CONSTRUCTION
COST INDICES
By
Er. Basab Majumdar
Director General
Central Public Works department,
Government of India
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150 years of fine traditions
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Vice Regal Lodge,
Shimla-1884-88
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Hall of Nations, ITPO
New Delhi 1972
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ROLE OF CPWD
• CONCEIVE
• PLAN
• CONSTRUCT
• MAINTAIN
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CPWD
• CPWD has on its role nearly 8500 trained
engineers, architects, horticulturists and
other technical staff
• It has an annual turnover of about Rs. 34
billion
• It has an annual growth rate of about 4-5
percent
• Is considered to be one of the most
respected public construction organisation
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SECTORS OF OPERATION
OF CPWD
• HOUSING • INFRASTRUCTURE
• EDUCATION • SPORTS &
CULTURE
• HEALTH • NATIONAL
SECURITY
• AGRICULTURE • INDUSTRY
• TOURISM • ENVIRONMENT
• SCIENCE & TECHNOLOGY • AVIATION
• CAMPUS DEVELOPMENT
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WORK LOAD
Rs. in Crores
4000
3561
3500 3292 3407
2943
3000
2508 2671
2500 2377
2065
2000 1793
1611
1500 1392
1200
994
1000
500
0
91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04
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India fact file
• Area: 32,87, 590 Sq. Kms.
• Population: More than 1000 million
• Climate: Tropical in South to temperate in
North
• Languages: 14 major languages & more
than 100 minor languages & dialects
• More than half million villages, 4000 cities
and towns – 300 having a population of
more than 100,000
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Importance of construction in India
• Second largest employment generator
• Contributes about 6-7 percent in GDP of
the country
• More than 100,000 small and large
enterprises involved in this field
• Considered as vehicle of growth in country
• Demand for infrastructure spurring growth
in this sector
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Project costs
The capital cost for a construction
project includes the expenses related
to the initial establishment of the
facility:
• Land acquisition, including assembly,
holding and improvement
• Planning and feasibility studies
• Architectural and engineering design
• Construction, including materials,
equipment and labor
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Project costs contd…
• Field supervision of construction
• Construction financing
• Insurance and taxes during construction
• Owner's general office overhead
• Equipment and furnishings not included in
construction
• Inspection and testing
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Operational & Maintenance costs
• It is equally important to estimate the
corresponding operation and maintenance
cost of each alternative for a proposed
facility in order to analyze the life cycle
costs
• The large expenditures needed for facility
maintenance are required to be assessed
to consider fully the implications of
operation and maintenance cost in the
design stage itself
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Operational & Maintenance costs
The operation and maintenance cost in
subsequent years over the project life cycle
includes the following expenses:
• Land rent, if applicable
• Operating staff
• Labor and material for maintenance and repairs
• Periodic renovations
• Insurance and taxes
• Financing costs
• Utilities
• Owner's other expenses
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Cost Estimation
• According to the American Association of
Cost Engineers, cost engineering is defined
as that area of engineering practice where
engineering judgment and experience are
utilized in the application of scientific
principles and techniques to the problem of
cost estimation, cost control and profitability.
• Cost estimating is one of the most
important steps in project management.
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Cost Estimation
• A cost estimate establishes the base line
of the project cost at different stages of
development of the project.
• A cost estimate at a given stage of project
development represents a prediction
provided by the cost engineer or estimator
on the basis of available data.
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Construction Cost Estimates
• Construction cost constitutes a substantial
fraction of the total project cost
• The required levels of accuracy of
construction cost estimates vary at
different stages of project development,
ranging from rough cost figures in the
early stage to fairly reliable figures for
budget control prior to construction
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Construction Cost Estimates
• Since design decisions made at the
beginning stage of a project life cycle are
more tentative than those made at a later
stage, the cost estimates made at the
earlier stage are expected to be less
accurate.
• Generally, the accuracy of a cost estimate
will reflect the information available at the
time of estimation.
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Types of Construction Cost
Estimates
• Construction cost estimates may be
viewed from different perspectives
because of different institutional
requirements
• In spite of the many types of cost
estimates used at different stages of a
project, cost estimates can best be
classified into three major categories
according to their functions
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Types of Construction Cost
Estimates
• A construction cost estimate serves
one of the three basic functions:
–design
–bid
–Control
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• Virtually all cost estimation is
performed according to one or some
combination of the following basic
approaches:
– Production function
– Empirical cost inference
– Unit costs for bill of quantities
– Allocation of joint costs
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Unit Cost Method of Estimation
• If the design technology for a facility has been
specified, the project can be decomposed into
elements at various levels of detail for the
purpose of cost estimation
• The unit cost for each element in the bill of
quantities must be assessed in order to
compute the total construction cost.
• This concept is applicable to both design
estimates and bid estimates, although different
elements may be selected in the decomposition.
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Unit Cost Method of Estimation
• For design estimates, the unit cost
method is commonly used when the
project is decomposed into elements
at various levels of a hierarchy as
follows:
• Preliminary Estimates
• Detailed Estimates
• Engineer's Estimates
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Estimates
• Preliminary Estimates. The project is decomposed into
major structural systems or production equipment items,
e.g. the entire floor of a building or a cooling system for a
processing plant.
• Detailed Estimates. The project is decomposed into
components of various major systems, i.e., a single floor
panel for a building or a heat exchanger for a cooling
system.
• Engineer's Estimates. The project is decomposed into
detailed items of various components as warranted by
the available cost data. Examples of detailed items are
slabs and beams in a floor panel, or the piping and
connections for a heat exchanger.
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Cost Index
• A ratio between composite costs at one
period of time compared to the same
composite cost at the base year.
• The index number thus indicates the
change in cost between the base year and
the later date.
• The base year is the base reference point
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Building Cost index in CPWD
• CPWD brings out construction cost indices
for various locations in India at regular
intervals
• These are used for estimation purposes
only
• Calculation is based on 12 important inputs
each being given a defined weightage
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Inputs for building cost index
Sl. Item description Unit Weightage
No.
1 Bricks 1000 (in 10.50
numbers)
2 Cement (OPC) Quintal 14.50
3 Steel Quintal 19.50
50% small
dia.(8mm -10 mm)
50% higher
dia.(12mm-16mm)
4 Aggregate (20mm Cubic 7.00
size) metre
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Sl. Item description Unit Weightage
No.
5 Sand Cubic 3.00
metre
6 Paints 3.00
(a) Synthetic enamel 50% Litre
(b) Dry distemper 50% Kg
7 Ply and commercial Sqm 5.00
wood
(i) 12 mm particle 25%
board
(ii) 12 mm medium 25%
density fiber board
(iii) Steel windows
50% 29
Sl. Item description Unit Weightage
No.
8 Pipes Metre 2.50
(i)15mm GI pipes 33.33%
(ii)100mm HCI pipes 33.33%
(iii)20mm black 33.33%
conduits
9 Lamps & ceiling Each 3.50
fans
(i)Ceiling fans 48” 50%
(ii)1200mm Fl.
Fitting with single 50%
tube
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Sl. Item description Unit Weightage
No.
10 Electric machinery Each 2.50
7.5HP motors (1500rpm)
11 Wires & cables 100 4.00
(i) Wires (70% of metre
1.5sq.mm & 30% of
4.0sq.mm)
(ii) Cables (300 sq.mm
12 Labour: Each 25.00
(i) Unskilled 50%
(ii) Skilled 50%
Total 100.00
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Reasons for assigning weightages
The weightages adopted in the
calculation of cost index have been
defined on historical data for the type
of construction being carried out and
the technology being used
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Proof of accuracy of building cost
index
Cnstruction cost index and WPI variations
500
450
400
350
300
Value
250
200
150
100
50
0
Construction
31/3/1992
1/1/1993
1/1/1994
1/6/1995
1/6/1996
1/6/1997
1/6/1998
1/9/1999
1/7/2000
1/4/2001
1/4/2002
1/4/2003
cost index
100 Year
Whole sale
price index 33
Application of building cost index
• It is used for preparation of preliminary
estimates
• The cost of a project is estimated using a
“Plinth area rate”-which is the unit cost of
construction. This unit cost is then
enhanced by the building cost index
issued by the department to assess the
current cost of production of a building
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Other cost indices being used
• Maintenance cost index
• Construction cost index for payment
of escalation
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Cost index for maintenance
estimates
• Maintenance cost index
– Used for assessing the cost of maintaining a
utility
– This is based on a composition of 7 items
consisting of labour 31.5% and materials
required for maintenance such as
lime/paint/cement etc.
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Cost index for payment of
escalation
• Payment of escalation for the following
items is made by CPWD for works
contracts
– Labour
– Steel
– Cement
– Other materials
– POL
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Cost index for payment of
escalation
• Payment of escalation is made on basis of
following formula:
• Variation in component = Value of work
done*(value of component/100)*{(value of
current index-base index)/base index}
• Base Index is for date of receipt of bid and
current index is for period for which
escalation is to be paid
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Shortcoming in cost index
being used by CPWD
• The index is general in nature and is designed on
basis of historical data for given type of buildings
being built with specifications given in “CPWD
plinth area rates”
• When applied to works having different
specifications it does not yield accurate results
• Issue is being examined to bring out different
indices for different types of buildings and types of
methodology used for construction
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THANK YOU
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