Labor Units - Factors to Consider for Competitive Bids

When selecting labor units to be used in a competitive bid, there are many factors to consider. While many of us use labor units published by nationally recognized associations and/or estimating systems, understanding the effects of a particular project or installation and adjusting these labor units will determine whether you win or lose the bid. Once you win the bid, it will also determine if you will be profitable or lose money on the project.

Look at many factors when competitively bidding a project. Consider the different elements of the project in order to be sure that you have selected the correct labor units for the material to be entered into the estimate. One mistake many estimators make is using the same level of units for every estimate or an entire estimate. Different parts of a project may require different levels of labor units.

If you are installing 3" EMT in an 8' ceiling on one part of the project and 3" EMT in a 20' ceiling in another part of the project, they would require different labor units for the same material. This same 3" EMT installed on a project where the storage area is close to the installation area versus a project where the storage area is located a great distance from the installation area will require an adjustment to either the hours or a factor added to the estimate.

You also have to look at repetitiveness. Installing one 3" EMT in a ceiling will take longer per hundred feet to install than four parallel runs of this same 3" EMT. Just like if you are installing four - 2x4 lay-in fixtures in a room versus installing two hundred of them. You will gain productivity with the two hundred lay-in fixtures.

When considering what labor levels to use on your bid, consider the following:

1. How many items are you installing of a particular item? Increased quantities increase productivity therefore lowering your labor units.
2. Do you have parallel runs of conduit and conductors to consider? The more parallel runs you have will decrease the labor per hundred feet for that installation.
3. Ceiling Heights - Higher ceiling heights increase labor.
4. Is installation of material being performed using scaffold, high lift, etc.? Equipment choices can affect your labor units.
5. How many floors up the building is the installation? The higher up the building your installation is being performed will equal an increase in your labor for that installation.
6. Location of storage area as compared to the installation area - The farther away your storage area is from the installation, the longer it will take for the installation.

Besides these installation situations, you will also have other things to consider:

How good is a particular General Contractor at keeping the installation area clear and clean?
You know we have all seen it before. Two general contractors can be building the same project. The first GC has the installation area ready for your installation, cleared and clean, while the second GC will have the area stacked with drywall because he had it delivered to the project too early and the area is filthy. Obviously a bid to the second contractor will require more labor.

How good is a particular General Contractor at keeping the project on schedule?
A project that is on schedule usually results in lower labor cost. This will hold true unless it is being kept on schedule via overtime or the individual scheduled items cause a compaction situation to the installation. This is why it is important to know the general contractor you are bidding work to.

Weather
Temperatures of both high and low extremes can have a daunting effect on the productivity of the workforce at the project. When is the underground or slab work scheduled on the project? Is it in the grueling heat of summer or the extreme cold of winter? The project location has a lot to do with this. If your slab or underground work is in Florida and scheduled during the summer or Canada during the winter, your productivity results will be lower. On the other hand, if it is scheduled in Florida during the winter and Canada in the summer, your productivity results will be higher.

The point of this article is that just using labor units from your estimating system without adjusting them will not produce an accurate estimate. You must consider the factors addressed in this article along with many other factors that could be affecting your bid. Review your System Printout. Look at the location and labor for each of your items. Use a pencil to make adjustments and enter the total adjustment on the recap sheet. Use a labor factor on the recap sheet for other adjustments. Remember, these adjustments can be positive or negative adjustments.

You should think smart when bidding work. It will result in you and your company winning more profitable projects.

If you are looking for a professional electrical estimating system that can help you win more work, check out this site: http://www.acesestimating.com.

See past blogs that discuss:

Accurate and Consistent Estimates are the Keys to Success

Look for future blogs that will discuss:

Understanding Quotable Items and How to Buy Them Out
How to Price Change Orders
Negotiating and Settling Change Orders
Claim Management
How to Accurately Price a Cost to Complete

If you would like me to discuss a certain topic, please let me know.

Thanks,
Bruce J. Medlin

Accurate and consistent estimates are the keys to success

Just because you finished the takeoff does not mean that the bid is complete, competitive, consistent or accurate. Performing this 7 point check list below will greatly enhance the chances of winning the bid and understanding how the bid stood up to the competition.

In order to accurately assess your bids as compared to the other bidders (your competition), it is imperative that you understand what the real cost is on a project. If you are estimating using the concept that certain items are covered in overhead and profit, you do not understand the real cost. You have increased overhead and profit to include these costs.

Bidding accurately and consistently from project to project is the key to success. The key to accurate estimating is to cover all cost in the estimate and adjust the overhead and profit to be just that. You will be able to lower the overhead and profit once all the costs are truly covered in the estimate.

Before we discuss the 7 point check list for accurate estimates we must have an understanding of what Overhead and Profit really is.

Overhead – Covers all items not directly associated with the project, such as main office rent, phones, utility bills, estimating staff, purchasing agent, warehouse staff, office equipment, office vehicles and delivery trucks, etc.

Profit – The actual profit that you feel you should make on the project that you are bidding relative to the risk you take. Items that can affect the amount of profit are:

The amount of risk and duration of the project.

The growth of the project - Will there be a lot of change orders on the project due to design issues or added work?

Are you working with familiar contractors, engineers or owners?

Adjust profit to different general contractors based on the following:

How easy are they to work with?

How fast can they complete the project? (If you get different durations from general contractors you may want to have multiple recap sheets where the only difference is the duration and price)

Who do you have the best odds of getting the project with?

The above items are all items that you should think about when deciding how much to add for profit. Except for possible duration differences between general contractors, this is where you make the adjustment, not in the cost of the estimate.

Now the 7 point check list: In order to make sure your estimate represents the cost accurately you must:

1. Review labor hours and material
   pricing for the entire bid
   

   Print the bid by system. This printout shows the take off items broken down by systems. This is the best method for reviewing labor. Make notes on the printout where you want to deduct hours for items you feel will not take as long as your bid states. Add hours for items you feel will take longer than your bid states.
   

   Print the bid by item totals. This printout shows the total of each item regardless of where it is in the bid. Another word, if 100' of ½" EMT is in five different systems this printout shows the total of all the ½" EMT on one line, 500' of 1/2" EMT. Either your purchasing agent or you must review the material pricing in the bid. Make notes on your printout where you want to deduct material dollars for items you feel you can buy cheaper than your bid states. Add material dollars for items you feel will cost more than your bid states.
   

   Add up all your adjustments to labor and material. Enter these adjustments on the recap sheet. Most recaps have a line called "Add/Deduct", this is where you would enter it.
   
   

2. Review the Zero Cost Report
   

   This printout will show you everything in your bid that has zero material dollars. Make sure you are getting a quote for everything in this report and make sure you enter these quotes under quotes on the recap sheet. If there is an item or two that you do not have a quote for, either get a price from a vendor or take your best educated guess at the price of the item. Enter it on the recap sheet under quotes or on the line below miscellaneous material, along with entering what the material item is.
   
   

3. Correctly project the average
   labor rate for the project
   

   Most good recap sheets allow you to build your crew for the project. It will also tell you the average crew size that you will need to perform the work. With this information you then enter how many Superintendents, Foreman, Leadman, Journeymen, Apprentice, Electricians, Helpers and Laborers you will have on the project. Enter the labor cost for each of the Superintendents, Foreman, Leadman, Journeymen, Apprentice, Electrician, Helper and Laborer you will have on the project.
   

   Most good recap sheets allow you to enter different labor rates for different levels under each classification.
   

   By taking a few minutes to enter this information you will have a very accurate average rate for this particular project.
   

   Every project is different therefore you will have a different average rate on each project you bid. Take the time to do this and your bid will closer reflect the actual cost on the project.
   

   If you need good recap sheets you can find them for free at - www.acesestimating.com/Free_Recaps.html
   
   

4. Understand your labor burden
   

   What is your labor burden? Many estimators do not know the answer to this. Many business owners do not understand burden. Your labor burden is calculated as a percentage and consist of all federal and state taxes including unemployment and workers compensation, any employer funded or partially funded health, dental and life insurance, any holiday or vacation pay and any other item that the company pays for over and above what you actually pay the employee.
   

   Some companies include company vehicles and gas under burden while others include it in job expense. I believe it should be included in job expense since most of your employees probably do not have vehicles. You do not want to increase the burden for all the employees when only a few have this perk.
   

   The burden should be consistent from project to project. If it is not consistent from project to project that means that you have items in your burden that should be covered in your job expense of the project. Do yourself a favor and move it. Your burden should be consistent for each of your bids on a year to year basis. It should only change when one of the above items that makes up the burden changes.
   

   Once you understand and calculate this, enter the percent of burden in the burden box of the recap sheet.
   
   

5. Properly calculate management expenses
   

   The project will not run itself. Project management, and on larger projects, project engineers, purchasing agents, designers, CAD techs, tool handlers, warehouse personnel, clerical staff, etc. must be included in the bid. It is not part of your overhead, it is a direct job expense for any time they spend working on the project.
   

   On smaller projects a good rule of thumb is that Project Management will run about 10% of the total labor. On larger projects that require more than just a Project Manager, such as project engineers, purchasing agents, designers, CAD techs, tool handlers, warehouse personnel, clerical staff, etc., it is best to actually calculate it base on the requirements of the project. The recap sheet should allow you to implement either of these methods.
   
   

6. Calculating temporary power requirements
   (Construction Power)
   

   In the old days it was called Temporary Power; now-a-days I recommend we call it Construction Power. Properly understanding and calculating this is an important part of having an accurate estimate. Use one of these methods to properly calculate Construction Power.
   

   Method #1 - In the estimate create a system called Construction Power. Find out and understand the actual construction power requirements of the project you are bidding. Besides basic temporary lighting and power, is there an electric tower crane, electric welders, electric concrete pumps, elaborate office and or storage trailer setups, etc. Takeoff what is needed and required by the project. After completing the takeoff of the required material and labor add in time and material for maintenance.
   

   Method #2 - Calculate construction power based on the square footage and enter the square footage and the following percentages on the recap sheet. A basic rule of thumb for basic temporary lighting and power on commercial projects is to use approximately 10% of the square footage for material cost and 1.5% of the square footage for the labor hours. This is a very general approach for electrical contractors that do not want to do a takeoff of the exact requirements.
   

   Look at each project's individual requirements and adjust the percentages for those requirements. These percentages do not include any requirements for electric tower cranes, electric welders, electric concrete pumps or elaborate office and or storage trailer setups, etc. If your project has these requirements use either Method #1 above or Method #3 below.
   

   Method #3 – Is a combination of the first two methods. Calculate your Construction Power cost as follows:
   

   Create a system in your bid called Construction Power. Use Method #1 above to estimate everything but temporary lighting and power such as electric tower cranes, electric welders, electric concrete pumps, elaborate office and or storage trailer setups, etc.
   

   Use Method #2 above to calculate temporary lighting and power and enter it on the recap sheet.
   
   

7. Calculating project job expense
   

   Job Expense needs to be looked at closely. Projects that are bid without properly calculating the job expense will eat away at your profit month by month. There may not be any profit left at the end of the project if not properly calculated. Job expense consists of:
   

   Small tools – a good rule of thumb is 2 to 3% of total labor.
   

   Large tools such as a bender or tugger that will be expended on the project or a percentage there of. A good rule of thumb is 1% of total labor.
   

   Equipment such as trenchers and backhoes, lifts and scaffolding, jobsite trucks, gas for equipment and vehicles, etc.
   

   Project requirements such as permit, storage trailers, office trailers, trailer mobilization, etc.
   

   Office equipment setup such as office telephones, computers, desk and chairs, monthly office equipment expense for expendables, Ice and water, etc.
   

   Travel expenditures (Trips) such as lodging, flights, automobile rentals, per diem, etc.
   

   Personnel expenditures such as Project Manager Vehicle, Superintendents Trucks, cell phones, etc.
   

   Any good recap sheet will have an area for you to enter all your job expense.
   

Once you complete this 7 point check list on a few projects you will find that it is both a fast and accurate method of having consistent bids. These consistent and accurate bids will help you understand how to adjust profit in order to be competitive and win more work.

If you need a good recap sheet or are looking for a professional electrical estimating system that can help you win more work, check out this site: http://www.acesestimating.com

Look for future blogs that will discuss:

Understanding labor units
Understanding quotable items and how to buy them out
How to price change orders
Negotiating and settling change orders
Claim management
How to accurately price a cost to complete

If you would like me to discuss a certain topic, please let me know.

Thanks,
Bruce J Medlin