What is Analysis of Rate – Detailed Information

Analysis of rate is a procedure by which we can arrive at a correct and appropriate rate per unit of any work provided specification and detailed information about the material, Labour and equipment are known.

To give a quotation or quote any work you need to have a basic idea of what is the unit rate of that work. Rate analysis helps in arriving at a quicker and faster estimation of any work.

The main purpose of rate analysis is to determine the current rate per unit of an item and to find the quantity of material and Labour required to complete a given project.

How analysis of rate is done?

To find out the rate per unit of an item we need to consider five subheads and the addition of all these will give you the rate per unit of that work.

1. Material quantity and cost
2. Labour cost
3. Equipment cost or Tools and Plants
4. Overhead cost
5. Contractor Profit

Let us look in detail at each and every item that needs to be considered while fixing the rate per unit of an item.

1. Material quantity and cost

While estimating it is necessary to consider every item that is required for an activity or work. The quantity of material required for an activity is considered from the detailed specification and the estimator calculates the quantity of material from that only based on past experience and historical data.

Cost of material includes the first cost, transportation cost of the material to the site, taxes as applicable, insurance, and other charges as necessary.

If material is provided by the department itself then profit is not allowed to the contractor but the cost of transportation of the material from the godown to the site is applicable.

2. Labour cost

To arrive at the labour cost you need to know the amount of labour required to complete that work and their wages. Skilled and unskilled types of labours are required to complete a particular work.

After calculating the number of labours and their wages it is multiplied by the number of days the labours are required at the site to arrive at the labour cost for that unit of work.

3. Equipment cost or Tools and Plants

If any specific tools and equipment are used for a particular work then its cost is included under the cost of equipment or tools and plant. For example, if a concrete mixer is used to mix concrete for a particular work then that cost is included under the head of the cost of equipment.

But for certain work different tools and equipment are used and it can be common for other work also, thus it is very difficult to consider particular tools and equipment for that work only. In that case, the cost is included under the overhead and establishment charges.

4. Overhead cost

Overhead costs are costs that cannot be associated with a particular work but are necessary to carry out that work. Costs such as office rent, the salary of office staff, electricity bills, telephone bills, postage and paperwork, traveling, and other expenses that cannot be associated with a particular work are generally considered overhead or establishment charges.

Overhead and establishment charges are generally considered to be 2.5 % to 5% of the unit rate. Overhead cost increases if the project is delayed and it is directly proportional to the time the project is carried on.

Overhead cost can further be divided into general overhead cost and job overhead cost. General overhead costs are those costs that are for general work and it is not related to that work only. For example, a contractor needs to pay the salaries of staff even if he has no work to do, this type of cost come under general overhead cost. Those costs that are specifically associated with a particular work come under job overhead costs.

5. Contractor’s Profit

Generally, 10% profit is considered for any work by a contractor. But for small work, the contractor can quote up to 15% for profit and for appropriately large work only 8% profit is considered as reasonable profit.

Water charges

Water is necessary for any construction project. Water is needed for labour to drink and bath and also water is needed to carry out construction work like concreting and other work. Generally, 1% of the total cost of material and labour is considered a reasonable cost for water charges towards the municipality or Corporation.

Purpose of Rate Analysis

The primary reasons for rate analysis are as follows:

1. To arrive at the local rate per unit of an item or work.
2. To finalise Rates for Labour contracts.
3. To work out the quantity of material required and also the number of labours required to complete work.
4. To finalise the quotation submitted by contractors.

Factor Affecting Rate Analysis

The unit rate of any work mainly depends upon the following factors:

1. Specification of work that indicates the quality of workmanship and material to be used.
2. The current rate of material at the work site.
3. Wages of the workers and laborers.
4. Overhead percentage charges including theft and insurance charges.
5. Profit considered by contractor and availability of water at the site.
6. Distance of godown and work site for which lead and lift charges can increase.

All the above-mentioned factors mainly affect the unit rate of any work but there are other factors that can impact the unit cost. Site organisation and site condition as well as the cost control during the execution of work can also impact the unit cost of any work.