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Costing and Pricing A Guide for Water Well Drilling Enterprises Rural Water Supply Network Field Note 2010-6 Cost-Effective Boreholes 2

Authors:
  • Richard Carter and Associates Ltd

Abstract and Figures

This field note is written for water well drilling enterprises as well as other agencies which manage, or are involved in drilling projects. Using a step-by-step approach it gives clear guidance on how to cost and price the construction of drilled water wells. It also provides tips on business management with an emphasis of the realities faced in many countries in sub-Saharan Africa. Once you are familiar with this field note, you will be in a much stronger position to calculate drilling costs, consider prices and deal with business realities. There are five distinct steps to costing and pricing: (1) the basic costs of running your business; (2) analysis of tender docu-ments; (3) setting out the cost components; (4) calculating your costs and (5) determining your price. Within each step a number of key issues need to be considered. Costs are broken down into siting, mobilisation, drilling, casing/completion, well devel-opment/pumping test and pump installation. Practical, worked examples enable the reader to easily follow the costing method. The field note sets out bills of quantities and considers how to deal with risks and uncertainties as well as the tender process. Key advice for effective management is also given. The authors of this field note sincerely hope that it helps drilling enterprises to develop and flourish, and thus contributes to improving water supplies, particularly in the developing world.
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Costing and Pricing
A Guide for Water Well Drilling Enterprises
Rural Water Supply Network
Field Note 2010-6
Danert, Luutu, Carter & Olschewski
June 2010
Cost-Effective Boreholes
2
Field Note No 2010-6
Summary
This field note is written for water well drilling enterprises as
well as other agencies which manage, or are involved in drilling
projects. Using a step-by-step approach it gives clear guidance
on how to cost and price the construction of drilled water wells.
It also provides tips on business management with an emphasis
of the realities faced in many countries in sub-Saharan Africa.
Once you are familiar with this field note, you will be in a much
stronger position to calculate drilling costs, consider prices and
deal with business realities.
There are five distinct steps to costing and pricing: (1) the basic
costs of running your business; (2) analysis of tender docu-
ments; (3) setting out the cost components; (4) calculating your
costs and (5) determining your price. Within each step a number
of key issues need to be considered. Costs are broken down
into siting, mobilisation, drilling, casing/completion, well devel-
opment/pumping test and pump installation. Practical, worked
examples enable the reader to easily follow the costing method.
The field note sets out bills of quantities and considers how to
deal with risks and uncertainties as well as the tender process.
Key advice for effective management is also given.
The authors of this field note sincerely hope that it helps drilling
enterprises to develop and flourish, and thus contributes to
improving water supplies, particularly in the developing world.
Contents
Summary................................................................................................ 2
Glossary .................................................................................................. 2
Introduction.......................................................................................... 3
Five steps to cost and price drilling works ............................... 3
Step 1: Basic costs of running your business .................. 4
Step 2: Analyse the tender documents.............................. 5
Step 3: Set out the cost components ................................. 6
Step 4: Calculate your costs ................................................... 8
Step 5: Determine your price .............................................. 12
Other Issues for Consideration .................................................. 13
Effective Management of your Business ................................ 15
Professionalism ................................................................................ 15
Glossary
Assets are what a business owns or is due (e.g. equipment,
buildings, vehicles, creditors, money in the bank and cash).
Bidding process to contract award: When a client such as a
Government body or NGO follows a bidding process for bore-
hole construction work it issues a tender document and calls for
tenders from several contractors. The tender document in-
cludes specifications for the work, a bill of quantities and con-
tract details. Tenders are submitted by the contractors bidding
for the work and subsequently evaluated against a set of crite-
ria. The winning contractors are selected on the basis of their
price, experience and ability to perform the work. There may be
subsequently be a process of negotiation between the client
and the contractor before a contract is awarded.
Bill of Quantities (BoQ): are used in the construction industry
to set out (itemise) materials, labour, transport and other items
alongside their associated costs. They enable a contractor to
price the work for which he or she is bidding.
Contract: an agreement between two or more parties. It is usu-
ally enforceable by law or through arbitration.
Direct costs (or cost of sales) mean all of the costs incurred for
producing the particular goods or services that you sell. In the
case of a drilling enterprise these would include labour, fuel and
equipment depreciation or hire costs for the job.
Expenditure (or expenses) is the sum of the direct costs, over-
heads, interest payable and taxes.
Gross profit (or gross operating profit) is calculated by taking
the sales and subtracting the direct costs.
A Job Card is a standard form (or card) which the contractor
uses to record all of the details of the job (such as preparation,
management and travel time, time to set up in the field, drilling
speeds, consumables used and fuel consumption).
Net profit is calculated by (i) taking the total revenue and sub-
tracting the total expenditure or (ii) the gross profit minus over-
heads, tax and interest.
Other income is money received which is not directly related to
the product or service of the enterprise.
Overheads (or expenses) are the money spent to run a business
that is not a direct cost. Overheads include office staff, rent (of-
fice, warehouse), equipment depreciation (computers, printers,
office furniture), utilities (water, electricity), communications and
other items such as stationery and fuel for office running.
Pre-qualification is a process whereby the financial, managerial
and technical resources and competence of a company to exe-
cute and complete the work required are assessed. It enables
public sector purchasers to identify the most suitable suppliers
to invite to tender for contracts.
A Performance bond (or bank guarantee) is issued by a bank
(or insurance company) to guarantee satisfactory completion of
a project by a contractor. Thus if a contractor fails to complete
the construction of a borehole as set out in the contract specifi-
cations (e.g. if he goes bankrupt), then the client is guaranteed
compensation for monetary loss up to the amount of the bond.
The purpose is to demonstrate the credibility of the contractor
and guarantee performance as per the terms of the agreement.
Revenue (or income) is the sum of the sales and other income.
Sales refer to the amount of money generated from the sale of
goods or services.
A Specification is a set of requirements that need to be met by
a service, product or material.
Tender: an offer to undertake an act such as constructing a
borehole. The party submitting the tender (i.e. the tenderer) is
bound to perform the act to the party to whom the offer is
made.
Turnover is the total amount of money that a company earns
for the goods and services that it sells (i.e. the revenue) over a
certain period of time (usually a year).
3
Introduction
Increasingly Governments are responsible for water supply
planning, regulating, monitoring and coordination. They are
ceasing to directly drill water wells for rural and urban dwellers.
Meanwhile, private drilling enterprises are growing in number to
fill the gap, with even public enterprises sub-contracting drilling
work to the private sector. Former Government staff members
are among those establishing private drilling companies.
A healthy and competitive private drilling sector can improve
progress towards the Millennium Development Goals (MDGs).
The procurement of high quality drilling services benefits na-
tional development and good quality construction work under-
pins the long term sustainability of water supplies.
Usually private enterprises construct water wells under contract
to national or local Government or NGOs. Sometimes they work
is directly for institutions such as schools and clinics or individu-
als. Unfortunately there are numerous cases of drilling enter-
prises operating in sub-Saharan Africa going bankrupt, or sim-
ply not able to be competitive. One of the problems is lack of
realistic costing and pricing for their work.
All too often tender documents are submitted which are unreal-
istically low in price, due to competition or as companies be-
come desperate for work. Alternatively, drilling enterprises
price their work far too high, due to lack of competition, a belief
that they can technically outbid others or make quick profits.
However, even if companies bid too high or too low, they
should do this with good knowledge of the estimated costs.
The full costs for the construction of water wells and associated
consultancy services are not always properly considered. Many
companies are not able to properly cost their services. It is
common for certain business costs such as overheads or depre-
ciation to be ignored; or for the needs of the business and fam-
ily to be woven together in such a way that the enterprise can-
not grow, as it meets family demands. There are even cases of
gross profit‟ being confused with „net profit´ or turnover‟.
Costing is also a challenge for public enterprises which often
receive subsidies to cover overhead costs and even to purchase
machinery. Most of them do not keep an accurate inventory of
their fixed assets and hence fail to properly estimate deprecia-
tion costs. They can receive machinery, accessories, spare parts
and consumables that are not considered as costs.
Lack of proper hydrogeological data of the sites to be drilled
and limited experience of drilling supervisors has a major influ-
ence on cost as they determine the drilling time. Further, the
numerous risks involved (such as drilling non-productive wells,
getting bogged down in poor roads while travelling to site,
variations in fuel prices, exchange rate fluctuations, uncertainty
of when one will actually be paid, difficulty in accessing spare
parts) mean that determining the price to quote is difficult.
However poor costing and pricing means that many companies
do not develop or, at the end they collapse, with the little capi-
tal that they had eroded away!
This field note is based on available information, and tools, dis-
cussions with drillers and analysis of drilling costs. We sincerely
hope that it can assist drilling enterprises to realistically calcu-
late their costs, determine competitive prices and thus flourish!
It should also be of assistance to agencies as they design tender
documents.
Figure 1: Schramm-T6HB Drilling Rig
Five steps to cost and price drilling works
It is common for an enterprise to quote the cost of drilling a
metre of hard rock based entirely on what others in the market
quote, with the hope that at the end of the day, some profit will
be made. We call this business based on hoping for the best. This
is unsuitable in the long run. Surely you can do better by identi-
fying the costs, considering the risk and determining the ex-
pected profit!
Many people do not distinguish between the COST of drilling to
the contractor, and the PRICE quoted to the client. In Box 1, we
point out the difference. It is important that you understand
your costs before you decide what price you will charge for your
work.
Box 1: Definition of Cost and Price
COST refers to what the drilling contractor spends for the job.
PRICE refers to what the contractor charges the client.
PRICE includes profit (or loss); COST does not.
To help you, we have broken down the process of costing your
work and deciding what price to charge into five easy steps
(Figure 2). For each step, you need to do some calculations, and
think a bit before moving to the next. If you find that your costs
are too high for the market, you may need to recalculate. What
you need to remember, is that even things that you may take
for granted actually cost money (e.g. Box 6).
Figure 2: Costing and Pricing Steps for Drilling Enterprises
Step 5: Determine your price
Step 4: Calculate your costs
Step 3: Set out the cost components
Step 2: Analyse the tender documents
Step 1: Identify the basic costs of running your business
4
Field Note No 2010-6
Step 1: Basic costs of running your business
In order to calculate reasonable prices, and stay in business, you
need to fully understand the cost structure of your enterprise.
The glossary provides definitions of revenue, overheads, net
profit and gross profit.
It is essential that you properly understand your overhead
costs and apportion these to the jobs that your business under-
takes. Our experience indicates that for water well drilling con-
tracts, overhead costs are usually 10-20% of the contract value.
More than half of this can be spent on tender winning ex-
penses! Your experiences however, may be different.
To understand your cost structure, you need to consider the
following questions:
Is drilling just one part of the enterprise? What proportion of
overhead costs should be charged to the drilling work (e.g.
office staff, taxes, office rent as set out in the glossary)?
Do you have to pay interest on a loan, and if so, in what
time frame? Box 2 provides guidance to calculate interest
repayments for a loan.
Does your drilling team comprise company staff or contract
workers? What salaries, allowances and insurance need to be
paid?
Box 2: Loan Repayment and Interest Payments
If you decide to borrow money from a bank to buy your equipment,
you will need to pay back this amount plus the interest. Assume you
buy a small to medium-sized drilling rig $170,000 and that you borrow
the entire sum from a bank at an interest rate of 20% per year, paying
back over a five year period. If the loan and interest are paid monthly
you will pay back $4,430 per month for 60 months (i.e. 5 years x 12
months). This is repayment of the $170,000 loan plus $95,807 in inter-
est. In other words, for a loan of $170,000 you will pay back $265, 807.
If you borrow $170,000 over a ten year period at 20% interest per year,
and the loan and interest are paid monthly, you will pay back $3,231
per month for 120 months (i.e. 10 years x 12 months). This amounts to
repayment of the $170,000 loan plus $217,779 in interest repayments.
In other words, for a loan of $170,000 you will pay back $387,778.
Borrowing money is not cheap!
It is hard to find loans for more than five years to buy water well drill-
ing equipment in sub-Saharan Africa. However, your drilling rig may
last for ten years. If you just have one rig that means making sure that
you earn enough money to pay back the loan in five years.
In Microsoft‟s software Excel, you can use the PMT function to help
calculate the repayments (capital and interest) of a loan. The help
function in Excel provides a good explanation of how to use the PMT
function.
The table below provides examples of loan and interest repayments
for three different amounts borrowed at an interest rate of 20% over a
five year period.
Amount Borrowed
$500,000
$170,000
$80,000
Total Interest
$281,787
$95,807
$39,450
Total Repayment
$781,787
$265,807
$109,450
Monthly Repayment
$13,030
$4,430
$1,824
What taxes do you need to pay, and when?
Do you have enough hard currency and what is the ex-
change rate? Remember that exchange rates fluctuate. Can
you easily access hard currency?
What are the current fuel prices? These can also change in
the future.
Do you have insurance costs (e.g. for equipment loss or
damage and injury of personnel)?
What are your communication costs (particularly between
the field and headquarters) as these can be considerable?
How much cash do you have in order to keep your business
operating (cash flow)? We shall come back to this in step 4.
What is the market for drilled water wells likely to be over
the coming months and years? How is the work spread out
in terms of location and work through the year?
What is the likely productivity of your drilling equipment
(Box 3)?
Do you own drilling equipment and vehicles or hire them? If
you own equipment, how are you going to depreciate its
value? What is the time over which you will depreciate the
equipment (amortisation period)? Box 4 provides some
guidance.
Box 3: Rig Productivity
If fully utilised water well drilling equipment can construct over 100
wells per year. In India in the 1990s, private firms were drilling about
150 wells per year. Unfortunately, the markets in African countries are
not as large in India, and generally work flow is not as steady. It is thus
more common that African enterprises drill 20 to 70 wells per year.
Rig productivity is also affected by the knowledge, understanding and
autonomy of site supervisors. A driller can be kept on-site for a very
long time waiting for decisions to be taken. It is common for drilling
supervisors to be fresh college geologists or hydrogeologists. Lack of
experience and dependency on their bosses for decision-making con-
sumes time on site and thus reduces overall rig productivity. It is rare
for enterprises to be paid for this idle time.
If you have to depreciate the value of your rig over a short time pe-
riod, very low rig productivity will means that the cost of each well is
high. This is because the cost of the rig has to be recovered over a
smaller number of wells. However, it should also be noted that lower
rig productivity means that the equipment will last longer.
Depreciation means to spread the value of an asset (such as
your drilling rig) over its lifetime. Depreciation is the reduction
in the value of an asset due to its use, passage of time, wear and
tear, rust and decay. By reserving the money that you have
made to cover the depreciation, you are able to later replace
the equipment. Box 4 provides an explanation of how deprecia-
tion cost is calculated. As the compressor, rig and other equip-
ment all have a different lifetime the depreciation actually needs
to be calculated for each item. In some cases you will assume
that the equipment has a residual value at the end of the depre-
ciation period.
It is worth noting that in Ethiopia it is not up to the drilling
companies to decide on how to depreciate their equipment. The
tax law states that a drilling rig depreciates over 5 years on a
straight line basis regardless of the number of hours works or
number of wells drilled. Depreciation should be investigated
carefully, as other countries may have similar tax laws.
5
Box 4: How to Calculate Depreciation
Depreciation refers to the value that a particular item loses over
time. A computer which has been used for 5 years is worth much less
than a brand new one! Over time, the car depreciates in value.
If you want to save up to replace your drilling equipment, compres-
sor and vehicles, or pay back a loan you took to buy them, you need
to take full account of depreciation and charge your clients for it.
Example 1 shows how to calculate depreciation. Example 2 looks at
the effect that rig productivity has on how much you may need to
charge a client for the equipment.
Example 1 - Depreciation
Drilling equipment is assumed to have a life span of 10,000 working
hours (e.g. 1,000 hours/year) over ten years. Assuming an eight-hour
working day, this would equate to 125 days per year for ten years or
1,250 days in total. This is a 34% utilisation i.e. 125 days/365 days.
In order to calculate the daily depreciation cost in this example, di-
vide the capital cost by the total number of days the equipment is
used (i.e. 1,250).
Capital Cost (of the rig)
$500,000
$170,000
$70,000
Depreciation Cost per day
(i.e. capital cost/no of days
used)
$400
$136
$56
Depreciation Cost per hour
(i.e. capital cost/no of hours
used)
$50
$17
$7
Example 2 Rig cost in relation to rig productivity
In order to recoup this amount from the work undertaken, the de-
preciation cost is passed on to the client. The table below sets out
the rig cost per well for five different rig productivity rates. It shows
that if there is regular work, and thus rig productivity is high, the cost
per well is lower. Although it should be noted that equipment that is
used less will also last longer, and would thus have a residual value at
the end of the five year period.
Rig Productivity
(wells per year)
10
20
30
50
100
Rig Cost per well
$3,400
$1,700
$1,133
$680
$340
As a rule of thumb, Rowles (1995) states that a brand new water well
drilling rig can be expected to have a lifespan of about 10,000 hours.
Some of the drillers consulted in Nigeria claim that their rigs last for
20,000 hours. However, you need to decide upon a realistic figure!
Step 2: Analyse the tender documents
In order to prepare a sound and reasonable offer you need the
tender documents and all annexes as well as other relevant in-
formation from the client. You will base all your prices on what
is written in these documents. Items that are ambiguous or un-
clear should be clarified. Where omissions are spotted then
cover these items with caveats or assumptions. The specifica-
tions in the tender document give you the basis for calculating
your costs (step 4 below).
Here is a list of some basic issues that need to be considered.
These should be clearly stated in the documentation.
What are the registration and licensing requirements?
How many wells have to be drilled and where are they lo-
cated? The number of wells is usually defined but the exact
locations are sometimes not specified. If this is the case, you
will need to make some intelligent guesses.
In terms of transport, what are the road conditions and is
access to the sites safe?
How are the wells to be sited, and is it your responsibility?
Well siting can be undertaken by the client, contracted to a
consultant or the responsibility of the driller.
Does the tender document specify the depths to be drilled?
What are the specified drilled and completed diameters?
What kind of rig will you use and is it of the right capacity? A
large rig is more costly than a small one. If depths or other
important details are not stated these should be clarrified or
added as assumptions in your quotation.
What information is given with respect to geology and
hydrogeology? If information is limited, you will need to find
out more from other sources.
Will you be paid for every metre that you drill? Will you be
paid for wells that are not successful, and if so, in what man-
ner? Remember that when mud drilling in sediments you will
only know if you have been successful once you have in-
stalled your casing and screens!
Does the tender include a bill of quantities (BoQ) such as
those given in Table 10 or 11? Study it carefully and remem-
ber that mistakes are common! Will the contract include sit-
ing, the completion of the platform or pump installation as
well as drilling? Which type of pump will be installed?
What borehole logging and water quality testing require-
ments need to be fulfilled?
What will be the time-frame for the work to be completed?
Which season will you have to work in (e.g. rains) and how
will this affect the logistics?
What are the requirements for restoring the site once drill-
ing is completed?
What are the payment conditions? What currency will you
be paid in, and what happens if there are significant cur-
rency fluctuations? Will you need to take payment delays
into consideration? Do you have sufficient cash flow and
currency to pay for labour, materials and fuel until the con-
tract sum is paid?
Is a percentage of the contract sum retained for a defects
liability period? If so, how much effort and money will it
take to recover this amount?
How will the tender be evaluated?
Does the client send a supervisor? What are his responsibili-
ties? Does the client pay the cost of transport and lodging
for the supervisor (in practice) or is this your responsibility?
What is the process of approval for the completed well, and
is this undertaken in stages? Will you be paid for waiting
time (also known as standing or idle time)?
Would it be better to tender for this work on your own, or
should you consider forming a consortium?
6
Field Note No 2010-6
Box 5 lists some of the main tender types, contract and payment
terms that actually exist in the water well drilling industry in
sub-Saharan Africa! There are many aspects of a contract which
are not clearly set out in the tender documents.
Box 5: Types of tenders, contracts and payment terms
Variety may be the spice of life, but when it comes to tender docu-
ments, the variety of contract and payment terms are very difficult to
deal with. Here are examples:
Tender includes detailed information on the specific sites and ge-
ology. The Bill of Quantities (BoQs) include mobilisation, estimated
total depth to be drilled in different formations. Driller is super-
vised full time and paid for every metre drilled and installed as well
as waiting time (actually, we have not found such a clear docu-
ment).
Tender only gives a vague indication of area (e.g. district) where
the wells are to be drilled. Driller is expected to site the wells. BoQ
is included and will be used for tender evaluation but driller will be
paid a lump sum for each successful well. This is often called a “no
water no pay” contract.
Tender document includes a BoQ. Locations are given but not the
depths. Contract document will be a terms of reference (ToR) with
one line describing the work and no additional documents. Pay-
ment will be a fixed agreed sum as stated in the ToR.
Tender document includes general comments on siting. Hydro-
geologist will approve well design and installation of screen and
plain casing but the driller will not be paid if the well is not suc-
cessful.
Time of year that the work will be carried out is uncertain but the
contract states that if the contractor chooses to work through the
rainy season, losses incurred due to poor access during the rains
are at the contractor‟s expense.
Mobilisation is included in the BoQ, but transport between sites is
hidden in other items.
Well design to be submitted to site supervisor for approval before
the final installation of casings and screens. However it is known
that the site supervisor will not be on site full time. There is a
clause stating that there will be no reimbursement for standby
time should the contractor be delayed for any reasons.
Contractor expected to file a drilling report for unsuccessful wells,
even though he is not paid anything for them.
The drilling enterprise is responsible for paying the supervision by
an organisation which represents the client.
Contractor effectively works for two clients: Government issues the
contract. The support agency pays half the money and the Gov-
ernment pays the other half. Contractor is responsible for chasing
two different organisations for payment.
If tender documents, and the contract terms are unreasonable,
then talk to the client suggesting that they are unacceptable.
Accepting unrealistic terms and conditions can give you trouble
later on.
It is easier to deal with such challenges through a professional
drillers association than for each contractor on its own. If there
is no association in your country, consider trying to establish
one. The formation of a highly professional drillers association
makes it much easier to address many of the above challenges.
Step 3: Set out the cost components
There are different ways to calculate water well construction
costs. Table 1 provides six components, which include costs for
data, capital equipment, vehicles, fuel, materials/consumables
and labour. Note that siting, platform casting and pump instal-
lation for the water supply are not always the responsibility of
the driller.
Table 1: Six Cost Components for Water Well Construction
Siting
Data: Remote sensing, maps, documents and
access to groundwater and drilling databases
Capital equipment: Geophysical survey equip-
ment
Vehicles: Depreciation (plus taxes) and/or hire
Labour: Staff salaries or consultancy fees
Fuel: for transport of equipment to site
Mobilisation
&
demobilisation
Capital equipment: Depreciation and/or hire of
drilling rig & compressor
Vehicles: Depreciation (plus taxes) and/or hire
Fuel and lubricants for the compressor & rig
and vehicle getting to site
Labour: Staff salaries and allowances or hired
labour charges (i.e. of men to site and back)
Drilling
Capital equipment: Depreciation and/or hire of
drilling rig, drilling string, compressor & mainte-
nance costs
Vehicles: Depreciation (plus taxes) and/or hire
Fuel, lubricants and consumables for the com-
pressor & rig (e.g. foam, polymers) and vehicle
running around
Labour: Staff salaries and allowances or hired
labour charges on site
Casing
&
Completion
Capital equipment: Depreciation and/or hire or
drilling rig & compressor (if still on site), welding
machines, generators and crane trucks
Vehicles: Depreciation (plus taxes) and/or hire.
Fuel: Casing installation and vehicle running
around.
Materials/consumables: Plain casing & screen,
gravel, sand, cement, electrodes and others
Labour: Staff salaries and allowances or hired
labour charges for installation of casing and
completion
Well
Development
&
Pumping Test
Capital equipment: Depreciation and/or hire or
drilling rig (if still on site), compressor as well as
generator and pump
Vehicles: Depreciation (plus taxes) and/or hire
Fuel and lubricants for compressor, generator
and pump and vehicle running around
Labour: Staff salaries and allowances or hired
labour charges for well development and pump-
ing test
Platform Casting
&
Pump Installation
(e.g. handpump or
submersible pump)
Vehicles: Depreciation (plus taxes) and/or hire
Fuel and lubricants for transport
Materials/consumables: e.g. pump, cement,
aggregate, sand, stones, bricks, formwork, water
Labour: for platform casting and pump installa-
tion
7
3.1 Siting
Siting refers to the process of selecting a site at which to drill
the water well. It is important that this is done properly, to de-
termine the appropriate equipment and logistics, minimise the
risk that the water well is dry or low yielding and to take the
needs of the community into consideration.
Water well siting involves desk review (includes study of geo-
logical and hydrogeological maps and drilling records from the
area). Communities and local well diggers can also provide use-
ful information. If groundwater is relatively easy to find, it is
usually not cost-effective to use complex siting techniques. In
cases where groundwater is not available everywhere, geophysi-
cal techniques are commonly used. MacDonald et al. (2005)
provide an overview of siting techniques. The final selection
needs to take community preferences into account.
In some cases siting is undertaken by a consultant, who may
also supervise the drilling. In many countries, the drilling con-
tractor is expected to site the well, and is shouldered with the
blame if it is dry, i.e. “no water no pay”. The driller and the
community may be expected to locate two or three suitable
sites within a particular village, in order of preference.
Figure 3: Siting Resistivity Survey in Niger State, Nigeria
3.2 Mobilisation & Demobilisation
Mobilisation refers to getting started on the job, moving per-
sonnel, equipment and materials to the drill site. Demobilisation
refers to shifting back to base. Cost calculations must consider:
Distance from drilling enterprise base and material suppli-
ers to the site and the time it will take to get there.
Road conditions: access can be difficult and costly.
Depreciation or hire costs of the equipment i.e. drilling rig,
compressor, support vehicles, drill pipe and tools (Box 4).
Depreciation or hire costs of the vehicles to carry personnel
and materials (casing and screen, gravel, cement, drill fluid,
fuel, water).
Cost and quantity of fuel for transport.
Personnel cost (salaries, fees, allowances).
Usually, a contract is awarded for the construction of more than
one well. In this case, you will consider the cost of mobilisation
and demobilisation only once, plus the cost of moving between
different drilling sites. To reduce costs one would cluster wells
with similar hydrogeology and proximity. Unfortunately we
know that this is not always the case!
3.3 Drilling
When calculating drilling costs, you need to consider:
The fixed cost of the equipment (hire or depreciation). As
outlined in Box 5, the depreciation cost depends on the
capital cost, lifetime and utilisation of your equipment. Al-
ternatively it may be stipulated within the national tax laws.
Running costs are influenced considerably by the price of
fuel (which fluctuates), lubricants and drilling consumables
(e.g. drilling fluids) and drilling speed.
Drilling speed and time to drill depend on the geology, the
state of your equipment, drilling method, drilling crew, site
supervisor and their interpretation of the contract docu-
ments. Remember that you will not be drilling all of the time.
You often need to wait around while your client takes a de-
cision (i.e. waiting, idle or standing time), or to solve techni-
cal problems. This time tends not to be paid for.
Maintenance costs. This is not free and should not be for-
gotten! Older rigs usually have higher maintenance costs.
Lack of spares and consumables for drilling on the local
market can render maintenance expensive and even delay
projects. There is thus need to consider additional costs in-
curred for importation.
Labour costs. The more people you have in the crew, the
more expensive it is, but you need sufficient skilled and un-
skilled labour. Labour requirements depend on the equip-
ment and a minimum crew may even be stipulated in na-
tional regulations.
Vehicle costs. Vehicles usually remain on site while drilling
continues, to carry out necessary day-to-day errands, collect
casing or completion materials or for well development.
Their cost should thus be considered.
3.4 Casing and completion
Surface casing may be required to support the formation during
drilling. Once drilling has been completed, the well-screen and
casing needs to be installed and the gravel pack, grout, sanitary
seal and backfill placed. It is essential that specifications are
followed and good quality materials for the casing and gravel
pack are used. Casing cost varies with diameter and material.
Your equipment and vehicles may remain on site for all, or part
of the time that you are installing and completing the well so
remember to consider depreciation (Box 4).
3.5 Well Development & Pumping Test
Once construction is completed the water well needs to be
cleaned and developed. Subsequently pumping test is required.
You may also need to sample and undertake water quality
analysis. The costs comprise equipment, labour and fuel as well
as the depreciation of the drilling equipment and vehicles if
they remain on site (Table 1), as well as the cost of water quality
testing. Remember that fuel costs change but that this is diffi-
cult to predict.
3.6 Platform Casting & Pump Installation
Construction of the wellhead may also include the slab and
soak-away. It is better to have a separate crew to do this so as
to avoid tying up the drill crew and equipment, or you may even
choose to sub-contract. Sufficient time should be allowed for
platform casting and pump installation. These are the only visi-
ble items and will be seen after the drilling equipment has left.
Professionalism should dictate a quality of workmanship which
8
Field Note No 2010-6
should result in further work. Note that the cost of the pump
often represents a small percentage of the final cost when other
charges are also taken into account as detailed in Table 8.
Step 4: Calculate your costs
A cost calculation example, based on the six components given
Table 1, is described below and set out in tables 2 to 6. The ex-
ample is based in the following assumptions:
Driller is responsible for well siting
Distance from base to well site of 100km
Well specifications: one well drilled at 6” diameter and cased
with 4” nominal casing; drilled to 50m depth (20m overbur-
den material and 30m rock drilling)
Driller is responsible for platform casting and pump installation
4.1 Siting
In some countries, the use of geophysical techniques for siting
is routinely included in tender documents, even when it is not
required (e.g. in the case of well-understood regional aquifers),
or when the results are not easy to interpret (e.g. resistivity is
difficult to interpret when there are ironstones, lateral variation
in lithology, aquifers at great depth or built up areas).
Nevertheless, it is important to be clear about how much water
well siting actually costs (unlike the contractor in Box 6). You
need to take labour costs (office and field-based), depreciation
of your equipment and transport into consideration. Remember
that transport costs include the vehicle depreciation and road
taxes, as well as fuel. Siting is an item which may also be sub-
contracted to a qualified consultant.
For our worked example, we shall assume that siting costs $400
(for equipment, labour, transport, supervision and reporting).
4.2 Mobilisation & Demobilisation
A simple method for determining the mobilisation and demobi-
lisation costs for three different types of drilling equipment are
shown in Table 2. Drill rig costing: (a) US$ 500,000; (b) US$
170,000 and (c) US$ 70,000 have been used for the example. It
has been assumed that the mobilisation and demobilisation
each take 8 hours. Lighter rigs are cheaper and require fewer
vehicles and personnel than heavy rigs, so mobilisation and
demobilisation costs are less (Table 2). Clearly, if your competi-
tors have large expensive drilling rigs and you have cheaper or
lighter equipment but can still undertake the work according to
the specifications, then you are at an advantage.
Box 6: We own the equipment, so it is free!
Table 2: Calculation of Mobilisation & Demobilisation Costs for two days of travel i.e. one to the site and one back to base
(note that this is intended as an example and not as recommended figures contact RWSN for details of all the assumptions
made)
Mobilisation
Calculation Method
Unit
Amount (US$)
(a) 500,000
(b) 170,000
(c) 70,000
Drilling Rig
Depreciation cost of rig converted to daily rate based on 10,000
hours (10 years lifespan at utilisation rate of 125 days per year,
i.e. 34% utilization). Assumes that mobilisation and demobilisa-
tion take one day each of 8 hours.
per well
(2 days of travel)
$800
$272
$112
Vehicles
Rental market rate/real running costs of: (a) truck-mounted rig,
truck and compressor and 2 pick-ups, (b) truck and trailer, truck
and compressor, and 1 pick-up; (c) pick-up and trailer for rig;
pickup for compressor.
per well
(2 days travel)
$827
$442
$300
Fuel and
lubricants
Fuel consumption 20 to 30 litres/100 km depending on type;
overall travel distance of 260 km; Fuel price: 1.10$/litre. Vehicles
as above.
per well
(2 days travel)
$543
$400
$226
Labour
Salaries & allowances for driller, assistant, hydrogeologist, la-
bourers, security & drivers: (a) 12 persons; (b) 8 persons; (c) 6
persons
per well
(2 days travel)
$536
$424
$384
Total (mobilisation and demobilisation)
$2,706
$1,538
$1,022
In 1997, Aquatech Enterprises (owned by Anthony Luutu) was imple-
menting a contract in Eastern Uganda. While drilling Anthony realized
that one of the selected drilling sites would not yield sufficient water
and had to quickly identify a new site. This involved a fresh study of the
maps, the use of geophysical survey equipment and a pick-up and
driver to transport the equipment to the site from the Kampala office,
some 200 km away.
When Anthony calculated the costs, he realised that it would be cheaper
to hire somebody locally to undertake the survey. He estimated that the
firm would charge $275 (i.e. vehicle hire and driver for half a day at $65;
geophysical survey machine hire at $60; consultancy fee for professional
at $150). He contacted the firm about 30km away and asked for a quo-
tation for the work. However, the firm sent a quotation for only $150.
This appeared to be very low but Anthony hired them all the same.
Once the work was successfully completed, Anthony asked why the
price had been so low. He was astounded by the answer: “I don‟t have to
hire a vehicle or a machine. We own them, so they are free. I just have to
charge my fee for doing the work”. This is one of the many stories of
unrealistic costing practices! If the cost of the equipment is not in-
cluded, there will be no funds available for replacement when necessary.
9
4.3 Drilling
As we are now talking about the actual drilling, it is worth once
again stating the importance of using the right type of drilling
equipment for the job required. Use of a heavy and expensive
drill rig (e.g. capable of drilling to 500 metres) to construct a 5
inch diameter hole to a depth of 50 metres costs you much
more than using a lighter rig. In order to be competitive it is
important that the rig purchased will provide the best results in
the local market-place according to the ground conditions. In
Tables 4 and 5 below, we set out an example using equipment
that costs US$ 170,000. Try and work out costs using more ex-
pensive and cheaper equipment on your own and compare the
difference!
It is vital that you know how much your drilling operation costs!
You can use a job card to track fuel and materials so that the
drilling costs are less of a mystery. Table 4 sets out an example
of drilling costs. Part (i) shows the fixed costs, which are incurred
for every working hour. Part (ii) gives the running costs for every
metre drilled (in rock and overburden).
Determine what your maintenance costs are. Ray Rowles (1995)
points out that When you are turning you are earning”. It is
worth investing in preventative maintenance, and having key
spares in stock so that you do not lose money on site! We have
made some assumptions about the lifetime of the drill string,
hammer, hammer bit and drag bit based on advice from our
friend Ray Rowles (1995). These components do not last forever
and thus need to be depreciated (Box 5). The cost of these
items depends on the type of your equipment and where you
operate.
The information from Table 3 is used as a basis to calculate the
total drilling cost. We have made this example simple, by as-
suming that the drilling costs per metre are the same for all
depths. In actual fact, drilling gets more expensive with depth
(e.g. because heavier drill pipe and increased distance to carry
drill cuttings requires more energy, or telescopic drilling may be
used). A job card can help you to record the information
needed to calculate these costs in more detail.
The rig costs per hour and the running costs per metre from Ta-
ble 3, together with costs of labour, fuel, vehicles and temporary
casing are converted into a cost for the well, taking the drilling
speed and depth into account, as shown in Table 4. The cost of
drilling the particular formation (overburden or rock of certain
depths) is calculated.
The drilling speed has a particular bearing on the cost. In this
example, the drilling cost is $40 per metre. However, when you
come to deciding on the price to charge for every metre drilled,
you need to consider other hidden costs such as standing time
(also known as idle, or waiting time) if these are not recoded in
the BoQ. We shall come back to this in Step 5 Determining your
Price.
Table 3: Drilling Costs (note that this is intended as an example and not as recommended figures)
i) Items to consider when calculating rig costs per hour (independent of geology and depth)
Item
Assumptions and Explanation
Cost [$/h]
A
Depreciation of rig
Rig cost $ 170,000, depreciated over 10,000 hours (Box 4, Example 4). This needs
to be charged for every working hour during the assignment.
$17.00
B
Maintenance of rig
Assumption: 5% of depreciation
$0.85
ii) Running costs per metre (dependent on geology and depth)
Item
Assumptions
Explanation
Cost [$/m]
Lifetime (metres)
Unit Cost [$]
C
Drilling string
20,000
15,000
Convert to US$/m by dividing replacement cost by lifetime, e.g.
for drilling string 20,000/15,000
$0.75
D
Drag bit
300
500
$1.67
E
Hammer
3,000
8,000
$2.67
F
Hammer bit
300
1,200
$4.00
Item
Explanation
Cost [$/m]
G
Running Cost in Overburden in $/m
Sub-total of drill string and drag bit in [US$/m]
= C + D = 0.75 + 1.67
$2.42
H
Running Cost in Rock in $/m
Sub-total of drill string, hammer, hammer bit in [US$/m]
= C + E + F = 0.75 + 2.67 + 4.0
$7.42
10
Field Note No 2010-6
Table 4: Drilling Cost Example: 50 m deep borehole (20 m overburden and 30m rock); drilling speed average 4m/h.
(note that this is intended as an example and not as recommended figures).
Drilling Specification
Item
Value
J
Overburden depth
20 metres
K
Rock depth
30 metres
L
Total depth
50 metres
Assumptions
M
Average drilling speed
4 metres per hour
N
Drilling Time =Total depth / Average drilling speed = L/M = 50 / 4
12.5 hours
P
Fuel cost
1.10$ per litre
Q
Rig fuel consumption rate
5 litres per hour
R
Hourly cost of rig lubricant consumption
$1 per hour
S
Compressor fuel consumption rate
28 litres per hour
T
Hourly cost of compressor lubricants (and foam if used)
$1.5 per hour.
U
Hourly depreciation of compressor
$30 per hour
V
Hourly mud pump cost (depreciation, mud, fuel, lubricant).
$13 per hour
W
Hourly labour cost (n.b. assumption same as “Labour” in Table 2, scenario (b), i.e. $212 per 8-hour day)
$26.5 per hour
Y
Hourly vehicle cost while on site (n.b. assumption same “Vehicles” in Table 2, scenario (b) i.e. $221 for
an 8-hour day)
$27.6 per hour
Z
Temporary Casing 3 metres at a cost of $50/metre (note that this depends on depth, and the risk of
losing the casing)
$150
A
A
Time not drilling (e.g. waiting for decisions to be taken or repair)
2 hour
Calculation
Item
Explanation
Cost for the well
Depreciation of Rig
= Hourly rig depreciation x Drilling Time = A x N = 17.00 x 12.5
$212
Maintenance of Rig
= Hourly rig maintenance x Drilling Time = B x N = 0.85 x 12.5
$11
Rig Running Costs in
Overburden
= Overburden depth x Running Cost in Overburden in $ per m = J x G = 20 x 2.42
$48
Rig Running Costs in
Rock
= Overburden depth x Running Cost in Rock in $
= K x H = 30 x 7.42
$223
Fuel and lubricants
for rig
= (Rig fuel consumption rate x fuel cost x Drilling Time) plus (rig lubricant con-
sumption rate x Time to drill) = (Q x P x N) + (R x N) = (5 x 1.1 x 12.5) + (1.0 x 12.5)
$81
Cost of mud pump
= Hourly mud pump cost x Overburden depth / Average Drilling speed
= V x J / M = 13 x 20 / 4
$65
Cost of compressor
and fuel (when drill-
ing in hard rock)
= (Compressor fuel consumption rate x fuel cost x Rock Depth / Average Drilling
Speed) + (Hourly depreciation of compressor x Rock Depth / Average Drilling
Speed) + (Hourly cost of compressor lubricants and foam x Rock Depth / Average
Drilling Speed) = (S x P x K / M) + (U x K / M) + (T x K / M)
= (28 x 1.1 x 30 / 4) + (30 x 30 / 4) +(1.5 x 30 / 4)
$468
Labour cost for drill-
ing
= Hourly labour cost x Drilling Time = W x N = 26.5 x 12.5
$331
Cost of Vehicles to
remain on site
= Hourly vehicle cost x Drilling Time = Y x N = 27.60 x 12.5
$345
Cost of Temporary
Casing
= Temporary Casing Assumption =Z
$150
Cost of Standing Time
= (Hourly rig depreciation x Standing Time) + (Hourly labour cost x Standing Time)
+ (Hourly vehicle cost x Drilling Time = (A x AA) + (W x AA) + (Y x AA)
= (17.00 x 1) + (26.5 x 1) +(27.6 x 1)
$71
Drilling Cost for the well
$2,005
Drilling Cost per metre
$40.1/m
11
4.4 Casing and Completion
Table 6 sets out the prices of uPVC and steel casing of different
diameters from Nigeria in mid 2008. Steel casing is considerably
more expensive than uPVC. It is very important to undertake
your costing according to the well specifications.
Figure 4: Installation of Casing
It is important to remember that the price of materials can vary
according to world demand and the price of oil and steel.
Screen and casing is particularly vulnerable to this. By the time
award of contract occurs there may have been a price increase.
You should also consider the cost of collection and delivery of
these materials and of course of damage in transit, which fre-
quently occurs. If you carry the materials as stock items, you
may have bought them cheaper than the current price. Your
quote should allow for the replacement cost.
Table 5: Prices of Casings and Screens (Abuja, Nigeria, 2008)
uPVC
Price for 3m length
Price per m
4 inch plain casing
$27
$9
4 inch screen
$30
$10
110 mm plain casing
$33
$11
110 mm screen
$34
$12
6 inch plain casing
$60
$20
6 inch screen
$66
$22
Steel
Price
Price per m
150 mm plain casing
(threaded)
$762 (for 12 m)
$64
150 mm screen
(threaded)
$636 (for 3 m)
$212
Table 6 sets out the costing for casing and completion of the
50m well specified in this example: 40m with plain casing and
10m screen. The casing and completion is assumed to take 5
hours (equivalent to 6 minutes per metre well depth). The cost
of labour is included as well as the drilling equipment and vehi-
cles, which remain on site. Note that material transport was
covered in the cost of mobilisation. In order to avoid aquifer
contamination it is essential to include a sanitary seal. No short
cuts should be taken in this regard.
Table 6: Cost of Casing and Completion for: 110 mm diameter
uPVC lined borehole 50 m depth (40m plain casing; 10m screen;)
Time to install is 5 hours (an average of 6 minutes per metre).
Casing and completion
Unit
Qty
Rate
Amount
Rig Depreciation
hr
5
$17
$85
Labour
hr
5
$26.5
$132
Vehicles
hr
5
$27.6
$138
110 mm uPVC plain casing
m
40
$11
$440
110 mm uPVC screen
m
10
$12
$120
Gravel Pack
bag
7
$7
$49
Sanitary Seal (Cement)
bag
1
$20
$20
Sanitary Seal (Bentonite)
bag
2
$35
$70
Total Casing & Completion
$1055
Casing & Completion $/m
$21.1/m
4.5 Well Development and Pumping Test
Unfortunately, well development is a key aspect of water well con-
struction that is often overlooked by drillers and supervisors. Proper
well development requires skill, an understanding of the hydro-
geology, sufficient time and care. If a well is not properly developed
it will not work properly, will silt up, cause excessive wear or even
breakdown of the pump and may result in abandonment of the
well by the end users. Certainly this is not something that you wish
to happen to your well! Well development should be quoted for
correctly and carried out for the prescribed time.
Pumping Test is important to evaluate the productivity of the
well and to determine the size of pump to be installed. A well
drilled for a hand pump installation may need only 4 to 6 hours
of testing if the development stage indicated an abundance of
groundwater. However where the pump is chosen according to
the productivity of a well then it is essential that a thorough
pumping test is carried out.
When calculating the cost of well development and pumping
test, you need to consider the depreciation (or hire) cost of the
compressor, pump and generator and the length of time and
type of pumping test involved.
Figure 5: Well Development using Compressed Air
Table 7 sets out an example of the cost of well development and
pumping test. The duration and hence actual cost of well devel-
opment is not known until it is completed and the water is clean
of fine materials. You will thus need to estimate your costs, based
on prior knowledge of the area and available information.
12
Field Note No 2010-6
In this example it has been assumed that the drilling rig only
remains on site for the well development but that it is not on
site for the pumping test, hence the inclusion of compressor
depreciation only.
Table 7: Cost of Well Development and Pumping Test (constant
rate test of four hours pumping and four hours recovery)
Item
Unit
Qty
Rate
Amount
Well development (with compressor running for 3 hours, using 28
litres of fuel per hour)
Compressor Fuel Cost
litres
84
$1.1
$92
Depreciation of Compressor
hr
3
$30
$90
Depreciation of Rig
hr
3
$17
$51
Vehicles
hr
3
$27.6
$82.8
Labour
hr
3
$26.5
$79.5
Sub-Total Well development
$396
Well Development cost per hour
$132/h
Pumping Test (Pump and generator runs for 4 hrs)
Fuel Costs
litres
20
$1.1
$22
Depreciation of submersible
pump, generator and water
level instruments.
h
4
$7
$28
Labour (installation, recov-
ery & documentation only)
h
8
$4
$32
Sub-Total Pumping Test
$82
Pumping Test cost per hour
$20.5
Total well development and pumping test
$478
4.6 Platform Casting & Pump Installation
Specifications for the platform, the drain and soak-away vary
from place to place. It is essential you take full consideration of
the cost of the materials, transport and labour. Rather than de-
tail all the items here, we are going to assume a cost of $300 for
platform casting, and move onto the cost of the pump.
Table 8 gives you a breakdown of the cost components of a
handpump with an example. The total cost of purchase and
installation is a lot more than the basic price. Note that the
costs will vary with local conditions as well as the quantities
procured.
Table 8: Cost components for international procurement and in-
stallation of a handpump (with example)
Cost component
Remarks
Example
Sales Price Freight
on Board (FOB)
Often the smallest amount
$385
Seafreight &
Insurance
$60
Clearing & For-
warding
Depending on procedures can
be a lengthy process
$60
Customs Duty -
VAT
If duty exempt, the process of
reimbursement can be lengthy
$40
Storage Cost
Normally done in the centre
warehouse of the dealer
$35
Re-packing
From container to the lorry
$45
Transportation to
warehouse
Lorry transport (often many
kilometres)
$40
Storage
Normally done in the ware-
house
$15
Transportation to
Drill Site
Often many km on the pick-up
truck
$100
Installation
Depends on the pump
$40
Caretaker Training
Unfortunately not always done
Capital Cost/Pre-
financing/Risk
Capital to purchase pumps can
be tied up often for long peri-
ods, the private sector needs
to calculate these costs
$115
Total
$935
Summary of the Costing Example
Table 9 shows the cost of the six key components that were
outlined in Table 1. The total cost for this example is $6,393.
Note that this cost includes the well siting, and the cost of plat-
form completion and pump installation. However, items such as
water quality testing and well disinfection are not included. This
example gives indicative prices for a sample well and should not
be used as working rates. Overheads, profit and taxes need to
be added to determine a final price. We shall consider this in
step 5.
However, before moving on, we suggest that you look back at
the example and consider if there are any places where realistic
cost-savings could be made, without compromising the quality
of your service.
Table 9: Summary of Costing Example: Total cost of a 110 mm
diameter uPVC lined borehole 50m deep drilled by drilling rig costing
$170,000, depreciated over 10,000 hours.
Item
Unit
Qty
Rate
Amount
Siting
Lump sum
1
$300
$400
Mobilisation &
Demobilisation
Lump sum
1
$1,540
$1,538
Drilling
m
50
$40.1
$2,005
Casing & Completion
m
50
$21.2
$1,055
Well Development
& pumping test
Lump sum
1
$460
$478
Platform Casting &
Pump Installation
Lump sum
1
$935
$935
Total Cost
$6,411
Average Cost $ / m
$128.2/m
Step 5: Determine your price
When determining your price it should take into account the
above steps because that way you are confident you can deter-
mine a price that you are comfortable with. With that knowl-
edge you are in a position to refine your price according to the
local market. Box 7 shows the extent to which prices can vary
even in the same country.
13
Box 7: Drilling Prices Vary Considerably
Depth, geology, fuel costs, distance to and between sites, competi-
tion between drillers, economies of scale (size of a contract) and mar-
ket prices play an important role in the price of a borehole e.g. three
examples below.
Borehole details
Total
Cost ($)
Cost per
m ($)
110 mm uPVC, 50 m deep, basement complex
3,300
66
110 mm uPVC, 80 m deep, sedimentary
6,000
75
150 mm steel, 150 m deep
17,500
117
The above data is taken from one country (Nigeria) in 2008. It shows the
extent to which prices can vary. Such data can only be used as a very
rough indicator for cost estimations, but not as a benchmark.
Remember, that you need to distinguish between the COST to
carry out the work and the PRICE which you quote to the client
(defined in Box 1). To calculate your price, you need to consider:
Mobilisation, drilling, casing and completion, well develop-
ment and pumping test, and platform casting and pump in-
stallation costs (as outlined in step 3 and 4)
Overhead costs and interest payments (see glossary)
Taxes such as value added tax (VAT)
Risks associated with the work
Uncertainties regarding payment terms
Profit, outlook of business and expectation of the develop-
ment of the market.
Pricing water well drilling work is a challenge due to lack of in-
formation, uncertainties regarding when you will be paid, risks,
and lack of transparency in the tender process. Determining the
price to charge is an art as well as a science!
When quoting you want to be realistic with your rates. Contracts
are not always awarded to the cheapest bidder. Speed of re-
sponse, quality of work, best equipment for the job and trusted
relationships all come in to play. Despite this, the price is likely
to be the most important factor and that relates to an efficient
business and having the right equipment for the job.
You may decide to put in a very low bid so that you can win the
confidence of a new client or build up your profile. Alternatively,
you may be so confident of winning the tender that you decide
to put in a higher price to a particular client.
Offered prices can be binding so you need to make sure that
your prices are calculated very carefully and checked before you
submit the tender. However, preparing a Bill of Quantities (BoQ)
and winning a tender does not always mean that you will be
paid according to the BoQs you submitted. Clients may want to
negotiate further.
Other Issues for Consideration
Bill of Quantities
Tender documents usually include a Bill of Quantities (BoQ). The
BoQ provides a format for you to set out your PRICE for various
items. There is no worldwide standard BoQ for water well drill-
ing. They vary considerably in terms of detail and what is in-
cluded or excluded. Sometimes you will be expected to site the
well (therefore include the cost). You may also have to include
the cost of the pump and its installation.
Some BoQs will be well-written, others badly with glaring omis-
sions or more often you get a rehashed version. With careful
thought you can always turn it into a successful offer as long as
you think through all aspects of the job and all possible vari-
ables. Items that cannot be predicted or estimated or where the
risks involved are too great can be excluded by assumptions or
caveats. Always read the tender document very carefully. Some
BoQs include a line for overheads and profit, while in other cases
this is simply integrated into all the other items. In some cases,
set up of the rig is integrated into mobilisation or drilling while
in other cases it is considered separately. Tables 10 and 11 pro-
vide two sample BoQs for a contract of ten wells.
Table 10: Sample (i) Bill of Quantities for 10 wells: each with an
average depth of 50m, i.e. total depth 500m.
Description
Qty
Unit
Unit
Price
Total
Price
1
Borehole Siting
10
each
2
Establishment of Base Camp
1
each
3
Mobilisation and demobilisation
of equipment and personnel
500
km
4
Set up of rig and move between
sites
400
km
5
Drilling borehole of 6” diameter
in soft overburden
200
m
6
Supply, install and withdraw
temporary casing
10
each
7
Drilling borehole of 6” diameter
in basement rock
300
m
8
Sampling and Borehole Logging
at 3m intervals
10
each
9
Supply and installation of
110mm outside diameter, uPVC
casings of 10 bar pressure rating
400
m
10
Supply and installation of
110mm outside diameter, uPVC
screens of 10 bar pressure rat-
ing. (Slot size 0.5mm)
100
m
11
Supply and place approved filter
pack around screens according
to specification1
0.8
m3
12
Supply and installation of inert
backfill
10
each
13
Borehole cleaning & develop-
ment till water is silt free
30
hour
14
Pumping Test according to
specification
10
each
15
Provide and place cement grout
10
each
16
Water Quality Analysis and
borehole disinfection
10
each
17
Well capping
10
each
18
Installation of India II hand-
pumps in accordance with specs.
10
each
19
Completion Reports
30
each
20
Waiting (or standing) Time
hour
Sub-total
21
Overheads and profit -15%
22
Value Added Tax (VAT)- 20%
Total
1 This is the annular volume between the drilled hole and outer casing:
150mm diameter hole; 110mm diameter outside casing = 8 litres/metre,
which is equivalent to 0.8m3 for 10 wells each with 10m of filter pack.
14
Field Note No 2010-6
In Table 11, items have been streamlined, with the profit and
overheads incorporated into the rates for the various items.
Note that BoQs are not problem-free. We have found examples
where there is no item included for moving between the drill
sites, or where the specified drilling depths, casing and screen
do not make any sense!
Table 11: Sample (ii) Bill of Quantities for 10 wells: each with an
average depth of 50m, i.e. total depth 500m.
Description
Qty
Unit
Unit
Price
Total
Price
1
Mobilisation
1
each
2
Moving between sites
9
each
3
Drilling
500
m
4
Casing and Completion
500
m
5
Gravel Pack and Development
100
m
6
Pumping Test
10
each
7
Backfill and well completion
(including water quality analy-
sis)
10
each
8
Installation of handpump and
accessories.
10
each
9
Completion Reports
30
each
Sub-total
Value Added Tax (VAT)- 20%
Total
Dealing with Risks and Uncertainties
You need to decide how to load the different items in the BoQs.
Information on the type of contract that will be issued and
knowing your client will help you to understand how to price
your work so that you are paid fairly, for example:
If there is a significant risk of drilling a dry borehole, and
payment is according to the BoQs, you can consider increas-
ing the price of the mobilisation and drilling as you will be
paid for these items even if the wells are dry.
If you are only paid for successful wells (i.e. no water no pay),
you need to consider your pricing strategy based on the
percentage risk involved. You will have to increase the price
of each successful well to cover your costs if risks are high. It
is important to find out about the drilling conditions so that
you can determine an appropriate price.
If there is considerable uncertainty about site location, and
you are paid a fixed sum, you need to be sure that your
price for mobilisation is realistic.
If security is a major problem, you need to cover the risk of
loss of equipment, or insurance in your price. We know of a
water well drilling enterprise in Nigeria who lost all his
equipment when it fell off a boat!
Moving between sites in rural areas with poor accessibility
can take even more time than actual drilling. Time is lost
when vehicles get stuck. This can happen on the road or a
few metres from the drilling site. When pricing the mobilisa-
tion (and moving between sites) allow for these expected
problems.
In the case of a client that pays very late, you may need to
consider fluctuating exchange rates and interest and infla-
tion, and may need to charge a higher price to cover the
cost of borrowing money.
The Tender Process
Every country and institution has its own defined tendering pro-
cedures. However these procedures are not always adhered to
in practice. In a decentralised environment, District Local Gov-
ernments or District Assemblies tend to award small contracts
(e.g. five wells or fewer). Also, work is often shared out between
the companies tendering. There can be social pressures with
respect to tender award, e.g. “Joe was given the contract last
time, so John should get it this time round”. Political pressure to
favour companies who are linked to, or owned by officials also
exists. In addition, some enterprises may be favoured as they
provide larger kickbacks than others.
The expectation to pay an informal „reward‟ for being awarded
with a contract is not uncommon in many countries, and in fact
in some cases, companies are even expected to pay before the
contract is awarded! It can be common practice to “oil the
wheelsin order to get paid for the work done. Underground
movement” is a term that has been used to describe pressure
put on to companies to undertake works at unrealistically low
prices with promises of future (and better) contracts. This field
note is not condoning such practices, merely stating the reality.
From the perspective of the contractor, if kickbacks are too high
(sometimes as high as 40% of the contract price), either the
construction quality will be compromised, or company profits
will suffer considerably. Both of these will have long-term, nega-
tive consequences for your business, and for the health of the
drilling sector as a whole. In the long term, it is in your interest
that the tender process includes a pre-qualification process, and
is clear and transparent.
Regular audits of the procurement processes and the physical
audit of the works done with results published are one mecha-
nism to improve the tender process. However, advocating for
such measures is not something that can be undertaken by one
drilling enterprise alone. An association of professional drillers
(discussed below) may be able to exert pressure.
Sub-Contracting by brief-case companies
There are numerous cases throughout sub-Saharan Africa of so-
called drilling companies without adequate capacity „winning‟
contracts. These companies in turn sub-contract work to other,
professional companies. As a result the profit on each project is
shared among two companies, which can lead to low or no
growth of your (genuine) company.
Although some contracts officially do not allow sub-contracting,
in practice, these clauses are often ignored or not enforced. In
one particular country, it was common practice for the fake
company that won the tender to come to the site and cover the
equipment of the genuine company with its logo-filled stickers!
The problem of sub-contracting has rendered companies who
have the capacity and skills to undertake work as redundant or
not able to maintain their equipment. This is an issue which
clearly needs to be addressed. Good licensing and regulation of
private water well drilling enterprises (and NGOs), or a profes-
sional drillers association are ways to tackle this problem.
15
Effective Management of your Business
Water Well Drilling is not Easy Money
Many people think that there is a lot of money, and that huge
profits can be easily made in the water well drilling industry.
They often do not realise that venturing into water well drilling
is a big step into a business that is highly capital intensive and
fraught with risk. Like all other businesses, establishing a drilling
enterprise requires very good knowledge of the nature of the
business.
Performance Bond
In many drilling contracts, a performance bond (see glossary) is
required. The cost depends on the size of the job, as the bond is
normally a percentage of the total volume of work. It is gener-
ally 10% for Bank bonds and 25% for insurance bonds of the
total contract sum.
Maintaining Equipment and Stocking Spare Parts
Equipment whether new or old needs maintenance and will
suffer inevitable breakdowns. It is wise to stock expected items
that suffer from fatigue or wear out. A good maintenance pro-
gramme should always be in place. It is not uncommon for drill-
ing rigs in Africa to stand unused for months while spares are
ordered from abroad. Ray Rowles (1995) told us to try to stock
common spares so that you can keep your equipment “turning”.
Business and the family and its effect on cash flow
In countries with poverty, high unemployment and virtually no
state social security, as well as high value placed on kinship,
patronage is important. Throughout sub-Saharan Africa, it is
unusual to find anyone with income who does not support oth-
ers without. Social pressures are such that it is very hard for
enterprises to hang on to cash, or charge friends and family for
goods and services from the business. Many small businesses
therefore have little or no savings.
In fact when you are operating a business, people think that you
have money all the time. To quote Anthony Luutu: “Many times
when I tell my relatives that I have no money, they just don‟t be-
lieve it. Everybody thinks that you have money and you just don‟t
want to assist them”. Many people have failed to separate busi-
ness from family resulting in no savings or cash flow and thus
the collapse of the business.
Just as water stagnates if a river stops flowing, businesses can-
not survive without cash flow. The authors are familiar with
companies that look for money every time a new job comes up.
However, such an approach makes it very difficult for a business
to survive in the long term, never mind grow.
We thus advise you to try to separate the business from the
family. This is not easy. One way to handle it is to ensure that
you are paid a salary in line within what the business can afford,
and perhaps an annual bonus if the company performed par-
ticularly well. All other money should be kept within the busi-
ness.
Professionalism
In numerous sub-Saharan African countries there is no register
of drilling enterprises, or licensing. As a result, genuine water
well contractors end up competing with brief-case companies,
and there is no regulation of the sector.
Registration and licensing of drilling contractors is extremely
important as a basis for quality assurance. Where regulation of
drillers takes place, such as in Kenya, the drillers are required to
renew their licences on an annual basis. Equipment and human
resources are appraised. Regulation can make sure that only
competent drillers are able to pre-qualify to tender, can help to
ensure that minimum standards are adhered to and can ensure
compliance with the requirements to submit borehole logs and
water quality testing results.
As drillers it is often difficult to associate with competitors.
However the formation of a professional drillers association has
many advantages. As a group, drilling enterprises are in a much
stronger position to advocate for changes to VAT, better access
to information on groundwater and drilling conditions and
genuinely fairer contract terms and conditions.
Thus, if there is no drillers association in your country, or region,
talk to your competitors and find out which challenges you face
that can be solved together. Over the past few years, drillers
associations or drillers-forums have been set up in Ethiopia,
Kenya, Nigeria, Mozambique and Uganda. In 2008, the Mozam-
bican Drillers‟ Association successfully lobbied the Government
of Mozambique to amend unrealistic contract terms in a large
co-funded programme.
From a social and economic perspective it is an advantage to
the country when the know-how and revenues from drilling
remain in the country. Exchange of experiences, for example
could be coordinated by a drillers association.
Figure 3: Water Well Drilling in Burkina Faso
References and Bibliography
Adekile, D and Kwei, C. 2009. The Code of Practice for Cost-Effective Boreholes in Ghana Country Status Report, Consultancy
Report for RWSN/UNICEF. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2010-06-21.6150611965 [accessed
21st June 2010]
Adekile, D and Olabode O. 2008. Study of Study of Public and Private Borehole Drilling in Nigeria. Consultancy Report for UNICEF
Nigeria Wash Section. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2009-11-16.3173940374 [accessed 21st
June 2010]
Armstrong, T. 2009. The Code of Practice for Cost-Effective Boreholes in Zambia Country Status Report, Consultancy Report for
RWSN/UNICEF. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2009-11-16.1437220814 [accessed 21st June
2010]
Ball, P. 2004. Solutions for Reducing Borehole Costs in Africa. Field Note RWSN/WSP. Available from:
http://www.rwsn.ch/documentation/skatdocumentation.2005-11-15.2916688092 [accessed 21st June 2010]
Carter, RC, Desta H, Etsegenet B, Eyob B, Eyob D, Yetnayet Ne, Belete M and Danert K. 2006. Drilling for Water in Ethiopia: a Country
Case Study by the Cost-Effective Boreholes Flagship of the Rural Water Supply Network. Federal Democratic Republic of
Ethiopia/WSP/RWSN. Available from:
http://www.rwsn.ch/documentation/skatdocumentation.2006-08-09.6396873528 [accessed 21st June 2010]
Carter, RC. 2006. Ten-step Guide Towards Cost-effective Boreholes. Field Note RWSN/WSP. Available from:
http://www.rwsn.ch/documentation/skatdocumentation.2007-06-04.5352691802 [accessed 21st June 2010]
Danert K. 2003. Technology Transfer for Development: Insights from the Introduction of Low Cost Water Well Drilling Technol-
ogy to Uganda. Unpublished PhD Thesis. Cranfield University, UK. Available from: http://hdl.handle.net/1826/4464 [accessed on 28th
June]
RWSN (in press). Code of Practice for Cost-Effective Boreholes, Rural Water Supply Network. Available from
http://www.rwsn.ch/documentation/skatdocumentation.2010-08-23.4523209156
Danert,K, Carter RC, Rwamwanja, R, Ssebalu, J, Carr G and Kane D. 2003. The private sector in rural water and sanitation services in
Uganda: understanding the context and developing support strategies Journal of International Development, 2003, vol. 15, issue
8, pages 1099-1114.
GTZ. 2009. GTZ Fuel Price Survey 2009, Deutsche Gesellschaft für Technische Zusammenarbeit. Available from:
http://www.gtz.de/en/themen/29957.htm[accessed 21st June 2010]
Heath, T. 2009. Developing a Borehole Costing Model to Evaluate Cost Savings, Cranfield University, Cranfield, UK Unpublished MSc
Thesis. Cranfield University. Available from library@cranfield.ac.uk
Heath, T, Tibenderana, P, Carter R.C., Danert, K and Berhe E. Borehole Costing Model V2.8 Beta, Cranfield University, UK/Rural Water
Supply Network, Switzerland. Available from rwsn@skat.ch
MacDonald, A, Davies, J, Calow R and Chilton J. 2005. Developing Groundwater. A guide for Rural Water Supply, ITDG Publishing,
UK.
Rowles, R. 1995. Drilling for Water: A Practical Manual, Avebury, UK
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Cranfield University, UK/Rural Water Supply Network, Switzerland. Available from library@cranfield.ac.uk
About the authors
Support and Peer Review
Kerstin Danert of Skat is the coordinator of the Cost-
Effective Boreholes Flagship of the RWSN. She has extensive
experience of private and public sector water supply institu-
tions. Anthony Luutu is a hydrogeologist and director of
Aquatech Enterprise, a Ugandan consultancy and water well
drilling company. Richard Carter is Head of Technical Sup-
port at WaterAid. He has worked in consultancy, academia
and with Governments and NGOs in many countries of Af-
rica and south Asia, focusing especially on groundwater de-
velopment. André Olschewski of Skat has wide experience
in procurement of drilling contracts and business engineer-
ing.
The preparation of this field note was supported by UNICEF,
USAID and SKAT Foundation as part of the work to develop a
Code of Practice for Cost-Effective Boreholes. The Water and
Sanitation Programme of the World Bank (WSP) and the Swiss
Development Corporation (SDC) also financed the coordina-
tion of the Cost-Effective Boreholes flagship of RWSN. Work
undertaken by Cranfield University to develop a Borehole
Costing Model underpinned the costing example used in the
field note.
The document was peer reviewed by Chris Jeffries (Environ-
mental Sampling, UK), Etsegnet Berhe (Tana Water, Ethiopia),
Peter Harvey (UNICEF, New York) and Sam Mutono (WSP-AF,
Uganda). The review process was supported by DEW Point,
the Development Resource Centre for Environment, Water
and Sanitation funded by the UK‟s Department for Interna-
tional Development (DFID). The authors are extremely grateful
for the thorough reviews which have improved the field note
considerably.
Contact
The Rural Water supply Network
(RWSN) is a global knowledge
network for promoting sound
practices in rural water supply.
RWSN Secretariat Phone: +41 71 228 54 54
SKAT Foundation Fax: +41 71 228 54 55
Vadianstrasse 42 Email: rwsn@skat.ch
CH-9000 St.Gallen Web: www.rwsn.ch
Switzerland
... The Code was launched in 2010, and paved the way for a set of guidance documents that would detail the principles set out. Over the next five years, depending on the availability of funds, guidance documents on siting [41], costing and pricing [52] supervision [54], procurement and contract management [53] and groundwater resources [55] were published. The costing and pricing publication drew extensively on Cranfield University's drilling tool [31]. ...
... Yes [52,53,100] 5 ...
... Yes [52,53] 7 ...
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Study of Study of Public and Private Borehole Drilling in Nigeria. Consultancy Report for UNICEF Nigeria Wash Section Available from: http://www.rwsn.ch/documentation/skatdocumentation
  • D Adekile
  • O Olabode
Adekile, D and Olabode O. 2008. Study of Study of Public and Private Borehole Drilling in Nigeria. Consultancy Report for UNICEF Nigeria Wash Section. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2009-11-16.3173940374 [accessed 21 st June 2010]
Ten-step Guide Towards Cost-effective Boreholes. Field Note RWSN/WSP Available from: http://www.rwsn.ch/documentation/skatdocumentation
  • Rc Carter
Carter, RC. 2006. Ten-step Guide Towards Cost-effective Boreholes. Field Note RWSN/WSP. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2007-06-04.5352691802 [accessed 21 st June 2010]
The Code of Practice for Cost-Effective Boreholes in Zambia – Country Status Report Available from
  • T Armstrong
  • Rwsn
  • Unicef
Armstrong, T. 2009. The Code of Practice for Cost-Effective Boreholes in Zambia – Country Status Report, Consultancy Report for RWSN/UNICEF. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2009-11-16.1437220814 [accessed 21 st June 2010]
The Code of Practice for Cost-Effective Boreholes in Ghana – Country Status Report Available from: http://www.rwsn.ch/documentation/skatdocumentation
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  • Rwsn
  • Unicef
Adekile, D and Kwei, C. 2009. The Code of Practice for Cost-Effective Boreholes in Ghana – Country Status Report, Consultancy Report for RWSN/UNICEF. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2010-06-21.6150611965 [accessed 21 st June 2010]
Solutions for Reducing Borehole Costs in Africa. Field Note RWSN/WSP
  • P Ball
Ball, P. 2004. Solutions for Reducing Borehole Costs in Africa. Field Note RWSN/WSP. Available from: http://www.rwsn.ch/documentation/skatdocumentation.2005-11-15.2916688092 [accessed 21 st June 2010]
Borehole Drilling Cost Analysis: Development of a Costing Model and Analysis of Cost Reduction
  • P Tibenderana
Tibenderana, P. 2009. Borehole Drilling Cost Analysis: Development of a Costing Model and Analysis of Cost Reduction., Cranfield. Cranfield University, UK/Rural Water Supply Network, Switzerland. Available from library@cranfield.ac.uk