Direct Labor Costs: Understanding Their Role in Business Performance - Essay Sample

Introduction

Understanding accounting figures assist the management to understand the performance of the business so that they can make important changes and gain more benefits. The expenditures in an entity's income statement differentiate between the costs that contribute directly into revenue generation and those that funnel to the infrastructure and background that keep the firm running and set the stage for the company to earn revenue (Chan, 2012). Direct labor costs such as remuneration for hours worked are directly tied to income, while labor overheads facilitate the maintenance and any other task that do not directly translate into production and revenue.

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Direct labor costs are categorized as variable costs since they vary directly relative to the organization revenue, which means it takes more effort to build five apartments than two. Despite enjoying some economies of scale as one construct more infrastructures, it is evident that producing a large number of infrastructures demand more labor (Chan, 2012). In addition, to direct labor a construction contractor must maintain the information and physical systems that sanction the firm to work and deliver the necessary results to clients such as writing employee paychecks and handling inventory. These indirect labor costs are traced as part of the overhead costs rather than direct or indirect costs. Therefore, direct costs relate to the construction of the infrastructures, while overheads costs relate to those that maintain the company even if they have no contracts.

Describe what should be included in a construction project tender cover letter.

A tender cover letter is an imperative tool in the construction tendering process. Thus, a great tender cover letter gives the company a competitive edge against other applicants. It facilitates the company to highlight the reasons why the firm should be granted the project through the provision of its past and current successes information that is significant to the specifications it is bidding for (Hosny et al., 2019). Hence, persuasive writing, backed by facts, shows the project owner why the company is the best fit to be awarded the tender. A tender cover letter must entail the following elements.

Introduction: First, the cover letter must have a brief introduction thanking the buyer for inviting the company to tender, which is usually a short sentence along that line.

Win theme: this is a specific or unique reason why the company should be awarded the tender that does not comprise general statements and should support the theme in the general document. Thus, it is should be short and direct and supporting the content of the applicants' tender. A tender cover letter must have a winning theme.

A commitment statement: is a mandatory statement, which outlines and described the applicant's reasons for why they are committed to the project's success, that is, the commitment of the applicant company to making the contract a success. Besides, the applicant can include other project details that the firm has successfully completed.

An administrative note: this is an optional element that describes some aspects of the tender such as its structure and contents. For, instance, the applicant may be tendering as a joint venture or have an extra audio-visual DVD that expounds on the firms' past successes.

Contact- this is an optional element and includes details such as name, position, telephone, and email of the appropriate contact individual in the applying company and the best method of reaching them. Indeed, this assists in building a relationship between the two firms and provide the reader with an idea of the firm they are dealing with in case they are awarded the tender. In essence, a cover letter is crucial for a firm to be competitive in the tender process and in winning those (Hosny et al., 2019).

Summarise the various types of construction contracts.

Inside the construction industry, there are several different kinds of contracts. A certain contract type is normally determined according to how disbursement is made and varies from one project to another. The specific information of the contract includes duration, quality, specifications, penalties for delays, and the scope of the work. Finally, the contract acts as a lawfully obligatory agreement concerning two groups indicating that they will finish work and be remunerated respectively. Thus, this question will summarise the four most common types of construction contracts.

Unit Price Contracts

In this kind of agreement, both parties take a little risk. On the one hand, the applicant determines a certain price for a specific task. On the other hand, the buyer must consent to pay that price for the total units the contractor provides. There are several gains for both the owner and the contractor in a unit price pact. The contractor's profit since they do not have to be concerned about the incorrect estimation for particular tasks, while the project owners gain for the reason that they can effortlessly verify that the price they are being charged is at reasonable price rates. Therefore, this kind of agreement is employed on repetitive projects or those dealing with public works.

Cost Plus Contracts

In this kind of construction agreement, the client or the project's owner assumes more risk. The project's cost-plus contract authorizes the owner to pay the costs of procurements, construction work, and other overheads created as a result of the construction activity. In fact, there are several alternatives to cost-plus agreements such as cost plus fixed fee, cost price fixed percentage, and cost-plus with a guaranteed maximum price and bonus agreement, and cost-plus with guaranteed maximum price agreement. These various types of contract help in lowering and protect the owner's risk. In essence, this kind of agreement is mostly employed when the extent of the construction work has not been well-defined (Goldwin, 2012). Besides, this contract type requires more tracking and supervision.

Time and Material Contracts

In this kind of agreement, the project's buyer acquires more risk. It involves the buyer paying for materials and time spent on the project, which mostly encompasses the contractor and the owner assenting upon project expenditures and pay rates that arise throughout the project. The owner takes a higher risk in such events since they are supposed to pay for overtime costs. Towards protecting the project buyer, time, and material deals normally create a maximum price clause. Therefore, this kind of agreement is mostly employed when the range of the project is unclear and small.

Lump-Sum/Fixed Price Contacts

In this kind of agreement, the tenderer takes up more risk. It specifies that a total fixed price will be compensated for all the construction work. The owner’s consent to settle this price and the contractor agrees to finish the construction project for the fixed price. Also, the supplier assumes one extra risk in this circumstance since there is always the probability of possible higher prices and problems. To protect the contractor some of these types of contracts encompass allowances that specify specific expenses to the buyer if they go over budget (Goldwin, 2012). Furthermore, the lump sum contract may also contain incentives in case they complete a project earlier than the timeframe or below the budget along with penalties the contractor does not honor the deadline. Fixed-price contracts are usually employed when the buyer needs to avoid dealing with change orders for undetermined work.

In conclusion, before the contractors and the owners of the project can agree, they must ensure that the contact is protecting both their interests since construction projects encompass a huge amount of capital and risk so that they can select.

What comprises tender documentation?

A tender is a transactional model where government bodies, large companies, and non-governmental organizations find contractors and suppliers for procurements or certain projects (Uyarra et al., 2014). Thus, tenders create the foundation of the tendering process employed by both the private and public institutions. Invitation to Tender document is commonly used by companies to invite bids from willing contractors. Therefore, for the tendering process to be successful, it needs elaborate paperwork and record-keeping. Hence, tender documents are a crucial part of the process. Tender documents include A letter of invitation; The form of the tender; Preliminaries, which include site waste management plan and pre-construction information; The form of contract, contract conditions, and amendments; A tender pricing document; Employer's information requirements for BIM; Design drawings; Specifications; and Tender return slip. Copies of these tender documentation must be kept for records (Brook, 2016).

What is Quantity Surveyor work?

According to Olanrewaju & Anahve (2015), Quantity surveying entails cost management, procurement, and contractual problems in the marketplace and supply chain. Their quantity surveyors are advised on the cost of the implications of the client's needs and other stakeholders' decisions. They update and monitor initial evaluations and contractual duties as the building work continue founded on extra work and variations. Most quantity surveying works regard building engineering practices as specialized duty despite some having no professional knowledge and skills to give expert advice on construction engineering services. They offer advice on the strategic planning of a project. In a construction undertaking, their advice influence customers decisions on whether to build or not and if the customers opt to build what impact does the cost have on other criteria within the users/clients value systems such as quality and time, aesthetics and comfort, function, and satisfaction (Olanrewaju & Anahve, 2015).

Therefore, quantity surveyor in the modern construction landscape is the lead consultant and prepares accurate estimates that contributes to the success of the project through pushing the project owners to demand on-time completion, within the budget, safety, reliability, and with maximum performance, while meeting other set criteria within the value system of the customer (Olanrewaju & Anahve, 2015). Contemporary quantity surveyors have diversified their services they provide into various sectors that include manufacturing, petrochemical, mining, automobile, telecommunication, transport, agriculture, and shipping, which have been driven by the changing customer needs and culture of elasticity.

What is a Bill of Quantities and what is it used for?

A bill of quantity (BoQ) is a document employed in the building and construction industry and drafted by the quantity surveyor or the cost consultant that gives the specific quantities of work items such as material and labor costs acquired through specifications and drawings in the tender documentation. These quantities are calculated in length, weight, time, volume, area, and length (Brook, 2016). To prepare the BoQ it needs that a specification has been prepared and design is complete. Therefore, it allows the quantification and costing of the building works and maybe prepared during various stages on a sample of the works or a project for all of the works (Brook, 2016).

Usually, the BoQs are planned at the outset of a project by the clients' quantity surveyor. And are issued out as part and parcel of the tender documents providing a reliable pricing document i...