Estimating & Bidding. 4 Things a Good Estimating System Does For You. 4 Things a Good Estimating System Does For You. By Charles Vander Kooi

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1 Estimating & Bidding By Charles Vander Kooi 4 Things a Good Estimating System Does For You 1. It enables you to know how every dollar you spend is going to come back to you through the categories on the estimates & bids you produce. 4 Things a Good Estimating System Does For You 1. It enables you to know how every dollar you spend is going to come back to you through the categories on the estimates & bids you produce. 2. It will compensate for the variables that exist from job to job. 1

2 4 Things a Good Estimating System Does For You 1. It enables you to know how every dollar you spend is going to come back to you through the categories on the estimates & bids you produce. 2. It will compensate for the variables that exist from job to job. 3. It will give you the ability to control your jobs after you get a contract. 4 Things a Good Estimating System Does For You 1. It enables you to know how every dollar you spend is going to come back to you through the categories on the estimates & bids you produce. 2. It will compensate for the variables that exist from job to job. 3. It will give you the ability to control your jobs after you get a contract. 4. It will give you the ability to make sound business financial decisions. Overhead Recovery Produce the Product Material Labor Equip. Subs What is Prod. Hrs X Prod. Hrs bought Avg. Wage daily / hourly General Conditions (Job Overhead) Material Labor Equip. Subs $ $ $ $ Markups Tax on materiallabor Burden (taxes, ins., benefits) Overhead Profit Ding Dong Factor Bid 2

3 I don t bid labor by $$ but by production hours. Three reasons why 1. Dollars become antiquated production hours don t 2. You can vary production hours. 3. Control of labor Average Crew Wage Foreman Leadman Laborer Laborer Laborer $18 hr $12 hr $10 hr $10 hr $10 hr Total crew cost is $60 / 5 = $12 per hour Average Crew Wage$12 per hour 10% overtime $1.20 Subtotal $ % fudge factor $1.32 Average Wage $14.60 Equipment Costing 1. Purchase price $24, Plus interest 4, Minus salvage value (3,800.00) $25, Lifetime Usage 40 weeks X 5 days a week = 200 days a year X 5 years = 1,000 days $25, / 1,000 days = $25.00 per day ½ purchase price X interest rate X length of ownership-$12,000 X.08 = $960 X 5 = $4,800. 3

4 Equipment Costing 2. Maintenance + insurance + Licensing 11, $8, $1, $20, / 1,000 days = $20.00 per day 3. Fuel 6 gallons X $3.30 = $20.00 per day Total - $25 + $20 + $20 = $65.00 per day General Conditions The Big 5 1. Supervision 2. Mobilization 3. Hauling materials 4. Pickup trucks 5. Start up and clean up Other General Conditions Trailer Job phone Storage trailer Toilets Fence yard Gravel yard Dumpster / Dump Fees Bonds Permits Special Insurances Traffic control As built Temporary electric Temporary water 4

5 Labor Burden Field Office Company Share FICA Work comp. Federal unemployment State unemployment Liability insurance Vacation 1 Health insurance 2 Holiday pay 3 Breaks TOTALS 1. Vacation calculation Total vacation weeks divided by total workforce weeks in a year. 2. Health insurance calculation Total health benefits payment for a month divided by total payroll for a month. 3. Holiday pay calculation Total holiday days divided by total workforce days in a year. Overhead Recovery Mr. Vander Kooi s favorite subject Our Greatest Nightmare It must be recovered ABC job $800,000-31,000 $769,000 XYZ job - 53,000 $716,000 Not Your Accountants Overhead Must Be Pre-budgeted Three questions to ask line item by line item 1. Is this item going to go up or down due to inflation? 2. Is this item going to go up or down because we are going to do more or less work? 3. Is this item included in our bid elsewhere? 5

6 Properly & Fairly Allocated What do I mean by allocation? $4,000,000 1,000, ,000 $5,500,000 3 methods self performing contractors use to allocate overhead 1. As close as she gets M% L% E% S% MORS (60-75%) 3 methods self performing contractors use to allocate overhead 2. Close but no cigar Payroll hours divided into overhead equals overhead per hour. 6

7 3 methods self performing contractors use to allocate overhead 3. Deadly Overhead divided by costs equals 25% Material Labor w/ burden Equipment Totals $100,000 $10,000 $10,000 $120,000 Material Labor w/ burden Equipment Totals $30,000 $70,000 $20,000 $120,000 Results with 25% vs. MORS Bid 1 Cost = $120,000 x 25% = $30,000 = $150,000 MORS = $5,000 60% = $6,000 20% = $2,000 Total overhead = $13,000 + $120,000 = $133,000 Results with 25% vs. MORS Bid 2 Cost = $120,000 x 25% = $30,000 = $150,000 MORS = $1,500 60% = $42,000 20% = $6,000 Total overhead = $49,500+ $120,000 = $169,500 7

8 Profit What it really is Return on investment Sales $ 100% COG $ 70% Gross Profit $ 30% Overhead $ 25% Net Profit $ 2-3-4% Return based on risk of investment: $1,000, Low Risk - 4.5% $45, Medium risk 8% $80, High risk - 13% $130,000 Investment Bankers 16-18% National average % 7.3% 2001 beyond 1.5% 5.4% Net Profit 6-7-8% to get reasonable ROI Profit Range Lowest 10% Costs with overhead $100,000 10% profit 10,000 BID $110,000 $10,000 is only 9% of $110,000 Highest 20% No. 25% Profit Range 10-25% 4 Deciders 1. Need 16% 2. Risk 10% 3. Size 12% 4. Marketplace 10% Total = 48% divided by 4 = 12% 8

9 Ding Dong Factor Original bid $838,000 New bid $888,000 Other bidder $911,000 Cost code #354 Ding Dong Factor $50,000 Actual $25,000 Difference $25,000 9