Part 1 by Ron Pestone
If you are a trade contractor trying to make it in today’s market it is imperative that you really know your trade, know what an average journeyman can install in a day and the other thousand and one things you need to know before trying to go into business. In my forthcoming book, BOOK OF ELM, VOLUME 1, COMMON SENSE SUBCONTRACTING WITH ELM JOB COSTING & MORE I devote considerable time to what I believe you have to know about estimating. For the sake of this article I will touch on some of those highlights.
Estimating is important not only because it will tell you how much a potential contract is going to cost you to perform but just as important what the right price is for the job. By “right price” I mean the real cost of a section of work you are trying to subcontract out to another subcontractor. So in effect estimating covers buying as well as selling and if you are buying or selling without a real estimate you will have no way of job costing your project. Without which you are really playing Russian roulette.
As previously mentioned the most important thing you need to know when you are estimating as a subcontractor is your trade. You need to know it not only from estimating books; you need to know it from experience in the field. Why the field? Because everything happens in the field, that is where the project is built. Any decent estimating book can give you the labor extensions for any portion of work; you need to know how to adjust those extensions to actually fit the site conditions and the terms of the contract.
You cannot expect to get the same productions for brickwork for a parapet wall as you would for laying bricks at ground level. Nor can you expect to put the same amount of pipe in on any given day if you are installing it in a 15’ ceiling instead of an 8’ ceiling. Nor are you going to get the same production out of your men when it is 95 degrees out there as you would on a nice spring day. You get the message, there are the hundreds if not thousands of variables you need to really understand and plug into your labor extensions when you are putting your estimate together. If you are not able to do this, stay home because somebody is going to take you to the cleaners.
In addition you need to be real good with the plans and specifications. You need to be taking off the project in the right scale, checking the details and notes for anything that is going to affect your price. You need to make sure you have all the addendums and bulletins and have made the proper dollar adjustments for them. In short, by the time you have finished your takeoff you should know the job as if you built it.
Spend the proper time on the specifications. Make sure your price is based on the equipment and material specified. Check for out of the ordinary requirements the Architect or Engineer is asking for. Then go to the Special Conditions and read them thoroughly. More than one sub has gone to the grave yard over them. Put a dollar value on anything in the Special Conditions that you think will cost your company money. Really comb the General and Special Conditions to make sure you have everything covered. In my opinion when you are estimating the only real mistake is a miss. If you have a line item covered but the price is wrong while it is not great it is not the worst thing in the world. The worst thing in the world is that you missed the line item completely.
Make sure you understand the duration of the project and if the project has a CPM Schedule check to see the time allotments you were given for your work. Be realistic about the crew size you will be able to put on the project. If you know you are only going to be able to spare 6 guys don’t plug in 10. Plug in the 6 within the time durations the CPM Schedule gave you and if you can’t make it make up the difference in hours needed with overtime.
Make sure your material and equipment prices are up to date and if the project is going to be long put something in for escalation and be sure to add quantities for waste. Make sure you have all your costs for benefits, taxes, bonds and insurances in your number.
When you have compiled all your numbers and have visited the site you should be looking at your real cost for performing the work. Then add what you would like for mark up and you are ready to bid the job.
If you handled your estimate professionally two things are for sure. One, your costs are your costs. Do not fool yourself, if everything goes fairly easily that is what it’s going to cost your company to do the job. Two, if you cannot get some markup why do the job? How are you going to pay your home overhead cost? My advice is to bid the job to make some kind of profit or let your competition suffer the job.
If it’s a public bid, the bids are opened in public and the low responsible bidder gets the job. If you are trying to close with a General Contractor or a Construction Manager nobody is ever going to tell you that you have the right number. In all the years I have been in the business I have never heard it, what I have heard is, “We like you, we like your company and we want you to do the job but you have to do something with your price.”
So you negotiate and you take something off your number. Many times whoever is buying will throw you such a low number you could lose your lunch. Eventually you reach a point where you either walk or take the job.
There isn’t one subcontractor on the planet who hasn’t taken a job for a number that he knew was too low. I make no bones about it, I, like so many others have done it and like all the others who have done it I was always able to come up with the most plausible reasons for doing it at the time. It’s just the nature of the business. I am not saying its right; I’m just saying it’s so.
So that is the selling side of the business. The side of the business that is almost never talked about in subcontracting circles is the buying side of the business and it can as dangerous if not more so than the selling side. I was lucky, although I didn’t think that at the time, I received a major lesson on the buying side early in my career that never left me and has always held me in good stead.
Early in my mechanical contracting business when we were working out of one room we landed a HVAC contract for a small office building. We were a piping company and did not have the ability to do ductwork so like a lot of other contractors we looked to subcontract the sheet metal portion of the work out. As this was one of our first jobs there was very little fat in the job so we had to make a really good buy on the sheet metal or else we would be in trouble. A friend of mine knew a guy who was trying to start a small sheet metal shop up and he took him over to our one room office to meet me.
Don’t Forget – We Build America