Pipe & Excavation Contracting
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Introduction | Table of Contents | Back Cover

Chapter One

ESTIMATING, BIDDING, BONDING

Pipeline contracting can be a rewarding business – if you know what you're doing and do it right. It's less plagued by the economic cycle that pushes many excavation and construction contractors to the brink of bankruptcy when the market for residential and commercial building dries up. And the profit margins are usually better because it's harder to get started in this business. You need money, manpower, skill and knowledge to get into sewer, water and drainage line contracting. That limits your competition and can fatten your margins.

Just owning a backhoe doesn't make you a pipeline contractor. There's far more to it than simply digging a hole and filling it up. If you've considered pipeline work but have never done any, keep reading. This book is for you. If you've bid some pipeline work but aren't satisfied with the results, the tips and suggestions in this manual may be just what you need to succeed where others arc striking out.

True, every pipeline contractor (or utility contractor, as we're sometimes called) needs special skills, know-how and expensive equipment. But if you can estimate accurately, pay close attention to your costs, keep your overhead low, do nothing but quality work, and eliminate wasted time and materials, you've got a good chance of making it in this demanding business.

Understand from the beginning that Rome wasn't built in a day. No one jumps into this field and makes big money handling million dollar jobs right from the start. You're going to have to crawl before you walk and walk before you run. But if you've got the determination to work hard and are willing to take the time to study and understand what I've written here, you're well on your way to a good professional career.

Nearly all utility line work is awarded by competitive bid. If your bid is too high, you won't get the job. If your bid is too low, you'll get the job but lose your shirt. A few jobs like that and your company will go belly up.

Every year, hundreds of men (and a few women) set out to become underground utility line contractors. Many were making good wages as tradesmen, equipment operators or supervisors in the business, and decided to try their hand at bidding and contracting for the work they did formerly as wage earners. Unfortunately, few survive more than a few years in the business.

But don't let the failure of others discourage you. The fact that you're reading this book shows that you plan on going into the business as an informed entrepreneur. And if you're already in the business, it shows you plan on finding out what not to do by my mistakes instead of yours. Work with care, both at your estimating table, and on the jobsite. With the information in this book, and, I can't deny, with a little bit of luck, you can have a successful and profitable underground utility contracting business. That's what I wrote this book for.

There's plenty of work available if you're willing to move, be flexible, and not shy away from challenges. The private developers of residential and commercial projects need utility contractors. The government - the U.S. Forest Service, the B.L.M., the Soil Conservation Service, military bases - all are regular customers. And many government contracts require that a percentage of the contract be let to small businesses or minority-owned businesses.

While this book is primarily aimed at the underground utility contractor, be aware that you can get a wider scope of work if you're willing to compile bids and manage contracts that contain other kinds of work, such as mechanical, electrical, and building work. As a small contractor, you'll get a lot more business if you're willing to take on contracts more complex than a simple pipe job. Move into unfamiliar areas very cautiously, however. Use reliable subcontractors and beware of getting into fields that are really beyond your experience and knowledge.

Starting at the Beginning

In this book, I'll describe all the common pitfalls and how to avoid them. We'll take a detailed look at the practical know- how you'll use on the job every day - estimating and bidding, equipment and crew performance, practical work methods and techniques, equipment operation, surveying, site clearance, compaction, water systems, and sewer systems. In short, I'll cover everything a utility line contractor needs to know to thrive in this business.

You'll need a working knowledge of the skills of the four important professionals on every utility line team: the pipe layer, the equipment operator, the foreman and the contractor. The success of your company depends on how well each of these four work together toward a common goal.

The pipe layer- Laying pipe can be fairly simple work. But it seldom is. Crosslines, groundwater, rocky soil, or a combination of all these will always complicate the work. Installing miles of pipe exactly right and at a fast pace is no easy task. Your pipe layers especially can make or break you. I'll explain this important task in detail later.

The equipment operator- Modern earth-moving equipment can be maneuvered as easily as your family car. But that isn't the whole story. The trick is to get maximum productivity from each man and machine hour. Many heavy equipment operators are careless or have only average skills. As an underground utility contractor, your survival depends on finding and keeping highly skilled, experienced, and motivated operators.

The foreman or superintendent- Another name for the foreman, superintendent or crew leader is pusher. A good pusher knows utility line construction backwards and forwards. He probably worked as a pipe layer and equipment operator before becoming a supervisor. It's much easier to supervise work you've done yourself. There's no substitute for practical experience.

Most of a superintendent's time is spent dealing with minor catastrophes so the job stays on schedule. Bad weather, machinery breakdowns, wrong materials deliveries - anything that can go wrong, and does, is his problem. And at the same time, he has to stay on good terms with his crew, the engineers, the inspectors, the owner, and the public - while he gets each to do what they should at the time and place they should be doing it.

In the final analysis, his chief job responsibility is making sure the project finishes on time and under budget. If it does, nothing he did along the way makes much difference. If it doesn't, all the excuses he can think of are irrelevant. A good superintendent is worth his (or her) weight in progress payments. If you have a good superintendent and can't keep him up to his eyeballs in work, send me his name and phone number. I'll take it from there.

The contractor- You need to know everything a good superintendent knows, plus lots more: taxes, insurance, handling personnel problems, borrowing and investing, estimating and bidding, hiring and working with reputable professionals, and then some. Your job is the biggest and most difficult of all.

By now you should see that underground utility contracting is demanding and risky work. All construction contracting is. But underground work is especially risky. And the highly competitive nature of utility line work doubles the risk for all players.

But the potential rewards are equal to the risk. Some utility line contractors have retired at a relatively early age with enough earnings and savings to support them comfortably for a lifetime. Many started from scratch, probably with less knowledge and no more cash than you have. Not everyone can do it, of course, but you'll never know how good you can be until you try. So my advice is: Give it a try.

Let this book be your first step toward a successful career in underground utility contracting. Or allow it to boost your existing career by showing techniques and methods that will increase your profitability.

This chapter will explain the best way to prepare an estimate and submit the bid. Once I've covered the procedure, I'll test your knowledge with a sample bid on an actual underground utility project. Later in this chapter there's a sample estimate for a small drainage and slide abatement project.

Bonding is very important in the utility line contracting business - far more important than in home building or remodeling, for example. If you can't get bonded, you're closed out of most of the larger, more profitable jobs. That's why there's an extensive section in this chapter on getting bonding and increasing your bonding capacity.

Nature of the Business

As an underground utility contractor, most work will come from either private developers or publicly-funded municipal projects.

Land developers usually let subcontracts for street construction and utility installation. Some branch of city government will require that your work meet their standards. They'll inspect what you've done. That just makes sense. When you're finished, the city will accept responsibility for maintaining what you install.

Public projects include work like installing new utilities and replacing old utilities in existing cities or developments. This type of work is funded by selling bonds to the public, or by federal loans and grants. A small city, for example, may borrow federal money to pay for a replacement water or sewer system. This money will be repaid by water users over a period of years.

It's in the owner's best interest to get bids from several contractors. And on publicly-funded jobs, no qualified contractor can be excluded. You'll see upcoming projects advertised in newspapers and listed in local and regional bid call magazines. Some magazines and newsletters list projects being put out for bid and report the prices submitted by successful bidders.

Some large projects are divided into several small projects because smaller jobs attract more bidders. Most contractors can't handle a $2,000,000 project. So don't be surprised to see a $2,000,000 job divided into four $500,000 contracts. The more bidders there are, the stiffer your competition will be.

The Design Engineer

Whether the job you're bidding is public or private work, the project usually begins with a utility line design and an engineering company. On some large jobs the contractor's engineering team prepares the design drawings, oversees the work, authorizes progress payments, and issues a certificate upon completion. The design and build contracts are usually undertaken by large multinational companies.

On most jobs, a separate engineering company is hired by the owner. The engineering company usually works for a percentage of the projected cost, or a fixed fee. On other jobs, the design work will be done by an engineering firm hired by the city, county or developer, or by engineers employed by the contracting authority.

Following current engineering standards, the designer draws up plans and specs that show the materials and workmanship required. Once he's designed the project, he'll make the engineer's estimate. This is the first real cost estimate on the work to be done. But it probably won't be based on a careful analysis of labor, material and equipment costs. Instead, the engineer will use bid abstracts (or bid tabulations) to help him prepare this estimate.

Bid abstracts show contract prices from other jobs that have been awarded by government agencies. The designing engineer will try to find the cost of completing a project similar to the one he's planning. When he does, he'll adjust the cost per linear foot up or down as seems appropriate and then multiply by the total length of the current project. This isn't the best way to estimate, but it does establish a projected cost. You'll have to do much better.

Bid abstracts are available to engineers, contractors and the general public for nearly all work that's publicly funded. Figure 1-1 shows a bid abstract.

Bid abstracts show unit prices - usually the cost per linear foot of utility line installed. In theory, if you were to average all the bids submitted for each item of work, you'd have a good average price for that item. But it doesn't work that way. Many bids are unbalanced, being padded (too high) for some items and showing unrealistically low prices for others. This distorts the picture. You'll find more discussion of unbalanced bids (and an example) later in this chapter.

There's a reason for unbalanced bids, of course. No contractor is anxious to have his competitors know his real costs. Also, padding the price of work that will be done early in the project can fatten progress payments that are to be received early in construction. You're not supposed to do that, of course, but it happens because contractors like the comfort of having extra cash to work with. I can't blame them.

But bid tabulations can still be a useful tool. Use them to cross-check prices on items that are unfamiliar to you. If the bid tabs you use aren't for jobs awarded within the last few months, allow for changes in labor and material prices since the estimate was prepared.

Several weekly and monthly magazines show bid tabs and current price trends. Figure 1-2 shows a comparative price list and bid tab taken from Pacific Builder & Engineer. The comparative unit prices give you an idea of the range of prices.

Several estimating guides' are available to help you estimate prices. These guides show material, labor and equipment costs, and typical manhours for most work. But be careful when using estimating guides. The cost of utility line work can vary drastically. Installing utilities in a busy city street requires different tools, equipment, labor and materials than you'll use in a rural area. That makes the cost very different. Estimating guides are better suited to other trades in the construction industry, such as structural work. I f there's a pump station on your project, an estimating guide may be useful. But costs for the underground portion of the job depend too much on variables unique to every job. The best guide to costs on your next job will always be costs on the last several projects you've completed - plus your judgment, of course. Use labor, material and equipment costs and labor production rates from your own cost records whenever possible.

Working with the Engineer

The contracting authority selects the engineer. It's the engineer's job to make sure you do the work right. He'll be responsible for the work you do long after your warranty period ends. This means he'll want to monitor your work very carefully. This is no problem, provided he knows his business. He should be tough but fair. An engineer who isn't a competent professional may try to make you the scapegoat for his mistakes. Avoid working with engineers or engineering firms that have a reputation for ruining contractors and construction projects. If you end up in court, the only winners will be the attorneys. Before you decide to bid a project, check into the reputation of the engineering firm. Ask other contractors what they know about the firm. Do they have a history of lawsuits, contractor failures and incomplete projects? How much experience do they have? If you have any doubt about the competency or professionalism of the designing engineer, beware. Protect yourself. Either don't bid the work, or else cover yourself with a high margin.

When you’ve signed the contract, work must be completed at any cost. Walking off a job usually means you’re out of business. Remember, every bid is, in essence, a firm commitment to enter a contract. If you withdraw your bid or fail to enter into the contract, the owner will demand that you pay a stiff penalty or request that your bid bond be forfeited.  That’s why you should select your jobs carefully.

Introduction | Table of Contents | Back Cover

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