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:
- Review labor hours and material
pricing for the entire bidPrint 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.
- 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.
- Correctly project the average
labor rate for the projectMost 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
- 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.
- 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.
- 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.
- 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
