JOB MANAGEMENT - ESTIMATING (Part 1)

A good percentage of work is acquired through the estimating process, and most jobs are awarded to the contractor who has the best-perceived price, but not necessarily the lowest. Because of the demands to have the best price, profit margins are limited. This permits you to have only a small margin for error in the estimate. A proper estimate must accurately determine your cost in completing the job according to the customer’s needs. This price must be acceptable to your customers at a value that includes sufficient profit for you to stay in business. In addition to helping you determine the selling price for a job, the estimate is used as the foundation for project management.

Determining the selling price for a job is actually two separate components. The first component is called the estimate, which determines the cost of the job. The second component is the bid, which determines the job’s selling price. It is critical that you understand the difference between an estimated cost and a bid price. Estimating is determining your cost and bidding is determining the selling price.

The purpose of estimating is to determine the cost of a project before you actually do the work. Estimating must take into consideration variable job conditions, the cost of materials, labor cost, direct job expenses, and management costs (overhead). Once you know the estimated cost of a project, you can determine the selling price of the job. Determining the selling price of a job is called bidding.

There are several types of bid requirements that you might experience. They include:

Competitive bid.
Design build.
Negotiated work.
Time and material (fixed fee).
Unit pricing.

Competitive Bid - This type of bid can be for private, public, or government projects. These projects can be found in the newspapers in the classified section under Public Notices, as well as trade publications, such as The Dodge Report. These publications list projects by category (such as residential, industrial, and commercial), and by total expected project price range.

Design Build - Sometimes an electrical contractor is given a general floor layout without much detail and requested to design and construct the electrical wiring according to written specifications. To be successful with design build, you really need to know your customers’ needs and the electrical Code.

Negotiated Work - Negotiated work is generally not advertised and there are a limited number of contractors requested to negotiate the bid price. The contractor and the customer negotiate a price that satisfies both parties.

Time and Material or Fixed Fee Proposal - Time and material pricing, sometimes called fixed fee, is required when existing conditions make it difficult to provide a fixed-dollar bid. This type of bid is based on a given rate-per-hour for labor (including benefits, overhead and profit) with the material billed separately at an agreed markup, such as 20 percent above cost.

Unit Pricing - Some jobs are awarded on a unit price basis, where the unit price includes both material and labor cost. This is often the case when the customer is not quite sure of the quantities of the specific items. Unit pricing is used for almost all types of construction, such as renovations, office build-outs, change orders, etc.

NOTE: Because of the length of this article, it is being published in two separate newsletters, Part 1 (#65) and Part 2 (#66). Be sure to review both sections.

Mike Holt’s Comment: This newsletter was extracted from my Business Management and Management Skills’ Workbook. Watch for our next newsletter, and as always, we encourage your comments and feedback. Send us your real-life experiences. Please respond to Barbara@mikeholt.com.

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