Challenges in pricing preliminaries costs for contractors: An Australian case study

Abstract The accurate estimation of project costs is pivotal for the ongoing financial success of construction companies. Despite the clear definition of direct costs in tendering information, indirect costs (also known as project overheads and preliminaries) are often overlooked or underestimated. These costs are influenced by various factors, including company resource availability, site and project characteristics, contractual conditions and procurement methods. The pricing of preliminaries is a complex task, and the varying nature of these costs, coupled with the lack of transparency in current pricing practices, can lead to significant discrepancies in tender pricing. The challenge is to identify what should be included in preliminaries and arrive at a value in practice. This research has explored how contractors’ estimating departments address the complexities of pricing preliminaries for building and civil infrastructure works, particularly considering stringent contractual requirements and post-pandemic construction market disruptions. Through a literature review and an online survey of 30 senior estimators from major contractors, addressing 18 questions, the research sought to understand current practices, differing approaches and metrics employed in pricing preliminaries during the tendering stage. The multifaceted nature of preliminary studies was examined, offering a structured analysis of their categorisation, estimation methods, associated challenges and the impact of project delivery methods. The findings reveal that each contractor processes the pricing of preliminaries using certain tendering gateways and a variety of different metrics. This indicates that systematic risk and pricing models for contractors may lack a justifiable basis, with existing pricing models facing acceptance challenges across different contractors.