Financial Management
What are Preliminaries in Construction
Preliminaries, or "prelims," are indirect costs in construction projects that support operations but aren’t tied to specific tasks like pouring concrete or installing windows. These costs cover site setup, management, temporary facilities, and administrative needs.
Understanding Preliminaries in Construction: A Guide for Cost Accountants
As a finance manager at a large general contractor (GC), ensuring cost accountants (CAs) understand preliminaries is essential for accurate budgeting and project success. This guide provides a concise overview of preliminaries, their importance, and practical examples across different construction projects, tailored for a website audience.
What Are Preliminaries?
Preliminaries, or "prelims," are indirect costs in construction projects that support operations but aren’t tied to specific tasks like pouring concrete or installing windows. These costs cover site setup, management, temporary facilities, and administrative needs, typically accounting for 10-20% of the project budget. They are time-related, project-specific, and critical for maintaining profitability.
Why Preliminaries Matter for Cost Accountants
For CAs, preliminaries are a significant budget component. Accurate tracking ensures:
Precise budgeting and forecasting.
Proper allocation of overheads.
Identification of cost-saving opportunities.
Compliance with contract requirements.
Categories of Preliminaries
Preliminaries fall into six key categories, each with specific costs:
Site Establishment and Setup: Costs to prepare the site, such as fencing, access roads, signage, and equipment mobilization.
Site Management and Supervision: Salaries for project managers, supervisors, safety officers, and administrative staff.
Temporary Works and Facilities: Temporary structures, utilities, and equipment like site offices, power, toilets, and cranes.
Administrative and Overhead Costs: Permits, insurance, documentation, and communication systems.
Health, Safety, and Environmental Compliance: Safety training, personal protective equipment (PPE), environmental controls, and first aid facilities.
Demobilization and Site Handover: Costs for equipment removal, site cleanup, restoration, and handover documentation.
Examples Across Project Types
Commercial Office Building (e.g., 10-story urban tower)
Site Establishment: Perimeter fencing and security gates for a busy urban site, temporary access for cranes, and project signage.
Management: A project manager, two supervisors, a safety officer, and an admin staff for 18 months.
Temporary Facilities: Rented site offices, temporary power, toilets, and extensive scaffolding/cranes for high-rise work.
Administrative: Building permits, project-specific insurance, document control systems, and communication tools.
Safety/Environmental: Worker safety training, PPE for 50 workers, dust control, and an on-site medical station.
Demobilization: Removing cranes, cleaning the site, restoring the perimeter, and preparing as-built drawings.
Residential Development (e.g., 50-unit suburban apartment complex)
Site Establishment: Temporary fencing, gravel access roads, and basic signage for a smaller suburban site.
Management: A project manager, one supervisor, a safety officer, and an admin for 12 months.
Temporary Facilities: Smaller site office, basic power supply, portable toilets, and limited scaffolding.
Administrative: Local permits, basic insurance, and minimal documentation.
Safety/Environmental: Basic safety training, PPE for 20 workers, and simple waste management.
Demobilization: Removing smaller equipment, basic cleanup, and minimal landscaping.
Infrastructure Project (e.g., highway extension)
Site Establishment: Extensive fencing along a 5-km stretch, temporary roads for heavy machinery, and large safety signs.
Management: Two project managers, three supervisors, two safety officers, and two admins for 24 months.
Temporary Facilities: Larger site offices, high-capacity power supply, multiple toilets, and heavy-duty cranes.
Administrative: Environmental and road permits, comprehensive insurance, and extensive compliance documentation.
Safety/Environmental: Extensive safety training, PPE for 100 workers, erosion control, and multiple first aid stations.
Demobilization: Removing heavy machinery, extensive cleanup, revegetation, and detailed compliance reports.
How to Estimate Preliminaries
Review Project Scope: Analyze size, duration, location, and contract requirements.
Use Historical Data: Reference past projects for accurate cost estimates.
Break Down Costs: Categorize costs as lump sums or time-based rates.
Apply Benchmarks: Preliminaries typically range from 10-12% for simple projects to 15-20% for complex ones.
Include Contingencies: Add 5-10% for unexpected costs like delays.
Validate with Teams: Collaborate with project managers for realistic estimates.
Tips for Cost Accountants
Avoid Pitfalls: Don’t underestimate time-based costs, ignore contract specifics, or overlook small expenses.
Track Costs: Use software like Plexa to monitor preliminaries in real-time.
Review Regularly: Compare actual vs. budgeted costs monthly.
Collaborate: Work with site teams to optimize resources and reduce costs.
Conclusion
Preliminaries are vital for project success, and CAs play a key role in managing these costs. By understanding their components, estimating accurately, and tracking diligently, you ensure profitability and compliance. For tailored examples or cost-tracking strategies, consult with your finance manager or project team.
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