Construction estimating is tricky because there are several opposing forces which must be merged into a single unifying cost structure. You may or may not have heard of them but there are three ways to estimating a job;
1) The stick method
The stick method is done by creating a complete materials list (down to each stick of wood), a complete labor schedule hour by hour and day by day and a list of all vendor proposals, overhead costs, profits, etc. Simply add them up. On small jobs of less than $5,000.00 the stick method is the best method. Now if an experienced veteran is reading this they know that with some experience it becomes easy to guess prices off the top of your head for a small job. But for a small contractor it’s always best to double check your pricing 100% of the time because you will make some mistakes along the way.
2) The unit cost method
The unit cost method is done by gathering dimensions from a project and multiplying by standard lineal foot or square foot prices. For example you have to paint a concrete tilt up building with 30,000 square feet of wall space a single color. You could simply multiply 30,000 x .50 cents and come to a price of $15,000.00. Now do this over and over for each specific material. The price per square foot will either come from your own records or from an estimating handbook. On bigger jobs you will use the unit cost method. The reality of bidding is that you don’t get every job. Unit cost will save you time estimating.
3) The “ask the other guy” method
This means requesting proposals from subcontractors and researching what your competition will charge for similar services. Normal practice for a large job is to get three bids per trade and qualify the bids through review. Then add a cost for overhead and profit on top of your subcontractors.
When, how and where to use these different methods. I have a certain process I use for assembling large bids that I will lay out for you here. (The actual forms I use are for sale in the products section.)
1) Using the 16 division CSI format I break down the entire scope of work. Down to each toilet paper roll holder, each square foot of new concrete slab and each lineal foot of new pipe using the unit pricing method. Or by activity such as “subcontractor cost hot tap at street”. Place spaces for supervision and profit etc and already you have a general number. I usually take a break here and clear my head.
2) I begin going through each scope of work using the stick method to really evaluate whether my unit cost pricing is relevant to this job or if there are any special circumstances that need to be considered. For example I may charge $25 dollars for a certain plant to be planted on a large job with 50+ plants. But on this job I’m only planting two so I will charge $100 a piece to account for the inefficiency.
3) For complicated or unique work I will seek vendor proposals. I try not to tire vendors with constant tedious proposals. For common work such as metal stud & drywall I will bid it myself and request bids from 1 of my 3 favorite vendors every few bids to double check pricing. But nobody wants to waste their time doing my bids for me.
4) Now I will take some time to review the scope of work and consider the market conditions of the economy, how many bidders I will be bidding against, how complete the plans are or what my competitors will charge. I will also divide the total cost of construction by the square footage of the project and consider how those numbers compare to my past projects.
5) If you have someone to review your proposal its always best. Check for spelling errors, missed scope of work or exclusions that should be added to the contract language.
6) Step #6 also happens to be RULE #1. No matter what estimating data you collect, analyze and calculate always ask yourself… What is my competitor charging for this service? Just because you can do a job for significantly cheaper doesn’t mean you should do it! Remember you are in this for the money! Also by charging market rates you reduce liability in case you can’t perform the contract for some reason and have to subcontract the work at market rates.
So remember always charge the market rate minus 1%-5% depending on how bad you want the work.
Practice makes perfect and the real basic take away from this article should be to take breaks so you can evaluate the proposal with fresh eyes and get someone to review and question your work before the customer does.