[ Article was originally posted on www.acuity.com ]
By John Lack,
As a former general contractor, I know the stressful feeling that comes as bid day approaches. You are busy finalizing the numbers to submit to the owner and making sure you have everything covered. In the days leading up to this, you are reviewing and comparing subcontractors’ bids to make sure each proposal has everything it needs when one contractor stops and another picks up. For many contractors, late winter and early spring can be their busiest seasons for estimating projects.
Listed below are six areas a contractor may struggle with when bidding projects:
This article was written by Acuity Insurance's Construction Specialist, John Lack. For more construction business tips visit: acuity.com/contractor-focus.
Controlling Work Flow. As mentioned above, late fall and early spring can be when many projects are going out for bids and contractors may get overwhelmed. They are hoping to get all the projects the estimator spent time and effort on, yet they are hoping they won’t start all at once. That's a concern I have seen and experienced over the years. With project owners all wanting to dig ASAP when the frost is out of the ground and contractors having limited resources and labor, some contractors may end up hoping some of those projects they estimated don’t come through. This fear can cause estimates to become overpriced from the beginning.
Field Experience. Estimators with little or no field experience can struggle putting pricing together. Having hands-on job-site experience is a critical factor in estimating labor pricing. Setting up and tearing down can sometimes cost more than the work itself. For an estimator, degrees in no way trump proper field experience. When relying on books alone, an estimator can miss key elements on a bid, but education with field experience would be ideal.
Incomplete Drawings. Vague and incomplete project drawings should never escape the seasoned estimator. Even when requesting more information, it may not be clear, and the estimator might pad his bid to cover for unknowns. This can possibly put the contractor's pricing too high and cause him to lose the job.
Valuating Risk. Risk must be assigned a value. This is a common reason for inaccurate construction estimates. One of the leading causes of cost overages is the contractor's limited ability to conduct scientific RAs on larger complex projects. Many contractors don’t understand risk transfer with contracts and the upstream liability they are carrying.
Unpredictable Price Fluctuation. Pricing on materials such as lumber, drywall, copper, and steel can fluctuate on long-term projects. Stipulated sum contracts by owners are generally indemnified from material increases while suppliers give price agreement to contractors only for the shortest possible time.
Pressure to Cut Pricing. Contractors can be pressured into cutting pricing to get awarded the project. Some contractors may cut their profit margins or offer alternatives to the owner to lower project cost. Typically, contractors will go back to their subcontractors and material suppliers and ask for discounts. This is common but subcontractors and material suppliers can see this as a game and pad their pricing early on.