Column 3, insurance and employer-paid taxes in percent, shows the insurance and tax rate for the craft workers. The cost of insurance in this column includes workers' compensation and contractor's casualty and liability coverage. Insurance rates vary widely from state to state and depend on a contractor's loss experience. Note that taxes and insurance increase the hourly labor cost by approximately 30%. There is no legal way to avoid these costs.

Column 4, insurance and employer taxes in dollars, shows the hourly cost of taxes and insurance.
Insurance and taxes are paid on the costs in both columns 1 and 2.

Column 5, non-taxable fringe benefits, includes employer paid non-taxable benefits such as medical coverage and tax-deferred pension and profit sharing plans. These fringe benefits average 4.55% of the base wage for many plumbing and HVAC contractors.

 

        
The employer pays no taxes or insurance on these benefits.

Column 6, the total hourly cost in dollars, is the sum of columns 1, 2, 4, and 5. The labor costs in Column 6 were used to compute costs in the Labor $ column of this book.

Adjusting Costs in the Labor $ Column. The hourly labor costs used in this book may apply within a few percent on many of your jobs. But wage rates may be much higher or lower in some areas. If the hourly costs shown in Column 6 of Table 2 are not accurate for your work, adjust labor costs to fit your jobs.

For example, suppose your hourly labor costs are as follows:

Plumber $17.00
Laborer $15.00
Total hourly crew cost $32.00

Your average cost per manhour would be $16.00 ($32.00 per crew hour divided by 2 because this is a crew of two).

A labor cost of $16.00 is about 50% of the $32.55 labor cost used for crew P1. Multiply costs in the Labor $ column by .50 to find your estimated cost.

For example, notice on page 19 that the labor cost for installing a 6 gallon hot water heater is $16.30 each. If installed by your plumbing crew working at an average cost of $16.00 per manhour, your estimated cost would be 50% of $16.30 or $8.15 per heater.

Adjusting the labor costs in this book will make your estimates much more accurate. Making adjustments to labor costs is both quick and easy if you use the National Estimator disk.

Equipment Cost will vary according to need and application. It typically is $100 per hour for a 10-ton hydraulic truck-mounted crane.

Material Costs in this manual are intended to reflect what medium- to low-volume contractors will be paying in 2008 after applying normal discounts. These costs include charges for delivery to within 25 to 30 miles of the supplier.

Overhead and Profit for the installing contractor are not included in the costs in this manual unless specifically identified in the text. Markup can vary widely with local economic conditions, competition and the installing contractor's operating expenses. Add the " markup that's appropriate for your company, the job and the competitive environment.

How Accurate Are These Figures? As accurate as possible considering that the editors don't know your material suppliers, haven't seen the plans or specifications, don't know what building code applies or where the job is, had to project material costs at least six months into the future, and had no record of how much work the crew that will be assigned to the job can handle.

You wouldn't bid a job under those conditions. And I don't claim that all plumbing and HVAC work is done at these prices.

Estimating Is an Art, not a science. There is no one price that applies on all jobs. On many jobs the range between high and low bid will be 10% or more.
There's room for legitimate disagreement on what the correct costs are, even when complete plans and specifications are available, the date and site are established, and labor and material costs are identical for all bidders.

No estimate fits all jobs. Good estimates are custom made for a particular project and a single contractor through judgment, analysis and experience. This book is not intended as a substitute for judgment, analysis and sound estimating practice. It's an aid in developing an informed opinion of cost, not an answer book.

Additional Costs to Consider
Here's a checklist of additional costs to consider before submitting any bid.

1. Sales taxes
2. Mobilization costs
3. Payment and performance bond costs
4. Permits and fees
5. Storage container rental costs
6. Utility costs
7. Tool costs
8. Callback costs during warranty period
9. Demobilization costs

Exclusions and Clarifications
Neither the job specifications nor the contract may identify exactly what work should be included in the plumbing and HVAC bid. Obviously, you have to identify what work is included in the job.

The most efficient way to define the scope of the work is to prepare a list of tasks not normally performed by your company and attach that list to each bid submitted. Here's a good list of work that should be excluded from your bid.

Your Bid Should Exclude
Final cleaning of plumbing fixtures
Backings for plumbing fixtures
Toilet room accessories
Electrical work, including motor starters
Electrical wiring and conduit over 100 volts
Temporary utilities
Painting, priming and surface preparation
Structural cutting, patching or repairing
Fire protection and landscape sprinklers
Equipment supports
Surveying and layout of control lines
Removal or stockpiling of excess soil
Concrete work, including forming and rebar
Setting of equipment furnished by others
Equipment, unless shown, and personnel hoisting
Wall and floor blockouts
Pitch pockets
The costs of performance or payment bonds
Site utilities
Asbestos removal or disposal
Contaminated soil removal or disposal
Major increases in copper material prices
Fire dampers not shown on the plans

Your Bid Should Include
Trash sweep-up only. Others haul it away
Site utilities from building to property line only
Piping to 5 feet outside the building only
Plumbing & HVAC permits for your work only

Beware of Price Changes
There's no way to be sure what prices will be in three to six months. All labor, equipment, material and subcontract prices in a bid should be based on costs anticipated when the project is expected to be built, not when the estimate is compiled. That presents a problem. Except for the installation of underground utilities, most plumbing and HVAC work is done six months to a year after the bid is submitted. When possible, get price protection in writing from your suppliers and subcontractors. If your suppliers and subs won't guarantee prices, include an escalation allowance in your bid to cover anticipated price increases.

Material Pricing Conditions
All equipment and material prices quoted by your vendors will be conditional. They usually don't include sales tax and are subject to specific payment and shipping terms. Every estimator should understand the meaning of common shipping terms. They define who pays the freight and who has responsibility for processing freight-damage claims. Here's a summary of important conditions you should understand.

F.O.B. Factory (Free On Board at the Factory): Title passes to the buyer when the goods are delivered by the seller to the freight carrier. The buyer pays the freight and is responsible for freight-damage claims.

F.O.B. Factory F.F.A. (Free On Board at the Factory, Full Freight Allowed): The title passes to the buyer when the goods are delivered by the seller to the freight carrier. The seller pays the freight charges, but the buyer is responsible for freight-damage claims.

F.O.B. (city of destination) (Free On Board to your city): The title passes to the buyer when the goods are delivered by the seller to the freight terminal in the city, or nearest city, of destination. The seller pays the freight and is responsible for freight-damage claims to the terminal. The buyer pays the freight charge and is responsible for freight-damage claims from the terminal to the final destination.

F.O.B. Job Site (Free On Board at job site, or contractor's shop): The title passes to the buyer when the goods are delivered to the job site (or shop). The seller pays the freight and is responsible for freight-damage claims.

F.A.S. Port [of a specific city] (Free Alongside Ship at the nearest port): The title passes to the buyer when goods are delivered to the ship dock or port terminal.
The seller pays the freight and is responsible for freight-damage claims to the ship dock or port terminal only. The buyer pays the freight and is responsible for freight-damage claims from the ship dock or port terminal to the designated delivery point. Obviously, it's to your advantage to instruct all vendors to quote costs F.O.B. the job site or your shop.

Reducing Costs
Most construction specifications allow the use of alternative equipment and materials. It's the estimator's responsibility to select the most cost-effective products. Research and compare your costs before making any decisions. Avoid selecting any material or equipment simply because that's what you've always done.

Don't recommend plastic products such as ABS, PVC, or polypropylene pipe or corrugated flexible ducts until you've checked local code requirements. Most building codes prohibit use of these materials inside public buildings such as schools, care centers and hospitals.

It's wise to select 100% factory-packaged equipment.
Beware of equipment labeled "Some assembly required" Field labor costs for mounting loose coils, motors and similar equipment are very high.

Value Engineering
Let's suppose you've submitted a combined plumbing and HVAC bid for $233,000. Your cutthroat competitor put in a bid at $4,000 less, $229,000. Obviously there's no way you're going to get the job. Right?

Not so fast! Maybe value engineering can help you win that contract - while fattening your profit margin.

Suppose the proposal you submitted had two parts. Part I is the bid for $233,000, based entirely on job plans and specs, just the way they were written. But appended to your proposal is Part II, a list of suggestions for saving money without sacrificing any of the capacity or quality designed into the system. Here's an example of what might be in Part II:

1. Deduct for providing pipe hanger spacings per UPC in lieu of specified spacings: $1,750.00

2. Deduct for reducing heating hot water pipe sizes by using 40 degrees F Delta T in lieu of specified 20 degrees F Delta T: $4,600.00

3. Deduct for providing pressure/temperature taps at air handling units, pumps and chillers in lieu of specified thermometers and pressure gauges: $875.00

4. Deduct for eliminating water treatment in closed piping systems: $1,800.00

5. Deduct for piping chilled and heating hot water pumps in parallel in lieu of providing 100% standby pumps: $2,900.00

Total deductions: $11,925.00

Adopting these suggestions would make you low bidder by nearly $8,000. A saving like that will be tempting to most owners, especially if the owner understands that your suggestions result in a system that is every bit as good and maybe better than the system as originally designed.

You're not offering to undercut the competition. Far from it. You're using knowledge and experience to create better value for the owner. That's called value engineering and it's likely to win the respect of nearly all cost-conscious owners.

Notice that reducing costs is only part of what value engineering is all about. You don't cut costs at the expense of system quality, integrity, capacity or performance.

Don't waste your time, and your client's, by offering to substitute cheaper or lower-quality fixtures or equipment. Any cutthroat contractor with a price list can do that. Recommend the use of inferior materials and you'll be associated with the inferior goods you promote. Some owners consider even the suggestion to be insulting.

The recommendations you make (like most of those in the example) will require design changes. You can expect to be examined (or even challenged) on these points. Be ready to explain and defend each of your suggestions. Convince the client (or the design engineer) that your ideas are based on sound engineering principles and you're well on the way to winning the owner's confidence and the contract.

Now, let's go back to the list and see how we might justify the five value engineering recommendations.

1. Pipe Hanger Spacing. The pipe hanger spacings recommended in the Uniform Plumbing Code (UPC) are calculated by experienced, professional structural engineers. The safety factors used in these calculations are very conservative. They've been widely used for many years and have proved to be more than adequate. There's no need for more hangers than the UPC requires.

2. Changing HHW Delta T. In hydronic heating systems, heat measured in Btus is pumped to terminal units. The proposed change of the Delta T, from 20 degrees F to 40 degrees F, has no effect whatsoever on how many Btus the system delivers. You're not changing anything but the volume of water being pumped. At lower volume levels, the size of the pump, the pipe and the pipe insulation can all be reduced. Not one of these changes will affect the system's ability to transmit heat. Furthermore, operating costs will also drop, since less pump horsepower will be needed to run the smaller pump.

3. Thermometers/Pressure Gauges. Thermometers and pressure gauges installed on or near vibrating machinery have a very short life expectancy. Gauges quickly lose accuracy under harsh conditions. Readings will become less and less reliable.
That's potentially dangerous. You can avoid this problem by using insertion-type pressure/temperature taps instead. Store these sensitive gauges in a desk drawer or a tool crib when not in use. Safely stored, they're protected from damage. They'll give accurate readings longer and won't need to be replaced as often. And they're simple to use. Just insert a gauge in one of the conveniently located taps. Make the reading, then remove the gauge and put it away.

4. Water Treatment. ITT Bell & Gossett has done studies on corrosion in closed hydronic systems that have a make-up water rate of no more than 5% per year. These studies show that corrosion virtually stops when entrained air is either removed or depleted. No water treatment is needed in this closed system.

5. 100% Standby Pumps. Two pumps piped and operated in parallel are more economical. Even if one pump fails, the other pump can maintain delivery at 75 to 80% of the designed flow rate. That's usually adequate for emergency operation.

These cost-saving ideas are small, but could tip the balance in your favor. I hope they demonstrate the potential that value engineering has when bidding jobs. Any time you're compiling an estimate, keep an eye out for ways to save money or reduce the owner's cost. Jot a note to yourself about each potential saving you identify. Before submitting the bid, make a list of your alternate suggestions. Maybe best of all, markup on your value engineering suggestions can be higher than your normal markup. If value engineering can cut costs by $10,000, maybe as much as $4,000 of that should end up in your pocket!

Value Engineering: Surplus Materials
Value engineering doesn't begin and end with job plans and specs. Value engineering means getting the most value at the least cost, no matter whether it's value to the owner or value to the contractor. Smart mechanical contractors learn to build extra value into their jobs by controlling shrinkage of materials. Nearly every significant plumbing and HVAC job ends with at least some surplus material on hand. Material left over when the job is done tends to be discarded as waste or hauled off the job in the back of a truck that doesn't have your company name on the door. And why not? It's surplus - not needed. The owner didn't need it. So now it's up for grabs.

Not quite. Let's consider who actually owns that surplus material. When your company has been paid, every piece of material your crew installed belongs to the building owner. But what about those fittings, hangers and valves delivered to the job site but never actually used? Almost certainly, those materials were included in your bid. So aren't they the property of the owner? Not in my opinion. The owner contracted for a mechanical system and (presumably) has one. Unless it's a cost-plus job or a labor-only job, the owner didn't buy materials delivered to the job site. The owner bought a mechanical system and has one - completely separate and apart from any surplus materials. In my mind, the property owner has no more claim to left-over materials than the same owner would have claim to labor hours not expended or equipment not used on the same job.

Unless there's some provision in your contract to the contrary, surplus material belongs to the installing contractor. But your right to that material and the chance of actually getting it back to your shop are two very different propositions. I see recovery of surplus material as a training issue. As a matter of company policy, make it clear to your crews that surplus material belongs to your company. The supervisor on every job should be accountable for recovery of excess material. Every significant job will have at least some surplus. Accounting for that surplus should be part of your routine close-out procedure.
Fortunately, it's not difficult. I'll explain.

Control of surplus materials begins with a good checklist, or form. I recommend the Materials, Equipment and Tool form, "MET" for short. A blank MET form appears following this section. Your MET should show both what's delivered to the job site (material, equipment and tools) and surplus & drops returned to your shop at project close-out. A MET ensures that the estimator, the shop inventory manager and your field supervisor are on the same page. Your MET establishes accountability. Nothing falls through the cracks. Job input equals job output plus returns. Everything delivered to the job and not expended should be returned to your shop.

Here's how it works:

1. Based on the estimate that won you the job, the items needed are purchased for the job and staged for delivery to the job site.

2. As materials, equipment and tools are delivered to the job site, your supervisor completes the first three columns of the MET form: Description, Quantity and Date.

3. As work is completed, the same supervisor completes the four columns under Returned to Inventory: Quantity Returned, Date, Status Code and Value. The status code will be either "RS" (Returned and Salvaged) or "RN" (Returned New).

4. Back at your shop, both RS and RN materials should be restored to inventory.

5. If your company has an inventory manager, have that manager assign the return value to each item returned. If you're using QuickBooks Pro, the "Adjust Inventory" feature can handle this task quite easily. Add two new categories under "Inventory Stock on Hand by Vendor:' The first new category is Returned Salvage. The second is Returned New. Be sure the value of RS materials includes the cost of any reconditioning done to restore salvaged materials (such as pumps and boilers) to serviceable condition.

6. Comparing MET deployed to the job site with MET returned to inventory yields MET actually used on the job. That's a very important number to every plumbing and HVAC estimator. Be sure actual usage gets entered on the Project Summary form.

7. When the take-off on your next estimate is complete, compare that materials list with a summary of RS and RN materials on hand from prior jobs.

8. Evaluate which returned materials can be redeployed on the new job.

9. It's a management decision to either (1) charge the new job for the cost of RS and RN materials already on hand, or (2) consider materials on hand as "free" and a competitive advantage in winning the new bid. Either way, RN and RS materials are an asset to your company.

Plumbing and HVAC materials are expensive. Every mechanical contractor has an interest in MET tracking. Everyone in your company should be aware of the need for good materials management. Used correctly, the MET form in this book can help engineer more value into your jobs.

Maximizing the Value of Old Estimates
There should be two profits in every job. The first is money in the bank - a return on time and expenses.
The second is what you learn from the job - primarily by comparing the estimate you made with what turns out to be your actual cost. On some jobs, the value of lessons learned may outweigh net revenue.

Every plumbing and HVAC contractor has marginal jobs. That's normal. What shouldn't be normal is repeating mistakes. The best way to avoid trouble in your future is to keep track of your past. Keeping old estimates available for reference can help prevent errors on new estimates.

As your file of completed estimates grows, organization becomes more important. You need an easy way to find similar projects with the same components and comparable scope of work. If your estimating file is in QuickBooks Pro, searching by keyword may be enough. Otherwise, I recommend creating a short summary for each completed job, and an index that references all summaries available for comparison. You'll find a blank Project Summary form at the end of this section. To make reference easier, create an index by type of job and equipment used. You may choose to use an alphabetical index based on client name or project 10.

How to complete the Project Summary form is obvious. The many ways to use this form may not be so obvious, so here are a few pointers.

1. Use your index of Project Summary forms to find completed jobs most similar to the job you're bidding. Believe it or not, Project Summary forms with the widest margin of error will be most useful. Ask yourself: Who worked on those projects? Who was the field superintendent? Who were the vendors? Did the errors result from poor estimating or the poor performance of vendors, supervisors or crews? The most common estimating errors occur when (a) inspecting the job site, (b) examining the plans or (c) reading the specifications. What did you miss and why? Look for pitfalls to avoid in the job now being estimated. Identify the biggest two or three mistakes made when bidding that job. Make a notation about each on the Project Summary form.

2. Now look at your bid for the current job. Which mistakes made on a prior job might you expect on this job? Concentrate on the big three oversights to avoid: Inspecting the job site; examining the plans; and reading the specifications.

3. Unless there's a major error in take-off, your estimate of material costs should be within about 5 percent of the actual costs of materials. However, it's common for labor cost estimates to vary 20 percent or more from actual labor costs. This is precisely where data from old jobs comes in handy. If your Project Summary files show that some project types are consistent money-losers, either shift your company's focus to another class of work, factor more contingency into your bids, or find some way to wring inefficiencies out of the labor component. Poor staging, delivery and retrieval procedures drag down labor productivity on any job. .

4. Use your file of Project Summary forms to spot any common thread that runs through either money-making jobs or money-losing jobs. For example, if the names of certain subcontractors or vendors are prominent on low-margin jobs, maybe there's a relationship between your profit margin and choice of subs and suppliers. Even the best and most reliable vendors can become complacent if not challenged occasionally.

5. Project Summary forms should note changes and extras identified after the contract was signed both for which your company was paid and changes done without additional compensation. Projects with changes and extras that exceed about 4 percent of the contract price deserve special scrutiny. Jobs with changes beyond about 4 percent aren't good for business, at least in my opinion. Nearly all changes have a negative impact on your job schedule and require a disproportionate investment of management resources. Too many changes can antagonize the owner and design staff, even if they were responsible for the altered plans. You may know of a mechanical contractor with a reputation for capitalizing on change orders. But I've rarely seen a job plagued with changes that turned into a money-maker for anyone - except the attorneys. Your file of Project Summary forms will show job types that carry change order risk. Before finalizing and submitting any bid, consider whether the job will get mired in disputes over changes and extras. If similar jobs have ended on the courthouse steps, factor that risk into your estimate.

Utility of a Project Summary forms file is limited only by your ingenuity. The important point is to keep and organize the source of your second profit available on every job. What you learn can be more valuable than what you earn.

The Estimating Procedure
Every plumbing and HVAC estimator works under deadline pressure. You'll seldom have the luxury of spending as much time as you would like on an estimate. Estimators who aren't organized waste valuable time and tend to make careless errors. Try to be well organized and consistent in your approach to estimating. For most projects, I recommend that you follow the procedures listed below and in the order listed:

1. Get a second set of project drawings and specifications for use by your suppliers and subcontractors. Remember that your subs and suppliers need access to the plans and specs and time to prepare their quotes.

2. Study the plans and specs carefully. Highlight important items. Make a list of specific tasks that require labor unit correction factors. The estimate is never complete until you're totally familiar with the project and the applicable construction codes.

3. Get the general contractor or owner to identify the proposed construction schedule and subcontractor lay-down (storage) area. Work schedule and site conditions always affect your costs.

4. Contact all potential suppliers and subcontractors as early as possible. Set a time when each can come to your office to make their take-offs from the spare set of contract documents.

When this important preliminary work is done, or in progress, it's time to begin your detailed take-off.

Guidelines for Good Estimating
You can compile estimates on a legal pad, a printed estimating form or on a computer. Regardless of the method, these guidelines will apply:

List Each Cost Separately on your take-off sheet.
Don't combine system estimates, even if the materials are the same type. A combined system estimate may have to be completely redone if materials for one system are changed at a later date. Use the Estimate Detail Sheet on page 16 if you don't already have a good material take-off form.

Use Engineer's Identification Numbers when listing equipment. The word pump without any other description is ambiguous when there are several pumps included in the project.

Don't Forget Labor Adjustment factors if your labor costs are significantly higher or lower than the costs used in this book. See instructions on page 7 for adjusting labor costs.

Use Colored Pencils or highlighters to mark the items you've taken off and listed. Use a different color for each piping or ducting system.

Log Telephone Quotes and other important phone conversations on a telephone quote form. See the sample on page 18.

Project Estimated Costs for labor, material and equipment to the time when the work is expected to be done, not when the job is being estimated.

The only good estimate is a complete estimate.
You've probably heard this saying, "He who makes the most mistakes is likely to be low bidder, and live to regret it."

Preparing the Proposal
It's both common courtesy and good business practice to deliver an unpriced copy of your bid or proposal letter to the general contractor three or four days before the bid deadline date. This gives the contractor time to study your proposal and obtain alternate pricing for items you may have excluded. To avoid misunderstandings, make sure your proposals include, as a minimum, the following elements:

1. The complete name and address of the proposed project.

2. Specification title and issue date.

3. A complete listing of drawings and their issue or revision date.

4. A complete list of addenda and their dates of issue.

5. A list of specification section numbers covered by your proposal.

6. A list of exclusions, clarifications and assumptions.

Your final bid can be phoned in or sent by fax, but it should reach the general contractor or owner no more than five or ten minutes before the bid deadline. Prices submitted too early may have to be revised because of last-minute price changes by subcontractors or suppliers.

We will stop the chapter sample here on page 13. The remaining 6 pages of this chapter consist of a "MET" Worksheet, Project Summary form, Estimate Detail Sheet, Quotation Sheet, and Record of Telephone Conversation form.