Avoid Costly Mistakes
Often, a veteran estimator and instructor – a guy like me – will be asked for “rules of thumb” for estimators. I guess I should be flattered that people think I know something about estimating because of my age and experience. Here’s the truth: I learn something new about my profession every day, from almost every student I train.
More truth: The advent of computerized estimating has been a mixed blessing for most of us. What follows is a partial answer to that frequent "rules of thumb" request.
Software: Plus & Minus
Here's what estimating software delivers to construction contractors:
- Time - which we can use to check our estimates;
- Methods to check our estimators (such as extension reports and bid summary);
- Historical data, which enables us to improve our future estimates; and
But there are a few things that we are in jeopardy of losing in the process:
Simple know-how. Before computers arrived, I could tell someone (without looking it up) how many hours it took to install a 4-inch EMT. Today, that's gone from my head. It is, however, in the computer.
Bidding volume can get out of control. Too often, management will bring in more drawings for estimators to bid on. We can fashion those bids, because we are faster at what we do when we use computerized estimating. That doesn't necessarily mean it's good for the company, though.
Cautions (A Checklist)
- Never bid a job more than twice the size of your largest job that you have completed.
- Beware of jobs far from your home base.
- Beware of unfamiliar general contractors.
- Always know your costs. Always understand your costs!
- Know what your overhead costs are. Overhead is a cost to run your business: you will spend it. Most contractors can get into the habit of discounting their overhead costs; this practice can cause a loss on the job.
- Can you sell milk for $2 that costs you, all costs in, $3 per gallon? You can't make up losses by increasing volume.
- Know your competitors. What are they likely to do, given today’s situation and the job in front of you? Did one of them win the last big bid? If possible, adjust your bid to gain the edge.
- Always bid the job and not the market. This may be very difficult in today’s market, but it’s imperative… every single time!
- Beware of people asking you to cut your price. You may already be the low bidder.
- Base your bid on future change orders. Many of us lose money on change orders.
- Bid a job based on the hope of future tenant work. I have seen times the tenant work goes out for bid.
- Sign a bad contract. In everyday business, I see too many contractors signing bad contracts to get some work. How can you allow a contract to tell you that all change orders can include only 10 percent overhead when you are spending 20 percent – where is the profit in those change orders?
The Scope Letter
Send a detailed scope letter to your general contractors at least one day before the bid. It explains what you include – and what you will exclude from – your bid.
You know how much trouble you have comparing supplier quotes at the last minute? Well, multiply that by the number of subcontractors the General Contractor (GC) must review! Obviously, this is a time-consuming project for the GC.
A good scope letter helps the GC select you as the bid winner. A bad scope letter, or no scope letter at all, will help the GC eliminate your bid.
After You Think You Are Done ...
Most estimates are a series of errors. Find the errors! The old expression “garbage in, garbage out” still applies.
- Your computer estimating software will add any number of items or assemblies you specify – you certainly should check what you have.
- Do an order-of-magnitude check.
- Check every large and small extension. Why are they high or low?
- Is there a mistake in the quantity or price?
Remember, the people who created the electrical design – the engineers – were the low bidders (that’s how they got the project). Find the time to do whatever reengineering necessary to give you an edge on your bottom line. To save money, combine home runs ... relocate anything that you can.
A Final Thought
That job your estimator won for your company – the one on which you thought you had built in a good margin ...might well become a loser. By way of contrast, the job in which your bid is tight to your costs and yet still came in as the low bidder – making you nervous about the ultimate result – probably will make money! Why? Because you will micro-manage that project.
Erle Howard has been in the electrical ﬁeld since 1961. In his 50-plus years he has worked as an apprentice, project manager, chief estimator, and everything in between. Over 100 estimators in 28 cities across the United States have reported to him while he was responsible for electrical estimates ranging anywhere from an outhouse to a $300 million powerhouse. Erle has been both attending and instructing estimating seminars for nearly 30 years. Erle has been certiﬁed by the A.S.P.E. (American Society of Professional Estimators), in Division 16000. Erle formed Electrical Estimating Services, a professional estimating company, in 1987 and has continued to serve the estimating needs of electrical contractors.
Earle is a veteran construction estimator who teaches classes in Maryland for McCormick Systems, an IEC National Platinum Industry Partner, which offers estimating software. The article above is based on thoughts he posted to LinkedIn.com.