Growing your business depends on how successfully you bid on a project. In the construction world, it’s especially important to know the “do’s and don’ts” of construction estimating. You want to bid competitively enough to win the project against competing contractors, but high enough to ensure that all project overhead costs will be covered and that you see a profit.
What is Construction Estimating?
Construction estimating is a vital step in every project—no matter how large or small. It’s also knowing whether a project is worth providing an estimate for or knowing if you should walk away.
For instance, it’s important to discern whether the project you are considering bidding on will enable you to grow your profit margins; learn new skills; grow into a new category of projects; or strengthen your relationship with a new general contractor.
This is no small task. Being selective and vetting projects upfront allows you to effectively focus your time and energy on those projects that will make the biggest impact on your business.
Common Estimating Mistakes Subcontractors Make
Estimating is not only one of the most difficult jobs in construction, but one of the most important. The accuracy of your estimates and how closely they match up to your final project costs can mean the difference between a profitable project and one that loses you money.
Avoiding these eight most common estimating mistakes will ensure that you aren’t placing your project or company in jeopardy.
- Not Conducting a Site Visit
Most bidding opportunities provide prospective bidders with a chance to attend a pre-bid meeting and visit the jobsite. Often, these are mandatory to submit a bid. Unknown site conditions can cause unexpected and costly issues when construction gets underway.
- Inaccurate Takeoffs
Your takeoffs lay the groundwork for your estimates. Accurate takeoffs help you determine the exact quantities needed for all your materials and supplies. They are also required to determine your labor and equipment needs. Utilizing takeoff software is a great option to ensure that you get accurate measurements for your estimates.
- Labor Costs
Labor costs are probably the most difficult to nail down accurately when it comes to your estimate. For example, an experienced worker may make a higher salary, but they are more productive and can get more done in less time than a worker with less experience, who makes a lower salary. Always keep records of job costs and how efficient your crews are—especially labor costs—as you can use this historical data for more accurate estimates on future projects.
- Materials & Supplies Costs
Another big cost for construction projects is building materials and supplies. Both are hard to accurately estimate. Prices for materials can fluctuate dramatically from the time you start an estimate to the time that construction begins. Establishing relationships with building material suppliers and manufacturers can help you lock in accurate prices, especially when leveraging material financing, while you compile your estimates. These partners may also be able to suggest alternative materials that might be a better fit for your project.
- Failing to Assess Risks & Create Contingency Plans
There is risk with every construction project, so completing a risk assessment is vital in your estimating process. Failing to assess risks and build in contingencies to your estimate will be detrimental if things go wrong. You may be unable to recoup the losses should an unforeseen issue crop up once construction is underway, such as delays in material procurement, inspection delays, or other items affecting the critical path.
- Making Uneducated Guesses
Never make uninformed guesses in your estimating. Tracking job costs on every project ensures your estimates—and ultimately your bids—are as accurate as possible. Job costs for labor, materials, and equipment should be based on the most current data available. Factor in overhead costs and soft costs such as permits and inspections. And ensure you have the workforce and equipment available for the project, as unexpected additional work or renting extra equipment can eat into profits.
- Not Reviewing Your Work
We all make mistakes, and estimators are no exception. Small estimating errors or omissions might not impact the project very much, but large ones like omitting scope items, inaccurate measurement, or using the wrong units of measure can mean trouble. Carefully review your work and have an estimating team member review your estimates. If you underestimate your bid, there’s usually no amount of cost-cutting measures that can make up for the shortfall.
- Not Reviewing Subcontractor Estimates
If you’re a general contractor, you will probably need to subcontract out some of the work to trade contractors. Be sure to review their bid estimates and proposals thoroughly. Also ensure that they understand exactly what aspects of the project you want them to bid on and complete. This will avoid duplication of work in their estimates that are already being covered by you or another subcontractor.
Steps to Create a Construction Estimate
When considering whether a project is worth providing an estimate for, it’s vital to review these 10 steps first:
- Be Selective With Your Bids: Select the right type of work to bid on. Avoid bidding on projects where you have limited experience and are more likely to make mistakes during both the estimating process and the construction project should you win the bid. If need be, bring in a strategic advisor to provide counsel for potential missteps and “gotchas.”
- Review Construction Specifications: In today’s competitive world, ensure you review the full set of up-to-date construction documents. Review the division 01 general specifications and make note of the construction business and management team qualifications, payment terms, bonding capacity, insurance requirements and more.
- Review Construction Drawings: This may seem obvious, but review the architecture drawings, in addition to your division’s drawings, so you understand the overlap between other trades, working heights, and elevations that will affect construction costs. Take note of any technical details that are depicted and watch for discrepancies between the drawings and specifications.
- Perform an Accurate Construction Takeoff: This process involves quantifying the various tasks included in your division’s scope of work from a set of construction drawings. Cost estimators use highlighters, click counters, and digital masters or their favorite construction takeoff software to begin the process of counting and measuring items depicted on the construction drawings.
- The Construction Estimate: Once you have the quantities from the construction takeoff, confirm the cost for each item and task to complete the cost estimation. Determining the labor cost will require that you know how long it takes to install the material.
- Determine Overhead and Profit: Once you have the bid estimate (direct costs), add profit and overhead costs (indirect costs) to arrive at the bid price. Profit is a percentage that you add to the project costs to land at your sales price. It’s beneficial to hire an accountant specializing in construction who can run these calculations for you annually.
- Build Your Proposal: Once the price has been determined, complete a construction proposal that outlines what is included in the bid price. This makes it easier for the general contractor and/or construction manager to review your bid price to ensure nothing is missing. Building your estimating process around a CSI format also aids in this process.
- Construction Contract Basics: Several types of construction projects are used by owners to secure a contractor to provide a service. This depends on the project size and owner’s risk tolerance. The three most common construction contract types include the Firm Fix Price or Lump Sum; Cost Plus Contracts; and Time and Material Contracts
- Handling Change Orders: Once a project has been awarded, it’s not unusual for the scope of work to change due to budget, design, or omissions that require a pricing change in the construction contract. Subcontractors need to understand this process for each project and build a formal change order policy to ensure you’re able to charge for services rendered.
- Construction Estimating Software: Modern cloud-based technology has made it easier for contractors of all sizes to systemize their estimating process with construction estimating software. This software increases estimating speed and productivity by removing manual, error-prone activities such as printing paper plans, duplicating data entry, and manual calculations.
Construction Estimating Software to Help You Along the Way
With construction estimating being a vital part of every construction project, there are wonderful software options available that can help contractors make quick and accurate cost estimates on both large and small projects.
As technology advances, so does the potential to streamline your operations. Contractor estimating software can help simplify and speed up many of these processes, so you can run your business more effectively.
For example, STACK delivers power and performance throughout the entire preconstruction process. This software option allows you to work through takeoffs and estimates at maximum speed with great accuracy, plus a whole lot more!
Another great option is PlanSwift, a software program that helps contractors reduce their takeoff time, while increasing the accuracy of construction job estimates.
With so many contractor management software options now available, increasingly accurate estimating and bid management can transform your operations, so you can focus on growth.
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