Now that you have determined that your take-off is accurate and you applied the necessary costs, let’s consider labor adjustment costs.
Depending on the size of the project you are bidding, you may have to carry money for a project manager (who is responsible to ensure the job is built to what was carried in the bid and/or negotiated upon award).
Oftentimes, the field labor force, for example, will have no idea that special provisions were negotiated with the owner for certain things such as the use of aluminum feeders (if allowable by local code) or open fire alarm cable. The project manager will communicate this to the job foreman, another labor component you should carry–again, depending on job size.
For very large or complex projects, you may have to carry more than one foreman. In union environments, the labor superintendent’s salary and/or a steward’s salary will probably be considered part of the company overhead, which we will get to a little later. Some larger companies also carry money for the estimator or clerical staff.
Labor Adjustment Costs – Escalation
Technically, for any building more than four stories high, the labor adjustment costs include an escalation rate of 1 – 2% per floor, which means that any item that is installed on the 20th floor, for example, will take longer to install than one on the first floor. How is that possible? Let’s not forget that a labor unit is comprised of the actual installation time, plus time for material procurement, coffee breaks, and actually getting to the area of work. So presumably, it is going to take longer to get to the 20th floor than the first floor, which includes not only waiting for the man lift but also transporting the appropriate material to the work area from the staging area.
In this competitive bid market, I realize that if you carry everything that I talk about, you may never be awarded a job. However, it is the estimator’s responsibility to identify ALL the costs in the estimating process. Then, upon review of the estimate and bid, items can be strategically cut to get closer to a more competitive number. At this point, decisions to cut items become strategic, but you have to know your complete costs before your strategy comes into play.
Estimating Overhead and Profit
Some companies bid their projects with a “fully burdened rate,” meaning the labor rate that they use to bid a project already includes a specified overhead amount in the hourly rate. Other companies apply their overhead rate as a percentage within a line item in their bid. Whichever option you choose, you should know what your overhead percentage is and carry it on every job. If you don’t know your overhead percentage, talk to your accountant. I suggested in a previous installment of this series that you should make friends with your accountant so you will already have this information. You simply cannot bid a job without covering all your costs, unless you want to risk the exposure of losing money on the project, if awarded.
Finally, profit is a beautiful thing. However, most estimators I know put in very little for profit: 2% to 5% — and for good reason. The market is just too competitive. This is where knowing your market, your customer and your competition will guide you to success. Only you can decide what will give you the magic number to get a scope review and eventual project award. Look at past bids and completed projects, review your numbers, and see if you can get an advantage somewhere.
In the next article, we will discuss your bid price and putting together a proposal (scope) letter to accurately describe what is included in your price. This is the final, and one of the most important steps, in submitting your price to the general contractor. Don’t miss it!