair-copied and signed, agreements with clients representatives, and the extra clerical and accounting procedures which are involved. It follows that the overheads attaching to dayworks are akin to those for small works and jobbing, for which typical overheads recovery rates are:— • Work up to a total prime cost of £100…125 per cent.

TABLES OF LABOUR RATES TURNOVER AND OVERHEADS ANALYSIS 7

TABLE 2: EXAMPLE OF A DAYWORK RATE FOR A CRAFT OPERATIVE (WITHOUT OVERTIME)

• Work with a total prime cost between £100 and £1,000… 100 per cent. • Work with a total prime cost between £1,000 and £10, 000… 75 per cent. and an average of 100 per cent is used in compiling the dayworks rates in Tables 2, 2A and 2B. This compares with the 61.1 per cent for major works, being 33.3 per cent head office overheads plus 27.8 per cent variable site overheads. The 100 per cent is applied to the total prime cost of labour, including the employer’s contributions to National Insurance, public and annual holiday pay, non-productive

8 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

pay, and all working rule allowances. In the case of jobbing it is applied also to the costs of Supervisors. TABLE 2A: EXAMPLES OF CRAFT OPERATIVE DAYWORK RATES: WITHOUT OVERTIME

Line 5: Additional National Insurance. When gross emoluments reach £155 the Employer’s National Insurance contribution increases from 9% to 10.45% ON ALL EMOLUMENTS (See Chapter 6 and Table 23). The Line 5 calculation is on each week’s work of 39 “Paid hours” at the above plus rates. 9% is already accounted for in Lines 1 to 4, and the addition in Line 5 is at the uplift of 0.0145% on the whole pay.

TABLES OF LABOUR RATES TURNOVER AND OVERHEADS ANALYSIS 9

TABLE 2B: EXAMPLES OF CRAFT OPERATIVE DAYWORK RATES WITH OVERTIME AND PLUS RATES, BONUSES AND/ OR WORKING RULE ALLOWANCES

Line 6: The calculations are for 52.5 “Paid hours” at the basic rate of £2.845, with the plus rates in Line 4 added. Then the 39 hours GMB (£15.015) are added to give a “Gross Pay” total for the week. That total is multiplied by 1.045 per cent, being the increase in National Insurance (The 9 per cent is in Lines 1 and 4 already). The increase is then divided by 48 “Worked hours”.

10 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

The profit margin in Table 1 is 2 per cent of turnover, and is equivalent to 11.1 per cent of labour. Such low margins may be unavoidable in highly competitive situations, but are inadequate for dayworks, on which a margin of 5 per cent of turnover is considered reasonable, i. e. 27.8 per cent of labour. As a percentage of turnover (2.25 per cent) the cost of absenteeism, sickness, inclement weather time and nonproductive overtime is calculated on the following basis: 13p per “worked hour” for absenteeism, sickness and inclement weather time; 11p per “worked hour” for nonproductive overtime, being the difference between the cost of a craft operative who works overtime and one without overtime. (Tables 4 and 5.) 13p plus 11p equals 24p and the effect of this is as follows:—in a contract of £1m the all-inclusive labour costs could be £180,000. This sum could employ a mixed labour force of 20 craft operatives and labourers (three craft operatives to each labourer) at an average cost to the employer, with overtime, of £9,000 each. The “worked hours” of an operative including overtime is 2,051 hours per annum (see Table 1). If 2,051 is multiplied by 20 operatives they together work 41,020 hours.

Chapter 2 MATERIALS AND PLANT

The “Definition of prime cost of daywork carried out under a building contract” provides that direct purchases of materials shall:— • include costs of delivery to the site • allow cash discounts of up to 5 per cent to the contractor • be net of trade discounts (which the contractor should allow to the building owner) • be exclusive of VAT, provided it is recoverable by the contractor: otherwise VAT forms a part of the cost chargeable to the client. Materials ex stores are to be charged at current market price plus any appropriate handling charges (which are not defined). If materials constitute 20 per cent of turnover (see Table 1) then a 10 per cent addition to them is equivalent to 2 per cent of turnover, or 11.1 per cent of labour costs. Thus if 10 per cent is added to materials, then a reduction of 11.1 per cent could be made in the percentage added to labour costs for site and head office overheads and profit, in Tables 2, 2A, 2B and 3.

12 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 3: PERCENTAGE ADDITIONS TO £3.22 (BASE RATE PLUS GUARANTEED MINIMUM BONUS) TO COVER LABOUR OVERHEADS SITE AND HEAD OFFICE OVERHEADS AND PROFIT

Plant dependent on its type and the use to which it is put could be provided for in various places in a priced Bill of Quantities, e.g. Bill rates, Preliminaries or Site Overheads. The “Definition of Prime Cost of Daywork carried out under a building contract” states:— “Where plant is specifically brought on site for day work the prime cost of that plant is recoverable under Section 5. Where plant which is on site is used for daywork then contractors may have been asked in the tender documents to agree that the prime cost of such plant will be in accordance with the RICS schedule of plant charges, which refers solely to rates of plant which is on site. Where contractors are required to recover prime cost under the RICS Schedule they should bear in mind the need to compensate for changes in the rates shown in the Schedule. Such

TABLE 4: SUMMARY OF COSTS PER “WORKED HOUR”

MATERIALS AND PLANT 13

14 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

compensation could take the form of quoting a specific percentage increase on the RICS rates or, alternatively, including for this when arriving at the percentage on plant prime cost. Each RICS rate should be considered carefully, bearing in mind it may be used many months later to value prime cost on daywork, the need to ensure by an adequate percentage that it will more nearly reflect plant costs when incurred on daywork is obvious”. The effect of a percentage addition on the daywork rates for plant costs in reducing the percentage addition on labour (for site and general overheads and profit) will for most contracts be difficult to pre-assess. Road Haulage Workers Agreement

The agreement between the Building Employers Confederation and the Transport and General Workers Union, with effect from the 27th June, 1988, is:—

The gross vehicle weight is to include that of a trailer, where applicable. Halfpennies are to be raised to a whole penny, where applicable. Death benefit and accidental death benefit is up to £6, 500. Subsistence allowance is £15 per night.

Chapter 3 BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES

It is stated elsewhere in this book that construction operatives are no different to those in other industries, services and professions: they are sometimes absent from work through sickness or for any number of other reasons. These absences will vary from person to person, trade to trade, area to area and company to company. There are construction organisations which maintain records of absenteeism, and in some cases the incidence has proved extensive. The effect of sickness and absenteeism, of course, is that certain fixed overheads such as public holidays, annual holiday stamps and the CITB levy are borne by a smaller number of working hours than would be the case if there were no absences. The first requisite to building-up a reliable hourly cost of labour is to determine the average hours of work per annum to be expected from operatives. Table 6 shows how the standard working hours, 39 per week, equals 2,028 per annum, then reduce to 1,704 after deducting annual public holidays and example provisions for sickness, absenteeism and inclement weather time. Table 5 shows that the cost of such absenteeism, etc. (on the basis of Table 6) is a substantial 13p per hour. It follows that it is of fundamental importance to calculate within each company the incidence of sickness,

16 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 5: ADJUSTMENT OF THE “STANDARD HOURLY BASE RATE” TO “WORKED HOUR” (To take into account 35 hours lost through inclement weather, and 63 hours lost due to sickness and absenteeism) A. THE STANDARD HOURLY BASE RATE

B. ADJUSTMENT OF STANDARD HOURLY BASE RATE TO 1, 704 “WORKED HOURS”

absenteeism, and inclement weather time, as a prerequisite to building-up a reliable estimate of the hourly cost of Labour.

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 17

TABLE 6: THE CALCULATION OF “WORKED HOURS" (Without Overtime)

Table 7 is an example of overtime hours, worked and non-productive. Table 7 is an extension of Table 6. Table 8 shows how the figures in Tables 6 and 7 reconcile with one another, and goes on to agree them with the 1,802 hours used in the calculation of the “standard hourly base rate” which is set out in Table 5. Table 4 cannot be prepared until Tables 9 to 12 are completed. Table 4 then shows the annual and hourly costs of a:— • •

Craftoperative (withoutovertime) Craftoperative(with overtime)

£4.33 £4.44

18 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 7: CALCULATION OF “OVERTIME HOURS"

• •

Labourer (without overtime) labourer (with overtime)

£3.70 £3.78

In addition to summarising the costs of craft operatives and labourers, Table 4 shows that the cost of nonproductive overtime for a craft operative (in the examples provided) is 11p per “Worked hour” (£4.44 less £4.33). The cost of overtime for labourers is 8p (£3.78 less £3.70). Table 9 contains a straightforward calculation of the cost of “Worked hours” and “Non-productive overtime” at the current National rates of pay. In these calculations:—

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 19

TABLE 8: THE RECONCILIATION OF “WORKED HOURS” AND “PAID HOURS ”, AND GMB AND SICKNESS RULES

• the “Worked hours” and “Non-productive overtime” are taken from Tables 6 and 7. • Guaranteed Minimum Bonus is calculated on 35 hours inclement weather time, as well as 1,704 “Worked hours” • Inclement Weather Time is not costed in this Table at basic rates, but only at GMB rates. GMB is costed at Basic Rates in Table 10. The totals of Table 9 are carried to Table 4 (summary of costs per “Worked hour”). The next stage is to enter lines 2 to 9 of Table 10. Line 1 cannot be inserted until Lines 2 to 10 are culculated, and

TABLE 9: COSTS AT BASIC RATES PLUS GUARANTEED MINIMUM BONUS OF “WORKED HOURS” AND “NON-PRODUCTIVE OVERTIME” (Add 19.5p per week for London and Liverpool)

20 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 10: LABOUR OVERHEADS FROM THE PAYROLL

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 21

TABLE 11: NON-PAYROLL LABOUR OVERHEADS

22 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 12: BASIS OF CALCULATIONS FOR NATIONAL INSURANCE, EMPLOYER’S AND PUBLIC LIABILITY INSURANCES, AND THE PROVISION FOR REDUNDANCY PAYMENTS

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 23

24 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

until Table 12 (Basis of Calculation of National Insurance) is completed. TABLE 13: LABOUR OVERHEADS ON PLUS RATES, BONUS PAYMENTS, AND TRAVELLING AND OTHER WORKING RULE ALLOWANCES

Enter into Table 12 the basic pay totals (to be found in both Tables 4 and 9). Then enter from Table 10 the tool money, sick pay, public holidays, guaranteed time and travelling allowances. Total Table 12, and apply to the totals:—

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 25

TABLE 14: WORKING RULE ALLOWANCES: GENERAL

• Employer’s contributions for National Insurance @ 9 per cent. Carry this amount to Line 1 of Table 10 (but see Chapter 6) • Employer’s and Public Liability Insurance @ 1.5 per cent. Enter the amount in Table 11 • Redundancy Provision at 1 per cent, to be entered in Table 11.

26 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 15: WORKING RULE ALLOWANCES PAYMENT FOR WORK IN DIFFICULT CONDITIONS HEIGHT, DEPTH, DIRTY, NOISY AND PERCUSSIVE MONEY

Table 10 can now be totalled, and that total copied in Table 4 (Summary of Costs per “Worked hour”). Enter into Table 11, “Non-payroll Labour Overheads”, the CITB Levy, total the Table, and carry that total to Table 4 (Summary of costs per “Worked hour”). When bonuses, plus rates, travelling allowances, etc. are paid additional to the amounts provided in the foregoing rates, not only does that extra cost arise, but also a further

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 27

11.5 per cent of that extra cost, to cover additional National Insurance, employer’s and public liability insurances, etc. (See Table 13). TABLE 16: WORKING RULE ALLOWANCES EXTRA PAYMENTS FOR CONTINUOUS SKILL AND RESPONSIBILITY AND FOR INTERMITTENT RESPONSIBILITY

28 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

Tables 14: Working Rule Allowances: General, 15: Payment for work in difficult conditions, 16: Extra payments for continuous skill and responsibility and for intermittent responsibility and 20: Travel allowances and fares, summarise the available allowances which could affect the Dayworks rate. Table 17 lists head office overheads which relate to personnel, motor cars, premises and general. It also lists categories of staff and gives outlines of other major overheads. See also chapter 5. Table 18 summarises those headings in the “Definition of prime cost of daywork carried out under a building contract” which it is intended should be covered by a percentage addition to the “Standard Hourly Base Rate”. Table 19 provides an example schedule of site overheads which are based on the length of time taken to carry out the work, i.e. excluding “once-for-all” costs such as mobilisation and demobilisation. Without the reminder of a list such as this it may be difficult to envisage the range of costs which the

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 29

percentage addition needs to embrace in respect of Site Overheads. TABLE 17: HEAD OFFICE OVERHEADS

30 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 31

32 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

This list could be extended considerably, dependent on the size and ramifications of each construction organisation. Note in particular the exclusion of bank charges and interest paid.

It has been stated elsewhere that though many of the headings may appear to relate only to large contracts, not a few of the services, techniques and operations listed are needed also on smaller sites, where they are carried out by visiting staff who are required to wear a number of different hats, and whose costs are usually charged to head office overheads.

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 33

TABLE 18: SCHEDULE OF ADDITIONS TO THE “STANDARD HOURLY BASE RATE" FOR INCIDENTAL COSTS, OVERHEADS AND PROFIT

34 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 19: AN EXAMPLE SCHEDULE OF SITE OVERHEADS WHICH ARE BASED ON THE LENGTH OF TIME TAKEN TO CARRY OUT THE WORK, I.E. EXCLUDING “ONCE-FOR-ALL” COSTS SUCH AS MOBILISATION AND DEMOBILISATION

NOTE: Only larger contracts would require full-time staff and much of the equipment and services listed in the schedules below. However, smaller contracts, even minor works demand many of these skills, equipment and services and they are of necessity performed by versatile staff, often charged not to the contract but to Head Office Overheads. In such instances the latter are increased in cost and Site Overheads correspondingly reduced.

BUILDING-UP LABOUR RATES TABLES OF WORKING RULE ALLOWANCES 35

TABLE 20: DAILY TRAVEL ALLOWANCE

Chapter 4 THE CALCULATION OF DAYWORK RATES

Two methods are considered here for calculating Labour Rates. Both need to be carried out separately for craft operatives and for labourers plus for the statistics shown in Lines 1 to 11 of Table 21 and in both cases the calculations could be carried out for a building business as a whole, or for individual sites, or regions or areas. The first method is to calculate rates per “Worked hour” in the manner described in Chapter 3 and on the forms illustrated in Tables 4 to 13. For this purpose pro formas could be prepared and photo-copied (no special printing should be necessary) and also it unlikely calculations would be required “Without overtime”. The second method known as the payroll method is contained in Table 21. It is intended to’be additional to and a check on method one, and is nothing more than an extract of the payroll and unlikely to take as much as half an hour a week to prepare after experience of it and provided the payroll is divided into sections to facilitate the production of the required figures, i.e. separate payroll sections and totals for craft operatives; labourers; and others (from general foremen to apprentices, and all in between who are not craft operatives or labourers) showing absenteeism, sick days and non-productive overtime clearly on the payroll (or on the time sheets from which the payroll was prepared).

THE CALCULATION OF DAYWORK RATES 37

Table 21 is intended to be produced weekly by those responsible for payroll preparation. Pro formas of the table could be prepared and photo-copied. Photo-copies of the completed forms could be made for distribution to those concerned, as the information they contain is of considerable interest. The cost per “Worked hour” in Line 22 is valid only after building-up the cumulative records for a period of several months, during part of which there have been public holidays. Line 22 shows:— • a cost per “worked hour” of £5.39 in week 42, because there was that week a public holiday, and some guaranteed time was paid • the average cost up to and including week 41 was £4.28 • the £5.39 is smoothed out, in the cumulative f igures, to £4.30 in week, 42, and £4.31 in week 43. This is due to the cumulative effect of the figures of weeks 1 to 41 (in the brought forward totals, in columns 3 and 4). Next list/add the hours of absenteeism and sickness, separately, from the payroll or from time sheets. After inserting these in Lines 2 and 3, add them to the cumulative total (column 3) and insert the answer in column 7, e.g. 50 in column 6 added to 1,830 in column 3, equals the 1,850 in column 7. The averages are “Hours per operative for the year todate” and are obtained by dividing the hours by the number of operatives, e.g. Line 2, column 7, shows 1,850 lost through absenteeism, i.e. by 98 operatives in 43 weeks, divide the 1,850 by the average number of operatives (98, in column 8), the answer to the nearest whole number is 19, in Line 2, column 8. Sick days, converted into hours, are treated in the same manner as absenteeism. list/add the “paid hours” on the payroll, and insert the answer in Line 5, e.g week 42,4,200 hours, placed in column 5. Make cumulative totals by adding the hours in column 5 (4,200) to the brought forward total in column 3 (162,191) and place the answer in column 7 (166,391).

38 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

To obtain the average “Paid hours per operative per week” in colums 4, 6, 8, etc. two divisions are required:— • Line 5, column 7, equals 166,391 • Divide by the number of weeks (42) equals 3,961.69 • Dividing 3, 961.69 by the average number of men (98, Line 1, column 8) gives the answer 40 to the nearest whole number. The 40 is placed in Line 5, column 8. Hours deducted from “Paid hours” List/add from the payroll (or time sheets) separately, in hours:— • Public holidays • Non-productive overtime • Guaranteed Time and insert the answers into line 6, 7 and 8 respectively, in the column for the week, e.g. Week 42, column 5. Add these amounts to those brought forward, in column 3, and place the answers into column 7. If it is required to know the average hours per operative for non-productive overtime or guaranteed time, divide the cumulative total hours (e.g. 4077, Line 7, column 7) by the cumulative average number of operatives (98, Line 1, column 8) to obtain 41.60, then divide 41.60 by the Week number, 42, to gain the answer of one hour per operative per week. “Worked hours” are obtained by deducting the hours in Line 11 from those in Line 5, in all columns. To obtain the average number of “Worked hours” per operative divide the worked hours, e.g. 152,874 in column 7, Line 12 by the average number of operatives—98 in Line 1, column 8 to obtain 1,559.94, then divide 1,559.94 by the Week number (42) to optain 37, which is placed in line 12, column 8. The costs in Lines 13 to 16 should be taken directly from payroll totals:— • Line 13, Taxable Pay • Line 15, Employer’s National Insurance

THE CALCULATION OF DAYWORK RATES 39

• Line 16, Holiday Pay Stamps Line 17 is for non-payroll overheads listed in Table 11 at a cost of 12p per “Worked hour”. Multiply the “Worked hours” in Line 12 by 12p, and place the answers into Line 17. Total columns 13 to 20 and place the answers into Line 21 (Total costs). Divide the total costs (Line 21) by the “worked hours” (Line 12) to obtain an average hourly cost in Line 22—both per week and cummulative for the year to-date. Where lodging allowances, and/or distant travelling allowances and/or distant fares and expenses are included in the costs in Lines 13 to 15, they would upset the average. Therefore:— • the distant travelling hours should be listed/added and placed in Line 9 as a deducation from “Worked hours”. • the costs of distant travelling hours (At the operative’s rate) plus National Insurance on that cost, plus the costs of fares and expenses should be entered as a minus in Line 19. Changes in pay and conditions in the building industry for the most part take effect at the end of June of each year. This is a good time to start each year afresh with Week No. 1. In the ensuing weeks, until a reliable cumulative average is built-up, care needs to be taken in using the Dayworks Rate.

TABLE 21: LABOUR STATISTICS CRAFT OPERATIVES

40 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

Chapter 5 SITE AND HEAD OFFICE OVERHEADS AND PROFIT

Overheads consist mainly of directors and staff emoluments and services to them. Typical constituents are: —

The foregoing excludes interest paid, which varies too much to include in an average such as the foregoing. It is apparent that overheads are in the main of a fixed nature, and can be substantially reduced only by dispensing with staff. They can be recouped only by carrying out work, and it is important to the continued existence of a construction organisation and the welfare of all who are employed in it that all such work embraces an ovehead recovery. Table 17 provides a list of the main headings of head office overheads. As expressed elsewhere in this booklet, what to some construction organisations is a site overhead is to others a head office overhead. When site and head office overheads are combined, they should

42 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

prove to be on much the same scale in both types of organisation. Table 19 is an “example schedule of site oveheads which are based on the length of time taken to carry out the work, i.e. excluding “once for-all” costs such as mobilisation and demobilisation”. This list is a reminder of the extent of site services, whether they are provided by direct postings of staff to a site or visits by head office staff. As site overheads are determined separately for each contract, it is stated in the introduction of this book that any work additional to the contract merits a pro rata recovery of those site overheads which vary with time. Dayworks may or may not extend the contract time, but they might cause extensions of the periods in which staff and equipment are posted to a site, or call for extra visits by head office staff which may not otherwise have been required. They might also reduce savings in contract time which might otherwise have been made. The considerable annual total of head office overheads must be fully recovered before any possibility of a profit can arise. Profit, in any e vent, is the interest on the money invested in the organisation, and it is always a speculation whether the profits (i.e. interest) from competitive contracts will prove to be more or less than those which could be earned by investment, say, with a Building Society. It is likely that adequate interest will not be earned if justifiable head office overheads are not recovered to the proper extent. In Table 1 there is an example of turnover which shows as a part of its build up:— Preliminaries and Site Overheads which are:—Of a “oneoff’ nature, 5 per cent; variable with time, 5 per cent; head office overheads, 6 per cent, and these total to 16 per cent of turnover, or 88.8 per cent of labour costs. However, by deducting the 5 per cent for “one-off’ site overheads, the remaining 11 per cent of turnover is equivalent to 61.1 per cent of laobur costs. In Tables 2, 2A, 2 and 3 the addition to labour costs for site and head office overheads (combined) is 100 per cent, considerably more than the minimal 61.1 per cent referred to in the preceding paragraph. The reason for this suggestion, as stated in Part One of this booklet, and in

SITE AND HEAD OFFICE OVERHEADS AND PROFIT 43

Table 1, is that the administrative costs attaching to Dayworks are more akin to those which apply to Small Works than those applicable to large contracts, Therefore it is suggested an overhead recovery is needed which is comparable to the average obtainable on Small Works, as described in Chapter 1, i.e. 100 per cent.

Chapter 6 ADDITIONAL NATIONAL INSURANCE When taxable pay exceeds £140 per week

When an employee’s taxable pay reaches £155 additional National Insurance is payable by the employer not only on the excess above £155 but on the entire taxable pay. Up to a weekly gross pay of £155, National Insurance is at the rate of 9 per cent on all pay. When gross pay reaches £155, the National Insurance rate becomes 10.45% on all pay. The foregoing £155 includes not only paid hours, but also bonus, plus rates, travelling time, tool money and all Working Rule Allowances except those not taxable (e.g. Fares). Table 22 shows the range of National Insurance contributions. Throughout this booklet the “non-contracted-out” rates have been used. “Contracted-out” rates are for employees who are in any approved company pension scheme. Table 23 illustrates the effect of paying National Insurance at 10.45 per cent, instead of 9 per cent, when Gross Taxable Emoluments in a week reach £155. In this book the calculations already contain 9 per cent. Table 23 shows how much needs to be added to the costs per “Worked hour” in the book for Gross Taxable Emoluments ranging from £160 to £350 per week. It does this for weekly “Worked hours” of 39, 42, 44, 46 and 48.

ADDITIONAL NATIONAL INSURANCE 45

TABLE 22: NATIONAL INSURANCE RATES

*10.45% of all earnings

*10.45% of all earnings

† Used in this booklet

It will be observed that the additions to the hourly rates are substantial, ranging from 6p to 13p.

46 A PRACTICAL GUIDE TO ESTIMATING DAYWORK RATES

TABLE 23: ADDITIONAL NATIONAL INSURANCE

GROSS TAXABLE PAY includes plus rates, bonus, tool money, public holiday pay, daily travelling allowance, and all other taxable Working Rule Allowances. All throughout this book, “Worked hours” excludes nonproductive hours.

INDEX

Absenteeism costs 13, 19 Additional National Insurance 51 Additions to standard hourly rate 5 Building-up rates 19 Calculating daywork rates 45 Costs at basic rates 25 Costs per worked hour 17, 20, 46 Daywork additions 26 Daywork costs 45 Daily fares 43 Daily travel allowance 43 Demobilisation costs 26 Depreciation 9 Drivers’ wages 18 Employers’ liability 24 Employers’ liability insurance 24 Employers’ National Insurance 24 Extra payment for skill 9, 26

GMB 23 Gross labour costs 48 Guaranteed time 46 Head office overheads 7, 8, 35 Holiday pay stamps 27 Hourly base rate 11 Inclement weather costs 20, 24 Labour only sub-contractors 6 Labour overheads 16, 27, 39 Labour rates (without overtime) 11 Labour rates (with overtime) 12 Labour statistics 48 Materials and plant 15 Materials percentage additions 15 Mobilisation costs 26 National Insurance calculation 29 National Insurance (additional) 51 Non-payroll overheads 28, 47

48

Non-productive overtime 13 Non-taxable time 47 Operative ratios 9 Overheads 27, 38, 49 Overtime hours 22 Paid hours 46 Payroll 17, 45 Plus rates 30, 39 Prime cost, definition of 15 Prime cost of laobur 5, 8, 10 Public holidays 19, 27 Rates build-up 25 Redundancy provision 29 Sickness costs 11, 23 Site overheads 7, 8, 26, 39, 41 Staff ratios 9 Standard hourly rates 20, 39 Sub-contractors discounts 8 Taxable time 13 Travel allowances 27, 30, 39, 43 Travelling hours 27 Turnover 8 Variation orders 9 Worked hours 13, 17, 23, 45 Worked hours (calculations) 13, 21 Working Rule Agreement 32, 33, 34 Working Rule Allowance 30, 31