Construction Business Owner, December 2007

Being able to accurately bid on construction jobs is one of the most critical skills you must have so your business will not only survive but thrive.
When compiling a strong bid you, you must:

• Determine your direct and indirect costs accurately
• Secure surety bonding
• Determine profit to calculate the overall bid

In addition, there are also a number of common mistakes to avoid as well as recommended steps that will ensure you are using the most accurate information to compile the best bid possible to secure profitable work.

Bidding Over the Years

The bidding process has come a long way over the last decade due to the creation of a handful of easy-to-use and relatively affordable programs that can help to simplify the estimating process. Gone are the days of applying rulers and scales to a set of plans, when human error could easily throw off calculations and your estimates. Now, specialized programs allow you to do takeoffs far more quickly and accurately, without the “guesstimating” of yesteryear. Most programs allow you to easily organize vendor and inventory quotes with side-by-side comparisons to more effectively compare quotes, and they can complete area and volume calculations quickly and easily, eliminating the chance of math mistakes. Unfortunately, knowing the specifications of a proposed project and organizing vendor quotes is only part of the battle.

Before considering a project, you’ll need to have a thorough understanding of the scope of work, with a detailed review of the plan documents, a site visit and participation in pre-construction conferences. Once you have a solid understanding of the project, you’ll need to determine your costs, which are comprised of the direct and indirect expenses needed to complete the job.

Calculating Direct Costs

Direct costs are primarily direct labor, materials and subcontractors. For your employees, you need to be sure that you have current hourly rates for all levels, as these can change at various points during the year.  This is a critical first step to making a profit and bidding competitively. You should also be aware if there is a specific set of minimum wages required, such as Bacon-Davis regulations for some federal government contracts. 

If the work requires subcontractors, you should scrutinize their experience and reputation as well as their quote.  It should be based on past experience with a similar type of work.  An unknown or inexperienced subcontractor may give the lowest bid.  While it may seem tempting, it’s likely you’ll need to add more supervision, which can negate the original savings.

Materials are the other major component of your direct costs.  Similar to subcontractors, working with known and experienced vendors is critical. You must have confidence that the pricing you receive will be honored as well as the timing of delivery.  One without the other is not acceptable.  If the actual price exceeds your quote, you will obviously be over budget and unlikely to be allowed to pass this cost along.  However, if the product cannot be delivered on time, this can throw your entire work schedule off and create many unanticipated problems.  Material procurement is an often overlooked part of any successful bid—don’t let it happen to you.  

 

Excellent Advice
written by Gregory Heelan , January 30, 2008
Thanks for the perspective on estimating.

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