Linda Candels – Page 3 – Candels Estimating & Training

Electrical Estimating Apprenticeship – Profit is not a dirty word! (Day 2)

Day 2 of the electrical estimating apprenticeship focused on three things. First, profit is not a dirty word! Second, relationships are important, and finally always ask for a full set of drawings!

Profit doesn’t happen by accident!

In terms of profit, it really is the goal of any “for profit” business. Profit doesn’t happen by accident though. A good estimate will ensure that all costs are covered. Effective project management will assure a profit is made when the job is finished. There are several variables that will determine if a profit is made; material costs and labor costs. Material costs include commodity material costs and quoted (packaged) material cost. Your estimate should include material pricing that is within 3 to 5% of your “buy” price.

Vendor relations are important for quoted (packaged) items!

How to ensure that you get the “right” price for your lighting, switchgear or fire alarm package on bid day? That’s right….relationships. It is imperative that when you send your counts and specs over to your vendor that you include the right bill of material. It’s no secret that the “first counts in” are the ones that the vendors quote, but that isn’t to say that you should sacrifice accuracy for speed in getting the counts out. How do you get that “whisper number” on bid day? Cultivate relationships with your suppliers and be sure to “spread the work around” among the vendors you use.

Labor is the most variable part of a project’s costs.

Labor efficiency relies on the human factor, making labor one of the most variable project costs. An average person works 40 hours per week, during daylight hours. Any variance to the “average” can and will result in labor inefficiencies. When you bid your project, be sure to account for things that can effect labor performance. Labor can be effected by labor schedule, weather, building height, project size and so much more.

It is the project manager’s responsibility, along with the help of the job superintendent and foreman, to ensure the labor goals are met. Generally, when you are 90% complete with a project, you should have approximately 20 to 25% of your labor hours left to complete the project. I know that sounds like a lot, but the electricians are generally the last craftsmen off the project, and a lot of work is required once other trades complete their work.

Relationships, Relationships, Relationships!

Never underestimate the power of a good relationship with the general contractors you work with (or want to work with) and your vendors. Cultivating relationships is important. It is certainly much easier to conduct business with someone with whom you have a good relationship, and it may open doors to private projects that never “hit the street” so to speak. How do you build relationships? A good way is to join business networking groups, or even civic groups such as the Rotary Club or social clubs such as the Elks. It will vary from place to place.

Have you ever noticed how happy people are when you bring them something that they don’t expect? A box of donuts may not get you a job right away, but it may help you get in the door of a contractor that won’t take your phone call. Sometimes the little things make a big difference. Be creative!

Access to a full set of drawings is critical in the estimating process.

At the risk of this blog getting too long winded, I have to mention that when you start a project, make sure you have a full set of plans. Although you will be bidding on primarily the electrical drawings, you typically are responsible for anything shown on any of the drawings. For example, some projects will have electrical, lighting design, and interior design drawings, all showing lighting fixtures. These drawings may not be coordinated so you may have to count off three different drawings for the same area!

Read the drawing index.

A quick review of the drawing index will be the roadmap to the drawings you should really review. Yes, you are responsible for anything electrical that is shown on the drawing, regardless of whether it is shown on an architectural or mechanical drawing. Make it a habit to review all the drawings, using the index as your guide. Remember, it is the estimator’s role to determine the true cost of a project. Sometimes it’s a puzzle and you never know where you’ll find the missing piece.

Stay tuned for this week’s thoughts on the electrical estimating apprenticeship!

eBook: “Understanding Electrical Estimating” Released

A new electrical estimating book hits the press! Candels Estimating introduces its first e-book: Understanding Electrical Estimating

Understanding Electrical Estimating is a 12-part series which serves not only as an introduction to estimating but also operates as an essential and comprehensive reference for the seasoned estimator.

Linda Candels, one of the founding partners of Candels Estimating LLC and Candels Estimating Training LLC, opens her own book of 20-plus years of knowledge and experience to educate electrical estimators and other industry professionals.

Linda writes about the facts and includes detailed scenarios and real-world experience. Each section depicts how and why to execute your project the right way. She addresses what it takes to prepare an estimate as well as the many issues and concerns that arise while doing so–whether you’re overseeing it all or you’re out in the field.

Understanding Electrical Estimating breaks down topics such as specs and drawings, take-offs, labor adjustments, quotes, software, the detailed and sometimes tricky process of bidding, and much more. This electrical estimating book shows you how to handle and/or resolve issues at any level of your career.

Topics like:

Bidding and bonding essentials
Is that legal and up to code?
Who is responsible for what expense and why?
How do I write a winning proposal?
Overhead and profit – how does this affect your bid?
How “…your field labor will perform to the standards that you have estimated”
“To help win the bid, package your proposal so it stands out. For example, before bid day…”

The book lives up to its name. Understanding Electrical Estimating helps any estimator understand the ins and outs of this comprehensive field.

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Bonding with the Specs

Specifications, scope of work, the walk-through and bonding are important pieces of any project, large or small.

Before you uncap a highlighter or open up your counting and take-off software, a thorough review of the specifications is critical to your estimate. Also, the scope of work, invitation to bid, and any other information provided should also be reviewed to totally understand the project.

Specs and Scope

The project’s specifications provide the road map to complete your take-off, estimate, and ultimately get to your bid price.

The front end specifications (Division 1) provide general project information that applies to all trades. The responsibility schedule or a scope of work document will detail “who owns what.” Never assume that everything you normally bid is part of the bid package on every project! Make sure to thoroughly understand the scope of work for your trade!

The specifications should also detail the project schedule. Be sure you can meet the deadline. Do you have the labor and equipment to complete the work on time? All over the U.S., contractors are experiencing labor shortages in the trades. Unless you know you can staff the project, you should only bid what you know you can complete.

The project schedule and liquidated damage clause should be reviewed in advance of bidding a project. Liquidated damages could cost thousands of dollars per day! Even when failure to meet the schedule is no fault of your own, you can be held responsible, particularly when you are one of the last trades off the job. When you experience delays due to other trades, always document the situation and put the owner/GC on notice, so as not to be hit with liquidated damages charges.

How important is the walk-through?

Another piece of information included in the front end of the specifications will be regarding the project walk-through. Often the walk-through is mandatory. Regardless, you or a designee should always attend this meeting. Valuable project insight can be gained about job site conditions and restrictions, working access, working hours, parking or materials storage space availability, and even the presence of asbestos.

If the walk-through is mandatory and someone from your company does not attend, your company will not be able to submit a bid. A walk-through also allows you to “see” what may not be shown on the drawings, such as existing equipment, access to the equipment, and general site conditions that may be hard to depict on the drawings. If the walk-through is not mandatory and you cannot attend, consider using a tool like Google Earth to get familiar with the job site. Do you ever wonder what we did before we had the internet and Google?

Let’s Bond

The front-end specs also include bonding requirements — be it bid, performance, or payment bonds. There is a lead time in getting a bond, so the earlier you request one, the better. A bid bond, usually no more than 10% of the project value, is subject to full or partial forfeiture if the winning contractor fails to either execute the contract or provide the performance or payment bonds. A performance bond, also known as a contract bond, guarantees satisfactory completion of a project by a contractor. Finally, a payment bond is a surety bond posted by a contractor to guarantee that its subcontractors and material suppliers on the project will be paid. Any of these bonds can take 3 to 4 working days to acquire. A good working relationship with your bonding company can reduce the lead time tremendously. And, if your relationship is really good, you may be able to arrange to write your own bonds through power of attorney.

Finally, the general contractor or construction manager may require you to carry “extra hours” to be used at their discretion and they may require you to carry allowances for contingent items. Often these are high-ticket items, so you want to make sure to include them in your proposal. More and more often, general contractors, especially larger ones, are including “500 extra hours to be used at their discretion,” feeling that they are pre-buying hours that can be used for change orders at a discounted rate.

Trade Specifications

After review of the Division 1 specs, you should read your trade’s specification section very carefully. Often your trade’s specifications will also refer you to other related specification sections and it goes without saying that you should read those as well. The bottom line is to understand the requirements of the project, and what your trade “owns” relative to the work on the project. As the old saying goes, “the devil is in the details.” If there is a conflict between the specifications and what is shown on the drawings, try to pinpoint a reference within the text that defines what information supersedes other information. You cannot rely on old wisdom that “the specs supersede the drawings.”

For example, the specs may state that outside duct banks shall be run in Schedule 40 PVC. However, a drawing note may state that all duck banks shall be run in galvanized rigid conduit (which costs a lot more than PVC!) If you can’t find a specific reference about what information supersedes, submit a Request for Information (RFI) for clarification. At all times, you want to be sure to cover your costs, yet at the same time, you do not want to cover any unnecessary costs that could unnecessarily inflate your bid price. Whatever you do, always qualify your bid! For example, it could be as simple as “Carried Schedule 40 PVC for all duct banks per specifications. Did not carry GRC per drawings.”

Specs are often considered “boiler plate,” meaning they do not always contain project specific information. And to be truthful, it can get tedious reviewing hundreds of pages of what may seem to be worthless information. For example, for electrical, the contractor will look for wiring methods, fittings required, testing and coordination studies, and the responsibility of providing starters and disconnects. As a general rule, if the project is funded privately, a contractor can deviate from the specifications. However, if the project is publicly funded, each trade will be bidding on “plans and specs,” meaning no deviations from the plans and specifications.

Be aware that specs may include information on systems that are not shown or referenced on the drawings. That doesn’t mean that you shouldn’t cover the cost for these items if they are in your bid package.

A thorough review of the specifications helps you map out the entire bid process and set the stage for the next part of the estimating process — the take-off.

Material Escalation: Managing Commodity Prices and Bids

Material escalation…think about it. When you hear the words “steel,” “copper,” “aluminum,” “cement,” “petroleum,” “natural gas,” “lumber,” and “gypsum,” what thoughts or words come to your head? Crazy? Volatile? Unpredictable? All of those words are pretty descriptive of the prices of these commodities. For any contractor or supplier involved in construction, many of these commodity items and their volatile pricing escalations will pose some concern in terms of your bid price. Do you plan for a pricing increase and include that contingency in your bid price, possibly causing you not to get a job? Do you include a price escalation clause in your contract to cover unforeseen price variations? Or do you just ignore it entirely?

Not being a lawyer, I am not here to offer legal advice. You should consult your attorney for that. But, armed with some valuable information, you will maximize your time with your attorney to protect your company, and also the outcome of the job in question.

Most jobs that contractors bid are based on a “fixed price.” These prices are based on material prices estimated before the beginning of the project, even though the project may take a year or more to complete. It is entirely logical to think that material prices will rise from bid time to completion time, but major price variations often cannot be anticipated or estimated.

Contributing Factors to Material Escalation

So what has caused this volatility in commodity pricing? Many world events have changed the commodity market. The American political climate has changed the way the world sees trade deficits, and recent events have caused crude oil prices to quickly increase. Former rapid economic development in Asia, especially China, had stressed the market for steel. China consumes about 25% of the world’s steel and they are willing to pay top dollar for it. Much of the steel went to build the infrastructure for the Olympics and the 2010 World Games. Growth in other parts of the world, such as India, Russia, and the Ukraine, have limited exports from these countries so they can meet their own domestic demand.

Storms and natural disasters have also affected the commodity market. Hurricanes and other storms that hit the Gulf Coast region stressed the market for PVC. Material shortages, high energy and transportation costs, and consolidation of production facilities have also attributed to material cost increases.

Resultant Market and Job Site Changes
The magnificent rise in commodity pricing has resulted in market and job site changes, such as job site theft, lack of firm price quotes, higher project costs, delayed or cancelled projects, increased litigation, liquidated damages, and extended overhead.

Avoiding the Pitfalls
There are a number of things a contractor should do in order to manage price escalations. By being proactive in the pre-construction phase, you can add a material cost escalation clause into your contracts. This proactive approach would be based on specific cost indexes, for specific products reaching a specific price point escalation. By doing so, this would avoid large contingencies that the contractor would need to build into their bid price.

As a side note, as gas prices increase, you may want to check your overhead. Rapidly increasing prices may effect your bottom line!

On the flip side, if your company chooses not to address the issue of material price escalation, a number of scenarios could occur. A retroactive quantification of material price escalation will involve “forensic” material escalation analysis, using cost indexes, material lists, and trigger points not quantified in advance.

A contractor should always monitor his costs versus the estimate. Strong pre-construction service is essential for setting costs, scheduling, determining alternative methods and solutions, providing early identification of issues and risk management.

Contracts with Material Escalation Clauses

Essentially what a material escalation clause accomplishes is shifting risk from a supplier of goods and services back to the owner. Fair and efficient sharing of risks can save many projects from legal battles and claims. It has been stated that “If you communicate the unexpected in advance, the unexpected becomes the expected, and the expected is easier to handle than surprises.” I like that.

Material escalation clauses can be “cost based” or “index based.” A cost-based clause compares actual incurred costs with bid costs. AGC Document No. 200.1, Amendment No. 1, requires the parties to establish a series of baseline prices for material identified by them as potentially “time and price” impacted and to provide a method for adjusting the contract price as a result of fluctuations in those baseline prices.

An index-based clause tracks and adjust prices based on numerous existing material price indexes such as the Producer Price Index “PPI” published by the Bureau of Labor Statistics and one published by the Engineering News Record.

Contracts without Material Escalation Clauses

Contracts written without material escalation clauses that experience exceptional price increases in commodity costs will undoubtedly be subject to claims. The outcome of these claims will be based on factual circumstances and whether the contract language and applicable legal doctrines provide a basis for relief.

It does make practical sense to provide some relief to a supplier or contractor rather than face a default precipitating the need to re-procure. Relief will avoid claims, saving everyone time and money, avoid a breach, or avoid a contract to terminate or go under. No doubt a replacement contractor would pass the price escalations onto the owner anyway, will probably not guarantee the previous contractor’s work, may possibly cause time delays on the project due to remobilization, and there may possibly be a drop in quality. Owners who allow a price escalation clause may really benefit in the end when you consider the previous statement. And, it really is unlikely that the owner will be able to avoid price escalations altogether.

Legal Terms and Doctrines
If you need to confront the owner with a material escalation issue, you may or may not have a legal battle ahead. Many lawyers will rely on the Latin phrase of Roman origin “pacta sunt servanda”, which roughly translated means “the contract is law.” Therefore, the contract binds parties to absolute liability for the unconditional contractual promise.

Some of you might also have heard the term “force majeure”, which relates to when an event occurs that is beyond a party’s control that would invariably lead to the non-performance of a contract. If you use the force majeure clause in order to help with escalating material costs however, it probably will not help you. It usually only allows a contractor additional time to perform, rather than additional money to perform.

There are also some legal doctrines which a contractor may be able to use as justification for material cost escalation.

“Commercial impracticability” deals with an unforeseeable change in a basic assumption upon which the contract was based. However, since commodity construction prices have been fluctuating widely since about the year 2000, this would be a difficult doctrine upon which to base your argument knowing the history of price escalation.

“Impossibility” occurs when defects in the plans and specifications arise for which the contractor is not responsible. However, courts will not apply the doctrine of impossibility just because performance of the contract has become more expensive than previously anticipated.

“Mutual mistake” deals with situations where the mistake was a fact that caused a severe imbalance in the risk of a project. Explanation….

“Frustration of purpose” must be a substantial claim, requiring demonstrating certain facts to satisfy legal criteria. This is very difficult and rarely successful. A party’s purpose of the contract must be completely, or almost completely, frustrated by a supervening event. Without it, the transaction would make little sense.

Regardless of a contractor’s situation, the “burden of proof” lies with the contractor. Either they have to make the owner/developer understand it and compensate them for it through a change order or they will have to fight for it in court. Either way, it’s on them.

Sample Material Escalation Clause: If, during the performance of this contract, the price of significantly increases, through no fault of contractor, the price of shall be equitably adjusted by an amount reasonably necessary to cover any such significant price increases. As used herein, a significant price increase shall mean any increase in price exceeding % experienced by contractor from the date of the contract signing. Such price increases shall be documented through quotes, invoices, or receipts. Where the delivery of is delayed, through no fault of contractor, as a result of the shortage or unavailability of _______, contractor shall not be liable for any additional costs or damages associated with such delay(s).

Federal Statutes

Some contracts, especially those for state and federal procurement and public works, contain “escalation” or “price adjustment” clauses. Federal Acquisition Regulation FAR § 16.203-2 allows for “fixed price contracts with economic prices adjustments to be used when there is serious doubt concerning the stability of market or labor conditions that will exist during an extended period of contract performance.” FAR § 16.203-2 recognizes three types of escalation clauses, including adjustment clauses tied to established prices, adjustment clauses tied to actual costs versus bid prices of labor or materials, and adjustment clauses tied to indexes of labor or material.

The concept behind these escalation clauses is that the government agency ultimately will save money when contractors cannot predict commodity prices with assurance because the agency will avoid the large contingencies contractors would need to build into their price quotations.

If a contract in which the provision of goods predominates, the Uniform Commercial Code UCC § 2-615 excuses performance if the rise in cost is due to some unforeseen contingency, such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a increase in cost or altogether prevents the seller from securing supplies necessary to his performance. If a contract involves providing services as well as goods to a jobsite, the UCC will not apply.

Finally the American Institute of Architects AIA Article 4.36 allows a contractor to make a claim for additional compensation if he incurs additional costs for several stated reasons and “other reasonable grounds.” In addition, AIA Article 8.3.1 states that “contract time shall be extended if contractor is delayed for labor disputes, fire, unusual delays in deliveries, unavoidable casualties or other causes beyond his control.”

Managing Escalation During the Project

The best way to avoid trouble is to avoid trouble, remembering all the while that the most influential part of any construction project is money. Money can keep a project going or it can stop it. Monitoring your progress on a job will bring potential issues up early, hopefully avoiding job loss or stoppage.

A contractor should always monitor his costs versus the estimate. Strong pre-construction service is essential for setting costs, scheduling, determining alternative methods and solutions, providing early identification of issues and risk management. In other words, while you might not be able to control costs (of commodity items), you can manage them. Historical escalation rates will also help a contractor predict long-term material escalation.

Other Options
What if the owner will not agree to a material escalation clause? A contractor does have other options. Purchasing materials in advance or increasing your buying power by buying the material for several projects at once, may be helpful. Perhaps the owner will pay you for materials for his job that will be procured and stored in a bonded warehouse, eliminating possible price escalations. You can also include a contingency budget, or an adder to your bid, for price escalations.

Conclusion

There are a number of issues to consider when bidding a job in this tricky economy with crazy commodity cost fluctuations. First, you should address the issue of material price escalation during the negotiation phase of a project. Review and revise your contracts now because procrastination in this case will not pay! Also, do not wait until escalations begins affecting your project, your profitability or your company’s sustainability to try to convince the owner that it should absorb the price increases. Communication is the key to the success of any project, especially one where there might be pitfalls. Involve the owner early and act as partners to complete the job on budget and on time.

Construction Proposal Letter

Construction proposal letter: This document spells out a detailed picture of everything involved to submit a solid bid. A good portion of the estimating process involves completing the take-off, checking it for accuracy, making labor adjustments, applying your overhead and direct job expenses, and deciding how much, if any, profit you want to put on the job to come up with your sell, or bid, price.

Now that you have that completed, there is a very important step before you send your price to the general contractor or construction manager. It’s called a proposal, or scope, letter. In effect this document becomes the first legal correspondence of what your price includes and does not include. You can always rely on this letter if you prepare it properly.

Construction Proposal Letter- The “must do’s”

Most companies have a standard format for completing the proposal letter.

Always state the project name, address and a job number, if available.
List the drawings and their respective dates on which your proposal is based.
- This is very important since you want to make sure that, if by some chance you received the wrong set of drawings, as least you have documented the set you were working with. Accordingly, if you received any addenda or bid clarifications, be sure to list what you received with the date, again to cover yourself in case you did not receive a particular document.

Construction Proposal Letter: State what is included

In the proposal letter, list all the items that are included in the proposal. There is a fine line between not listing enough and listing too much, but I always like to include standard and “big ticket” items.

Standard items would be lighting, lighting controls, branch devices; state what you carried and what the wiring methods are for these items. For example, “lighting with branch run in MC cable with EMT home runs as specified.”
You can also do the same for mechanical equipment connections (don’t forget to state whether you carried the disconnects), fire alarm, tel/data, and other low voltage systems.
For feeders, state what you carried for the primary conduits, secondary conduits, all the way to the last point of distribution. There is typically a lot of money involved in the distribution system, so be specific about what you carried.
If the specs call for Schedule 80 versus Schedule 40 for the primary, make sure you spell that out in your proposal instead of generically stating “incoming service primary run in PVC.”
If there are any special or unusual items in the take-off, mention them in your scope letter. These could include items such as conduits to the roof for a satellite dish, spare conduits for future equipment, or special systems.
If your job includes fees, permits, sales tax, utility company charges, make sure that you state that in your proposal.

Construction Proposal Letter: State what is excluded

Detail the items that are excluded from your proposal.

Examples: cutting-patching-painting of walls, concrete housekeeping pads, transformer or generator pads, site pole bases, and concrete encasement of duct banks. If any items are existing, exclude them and make a note that they are existing.
If any work is by the general contractor or other trade, exclude these as well and mark them “by others.” This acknowledges the item rather than ignoring it and hoping that the general contractor will intuitively know what you are talking about.

Construction Proposal Letter: State your terms and conditions!

At the end of your proposal, state any “terms and conditions” upon which your proposal is based.

Length of time for which your proposal is effective
Typical working hours such as Monday through Friday, 7 am to 3:30 pm, excluding major holidays.
This may sound like overkill, but you never want to get stuck paying your crew overtime because you did not exclude overtime work from your proposal.
Finally, make sure you clearly state what your proposal price is. I know some contractors that not only list it numerically, but actually write out the dollar amount–“proposal price is $850,000 (Eight hundred fifty thousand dollars).” Be sure to list any alternate pricing, as well, as either an add alternate or a deduct alternate price.

You have completed your bid, written your proposal letter, and now it is time to submit your price.

The Bid Process & Following-up

Construction Bid Process: Our estimating process has now taken us to the point where we are ready to submit the bid.

Our take-off is complete and checked for accuracy
We applied labor adjustments
We included and reviewed our quotes
A detailed scope or proposal letter is written to support our price

There are two bidding situations that are likely to occur: either a public bid opening or a private bid.

Public Bid Process

If your job is a publicly-funded project, it will be a public bid opening at a specified place and time meaning your are bidding “plans and specs” and usually no exclusions can be taken. In a public bid situation, you might be bidding as a prime or a sub, depending on how the job is being put together. In other words, you might be bidding on the electrical bid package or you may be submitting your electrical price to a general contractor who will be bidding as the prime. In either scenario, you typically do not get a second chance. The low number wins the job, precluding any problems in the scope review, which we will discuss later.

Private Bid Process

For privately-funded projects, the bid process is quite a bit different. You prepare your proposal the same way, but what happens when you submit your price is anyone’s game. Again, you may be bidding as the prime contractor or as a subcontractor to a general contractor or construction manager. And there is a careful strategy about to whom you submit your price, when you submit it, and the numbers you actually submit.

For example, if you have a good working relationship with a general contractor, you will probably give him a better price than someone with whom you have never worked. Even if you have worked with a contractor before, please be careful about submitting your price too early! By doing so, you make yourself a “target,” or that “number to beat.” If you get hounded for a number early, you may want to respond with something vague like, “I am think around $1 million; does that number look in the ballpark?”

Ask the GC for Feedback

Based on the feedback you get, you may have some inside information about how your bid number actually looks. Although you will have a specified date and time at which the bids are due, unlike a public bid opening, your numbers will not be read in public, and oddly enough, the low bidder may not actually be awarded the job.

How could this happen, you might ask. Well, simply, the answer is negotiation.

Before a job is awarded, the entity who has solicited the proposals will conduct scope reviews, typically with the three lowest bidders. During this process, the plans and specs are reviewed, and you will be asked whether or not you covered certain items in your scope of work. This process helps “level” the playing field and determine whether the low bidders actually covered the specified scope of work. In a private bid situation, you can “exclude” items from your bid, unlike the public bid opening arena.

During the scope review, you will have a chance to clarify why you included or excluded an item, and subsequently you may be requested to add something to your bid based on the outcome of your scope review.

“What can I do to get the job off the street today?”

There can be a lot of game playing in the bid process. The general contractor may tell you that “your price is in the mix, but someone else is lower.” In these situations, there are a number of strategies you can employ.

The one we recommend is the direct sales approach. Ask the question, “what do I have to do to get this job off the street today?” Remember, the idea is to actually close the deal! At the same time, I would caution you:

Never chase someone else’s number unless you are sure you can do the job for that price.
You should always complete a detailed take-off before you bid any job so that you know your costs.
Never bid a job below your cost, thinking you are going to make it up in change orders. Although change orders still are issued on jobs, the economy is not like the “good ol’ days” when the value of the change orders often exceeded the original contract value.
- Sometimes there are bidders that put out an extremely low number. Once this bid is submitted, it now becomes the number to beat because let’s face it, everyone wants to put as much money in their pocket as possible. Again, this is a dangerous situation. The general contractor will want to buy the job for this price, yet, this low number probably was not based on a take-off, and if it was, something was undoubtedly “missed.” This may be a tough situation to combat, and again, don’t chase someone else’s number unless you can do the job for that price.

Sell your Strengths!

However, if you are privy to information about that low bidder that may affect his job performance, then by all means, sell your bid with your company strengths versus your competition. As they say, “it ain’t over, ‘til it’s over.” As with most things, persistence is key. Never give up unless you know the job is really gone.

The next and final article will summarize everything and give you some thoughts to ponder.

Design-Build Projects: Clear Communication Is Key

What is a design-build project?

A design-build project is one that is not necessarily drawn or engineered, but one that has some sort of written scope and building footprint to use.

Design. (di zīn’)(verb). To prepare plans for work to be executed

Build. (bild) (verb). To cause to be constructed.

Design-build. (di zīn bild) (verb) To prepare plans resulting in construction.

Design-build estimates are often confused with budgets. They are not the same. (That is not to say that a budget cannot turn into a design-build.) Because most owners have fiscal restraints that affect their capital investment, they depend heavily on the estimator to develop accurate cost forecasts at every stage of the project. Therefore, an estimator must have a comprehensive understanding of the costs of labor, materials and equipment, and the means and methods of both design and construction in order to accomplish the “design-build” task.

How do design-build projects come about?

Often design-build projects will result from a municipal or state Request for Proposal (RFP) based on a written scope. Relationships between general contractors, building owners, and an electrical contractor may also result in the parties developing a design-build project. Relationships are not only key to developing a solid business, but can lend a comfort level to owners or GCs to the point where that comfort level influences project development. An electrical contractor might “be in the right place at the right time.” Or, an electrical contractor submitted a budget price for a project based on conceptual scope which later turns into a design-build project. The design-build process may be faster and more efficient than a conventional design-bid-build project.

What/who is involved in a design-build project?

The complexity and scope of design-build projects will vary based on the needs of the owner or ultimate user of the building. There is a huge scope/cost difference between a project requiring simple “lights and plugs” versus one that involves the entire infrastructure of a building, including the electrical service, HVAC requirements, circuiting, lighting, branch power, and any customer needs for wiring of specialty machinery. Depending on building use (e.g., an office building versus an industrial or manufacturing plant), the complexity of scope will change as well. Building use should always be taken into account when completing a design-build project.

Better results will ensue when everyone involved in the project is involved early on and communicates their goals clearly. This team might include the owner/developer, general contractor, electrical contractor, mechanical contractor, plumbing contractor, fire protection contractor, the site contractor, architect, and engineer. All of these players may not necessarily be involved in every project. Involvement simply depends on the scope of work and the expectations of the client.

Understanding your client expectations and needs (and also code issues!)

Client expectations for design-build projects should be determined as early as possible, saving time and money for everyone involved. Communication cannot be underestimated! Ask questions! Ask questions! Ask questions!

Example: a line from an RFP that states “lights and receptacles to code” and the project is a proposed office building. To some, this may mean 2’ x 4’ lay-ins to equitably light each room and at least one receptacle on each wall, and telephone/data outlets.

Local and national codes dictate a certain foot candle output based on occupancy, but not necessarily the style of the light fixture itself. Esthetics cost money!! Again, client expectations come into play. They may expect direct/indirect aircraft cable hung fixture versus an industrial shade or simple 2’ x 4’ lay-in. Parabolic lenses are more expensive that prismatic. Does the customer have the expectation of a parabolic lens because the office is for the president of the company? Exit and emergency lighting must also be considered because by code, exits must be marked and emergency lights help mark the path of egress from a building in case of an emergency. However, there is a huge cost difference between providing light fixtures with emergency ballasts versus wall mounted emergency battery units.

There are no placement requirements for receptacles in office buildings. However, the expectations of the client might be at least one on each wall, probably more. Also, will there be a need for special receptacles, such as GFIs or IG receptacles? Will the proposed building have a dedicated computer room that might potentially need a special grounding system underneath the floor?

What is the ultimate goal of a design-build project?

The goal of a design-build project/estimate is to identify the true costs of items to determine along the way if the cost of that item is feasible to the owner or developer. Identifying the proper scope will always be a crucial element of this process. A minimum/spec job will cost less than a building designed to purpose/function. Code issues and utility company requirements must be considered.

What kind of building is it?
What is the building construction?
What are the needs of the potential tenant(s)?
Did the customer give you a list of equipment that will need wiring?

Cost efficiencies and energy rebates of certain types of fixtures may be important. If the design-build project were to be based strictly on “cost to install,” the developer may be satisfied but the owner or tenant may not be. In the long run, the total life cost of the fixture will be more important, especially as energy costs rise. The installed cost of a T5 fixture will be higher, but the life cost will be lower due to lower energy consumption and utility company rebates.

CAD drawings and engineer’s stamp

In the process of a design-build project, you will be relying on a CAD operator to draw the building and its systems for you. CAD drawings are efficient since any changes or modifications can be easily made and replotted for further review. You can expect to pay, depending on your area, about $50-$75 an hour for CAD services.

Once the customer is satisfied with the design and the drawings are done, an engineer will need to review them and provide an engineering stamp. Please ensure that the engineer you use is licensed in the state where the project is taking place. If not, see if the local jurisdiction will accept an engineer’s stamp from another state. Engineers typically charge by the page, with fees ranging from $200 to $400 a sheet, or a percentage of the total electrical cost. Check around. Ask your local businesses who they are using for this task.

What are the risks and potential pitfalls?

The largest risk an electrical contractor takes in design-build projects is doing all the work, only to have the developer take the design and proposal and put it out to bid. The lighting and switchgear vendors who have helped the electrical contractor may lose out too. Word to the wise, be careful! No one likes to work for free but if developers can get a building designed for free, they will!

Sometimes an architect will be involved in the early design phases of a project. If so, the architect should be involved in all stages of the process as well. Many times accent lighting, illuminated handrails or landscape lighting will not be defined early in the process; this can become an issue after all the building loads have been calculated and subsequent switchgear has been designed. If you have given the client a Guaranteed Maximum Price (GMP), you should be aware that these architectural design changes will impact your bottom line!

Finally, electrical contractors should always consider whether they can actually meet the needs or requirements of the RFP. Please consider all parts of the scope of the project. If the project requires high/medium voltage work, do you have the experience level or have you established partnerships with other electrical contractors in your area with that expertise? This is especially critical for a smaller EC who takes on a larger project. Other systems to consider are tel/data, low voltage systems, and specialty communication..

Can I make any money working on design-build projects?

You most certainly can! The key to design-build projects is to foster communication about expectations, code requirements and design requirements throughout the project. If you have detailed your proposal/scope (as a lawyer would), you should have no problem being comfortable with your price and margin. If you have done a detailed take-off from your plans, you will have identified your true cost, which is the starting and ending point of any electrical project.

The design-build process can be a rewarding one, especially if you have made a profit! The key to success is to fully understand your client’s needs, the building use and construction, and the team that will be involved in the process. Clear, continuous communication with all parties will ensure that the project is completed on time to the team’s satisfaction. There is a huge difference between designing to a minimum/spec versus designing to a purpose/function. As long as you understand what type of project you are involved with, you will then understand how to proceed and ultimately make a profit.

Electrical Estimating and Take-offs: Feeders

Heavy material cost and labor dollars in the feeders!

As we continue to discuss the electrical estimating and take-offs, the most material-cost-intensive part is the electrical feeders. Pay special attention to wiring methods. Most of the time, you will be providing copper conductors, either in PVC, EMT, or GRC depending on the application. If the GC asks for an alternate for aluminum wire, you will have to upsize the wire and conduit sizes since aluminum wire does not carry the same ampacity ratings as copper. Make sure that the panel will accept the upsized wire. Although the National Electrical Code may state that you can use aluminum wire under certain conditions, the local code or the building’s standard may not. Confer with the AHJ if there is any doubt. Look at the riser. Often engineers upsize the conduit. If the project is a public bid opening, you should price exactly what you see on the drawings. However, for private jobs, you can size the conduit to code, but make sure that you qualify this in your proposal.

Switchgear and Panelboards

When applying labor to switchgear and panelboards, many estimators spend time “building” a panel, making sure they have all the labor for breaker fill. In my professional opinion, this is a waste of valuable estimating time. As an estimator, determine the average time to install a 200-amp panelboard, and use that in your estimate.

Make sure that you give your switchgear vendors enough time to quote the switchgear. Review your quote for completion. Beware of incomplete quotes! For generators, ensure that your quote includes the ATS’s, expensive load banks and testing.

Think about your electrical estimating and take-offs: How will you get your switchgear, etc. into the building? For existing buildings, is there room to bring these items in? For a new building, will you need rigging or a crane to set these items in place? If you are hiring a crane, check with your local jurisdiction about road closures and permits. Will they have to be set on a weekend, incurring extra costs? All should be factored into your take-off.

If mechanical disconnects are shown on the riser but will be provided on the equipment, make sure that your switchgear quote does not include them; and likewise, if you have to provide them, make sure your quote reflects that. We generally exclude generator fuel, start-up and testing. If you don’t exclude what you don’t “own,” you might end up owning it anyway.

Utilities

Another good chunk of your material costs with electrical estimating and take-offs will be the incoming utilities. Know your local code and what your local utility company provides. Often, the electrical contractor will own the incoming conduits, and the utility company owns the primary wire and transformer. Read the specs carefully to ensure that you are estimating the appropriate site conduit, noting the difference in price between GRC, Schedule 80 or 40 PVC. Do you own trenching and backfilling? That usually depends on the area of the country you are in. Do you own the transformer pad?

Reviewing the above items will help ensure you’ve done your homework with this part of electrical estimating and take-off.