How to Develop and Manage a Construction Estimate?

It is important that the following points are understood, prior to attempting to successfully develop, and manage an estimate, or develop an estimating division.

At the current time in the construction industry, the estimator is alluded to as the key element of success. All contractors, subcontractors and material suppliers are frantically looking for that individual that has the miraculous ability to develop the lowest competitive bid, and still make money on the project. Any experienced individual in the construction industry understands the difficulty in finding these qualifications.

If rationale thought is incorporated in this employee analysis, can there exist such a “ super human “ person that is capable of identifying all the elements of a construction project, managing all these details, and has the ability to come up with the summation of each discipline, that competitively beats all other bidders? Estimating is an analytical process that is developed by all competitors in the construction field. There are NO miracles that will miraculously produce the lowest number as well as realizes a profit, at the end of the day.

Based upon this scenario, how do you actually develop and manage a reliable and consistent construction estimate, that will both allow consideration based upon value, as well as turn a profit at the end of the project?

Listed below are some comments and observations which will hopefully provide some guidance towards this impossible goal;

  • It is necessary to understand what impact the current economy has on the development of an estimate, and in what manner, the estimates, need to be both analyzed and developed.
  • It is essential that there is an acceptance of the fact, that the economy has caused the intrusion of desperate companies, that need to get a job, and will do anything to become the lowest bidder on a project.
  • Desperate companies will either try to bid the project at cost, take a dive, or even submit a bid below their cost to perform the work. In many cases I have witnessed companies reduce their cost estimates by as much as 20% below cost to make sure they are the lowest bidder.
  • In one case, I observed a company bid a project at $0.00 to force the municipality to legally give the contract to this subcontractor. The subcontractor anticipated that the scope of work had been incorrectly represented by the bid documents, and that specific unit values would be required to perform the work. The company had inflated their unit values in hopes of this confusion and eventual outcome. The company was correct, and their willingness to gamble, paid off, the result was that they made a large profit at a cost to the municipality.
  • General conditions must be kept at a minimum. Doubling up on the activities of supervision and project management on a project, using the PM as the clerk, super, etc. on the project. Using the field office for several projects, etc. All savings on general conditions must be analyzed and addressed. Any ability to economize to lower the base bid is a necessity. Of course, this is occurring with all bidders, not just the clever ones, therefore the final results all become consistent with all competitors.
  • The fee structure should be analyzed based on a history of the companies bidding. For example if 20 general contractors are bidding, the fee structure could be as low as $0.00; this must be realized and discussed. As stated within this discussion, there are companies that actually bid when the analytical summary of the bid is substantially less than what the job will cost. This becomes an impossible task to compete against.
  • Time spent on detailed analysis of the rebar, formwork, etc. on a project, will not get you the job. The company must realize what needs to be done to obtain the job, and discuss these strategies prior to bidding.
  • Is the job worth the effort and the time to bid?? This question must be evaluated on all projects and must be put through a filter of questions. Not all jobs are worth winning.
  • How many bidders on the project.
  • Is the project phased and have existing inhabitants that will require relocation, or a sophisticated means of working around occupants?
  • Is the project public, private, etc. Based upon the owner status, will the payments be secure, the management intact?
  • Is the project politically motivated or locally selected? Will competitors have political advantage over other bidders? Are there local favorites involved, and what is the possibility of legitimately out bidding these local favorites?
  • Is there any real means of making money on the project, or will this simply be an exercise and a waste of time and money?
  • Can you make use of your own manpower or equipment that would give you and edge? Is there something about your specific company, or abilities that will provide an edge that no one else may have?
  • Can you make use of a sub that could possibly give you and edge? Are there favorite subs that would provide you with a special number or quote, and not provide this value to other bidders?
  • Why do you want this job?? Is there a reason other than making money that motivates you on this project? Maybe hopes of finding other work through the same owner? Or possibly a contact with future developers, contractors, owners that would make taking a loss on this specific project, worth the effort?
  • There are currently 20 general contractors on the project I am currently reviewing, the job is phased, the building occupied and the local politics involved and heavy. The project is a prevailing wage project and there is really no special considerations such as difficulty, etc. that would set us apart from the other bidders. After this evaluation, does it make sense to spend the money to estimate this project? These are difficult questions, but need evaluation.
  • It is important to try and be as selective as possible when bidding projects. Especially if the estimating component within your company is limited in resources.
  • Is there a possibility of negotiations or inside communication that would allow this project to be won by your company?

In today’s industry it is essential that all aspects of the estimate be evaluated prior to the actual time and money being spent on the creation of this estimate.

If, upon final filtering of all aspects of the estimate, the project is actually selected as a project to be bid, what are the key elements of formalizing and assembling this estimate?

Estimating goals, objectives:

  • Ensure that all aspects of the estimate, all disciplines are represented by the most economic and efficient subcontractors in the market. Obviously this is easier said than done, however it is essential that there is not a lower electrical, mechanical, site work, etc. value out in the marketplace. If there is and you have not utilized this low number, the estimate your company develops is handicapped by this lower number immediately.
  • Your estimating team should physically take off the project analytically. Understand the number of windows, doors, cubic yards of concrete that are in the project. In this manner, the subcontractor bids can be evaluated based on analytical assessment, and not purely acceptance of subcontractor values. Discussions with subcontractors are a necessary component to building the lowest, competitive bid. In addition, this communication may link you with a subcontractor that will work with you, providing your team with a “special “value, only you have.
  • Clearly and concisely understand the minimum value that your company can withstand in regards to general conditions, overhead and profit. What values make the most economical sense to include within the estimate? There is no reason to waste time and money on an estimate, if the most economical values are not used in its creation. Doubling up on duties, utilizing overhead to manage multiple project, etc. are methods to minimize these costs.
  • Spend time on the estimate, do not wait until the last moment to start the process, as soon as the decision is made to compete, start the process and look to the marketplace for the most competitive values.
  • Clearly and accurately evaluate the bid documents in search of that special stipulation of clause, which can be exploited to your benefit. Is there something in the bid documents that could possibly give you an advantage in the bidding process? This is especially important if only your company has found this issue.
  • Anticipate the use of the unit values. Is there a possibility that the project will progress to a point where unit values will be the key focus of the work. If so, are there any unit values that can be aggressively priced, in anticipation of their use in the completion of the project?
  • What political, social or personal contacts are there with the design team? Has the company performed projects in the past, for any entity on the design team?
  • Do you have any inside information that would indicate that the project will have a large number of change orders, or the scope of the work will significantly be revised, once the project is under contract? Any ability to access additional profit should be used to initially reduce the bid value in anticipation of this excess profit.

The competitive advantages with a project that is bid out to numerous similar competitors are extremely difficult to acquire. Why would your company have an advantage over another, equally qualified, to perform the same tasks with the same subcontractors and suppliers? What, within the organization will set your company apart from the pack of animals that are all trying to win the same prize? These are the questions that must be answered to give you any advantage over the other competitors.

I enjoy witnessing the number or contractors looking for a new “Senior Estimator “. I have numerous headhunters call me, with the reoccurring request of employment, as a company’s Senior or Chief Estimator. My comments back are always the same. The competence is there as with many individuals within the industry, the magic and super human abilities are not. It is impossible to associate the ability of a company to succeed in the competitive bidding world due to the estimator’s skill. An estimator is an analytical machine that deciphers the most competitive and efficient means of adding all the activities together on a project, to equal the lowest price. That is it!

The real success on a project that has been won competitively is the project management, and the upper management manipulation of this opportunity. The ability to secure change orders, the ability to negotiate additional work or communicate and manipulate the owner, architect, engineers into money making situations for the company, through the project that was won competitively is the key to making money. It is not by reducing the cost of the actual project during its construction, because if the project was won competitively, it was won on a value that is too low, with no extra money for profit.

Good luck! And remember there is no magic to the development of the lowest estimate, any financial success come after the opportunity has been provided to the company by getting the project.

Project management, administrative manipulation, owner, architect and engineer contacts are the means of any profit.

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