All-inclusive Unit Rates Definition
A few readers asked how to build the all-inclusive unit rates.
The easiest way to explain it is to start by defining it. In one short sentence, an all-inclusive unit rate includes all costs and markups that we want to recover when we use/charge that specific unit rate.
For example, if we are calculating an all-inclusive unit rate for a tradesperson, we will most likely include the following:
- all payroll expenses: base salary, payroll burdens, premiums for overtime, paid travel or shift work, worker compensation;
- all expenses for travel and accommodation, if applicable;
- all small tools expenses, if applicable;
- all equipment expenses, if applicable;
- any supervision, if applicable;
- any temporary construction materials, if applicable;
- any permanent construction materials/equipment, if applicable;
- any company overhead, if applicable;
- profit, if applicable.
From the list above, it is easy to understand that an all-inclusive unit rate can include all items listed or only some of them. It all depends on what costs and markups we need to recover when we charge the client.
Types of All-inclusive Unit Rates
We can develop unit rates starting from very simple ones, like the labour rate for a tradesperson, to extremely complex ones. An example of a complex unit rate would be the installation of a permanent piece of equipment, an underground pipeline, or a cubic meter of earth excavation/backfill/disposal. We can get as simple or as complex as we desire to fit our costing purpose.
For an experienced cost estimator, building a unit rate is more like a routine exercise. We know our production rates, crew composition, material costs, overhead expenses, etc.
For the entry-level cost, the estimator can be more challenging at the beginning. But trust me, once you understand the unit rate calculation methods, you will see how useful this skill can prove.
We can divide the unit rates into the following types:
- Hourly rates, or
- Item rates
1. Hourly Rates
What do I mean by that? The hourly rates are based on labour and/or equipment charges per hour. Example of all-inclusive hourly rates:
- Excavator hourly rate. This rate can include the following costs, depending on the requirements:
- Equipment rental
- Equipment maintenance
- Equipment insurance
- Fuel
- Operator
- Company overhead
- Profit
- Carpenter hourly rate. Let’s say we want to calculate the charge-out rate for a carpenter. This rate would include the following costs, depending on the circumstances:
- Base hourly rate
- Overtime
- Paid travel time
- Labour burdens
- Worker’s compensation
- Small tools
- Vehicle (pick-up truck)
- Company overhead and indirect costs
- Profit
- Composite crew hourly rate. This rate is calculated the same way as the above, so we have all the crew members instead of one tradesman.
Specific to hourly unit rates is the fact that they are not based on performance. It does not make any difference if the equipment, tradesman or crew achieve more or fewer units per hour. The risk for costs associated with the performance is absorbed by the end-user of the unit rate.
2. Item Rates
The item rates differ from the hourly rates by the unit of measure and are more complex to calculate. An item can be defined as a simple construction activity or a collection of construction activities that form a specific item.
Let’s look at one simple example, the installation of an underground pipeline. This item would include some or all of the following construction activities (the list is not exhaustive, it all depends on the particular application):
- Topsoil excavation
- Topsoil disposal or stockpile
- Trench excavation
- Trench excavation support
- Dewatering
- Pipe base gravel installation
- Pipe and associated items supply
- Pipe and associated items installation
- Pipe backfill
- Trench backfill
- Site restoration
- Site mobilization/demobilization
- Indirect costs
- Company overhead
- Profit
Items 1 to 11 above can be used as stand-alone simple items or as part of the complex item.
The most important thing to consider when calculating unit rates is what are the costs and profits that need to be recovered. For example, let’s assume that we are a general contractor and would like to calculate the unit rate for the item above. If we are going to self-perform all of the activities, we would most likely include all the costs as listed above. If, on the other hand, we are going to use a sub-contractor to perform all of the activities, we would use the unit rate from the subcontractor and only add items 13, 14 and 15. The subcontractor, though, would calculate the unit rate inclusive of all the items from 1 to 15.
The item unit rates are very much affected by the labour productivity we assume when calculating the unit rate’s labour component. Therefore the risk for costs associated with performance is absorbed by the entity which owns the unit rate.
Unit Rate Development Steps
This was my view on how to calculate all-inclusive unit rates. I am sure there are many other views on this issue, as each of us has various levels of expertise and cost-estimating experience. If you enjoyed reading this article and think it answered some questions you had, please share it with your network. I would appreciate it!
Also, please leave your comments in the comments section below. I would like to know your thoughts on this issue.
17 Responses
Hi Doina,
interesting article as always. I have a question: how to include in unit rates the fixed costs of the assets. If I have an equipment (not directly related to the activities) that costs to me X in one year, but I do not know the actual volume of the job (or it is highly uncertain), how can I split the equiment cost in the unit rates? Thanks
Hi Giuseppe,
I am glad to hear that you enjoyed reading the article.
To answer your question regarding the fixed costs of assets. If I understand correctly, you would like to know how to prorate the cost of a piece of equipment which is not part of a crew, but it is still being used during the performance of the works. You are also saying that there is no way you can point out how many hours the equipment will be used for that particular job. I am with you on this one.
There is no way to calculate how much to charge this kind of costs unless you are willing to make an assumption. You know your annual costs for this equipment. The assumption you will have to make, in my opinion, is how many hours you will be using that equipment throughout the year. It can be based on the previous year usage, adjusted to meet your current year. For example, if you expect less work volume in the current year, you will adjust accordingly. Or, if you have no data from the previous year, your total number of hours you will use is based on your business plan for the current year. If you do not have a business plan, you would just base it on your prediction for the year. If you or your company own the equipment, then you will have to make these calculations based on the amortization costs for the year for that equipment. Your accountant should be able to tell you the depreciation value. Or, if you are leasing the equipment, the lease costs for the year is your equipment cost.
Here is a simple example. Let’s say that you are leasing a scissor lift. You do not include this equipment in any activity which is part of a job, but regardless you need this equipment on the job site to service all the crews for the various construction activities. Let’s say that in the past year the equipment was used for 1,000 hours. This would be based on the data recorded from the field, for each job, meaning that when the equipment was mobilized to a job site, it was charged to that job up to the point when it was removed from the job site. If you expect to have the same level of work volume, then your hourly costs for the equipment would be the equipment cost per year divided by the one thousand hours the equipment was used. If you anticipate a different work volume for the current year, adjust accordingly. You will add this value to the unit rate if your unit rate is an hourly rate. If your unit rate is based on crew production rather than hourly, you will have to adjust your number accordingly.
I hope I answered your question. If you would like to discuss it further, please send me a message at [email protected]. I would gladly provide more information based on a specific situation.
Regards,
Doina
Isn’t the word “easy” code for oversimplification of something that is complex?
1. All inclusive rates are good tools for budgeting (Class 5 or 4 estimates) because the accuracy range can be in the -25%, +50% range.
2. Another technique for all inclusive rates is to take a finished estimate and work backwards from the bottom line through the details.
3. IMO, keep the all-inclusive item rates within reasonable parameters and not get trapped into mega-units or one size fits all because of too many activities and/or variables.
4. Make a list of all the items that are included and excluded in an all inclusive rate, i.e. communication.
5. Item or craft activities that require an inordinate amount of equipment should be avoided — too many wild cards, variables, and embellishments that affect accuracy.
Hi Bob,
Thank you for taking the time to leave comments. I am in agreement with all the points you made. Great insight!
Regarding my choice to use “easy” was to encourage those who still think that unit rates are something that it cannot be tackled, to actually give it a go. Developing unit rates that are realistic and can be used with confidence under specific circumstances, takes a lot of practice. So, to learn we have to start somewhere. For those who are not familiar with unit rates, or for those who do not know how to look at them in a deeper sense, this kind of articles and comments from readers are very valuable.
In my opinion, there is a shortage of real-world cost estimating experience knowledge-sharing available to those who want to improve, or learn. Readers comments like yours are a great add-on to my articles. I very much appreciate it!
Thanks very much for the article. I wish to learn more about how to build up these rates on my own. Is there resource website I can log onto and get a step by step guidance on building rates for say compacting bottom of trenches or working with ready mix concrete when making in-situ slabs ? A low cost correspondence course would be probably better for me.
Your notes on unit rate estimation very helpful – I am working on a road project and requesting if you assist me with example of unit rates estimation of clearing & grubbing, excavation, fill, crushing & pavement construction, double coat sealing, etc,. Thanks from Ruben Tara.
Hi Ruben, thank you for your comment. I sent you a response via your email.
Hi!Doina, your article iis reach i like it. I am particularly interested in the online study . How does it run?
Hi Jimmy, thank you for your kind words.
We offer online training for cost estimating. The website will launch this fall. Check the website https://www.emeraldgroup-learning.ca for updates.
Thank you for your interest.
Best regards,
Doina
Dear Doina,
I have a question. waiting for yours kind response.
E.g
for new rates:
material = 2800
plant = 800
labor = 500
Total = 4100
overhead and profit is 15%. how we will calculate overhead? 4100 x 15% or 4100 x 15/85
Please give at least two examples of Hourly Unit Rates and Item Unit Rates by calculating.This will help me to understand the build all- inclusive Unit rate.
Regards.
i need to know meaning of unit rate,how is prepared and important to prepare unit rate in construction activities
Very anciously want to learn and become expert in civil engineering estimating.
All in rates calculations are very informative .
A nice explanation
Thank you for reading the article, Charles!
Very relevant