On Target 10 – Costing contracts

Having established the basic headings of direct costs and overheads, it is now time to determine the amounts applicable to each, to build up a complete costing picture.

Firstly, establish the core information

Mileage (garage to garage) 55 miles per day
Driver pay hours (right through) 07.30 to 16.30 (including sign on and sign off time)
Vehicle capacity and type 53 seat coach, Euro 6 required from October 2020.
Operating days 190 days
Contract period 5 (academic) years
Inflation provision None, fixed price required throughout the contract
Qualify for BSOG? No


I price each category according to the current cost to buy in. I assume I can get each vehicle out on average 240 days each year. Therefore, I can find private hire work for an extra 50 days above the school contract term I am pricing for.

Fuel for the distance involved

I assume the coach will be out and back after each trip. If there is less dead mileage because I can conveniently find a job to fit, I regard that as a bonus. Every job, contract or otherwise is based on garage to garage mileage.

Fuel consumption Daily fuel consumption (55 miles) Gallons to litres Daily cost
9.2 mpg 5.97 gallons (call it 6 gallons) 27 litres 27 x £1.04 pl = £28.08 (ex VAT)


Driver cost

The driver is paid right through and I initially assume there is no infill work. It may be possible to get a driver to work for hours worked, but I would need to be sure I had certainty over the full length of the contract, before giving the client that benefit!

Driver base hourly rate Hours Payable Holidays (30 days pa)
£11.00 9 x £11.00 = £99.00 30 x £99.00 = £2,970 = £11.42 (divided by 260 working days)


[design: this is tabbed two columns]

Total daily cost = £99.00 + £11.42                                    £110.42 (pay and holidays)

Add employer’s national insurance (9%)                         £9.93 (average over threshold)

Total taxable costs                                                               £120.35

Plus, employers pension contribution(3%)                     £3.31(paid across all earnings)

Plus, driver subsistence (tax free)                                      £5.00

Total driver cost per day                                                    £128.66

Welfare and other staff costs including training, uniform etc are included in general costs.

Motor insurance

This is relatively straight forward as a division of the annual premium. However, I also allow for costs incurred within the excess, which in my case is £5,000 per claim.

By keeping a careful record of own damage, which I can’t claim from the insurers or from a third party, including any glass breakage, mirrors, etc, I determine a daily average figure across the coach fleet.

Annual premium per vehicle Allowance for excess “own damage” costs Total daily cost of motor insurance
£3,962 divided by 240 operating days = £16.50 per day Annual cost £465, divided by 240 operating days = £1.93 per day £16.50 + £1.93 = £18.43 per day


Tyre wear

Based on an average cost per mile across the fleet. I separate out bus from coach, as generally the cost per mile is higher for buses, given sidewall damage and few tyres survive their full tread life. Coaches, while having more expensive tyres, tend to suffer less damage and as a result survive to the end, including where possible, re-cutting.

Tyre cost per mile Daily mileage Daily tyre cost
4.08 pence 55 55 miles x 4.08 pence = £2.24


Vehicle maintenance costs

This includes everything done to a vehicle across the fleet, so an average per vehicle. I separate out buses from coaches as they have different requirements.

Average annual maintenance cost per vehicle Daily cost (240 days)
£10,941 including labour, parts, equipment etc £45.58 (x 190 days = £8,660.20)


Vehicle depreciation/finance charges or lease costs

I buy my vehicles, usually over 60 months on HP. I have different depreciation policies for the bus and coach fleets, with pricing based on the average across a wide range of age profiles. This applies, unless I am buying dedicated vehicles for a contract, in which case it is based on the specific depreciation curve chosen for those vehicles. In the case of this school contract, the vehicle will be entering the expected Greater London ULEZ, only 12 months into the contract term . Therefore, I either pay £100 a day to allow a non-Euro VI coach to operate or run only with a Euro VI vehicle. I have decided to take the latter course and price accordingly. My competition will have to do the same.

Average Euro 6 Coach value Annual depreciation at 10% straight line Annual Interest on average finance outstanding Total annual depreciation and interest charge Divided by 240 operating days
£170,000 £17,000 £2,900 £19,900 £82.91 per day


Direct cost summary

Cost Item Cost per day Annual cost (190 operational days)
Fuel £ 28.08 £ 5,335.20
Driver cost £128.66 £24,445.40
Motor Insurance £ 18.43 £ 3,501.70
Tyres £ 2.24 £ 425.60
Vehicle Maintenance £ 45.58 £ 8,660.20
Vehicle Depreciation & interest £ 82.91 £15,752.90
Total direct costs £305.90 £58,121.00


This is the minimum cost to operate the contract before I assume any infill work between runs.

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