Last week, I visited a commercial contractor and asked the estimator what his primary goal was. “To win work,” he replied.
A common response, and not altogether wrong, but there is a more important goal at play. Contractors often win projects at fair prices only to find themselves facing profit fade. After months of hard work and cultivating client relationships, projects can become unprofitable due to a lack of accuracy in the bid.
It is a contractor’s worst nightmare when they discover their estimates don’t align with actual project costs. And when that happens, the inevitable round of blame begins. So how do we prevent this?
We make accuracy in estimating the top priority, and this checklist will help:
1. Timecards – Good estimating starts with solid information from the field. Ensure timecards are categorized correctly according to cost codes relevant to your estimates. This allows project managers to track costs weekly against the budget and develop a reliable historical database.
2. Labor burden rate – This should not be a rough guess from the accounting department but a precise figure reflecting actual costs. Review rates for all employees, ensuring they cover taxes, insurance, benefits, and other related expenses to avoid bids that are either inflated or too low.
3. Bid crew rate – Adapt these rates based on crew composition and project complexity. Challenging projects may require experienced workers, while simpler jobs can employ less-qualified teams. Experiment with different crew sizes to determine the most accurate cost for each endeavor.
4. Equipment rates – Calculate ownership costs such as purchase price, maintenance, insurance, and fuel against expected billable hours. This will help formulate a realistic equipment billable rate.
5. Scope of work – Missed items can lead to significant losses. Keep track of omitted tasks or discrepancies between architectural and site plans. After project completion, review any missed items and integrate them into your estimating templates for future accuracy.
6. General conditions costs – Estimators often overlook the actual costs of general conditions. Rather than guess, obtain real-world data regarding startup, mobilization, utilities, temporary facilities, and project management. Accurate schedule reviews can prevent underbudgeting, which can balloon expenses unexpectedly.
Profitability lies in precision
The only fluctuations in bids should be overhead and profit markup. Top estimators maintain a small variance (usually 1-2%) between their estimates and actual job costs by continuously refining their understanding of project specifics through regular communication with field teams and by reviewing historical data.
For commercial contractors, the path to profitability lies in precision. Moving beyond mere estimates to accurate predictions can fundamentally change your business’s financial trajectory. By refining your estimating practices, you enhance your chances of winning bids and safeguarding your profits.
George Hedley, CPBC, is a certified construction business coach and speaker. He helps contractors build better businesses, grow, profit, get organized, and improve estimating and field production. He is the best-selling author of “Turn your construction business into a profit-making machine!” available on Amazon. Visit HardhatBizcoach.com to schedule a free introductory coaching session, get his Hardhat Hedlines Biz-Tips e-newsletter, templates, videos, or webinars and workshops information.
