This newsletter is part of the series in which I share with you my methodology for electrical estimating. I explain how to determine the material cost, labor cost, and the calculation of direct job costs, overhead and profit. Estimating is a skill that can make or break a career, and make or break a company, and I want to help you understand the estimating and bidding processes so that your business can be profitable. You need to know going into a job how you can avoid failure - which in some cases might mean not taking the job!

The following content is extracted from Mike Holt's Guide to Electrical Estimating.

There are several types of bid requirements you might experience, and it is imperative that the estimator has a complete grasp of each.

Competitive Bid—Lowest Price
In competitive bidding, the lowest price is sought for a project in a bidding process.

Design/Build Bid
Design/build bids require the electrical contractor to design and construct the electrical wiring according to written specifications. To be successful with design/build bids, the electrical contractor must know the customer’s needs and the National Electrical Code.

Negotiated Work
Negotiated work is an agreement reached between the electrical contractor and the customer on the scope of the job and how much it will cost.

Time and Material (Cost Plus)
Time and material pricing is often used when job conditions make it impossible to provide a fixed dollar bid. In its simplest form, price is based on a given rate per labor hour with the material billed at an agreed markup amount (such as 20 percent above cost). This type of work carries a lower risk with a low profit margin; and sometimes it has a “not to exceed” price clause that increases the risk to the contractor, typically with a larger profit margin. This type of work is often used for change orders, especially when a job is over budget.

While some contractors consider this type of work as their “bread and butter,” it is more stressful than others because the customer is more likely to question the amount of time for which you bill. It is best to restrict this to customers with whom you have a long-term relationship (trust). Also remember that when you do this type of work, it is usually because you are reducing profit in order to reduce risk; adding a “not to exceed” clause adds the risk factor back into the work but the very low profit margin remains, although the risk to accepting such a clause can be reduced when you use unit pricing which we discuss later.

Estimate this type of work as best you can and then stick with the numbers you reached.

Requests for unit pricing are sometimes included in specifications, or in add/deduct options—especially with commercial and residential work. Possible governmental work sometimes consists of an entire (thick) document consisting of nothing but unit pricing items. The low bidder receives a contract for all of the work for a year. Once you receive an order for work to be performed, you can negotiate the price of any additional work/material necessary for “missing” items; such as additional wire for a circuit that must be added because of the number of additional fixtures, receptacles, and/or switches being ordered.

We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.

This content is extracted from Mike Holt's Guide to Electrical Estimating textbook.
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