As an illustration of the principles above set forth, attention is invited to figures (pages 206 to 209 inclusive) for the labor cost of masonry for two months upon the Roosevelt dam. They are revised slightly from some that were published at the time. Comparing two such periods it is to be expected that certain items of expense would be constant and the unit cost vary inversely as the output; also that certain other items would vary nearly as the output and show nearly constant unit costs. Thus for the two months under consideration, March, 1909, with an output of 18,328 cu. yd. should show for constant items as power-house attendance or general expense, unit costs 65.5 per cent, of those for March, 1908, with an output of 12,000 cu. yd. The other extreme of 100 per cent, would be reached in the case of an item where the total expense varied exactly as the output. However, no such item occurred in this case and might indeed rarely be possible. Arranging the unit costs in order between the two above extremes, we have:
Per cent. 1909 of 1908
Power-house attendance, constant...
Power, not including attendance....
The first two items show the expected percentages. Mixing was very largely an operation where certain attendants were required to run the equipment irrespective of output. Transporting materials show somewhat more flexibility in the force engaged. In the matter of quarrying, it must be said that quarry conditions are very difficult to compare; unit costs were based upon quantities used in the masonry which may not strictly represent relative quantities produced. If accurate figures could have been kept for production as distinguished from use the operation might have shown up more in proportion to output. However, there could not have been a wide difference from the foregoing figures, and we may see that the quarry force expanded or contracted more as one large unit than as several small ones. In the item of laying masonry a derrick and a certain force constituted a much more definite unit than in the quarry, and increased production was accomplished by increasing the number of units from three to five. That there was a slight reduction of unit cost was due to the evolution of more efficient and economical forces during the year, instead of to increased output.
Attention has been directed to the cost of items which are not paid for directly as items of the contract. Many indeed are not mentioned at all. It is only by analyzing and itemizing all the operations, and carefully considering what plant and process is involved in each case, that a complete list will be arrived at. Such items as stripping of quarries and sand pits are of course naturally included in the estimate. Others are far less obvious and an attempt will be made to suggest them under the head of contingencies.
The relative size and importance of the total for an item has a bearing on the process of making up an estimate. Thus if accompanying an item of 300,000 cu. yd. of rubble is an item of 300 cu. yd. of dimension stone, it is useless to expend gray matter in figuring whether the latter will cost $35 or $40 per cu. yd. An equal accuracy would require that the cost of the rubble be determined to 1/2 cent per cu. yd. Again if certain temporary works be estimated at $100,000 and one-half of it is to be charged off to the excavation of 20,000 cu. yd. of material below water level, it is immaterial whether the cost of such excavation be figured at 50 cents or 60 cents.
Whatever the system of accounting may be, or however accounts may be kept to show the cost of various features of the work, it is necessary or convenient to lump under general expense many items that cannot at the time be readily assigned to another account. At the end of the work this account may be distributed among any number of feature cost accounts in proportion to their other costs, their credit amounts or in any other manner desired. Obviously no definite line may or need be drawn between the items charged to general expense and those charged to the particular features. Certain of the plant as office buildings may be carried either as plant or as general expense. Certain salaries as for book-keeper and time-keeper, may obviously be distributed at the end of the work; others such as for general superintendent, master mechanic, power house and repair shop employees merge gradually into those chargeable immediately to their proper accounts.
Material accounts may be charged with the materials when acquired and credited when the materials are used and charged to the feature upon which they are used. Some materials may be chargeable to general expense, as also would be any discrepancy between material accounts and stock actually on hand upon taking inventory or at end of work. However, details of accounting systems need not be entered upon here. It will only be pointed out that an accurate and intelligent final analysis requires that as far as possible expenses should be distributed when incurred. The suggested principal items of general expense are:
Expense of investigating, estimating and securing the work (see also overhead expense). Maintenance of the field office. Certain salaries as for book-keeper, time-keeper, general superintendent, postage, telephone, telegraph. (Freight bills go primarily to the plant or material accounts.) Traveling expenses.
Unaccounted for discrepancies in plant or material accounts at end of work. Legal expenses. Entertainment expense. Police; enforcing sanitary regulations, etc. Interest on capital (a) Invested in plant.
(b) Advanced on materials entering into the work.
(c) To carry the pay-roll until such time as the monthly estimates will do it.
(d) Retained percentage.
Cost of the bond usually required for faithful performance of the work.
Items of expense which may possibly be encountered, but which still are not anticipated to a degree justifying their inclusion in the estimate should be considered and allowed for under the head of contingencies. Contingencies should also include some insurance against absolutely unforeseeable accidents; in fact, the entire matter is insurance. Certain prices, which are considered fair and altogether probable of realization, have been fixed for the various items. The contingent fund is a portion of the difference between such probable figures and the figures under the worst possible conditions. It is only a portion of the difference for, according to probabilities, all items cannot become adverse. Further, any one item is seldom adverse to the limit. It is idle to discuss what proportion the contingent fund might properly be. It might vary in each case depending on the duration of the work, the completeness or information as to conditions, the experience of the bidder and for many other reasons.
In case the owner is able and willing to carry such cost of insurance a contract may be entered into whereby the contractor does the work on a basis of cost plus either a percentage or a fixed sum. Such percentage or fixed sum secures the contractor's experience in such work, the benefit of his already assembled and available plant and perfected organization. Under such an arrangement it might be said that the contractor is less liable to put forth strenuous efforts to keep down the cost of the work. Whether such carrying of insurance and guarantee of a reasonable profit would be a good arrangement for the owner depends in any case upon the nature of the work and the character and experience both of the contractor and the owner's engineer. At least it is an increasingly common way of conducting work.