W3.0_RF_Labor Rates for EPC Project – Cilegon, Banten Province

1. PROBLEM DEFINITION

The company planned to expand the business by adding new plant that can produce Polyethylene to existing petrochemical plant at Cilegon, Banten Province of Indonesia. The company requires information on the value of the labor unit price which will be the basis for the budget estimate and cost estimate in budgeting and the bidding process. In this blog, the Author will estimate, how much the appropriate labor rates for skilled worker for this purpose

2. IDENTIFY THE FEASIBLE ALTERNATIVE

The labor rates estimate shall be included:

1. Base Wages
2. Fringe Benefits (i.e. Meal & Transport Allowances, Overtime Allowances, Religious Holidays Compensation, Severance Pay Compensation)
3. Medical and Life Insurance Benefit
4. Contractor/Manpower Supply Company Overhead and Profit

In line with the above requirement, the labor rate must be considering all the items that are required based on local law and regulation such as government mandate for health and insurance, pension plans, working overtime, maximum working hours, and etc.

3. OUTCOMES OF THE ALTERNATIVE

The basis used for estimate are as follows:

1. Working time available 12 months/years, 245 days/years, 7 hours/days, 1,716 hours/year. This calculation is assumed that holiday and sick is calculated from OECD based on the year 2021
2. Medical and life insurance benefit will use Government regulation of BPJS Ketenagakerjaan-Jaminan Kematian (JKM) for decease and BPJS Ketenagakerjaan-Jaminan Kecelakaan Kerja (JKK) for work accident.
3. The basis for management fee is 10% from Total Gross Salary and profit is 7% from Basic Salary. This data based on Contract between Company and Manpower Supply.
4. The basis for skilled labor (supervisor level) base wage is 2.8 times provincial minimum wage or is called Upah Minimum Kota (UMK) Cilegon. Base wage is the amount that will go directly to the employee.
5. Specific condition: roster 4 times per year, each 9 days off.
6. All labor expenses during assignment shall be included in proposal and no work no pay is applied

Table 1. Working Time Basis

4. SELECTION OF CRITERIA

Table 2. Development of Labor Cost

5. COMPARISON OF THE ALTERNATIVES

Based on Table 2, the billing rate is 102,074 IDR/hours. Base wages are assumed from the Cilegon area. Overhead was based on Author’s data (the value is not same for each company). For profit, it is subject to be negotiated. Overtime formula should follow government regulation, in Indonesia, Overtime formula can be referred to Keputusan Menteri No.102/MEN/VI/2004.

Figure 1. Revay Report

Moreover, it is necessary to pay attention to the efficiency of working overtime on the productivity of labor including the safety aspect (fatigue can cause loss of focus). Figure 1 shows the effect of extended work time on productivity. Productivity is inversely proportional to the amount of overtime worked, the longer the work duration, the lower the productivity.

6. SELECTION OF THE PREFERRED ALTERNATIVES

Usually, the Owner will keep the rate of labor when there is a change order in the project. So, the owner must make sure all the items captured, especially on overtime should develop with some assumption as a basis of estimate. The Owner also needs to keep control of timesheet and overtime because manpower cost could be doubled and over from budget due to lack of control in timesheet. To prevent this case, Owner could put the regulations about which position could claim overtime and which position could not (due to the salary is lumpsum basis, usually for senior personnel position). Alternatively, Owner could put a limit of maximum overtime hours which will be paid as long as this limitation condition is stated in the Contract between Owner and Employee.

7. PERFORMANCE MONITORING AND POST EVALUATION OF RESULT

There are much different overtime wage situations and there are several aspects that need to be evaluated in developing an overtime wage structure and meet the term and conditions of the contract. The overhead cost will decrease in percentage, with more manpower assigned without increment on overhead site office. The profit also could be negotiated between Owner and Manpower Supply Company.

REFERENCES:

1. OECD. (2022). Average annual hours actually worked per worker. Retrieved from https://stats.oecd.org/index.aspx?DataSetCode=ANHRS
2. Giammalvo, P.D., & PTMC. (2021). Unit 10 – Managing Cost & Budgeting. Retrieved from https://build-project-management-competency.com/1-4-1-9-unit-10/
3. Giammalvo, P.D., & PTMC. (2021). Unit 13 – Managing Databases. Retrieved from https://build-project-management-competency.com/1-4-1-13-unit-13/
4. Gubernur Banten. (2021). Surat Keputusan Gubernur Banten Nomor 561/Kep.282-Huk/2021 tentang Upah Minimum Kabupaten/Kota di Provinsi Banten Tahun 2022
5. Indonesia Government. (2003). Concerning Manpower
6. BPJS Ketenagakerjaan Jasa Konstruksi (Jakon). Retrieved from: https://www.bpjsketenagakerjaan.go.id/jasa-konstruksi.html
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8. Gicodeon. (2014). W9_GW_Impacts of Overtime on Productivity. Retrieved from https://kristalaace2014.wordpress.com/2014/04/22/w9_gw_impacts-of-overtime-on-productivity/
9. Amos, S. J. (2012). Skills & Knowledge of Cost Engineering: A Continuing Project of the AACE International Education Board (5th ed.). Section 2, Chapter 10. Morgantown, WV: AACE International.
10. Arisa, Farida (2022). W18.2_FAR_Labor Unit Rate for Construction Project. Retrieved from https://fabdap2022.wordpress.com/2022/08/06/w18-2_far_labor-unit-rate-for-construction-project/
11. Priatama, Dewanta. (2022). W19_DP_Developing Labour Rate for Site Development Project. Retrieved from https://fabdap2022.wordpress.com/2022/08/27/w19_dp_developing-labour-rate-for-site-development-project/
12. Menteri Tenaga Kerja dan Transmigrasi Republik Indonesia. (2004). Keputusan Menteri No. 102 /MEN/VI/2004 tentang Waktu Kerja Lembur dan Upah Kerja Lembur
13. Ramila SA, Rachmad. (2022). Labor Rates for EPC Project – Tuban, East Java. Retrieved from: https://theexcellentaace2022.wordpress.com/2022/08/30/w4-0_rml_labor-rates-for-epc-project-tuban-east-java/