The Estimating Process – It Starts Earlier than You Think!

When do you think the estimating process begins?  This article is the first of a 12-part series on the estimating process.  In starting the New Year, it is appropriate to examine the processes we complete but might not give much thought to, such as estimating.

Many of you might think that the estimating process starts with the take-off, but that is step 3 or 4.  The estimating process starts way before any actual “estimating” or “counting” begins, and certainly before you peruse the bid boards to see what is out there to bid.

Include your overhead costs in your bid

To get to the heart of the matter, you must know YOUR BUSINESS!  Knowing your business comprises of many things.  First, if you do not have an accountant or a relationship with your accountant, start the new year right and establish a relationship, because your accountant can tell you a lot of things about your business that you may not know. When I work with contractors to put together a bid, I often get a blank stare or silence on the other end of the phone when we get to the “overhead” part of the proposal.  When bidding a job, you should cover all costs, both direct, or those related directly to the job, such a commodity material, labor, quotes, direct job expenses, and the like, and indirect, such as your overhead.  If you do not know your overhead, how do you know that you are indeed covering your cost?  The process of determining (and changing) overhead need not be daunting, but this information is critical to the estimating process.

Other things should be considered before bidding a job.  What is your labor force like?  Are you a union or non-union shop?  If you are a union shop, then your field work is dependent on available workers when you call the union hall.  If you are a non-union contractor, you have a staff of electricians.  What is their experience level?  If you, your foreman, and your electricians have absolutely no expertise in a particular type of work, then you must think twice before bidding it.  A good example is a waste water treatment plant.  It’s not clean work, no pun intended.  It is full of a PVC-coated rigid conduit, explosion proof fittings, and a lot of equipment, definitely not “learning ground” for any contractor.

Speaking of which, do you know what your firm is “good at?”  Do you know what size project is most profitable for your company? Following that same school of thought, do you have the tools, equipment, supervision, and infrastructure for the work you bid?  Again, work with your accountant if you are overwhelmed with answers to your questions.  No sense chasing work which will not ultimately turn a profit for your company.

How about bonding capacity?  Many contractors wait until they are knee deep in an estimate to realize they don’t know if they can get a bond for the work.  How about project labor agreements?  If you have never bid a job with a PLA on it, are you familiar with the paperwork you will have to submit for the certified payroll?

I have given you a lot to think about.  Most of it probably isn’t new to you.  However, as we begin a new year, it is a good time to pause, reflect and evaluate what is and is not working.

In our next post, we’ll discuss the next step in the estimating process: Finding jobs to bid.