Preliminary and General Costs

1. INTRODUCTION

P & G’s are defined as those expenses which are incurred before work in producing the project deliverable commences, together with those costs that are non-specific to a particular Bill or Activity list item. P&G cost therefore represents those costs which cannot be reasonably allocated to any specific identified activity on a project. In this regard the international Webster comprehensive dictionary defines the word preliminary as “antecedent or introductory to the main business” and defines the word general as “pertaining to including or affecting all of the whole; not local or particular”. The term originates from civil engineering industry where those costs which are not attributable to a specific bill of quantity item rate or cost were collected under the heading “P & G expenses.”

2. USE OF THE TERM

The use of the term is generally appropriate where a bill of quantity or an activity level contract value form part of the order or contract to be accepted or placed.

This is because changes in the scope of work, either in terms of increase or decrease, will affect the cost of the activity or bill item only, and the impact on establishment cost and the management of the project will not form part of the price adjustment.

In order therefore to address the cost of changes which are not directly related to a change in the work content of an activity or a change in the quantity of a BOQ item, the Bill or activity listing or BOQ will incorporate an item or a heading called P & G expenses.

Under this heading we will expect to find the following cost components:

  1. mobilisation cost
  2. insurance cost
  3. finance charges
  4. site establishment
  5. site disestablishment
  6. project management
  7. site management
  8. planning
  9. material control
  10. site offices
  11. head office overhead which in turn can be broken down into:
    1. rental for premises
    2. accounting
    3. general and senior management
    4. equipment (computers, printer, photocopiers..)
    5. clerical and administrative personnel
    6. quality assurance
    7. quality control
    8. security
    9. payroll administration
    10. secretarial services
    11. data processing services
    12. etc.
  12. site QA
  13. site QC
  14. site planning
  15. site contract administration
  16. site quantity survey
  17. site buildings
  18. site equipment (other than small tools)
  19. site craneage
  20. site supervision
  21. etc.

Between the above list and the cost included in the activity or BOQ rates are a number of expenses which may in fact be duplicated in the above schedule and in the rate.

These costs are always a source of conflict in the determination of the P & G cost to be associated with changes in scope with reference to quantity, quality, or time.

These particular expenses should be defined specifically in any BOQ or activity related contract as being incorporated in P & G cost or in the rate and inevitably involve the procurement officer in pre-award clarification meeting with tenderers:

1.1. The question of the extent and level of supervision included in the rate (be it labour day work rate or BOQ rate or activity rate).

To clarify this it is important to address the following within the order placed, more or less in the following terms:

  • Supervision:

“Day work rates quoted include all other costs associated with such labour, including but not limited to all overhead costs, profit, the cost of tools and equipment, the cost of supervision on site for such labour, the costs for induction, accommodation, transport to site and costs of safety, Protective Gear, and consumables used in the execution of the work carried out at day-work rates”

If adequate levels of supervision are provided for by the Contractor in his quotation, the additional cost of supervision associated with minor scope changes will not affect his overall cost as he would not be bringing additional supervision onto the site to deal with the supervision of such additional work.

  • Craneage

The question of craneage is generally addressed as follows:

“The payment for craneage used on additional work shall be the reasonable cost of the consumables (namely fuel and oil) associated with the use of such craneage”.

This stipulation is generally fair, because the craneage on site is allowed for in a middle size or large size contract for the duration of the contract, and standard provisions in most conditions of contract allow for the renegotiation of the contract rates in the event that the scope of work changes by an amount equal to or greater than 15% or, in some instances, 20% of the total contract value.

In consequence, the impact of the contractors need to bring on additional craneage to deal with changes in scope is provided for in the contract conditions and exorbitant costs associated with carrying out minor site alterations should be avoided.

The cost of cranes as noted above is generally allowed for with an adequate margin for planning errors and contractor delays in all quotations submitted. The only application in which the generally quoted level of day work rates for craneage is applicable is in the event of an extension of time being required by the contractor, through no fault of the contractor, which will involve an extension of the duration of such cranes on the site.

Generally speaking should be noted and clarified in pre-award negotiation with any contractor and the outcome should be reflected in the contract order under the following terms:

“The day work rates for cranes as reflected in the day work rates schedule shall be applicable only in the event of an extension of time or in the event of additional work requiring specific additional craneage to be bought onto site or specific cranes to be held on site. for a defined additional period, neither of which relates to any fault of the contractor.”

  • Quality Control

Generally speaking the cost of quality control and quality assurance is and should be included in the BOQ, activity schedule or day work rates quoted by the tenderer for the work to be performed. This cost should never be separately charged in respect of extras or additional scope of work claims that are calculated on the basis of day work rate or of activity schedule rate or of BOQ rates.

  • Project management, Site Management, planning and other site services.

As for quality assurance and control these costs should never be accounted for in any calculation for additional work that is calculated on the base of day work rate or of activity schedule rate or of BOQ rates.

  • Safety Officers

It often occurs that the safety officer attached to a crew that is working on an SI or Extra will be included with the artisans and labourers working on that SI or Extra. This is not correct. The cost of safety officers and safety management is a P&G cost which is unaffected by additional work, unless such work exceeds 15-20% of the contract scope.

  •  Large tools and equipment

As for craneage, the allowance included in the contractors tender for large tools and equipment must always be regarded as including a sufficient margin (up to 15 to 20% of any changes in the overall contract scope). Consequently charges for items such as tirfors, chain blocks, welding machines, generators and other welding equipment are to be specifically dis-allowed from any claim for additional work on site wherever day work rates, BOQ rates, or activity schedule rates form the basis of the calculation of such additional work.

  • Clarification before order award

The above rules for derivation of the cost of additional work should be clarified and be noted in orders or contracts as placed with the subcontractor to avoid the site manager and the project manager being involved in the negotiation of disputes with contractors during the course of the carrying out of the works.

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