10 Construction cost estimating tips contractors need

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By Jim Lamzela

Special to Ontario Construction News

Getting an accurate project estimate can be extremely challenging and is crucial to your business. If your estimate is too high, then the bid may go to another competitor and all of the time and resources used to submit the bid will have been wasted. If it’s too low, you’ll win the bid but will wish it went to someone else. The following tips should help you get the accurate estimates you need to win more jobs:

  1. Get expert insight in the areas you may need help with

It’s very important to get the help you need from people who are more experienced in areas where you are not. Any areas that aren’t in your wheelhouse could come back and hurt you with cost overruns. Don’t be reluctant to get the help of subcontractors or consultants. It’s better to ask for help now rather than realize you’re in over your head later.

2. Be certain that you are accurate and meticulous in every aspect of the project

Relying too highly on unit cost or square footage cost can cause big problems in your estimates. These guides should only be used for ballpark estimates. The variables are too high. Keep a list of every single item. Items such as permits, landscaping, etc. can be forgotten very easily.

  1. Set clear hourly and project rates

Take all costs for wages and benefits into consideration when deciding on an accurate hourly rate for specialty labor. Look at previous projects you have done and find the margin killers to determine the risks and costs involved in this project. Pay particular attention to what parts of your project present the highest costs. These areas require deeper analysis of the tasks, labor and supplies needed. Don’t forget to factor in federal and provincial payroll costs.

  1. Additional costs in your estimation

Other costs to consider would be equipment depreciation and tracking inventory costs. Whether this is done by a computer or the role of someone on your team, you need to make sure these costs are accounted for. You also may have an increase or decrease in total costs due to changes that are beyond your control. The price of materials can change, the need for labor may increase as the project goes on, or you may even find you have over-spent on certain items. Loan interest, project management expenses, and health and safety consultations are other things to consider. Find out exactly what equipment will be needed for the project and whether it would be more cost effective to rent or buy the additional equipment you might need.

Some of these additional costs can include:

  • Project support
  • Project operations
  • Land acquisition
  • Engineering
  • Legal
  • Utilities
  • Travel
  • Insurance/bonding
  • Shipping and storage
  1. Factor in project risks

Construction insurance could come in very handy if a worker gets injured on the job or something else goes wrong. What happens if a storm blows in and ruins some of the materials on site? What are you going to do if a worker calls out sick or something else happens to set back labor? Look into your insurance coverage closely and make sure the rest of your risks can be handled with emergency funds that have been put aside for this. The last thing you want is to have to compensate for weather damage or broken materials and not have the funds available.

  1. Be aware of material and product price fluctuations

Many factors can affect pricing so you need to be alert to what’s happening in the marketplace. Do you need to order custom product or material? Does the price fluctuate by season? Do you need a fast turn around time? Are there challenges that will impact delivery? What are current demands?

  1. Use a Master Checklist

Be sure to set up a master checklist. It doesn’t matter how organized you are or how many people you have managing different parts of the project, a master checklist is what keeps everyone on the same page. Without it it’s just to easy to forget items and steps. This is the first and final point of reference. It’s what you check when you need to add a new expense or mark something off, as well as a helpful guide when you’re not sure if something has been accounted for. The master checklist accounts for every single dollar spent and tells you where all the funds are going.

            Here’s a free one you can use to get started.

  1. If you’re a general contractor (GC), confirm quotes from subs

Take as much care in reviewing your sub quotes as you do your own. Always get more than one quote for each trade and never accept a cost-plus bid. Work with subs that will offer a firm estimate based on the scope of the work.

Consider using a service like DataBid to post projects for free and spread the word to qualified subs.

To increase your odds of winning, it’s important to know the exact number of other companies that are also bidding this job. The more companies, the more competitive you’ll have be to win.

  1. If you’re a sub or supplier bid to ALL the GC’s

How many times do you hear about a project from a GC, spend days working on a bid following the steps outlined above and submit the perfect estimate and that GC doesn’t win (or sometimes even bid) that job? How does that affect you? You did all that work for nothing, that’s how! Once you’ve crunched your numbers send your bid to all the other GC’s planning on bidding. One of them is gonna win the job and guess what? You just bid to the low bidder and dramatically increased your odds!

  1. Track your competition

If a competitor is constantly underbidding you and you see them on the next project your going after, you could consider passing and saving any time and money spent or you could bid, knowing you’re gonna have to sharpen your pencil if you want to win. Information is power. Knowing who you are up against gives you a competitive advantage.

Jim Lamzela is DataBid.com’s president.

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