Contractor Estimating: Drop the Curtain
Executive Summary. Lots of times we hear from Engineers that Contractors have fat and contingencies in their estimates. On a low bid wins scenario, that’s just not the case. Look behind the curtain here at some real numbers.
What job are we talking about here? My construction company was low bidder on a project as follows:
I know it says it was 14 years ago which for some was an eternity – for me it seems not long ago at all. Point being, the industry hasn’t changed much in the time passed – Contractors are still their own worst enemy and cannibalizing each other. It’s called capitalism.
What do you have for profit and overhead? Here you go from the actual bid estimate documents:
It’s funny, or not really so funny, to look back at this estimate an see that I got this job with actual corporate overhead on the job. That’s pretty good as most times we had to remove it to win work.
What about the cost of the actual direct work? Ok, here’s cost for 515 lineal feet (LF) of a water line:
What is above is one activity associated with this particular bid item. The entire bid item was for the water system in general for the project. This activity (activities combine one-by-one to add up to accomplishing whatever is required of the bid item) shows a total cost of $18,747 or $36.40/LF (this is just cost, not the price to the Owner).
My story. From this I wanted the reader to take that fee on estimates is not as huge as thought. Or maybe to you it is as large as you thought. Here I put $103,384 on it, which is 5% of the cost. Not too sexy.
Also, I wanted the reader to note that the work in the field has a pretty finite limit in its cost. The water line has 224 manhours whether you use a 10-man crew or a 2-man crew – you as a Contractor have to figure out how not to use more than the allotted manhours. Notice on the Estimate Recap on the second page of this article, there is no slush fund or waiting-around-for-RFI answers line item. This is why Contractors bid differently depending on the Owner and the CM. Owners or Construction Managers that do not hustle for answers and make quick decisions cost Contractors money.
Notice that estimating is both art and science. The science is easy to see in productivity rates and costs per manhour or hour. You can see lots of science above in the black and white font. Now the art, the art in these printouts, comes in last minute adjustments and the “feel” of the estimator. I felt that we needed more finishing tools and more shoring dollars – that’s what you see on the bottom of the
Estimate Recap sheet at the last minute (hence the poor capitalization).
PS. Oh, and I bet your wondering if we made or lost money on this job. Well, we went to claims on this job for various reasons. Before the lawyers got involved, I had lost $800,000 on this job. We made almost half of it back in mediation, but went in the hole almost $500,000. Terrible job for me.