Estimating & Bidding for Builders &
Remodelers
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Introduction |
Table of Contents
Chapter One
Get Started Right
It's been said that construction estimating is
more an art than a science. Truly, it's both. Like scientists,
estimators collect what they hope is accurate information: precise
take-off quantities, exact price quotes and carefully documented costs
of completed jobs. But like artists, estimators rely on experience,
intuition, judgment, and sometimes, guesses.
Why can't construction estimating be more
science and less guesswork? If you've done much estimating, the answer
is probably clear. Estimating will never be a science. Every
construction project is unique. No single cost can be accurate for all
jobs and all bidders. Estimates have to be custom-made for the job,
the time, the place and the crew that's going to do the work.
And that's what this book is about: The fine art
of accurate construction cost estimating.
The fine art of cost estimating
This guide is written for the owners, estimators
and project managers in small and medium-sized construction companies.
I'll take a scientific approach to estimating when that's possible.
I'll show you how to eliminate a lot of the uncertainty in bidding and
tip the scales in your favor when that's an option. When it's not,
I'll suggest easy ways to limit your risk and reduce your exposure to
a major loss.
My goal throughout this book is to help you make
a good living as a construction estimator. It's possible. In the U.S.,
hundreds of thousands of construction cost estimators do just that. If
you aren't making a good living now, I expect this book will help you.
Construction Is the Largest Industry
The Small Business Administration has
estimated that there are over 500,000 "visible" construction
businesses with one or more employees. In addition, there are about
250,000 independent operators in construction. Contract construction
is the largest industry in the United States by number of people
employed and counts for between 10 and 11 percent of the gross
national product. Most of this work and most of the profits go to
the larger firm with 25 or more employees. Yet there are a large
number of smaller firms eager to expand and take on additional
business. Since the competition in construction is largely price
competition, the level of profit for everyone tends to be low. Since
many construction companies are thinly capitalized, a low profit
margin can result in a disastrous loss if the job doesn’t go as
estimated. In spite of the low overall profit margins, the growth
potential is great because along with high risk goes the potential
of high gain.
First, I'll explain the basics, how to use the
construction documents (the contract and specifications) and create a
good material take-off from the plans. That's the subject of the first
seven chapters. Beginning in Chapter 8, I'll tell you about more
advanced construction cost estimating and bidding techniques.
I'm going to assume that you already know how to
read plans. If you haven't developed good plan-reading skills, several
books listed at the end of this manual can provide all the practical
information and details you need.
The information I present here isn't restricted
to any particular construction trade. This book will be as useful to
remodeling estimators as it is to general construction estimators. No
matter what size your jobs (from $5,000 to $5,000,000), no matter what
type of work (from foundations to roofing and everything in between),
this manual will help you prepare more accurate construction cost
estimates.
Sink or Swim in Construction Contracting
I believe there are five key areas that make or
break most construction companies. None involve construction skills
like driving nails or reading plans. Every construction company has
(or can hire) skilled workers and supervisors to do the actual
building.
My five key skill areas are almost always the
responsibility of the owner (or senior estimator) in a construction
company. All five are either a part of the estimating process or
influence cost estimates. All affect both profitability and survival
of the company.
Five basic skills everyone should master
Here's my list:
- Finding and bidding the type of work that's
appropriate for your company
- Making accurate cost estimates
- Using pricing strategies that reduce your
risk of loss
- Anticipating the bids of your competition
- Tracking overhead so you know the actual cost
of doing business
As you've probably guessed already, the focus of
this book is to explain what you should be doing in each of these
areas. Your company can probably survive (for a while) without doing
anything I recommend here. But follow my advice and you're almost
guaranteed to do better than you're doing now. That's my promise. And
I hope it's your reason for reading this book.
The Detailed Cost Estimate
Let me begin by making one very important point.
Throughout this book I'll be talking about estimates. By that I mean a
detailed labor and material cost estimate. That's a list of every work
item in the job, with prices for all labor, material and equipment
needed to complete that unit of work. There are many other ways to
estimate costs. We'll discuss some.
But the most accurate estimate is always the
detailed labor and material unit cost estimate.
Examples of detailed cost estimates
What's a unit? Here are some examples:
- Cubic yards of concrete, purchased and placed
- Tons of reinforcing steel, purchased and
placed
- Square feet of drywall, hung, taped and
textured
- Square yards of floor covering, including
installation
Every general condition (project overhead) item
can be estimated by the unit cost. For example, the porta-john you'll
need on site costs $50 a mouth (including delivery, weekly service and
pickup) and you need it for three months. The cost of that work unit
is $150 (3 months times $50 per month).
If you're bidding a 100,000 square foot
building, there may be 1,000 unit cost items in the estimate. The only
way to compile an accurate estimate is to find each of those 1,000
cost items. How do you do it?
There's only one answer to that question: by
studying the plans, specs and construction documents. Every time you
find a cost item, write it down on your take-off sheet. If there are
1,000 items, you'll fill about 1,000 lines on your estimating pad.
When your take-off is complete, write in an estimated labor, material
and equipment cost on each line. That's detailed cost estimating. It
takes time. It's not easy. And it's expensive. But it's the only way I
know of to prepare accurate construction cost estimates.
There's no such thing as a quick, simple, easy
way to estimate construction costs. It takes time, effort and
attention to detail. But there are easier, quicker, more consistent
ways to estimate costs. I'll cover them, including estimating with a
computer. As you may have already discovered, there's a disk in an
envelope bound inside the back cover of this book. After we've covered
manual (pencil and paper) estimating procedures, I'll give you some
practice in writing estimates with a computer.
"'Only the best estimators
can scope out the last 10 percent. . . "'
There's a big difference between an acceptable
estimate and a truly first class estimate. Most estimators can get
within 90 percent of the actual construction cost most of the time.
All that takes is attention to detail and hard work. Only the best
estimators can scope out the last 10 percent -and maybe spot a problem
or major omission that could turn a potential, money-maker into a big
loss.
Later, in Chapter 4, I'll ask you to examine
your own estimating system and compare it to the detailed system I
recommend. I'll also suggest some shortcuts that can increase
productivity and streamline your estimating procedure, no matter what
method you use.
Estimating as a Career
I'm not going to get into the meat of
construction estimating without providing a little pep talk about
estimating as a career. Like any good teacher, I want to be sure you
have the motivation to absorb what I'm going to explain.
In my opinion, cost estimating is one of the
most neglected career opportunities in the U.S. today. I've never seen
any published figures, but my guess is that there are about one
million estimating jobs in the United States. Why so many? Because
costs for every home, apartment, office, store and factory building
are estimated and re-estimated many times before that building is
finally demolished.
Even then, the cost of demolition has to be
estimated. Nothing gets designed or built or remodeled or insured or
taxed or tom down without some estimate of the cost.
You've Got Job Security
Of course, most construction cost estimating
happens before a building goes up. You can be sure there's at least
one estimate prepared by every bidder. And even a modest remodeling
project may have dozens of bidding contractors and subcontractors -
carpentry bids, plumbing bids, electrical bids, concrete bids, and so
on. Every construction project begins with a blizzard of estimating
paperwork. If you're in construction and not into estimating, maybe
you should keep reading. There's an opportunity here.
I feel that estimating is good work. It pays
well, and it's a job that carries responsibility and earns respect.
Maybe that's why estimators have more job security than most people in
construction. The chief estimator is going to be the last person fired
in any construction office. After all, a construction company that's
stopped estimating is out of business. It's the estimator who brings
in new work. It's the estimator who understands the company finances,
sets' profit margins and controls volume. It's the estimator who makes
the difference between financial success and failure in most
construction companies.
So, what does it take to be a construction
estimator?
General and Special Qualifications
First of all, understand this. Estimating is an
accidental profession. Our public schools don't teach it. I've never
had a little kid tell me that he (or she) wanted to grow up to be a
construction estimator. Yet many will. And even more should. Why?
Because there are no barriers to entry into this profession. States
don't license construction cost estimators. You don't need a graduate
degree. You don't have to pay a fee to some government agency to call
yourself a construction estimator. Anyone can be an estimator.
Working your way up to career ladder
Many estimators started out as construction
tradesmen and worked their way up the a desk job. Others wanted to be
architects and never finished school. So rather than drawing plans,
they settled into reading plans and doing take-offs. No matter how you
get there, you have to qualify yourself to estimate construction costs
and make a good living at it.
So, what does it take to be a good construction
cost estimator? It's obvious that estimators have to read and
understand construction drawings. Blueprints are the language
construction professionals use to communicate.
Plan reading is essential. Basic math skills are
important, too. If you can't read plans and add a column of figures,
you're already a step behind as an apprentice estimator.
“. . . Good estimators have
two seemingly contradictory skills. They’re both generalists and
specialists.”
Of course, nearly anyone can learn to read plans
and use a calculator. But it takes more to become a skilled
professional estimator. I've found that most good estimators have two
seemingly contradictory skills. They're both generalists and
specialists. They see every one of the trees without losing sight of
the forest.
As generalists, they have a good grasp of the
big picture. The best estimators seem to understand intuitively how
all the parts, all the trades, will come together to create the whole.
Second, they're specialists, focusing intently
on the details. It's common to work for hours on a single complex
drawing, identifying every work item and the labor required to
complete what the plans show. The best estimators are very good at
that kind of detail work.
But details alone don't make a project. Without
a broad view of how the parts come together to create the whole,
something will be left out. Some cost is going to be omitted. When
that happens, the estimated cost isn't going to match the actual cost.
That's expensive, at best, and may be a financial disaster. Either
way, it's bad estimating.
Typical Estimator Profile
I've taught and talked with hundreds of
construction estimators from construction companies in all parts of
the country. My guess is that about two-thirds of these estimators are
owners of small to medium-size construction companies. They manage the
company, run the crews, bring in the work and prepare the estimates.
Most of these estimators began as apprentice tradespeople. They
progressed quickly to journeyman status, then supervisor, usually
because they learned faster, worked harder and had more ambition than
others in their position.
Sooner or later, these bright, ambitious,
energetic tradespeople got tired of working on someone else's payroll.
They were anxious to venture out on their own, bidding for their own
jobs. Unfortunately, most do this with little or no formal training in
construction cost estimating. Instead, they rely on trial and error,
getting experience the hard (and expensive) way. Eventually they
either learn the skills they need to survive, or go back to working
for wages.
Most estimators started as apprentice
carpenters. That's because most entry-level jobs in the construction
industry in this country are in erecting wood-frame buildings. I
believe that carpentry is good basic training for estimators. It's
where I started. And I don't regret the years I spent on a carpentry
crew. It exposed me very quickly to the entire construction process,
from setting foundation forms to framing the roof.
Twenty years ago, probably less than 25 percent
of all estimators had more than a high school diploma. I sense that's
changing. We're a better-educated nation today than we were in the
1980s. More and more estimators have college degrees or college-level
training in construction technology, engineering or architecture.
That's good. In my opinion, better-educated, better-trained estimators
make better estimators.
Position in Company
Most construction estimators don't estimate full
time. As I said, most estimators also own and operate a construction
contracting or subcontracting business. They don't trust anyone but
themselves to make important decisions about costs and bid prices.
Even if they could trust someone else to estimate costs, they can't
afford to hire a professional construction estimator. So they put on
an estimator's hat when it's estimating that has to be done.
Classifications of estimators
Larger construction contracting companies (more
than $2,000,000 in annual revenue) usually have a staff estimator.
These employee-estimators usually fall into one of three
classifications. The first is beginners, or junior estimators.
They do the measurements and take-offs. They study the plans,
determine quantities, and apply material prices.
As they become more experienced, junior
estimators are promoted to journeyman estimator rank, where
they may assume job management responsibilities. In many companies,
when an estimator prepares a winning bid, the estimator becomes the
project manager, overseeing the work until it's completed.
The third class of estimator usually answers to
the title of chief estimator. He (or she) is the senior person
in the estimating department and probably the number two person in the
company, reporting directly to the company owner.
Shortcomings of an Estimating Career
Most professions have disadvantages. In
estimating, it's the constant disappointments and intense competition.
I'll explain.
The estimator's job is to make an accurate
estimate with prices low enough to win the job, but high enough to
earn a reasonable profit. Most of the time, that doesn't happen. In
fact, an estimator who is successful one time in four is the happy
exception, not the rule. This is one career where there are more
defeats than victories. No lawyer, doctor, teacher or professional
baseball player could get by with a construction estimator's batting
average. If you make good money on as few as 10 percent of the jobs
you bid, you belong in the Estimating Hall of Fame.
Learn to defend your actions
Even on the jobs you win, you may have to defend
yourself. Someone is going to ask, 'Why was our bid so much lower than
the next lowest bidder? You left too much money on the table. We could
have made thousands more." When your bid is the lowest by far, your
first thought is probably, "What did I miss?" That's going to be a
major issue if you have to apply to a bonding company for a
performance bond. Try to justify a price that's low by $ 100,000 on a
$ 1,000,000 job!
Rewards
For me, the benefits of this profession far
outweigh the burdens. First, I like building. Everything I bid and
build will be around long after I'm gone. That gives me a sense of
accomplishment, a feeling of pride. My children and grandchildren will
remember me for the monuments I've left behind. Of course, I'm not the
only one who can claim responsibility for these buildings. But my role
was important, probably as important as anyone who worked on the job.
“. . . The benefits of this
profession far outweigh the burdens.”
And I like being paid well for what I do. I'm a
decision-maker. I evaluate risks and rewards. I try to make good
choices. If I choose wisely, I'm entitled to a premium for making and
saving money. If I don't get that premium, I can take my resum6 to the
competitor down the street, along with everything I've teamed about
making money for a former employer. That gives me leverage that a
tradesman or even a supervisor doesn't have. In good times or bad, in
boom or bust, I like that advantage. I'm not going to abuse the
privilege. But I have it. And I'm going to use it to get what I feel
is fair treatment.
Decision Making
As I said, estimators are decision makers. If
you haven't thought about that before, think about it now. Every
estimate, every project, presents a complex series of options. Make
good decisions and you make good money. Make too many bad decisions
and you look for a different job.
Think of every project as a decision chain.
Every decision on that chain is linked to a decision made previously
and to a decision yet to be made. Figure 1-1 shows the decision chain
I'm talking about.
Our starting point is always the most basic
decision of all. What jobs are we going to bid? Of all the work
available, what jobs do we want? Pick the wrong jobs and you squander
company assets (like your time, company working capital, and
management talent). What you want is a good match between what you can
handle well and what the project requires. Of course, there are other
considerations. What's the competition? Do we need more work? Do we
have the bonding capacity? What's the risk associated with this
project? Decisions further down the chain in Figure 1-1 follow
logically after we've made a tentative decision to bid a job.
Review the remainder of Figure 1-1 and you'll
begin to get an appreciation of the size of our task. I'm going to
cover all these decisions in the chapters that follow. Don't get
discouraged by the size and complexity of the job. I'm going to
explain it all one step at a time in simple language anyone can
understand.
Chapter 2 begins with the most basic decision of
all, “What work am I going to estimate?”' Chapter 2 will also help you
set goals for profit margin and volume for your company. These
standards will be very important when we get into bidding strategy in
Chapter 11.
Introduction |
Table of Contents |
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