Estimating, costing, and valuation

Before any project is approved, its cost must be estimated; before work is tendered, quantities, rates and specifications must be prepared; and property often needs to be valued for sale, mortgage, tax or compensation. In Nepal, government works use the district rate (fixed annually by the District Rate Committee) and the norms for rate analysis issued by the Department of Roads (DoR) or DUDBC/ministries, under the Public Procurement Act 2063 and Regulations 2064. This note covers estimate types, methods, rate analysis, specifications and valuation.

Key concepts

Types of estimate

Estimate	Purpose / Basis
Preliminary (approximate, rough)	Early decision, feasibility; based on unit costs (per m², per bed, per km)
Plinth area estimate	Plinth area × rate per m²
Cubical content estimate	Volume (plinth area × height) × rate per m³
Unit base estimate	Cost per unit of use (per student, per bed)
Detailed estimate	Item-wise quantities from drawings × rates; basis for technical sanction and tender
Revised estimate	When original estimate exceeds the sanction by a set margin or design changes
Supplementary estimate	Additional work not in original estimate
Annual repair/maintenance estimate	Upkeep of existing works

Detailed estimate = quantities (measurement sheet) → abstract of cost; plus contingencies (~3–5%), work-charged establishment, VAT (13% in Nepal), and sometimes physical/price contingencies.

Methods of estimating (buildings)

• Long wall–short wall method: long walls measured out-to-out, short walls in-to-in.
• Centre line method: total centre line length × section; deduct half the breadth for each T-junction. Fast when walls have similar sections.
• Crossing method: walls measured between crossings, junctions added.
• Units of measurement: earthwork, concrete, masonry in m³; plaster, flooring, painting in m²; DPC in m²; reinforcement in kg/quintal; pipes in m; doors in nos or m².
• Deductions in plaster/masonry follow standard rules (e.g. small openings are not deducted, larger ones are).

Rate analysis

Determining the unit cost of an item of work: $\text{Rate} = \text{Materials} + \text{Labour} + \text{Tools/Equipment} + \text{Overhead \& Profit}$

• Material quantities from norms (e.g. per m³ of concrete), labour from productivity norms (mason, helper man-days), plant hire, transportation and royalty.
• Contractor's overhead and profit added at the percentage set by the applicable norms.
• Factors affecting rates: specification, location/remoteness (transport from road head), quantity, season, market prices, labour wages.

Material for 1 m³ of 1:2:4 concrete (dry volume method): dry volume ≈ 1.52–1.57 × wet volume. Cement = $1.54/7$ m³ ≈ 0.22 m³ ≈ 0.22 × 1440 kg ≈ 317 kg ≈ 6.3 bags (50 kg).

Specifications

• Purpose: define quality of materials and workmanship, method of construction, testing and measurement; basis for tender, rate analysis and dispute resolution.
• Importance: ensure uniform quality, protect owner and contractor, help in fixing fair rates and checking work.
• Types:
  • General (brief) specifications – nature and class of work, materials in general.
  • Detailed specifications – item-by-item description: materials, proportion, method, curing, tests, mode of measurement.
  • Standard specifications – issued by departments (e.g. DoR Standard Specifications for Road and Bridge Works).
  • Performance (functional) vs prescriptive (method) specifications; proprietary (brand-specific).

Valuation

• Estimating the present worth of a property.
• Purposes: buying/selling, mortgage/loan, rent fixation, taxation, insurance, land acquisition compensation.
• Terms: market value, book value, scrap value (after demolition), salvage value (value of reusable parts at end of life), sinking fund (annual deposit to replace asset), depreciation, year's purchase (YP = 100/rate of interest, capital to secure Re. 1 per year), obsolescence.
• Methods: rental (income capitalisation) method, comparative/market method, land and building (cost) method, development method, profit-based method.
• Depreciation methods: straight-line, constant percentage (declining balance), sinking fund, quantity survey.

High-yield points

• Long wall–short wall method: long walls out-to-out, short walls in-to-in.
• Centre-line method: deduct half the wall width for each T-junction.
• Dry volume of concrete ≈ 1.52–1.57 × wet volume; one 50 kg cement bag ≈ 0.0347 m³.
• Year's purchase (perpetual) = 100/rate %; capitalised value = net income × YP.
• Scrap value = demolished-material value; salvage value = value of usable parts without demolition.

Formulas

Straight-line depreciation: $D = \dfrac{C - S}{n}$ ($C$ = original cost, $S$ = scrap value, $n$ = life in years).

Sinking fund annual instalment: $I = \frac{S_f\,i}{(1+i)^n - 1}$ $S_f$ = amount required after $n$ years, $i$ = interest rate (decimal).

Capitalised value = Net annual income × Year's purchase; YP (perpetual) = $1/i$.

Worked example

A building earns a net annual rent of Rs. 6 00 000 in perpetuity. If the expected return is 8%, find its value.

• YP = 1/0.08 = 12.5
• Value = 6 00 000 × 12.5 = Rs. 75 00 000

If its life is limited and a sinking fund is required, the YP is reduced accordingly.

Exam tips

• Detailed estimate → technical sanction and tender; preliminary/plinth-area → administrative approval.
• Centre line method: deduct half the wall width for each T-junction.
• Scrap value = demolished material value; salvage value = value of usable parts without demolition.
• Year's purchase (perpetual) = 100/rate %.
• Dry volume of concrete ≈ 1.54 × wet volume; one bag of cement = 50 kg ≈ 0.0347 m³.

Exam-style questions

From Calmon's question bank, which has 25 questions on this topic.

1. In the long wall–short wall method, a long wall has a centre-line length of 10 m and a thickness of 0.3 m. Its out-to-out length is

• A. 10.3 m
• B. 10.6 m
• C. 10.0 m
• D. 9.7 m

Answer: A. Out-to-out length = centre-line length + one wall thickness $= 10 + 0.3 = 10.3$ m (short walls are taken in-to-in, 0.3 m less).

2. For 1 m³ of an item, the rate analysis gives material cost Rs 6,000, labour cost Rs 2,000 and equipment cost Rs 1,000. Adding 15% for overheads and profit, the rate is

• A. Rs 9,150
• B. Rs 9,000
• C. Rs 10,350
• D. Rs 10,500

Answer: C. Rate $= (6000+2000+1000)\times1.15 = 9000\times1.15 =$ Rs 10,350 per m³.

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