Each layer of a contract sum is a percentage of the layer beneath it, so the percentages compound, and a percentage quoted without its base means nothing.
Preliminaries are calculated as a percentage of the measured and external works, and overheads and profit (OH&P) as a percentage of the works plus preliminaries, so the percentages compound rather than add. On an illustrative 96-apartment scheme, 20,075,200 of works carries preliminaries of 3,011,280 at 15.0 per cent and OH&P of 1,385,189 at 6.0 per cent, and the contract sum reaches 26,301,102. The same preliminaries are only 11.4 per cent of that contract sum, which is the first place two people quoting "15 per cent" stop meaning the same thing.
Worked in full in Construction Cost Control by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A contract sum is a stack of layers, each a percentage of the layer beneath it, with provisional sums added at the end. Building it in that order is what lets a cost manager move one input and see every layer above it rebuild. It is also what lets a client read a tender: the percentages are not costs in themselves, they translate into weeks of site management, cranes and hoarding, and into the contractor's margin.
| Input | Value |
|---|---|
| Gross internal area, m2 | 8,640 |
| Measured works rate, per m2 | 2,180 |
| External works and site | 1,240,000 |
| Preliminaries, on works | 15.0% |
| Overheads and profit, on works plus preliminaries | 6.0% |
| Contractor's design development allowance, on the subtotal | 2.0% |
| Provisional sums, added last | 1,340,000 |
| Apartments | 96 |
Works = rate × GIA + external works
Preliminaries = works × prelims %
OH&P = (works + preliminaries) × OH&P %
Contract sum = (works + prelims + OH&P) × (1 + design allowance %) + provisional sums
In Excel, one row per layer: =B1*B2+B3 for the works, =B4*B5 for preliminaries, =(B4+B6)*B7 for OH&P, and so on. Never type a layer as a number: each is a formula on the row beneath, so a change to the measured rate carries through.
| Layer | Amount | % of contract sum |
|---|---|---|
| Measured works, 2,180 × 8,640 | 18,835,200 | |
| External works and site | 1,240,000 | |
| Works | 20,075,200 | 76.3 |
| Preliminaries, 15.0% of 20,075,200 | 3,011,280 | 11.4 |
| Subtotal | 23,086,480 | |
| OH&P, 6.0% of 23,086,480 | 1,385,189 | 5.3 |
| Subtotal | 24,471,669 | |
| Design development allowance, 2.0% | 489,433 | 1.9 |
| Subtotal | 24,961,102 | |
| Provisional sums | 1,340,000 | 5.1 |
| Contract sum | 26,301,102 | 100.0 |
The contract sum is 26,301,102: 3,044 per m2 of gross internal area and 273,970 per apartment. The three percentages compound to a multiplier of 1.2434 on the works, an uplift of 24.3 per cent, so the measured rate of 2,180 is really 2,711 per m2 once preliminaries, OH&P and the design allowance sit on top of it. Every 1 per m2 added to the measured rate adds 10,743 to the contract sum.
The preliminaries are then worth translating into the unit they are spent in. Assume, illustratively, that 25 per cent of them are fixed (set-up, mobilisation, removal) and the rest time-related over a 100-week programme. The time-related preliminaries are 2,258,460, or 22,585 a week on average, and 23,940 a week with OH&P on them. Dividing all the preliminaries by the programme, 30,113 a week, wrongly spreads one-off set-up costs over every week. Even the time-related average is only a tender comparison figure: a delay is priced at the resources on site in the weeks it bites, as how to calculate prolongation costs works through.
The provisional sums, 5.1 per cent of the contract sum, sit outside every percentage. That keeps the tender comparable, but it also means 1,340,000 of the price carries no preliminaries or margin yet; both arrive when the work is instructed and valued, which is why provisional sums tend to grow on the way to the final account.
| Preliminaries on works | Preliminaries | Contract sum | Per m2 | Change | Prelims as % of contract sum |
|---|---|---|---|---|---|
| 10.0% | 2,007,520 | 25,215,837 | 2,918 | −1,085,265 | 8.0 |
| 12.5% | 2,509,400 | 25,758,470 | 2,981 | −542,633 | 9.7 |
| 15.0% | 3,011,280 | 26,301,102 | 3,044 | 0 | 11.4 |
| 17.5% | 3,513,160 | 26,843,735 | 3,107 | 542,633 | 13.1 |
| 20.0% | 4,015,040 | 27,386,367 | 3,170 | 1,085,265 | 14.7 |
Each 2.5 points of preliminaries moves the contract sum by 542,633, more than the 501,880 of preliminaries itself, because OH&P and the design allowance ride on top. A measured rate 90 per m2 higher, 2,270, adds 966,852. When comparing tenders, compare preliminaries in money and per week, never as a percentage, because two contractors can price the same site set-up against different bases.
OH&P applied on top of preliminaries means the contractor earns 180,677 of margin on its site set-up and management alone. That is normal, but it means a prolongation claim priced on preliminaries including OH&P carries the margin through to every week of delay.
Build the contract sum layer by layer: preliminaries on the works, OH&P on works plus preliminaries, then the allowances, then provisional sums. Here 15.0 and 6.0 per cent become 11.4 and 5.3 per cent of a 26,301,102 contract sum, and 2,180 per m2 becomes 2,711 all in. The free workbook for this case rebuilds the contract sum from its inputs and gives your own time-related preliminaries per week before signature.
It depends on the scheme and, above all, on the base the percentage is quoted on. On the illustrative residential scheme, preliminaries of 15.0 per cent of the works are 3,011,280, which is only 11.4 per cent of the 26,301,102 contract sum. Compare tenders in money and per week of programme, here about 22,585 of time-related preliminaries a week, not as percentages.
Usually yes: overheads and profit are applied to the works plus preliminaries, so the contractor earns its margin on the site set-up too. On the illustrative scheme 6.0 per cent of 23,086,480 is 1,385,189, of which 180,677 is margin on preliminaries. Adding the percentages instead of compounding them understates the add-ons by 268,606.
Fixed preliminaries are incurred once, such as set-up, mobilisation and removal; time-related preliminaries accrue every week the site is open, such as management, cranes and welfare. Assuming 25 per cent fixed on 3,011,280 over a 100-week programme, time-related preliminaries are 2,258,460, or 22,585 a week, against 30,113 a week if all preliminaries are wrongly spread over the programme.
This article is one calculation from Construction Cost Control. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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