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Topics: Cost Management
how determine asset classification if provided a turnkey estimate
Anonymous
We follow strict asset classification accounting 'rules' which require specifying material costs separate from labor, etc. Any suggestions how to estimate material costs (to allow asset classification) when vendor is only providing a combined estimate?
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Use parametric estimating. If it's a well established technology, percentages of cost factors are often quite similar. You can then use the cost breakdown of past projects as the basis for your estimate, and scale the cost components to the size of your current project.
To build on Keith's feedback, if you know the duration of the work and the staffing level, you can guesstimate the labor amount based on standard labor rates and the remainder would be the non-labor amount.

Kiron
If they are a vendor who values your relationship with them then they should be able to, if asked provide at least a breakdown between materials and labour. While they wouldn't want to provide a detailed breakdown which shows how the got their costing, they should at least give totals by category. If not then you have no idea if you are getting a fair deal and should look to build a relationship with someone else.
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1 reply by Keith Novak
Oct 15, 2020 10:35 AM
Keith Novak
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Some types of government contracts don't allow that. In the US, a FAR (Federal Acquisition Requirement) Part 12 contract is where a vendor on contract with the government purchases commercial items (like a vehicle for example) to convert into a military product. Under those rules, the 3rd party is not allowed to provide cost breakdown data among other things The intention is to avoid collusion between the 2 vendors to get an unfair advantage.

I don't know if other countries have something similar, but I know when I worked those types of projects it made the whole change management very difficult. As the 3rd party, it was hard to explain the prices for change requests when we couldn't explain how we arrived at the cost.
It depends on how far down you want to drill here. Material costs have a labour component as well. If you are costing a concrete block wall do you need to break out the labour component of manufacturing the blocks including the labour component of mining the raw materials and delivering the blocks?

Sometime accounting rules need to be questioned as to purpose and value added.
Oct 14, 2020 8:17 PM
Replying to Brian Petrie
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If they are a vendor who values your relationship with them then they should be able to, if asked provide at least a breakdown between materials and labour. While they wouldn't want to provide a detailed breakdown which shows how the got their costing, they should at least give totals by category. If not then you have no idea if you are getting a fair deal and should look to build a relationship with someone else.
Some types of government contracts don't allow that. In the US, a FAR (Federal Acquisition Requirement) Part 12 contract is where a vendor on contract with the government purchases commercial items (like a vehicle for example) to convert into a military product. Under those rules, the 3rd party is not allowed to provide cost breakdown data among other things The intention is to avoid collusion between the 2 vendors to get an unfair advantage.

I don't know if other countries have something similar, but I know when I worked those types of projects it made the whole change management very difficult. As the 3rd party, it was hard to explain the prices for change requests when we couldn't explain how we arrived at the cost.

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