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“Estimating is figuring
out how much it will cost to do the work, and bidding is putting
the right number in the final blank to win the bid and make some
money,” says Todd S. Peterson, a business development executive
with Peterson Contractors Inc. (PCI) of Reinbeck, IA. “A good
bid is a balance among several factors: what it costs to do the
work, what the market can bear, what the competition is, and a correct
assessment of your own abilities.”
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PHOTO: TRUMBULL CORP. |
The technical estimate,
he says, is like the trunk of a tree. It’s the basis of the
bid. The finer points of construction methods, tools, and experience
are in the branches, and the fruit is the profit. By applying the
instinctive portion of bidding to a technical estimate, a contractor
either wins or comes in close. “You don’t win them all,
but the guys who are good at it win a few more than they lose,”
says Peterson.
Success in bidding lies
largely in knowing which jobs to bid—which ones fit properly
with your own abilities as a contractor, Peterson says. He likens
types of construction projects to various orchards, where bigger
fruit means bigger profit—and more risk. “If you’re
set up to pick cherries, and you go picking in the grapefruit orchard,
you’re going to run into problems,” says Peterson.
PCI, for example, excels
at more complex, urban projects where it makes sense for one contractor
to control the job. The company grosses more than $50 million annually,
has a bridge division, and self-performs earthwork, a variety of
structures, culverts, utility work, and foundations.
“We’re in the
business of higher-risk, more complicated projects,” says Peterson.
“So the opportunity for profit is greater. It’s my job
to keep us looking for work in the right orchards.”
Site Conditions
Ryan Inc. Central of Janesville, WI, specializes in mass grading
projects and does in excess of $80 million per year of site development
work. “If the sun is shining, we’re chewing up about 1
million cubic yards of earth a week,” says Eric Worple, senior
contract administrator with Ryan. “We’re doing 20 to 25
projects at once, and they range from $5,000 to $8 million. We do
no paving and no public roadwork. We self-perform 90% of our work.”
The type of earth to
be moved is one of the most cost-sensitive factors, says Worple.
“We try to dig sites ourselves, with a backhoe or our drill
rig, to see what type of material we’re dealing with.
“Is it going to
be a Terex TS14 job, a Cat 627 job, or is it a Cat-and-pan job?”
asks Worple. By “Cat-and-pan job,” he’s referring
to D8-size tractors (some are John Deere 1050C units) that tow pull-behind
scrapers. They can work in conditions that are too wet for self-propelled
scrapers. The difference between a Terex TS14 job and a Cat 627
job is that the Cat 627 scraper can run a longer distance more economically,
Worple says, whereas a TS14 is limited to 1,500 feet or so.
Record-Keeping
Like most good contractors, Ryan keeps detailed historical
cost records. Superintendents from each project call in daily with
man-hours worked, machine hours, and the number of yards moved.
The information goes to software that tracks costs and helps the
company figure a cost per yard.
“Union labor plays
a big part in what goes into bids,” says Worple. “For
a union earthmoving job northwest of Chicago, scraper dirt goes
for about $2 a yard—between $1.90 and $3 a yard, depending
on the haul, and that’s with no backhoe work. Backhoe dirt,
hauled with artic trucks or scrapers, goes for about $3.25 a yard
for 200,000 yards and up.”
Price Escalations
Trumbull Corp., a $150 million–plus contractor based in
the Pittsburgh area, also stresses the importance of historical
cost records. Some costs, like fuel, steel, cement, and oil, change
and need to be adjusted as often as needed. Others, like the production
rate of a given backhoe in good digging, don’t change much,
says Bill Woodford, Trumbull’s chief estimator.
Material price increases
have hiked Trumbull’s costs by about 15% between the end of
2003 and June 2005, says Woodford. “On state DOT projects they
will pay us extra when fuel and liquid asphalt costs escalate,”
he says. “But we have to be prepared to cover escalations in
private sector work. Project owners want lump sum prices.
“We have to make
sure we have found all the work on the plans,” continues Woodford.
“You have to be very careful about your take-off work. We use
two or three sets of eyes on our more critical pieces of work.”
Trumbull uses HeavyBid
estimating software from HCSS (see sidebar). “It’s used
by a lot of other contractors,” says Woodford. “And the
company supports their system. They listen to their customers, and
adjust their software to meet the demands of their customers. The
Heavy Bid software makes it easy to adjust costs.”
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PHOTO: TRUMBULL CORP. |
About the Competition
You need to learn your competitors’ methods of operation,
and apply that knowledge to fine-tune your bid. “There are
guys you know who like to make money,” Peterson says. “You’ve
got to know who they are, what they’re capable of doing, and
how busy they are at the time. But it’s not like we’re
enemies, because we work shoulder-to-shoulder with them in industry
associations like the Associated General Contractors.”
Suppose you have three
competitors on a given project. Contractor A is a lot like you,
capable of doing a wide variety of site work. Contractor B is a
ragtag outfit. If he has five scrapers on a job, only three are
running—but he’ll bid very low. Contractor C is only an
earthmover and will need to sub out the structures. “You look
at the competitors, and you look at your own abilities,” says
Peterson.
“Is your best foreman
at this kind of work available? What production rate can you achieve?
You’ve got to compensate for the ragtag guy, because you want
to be low,” says Peterson. “But maybe the owner won’t
hire him, because he’ll take three years to do the work.”
Pace Yourself
Twin Peaks Excavating, an underground contractor from Lafayette,
CO, wins about 15% of the number of jobs it bids, says Senior Estimator
Todd Greff. The company grosses about $12 million a year installing
water lines, utilities, and storm and sanitary sewers. In a month’s
time, the firm might handle 20 jobs ranging from $20,000 to $1 million
or so. “We mainly work for private developers and general contractors,”
says Greff. “We have five larger pipeline crews and three small
ones.
“In a month we bid
about 40 jobs, and win about six or eight of them,” Greff says.
“This year, business has been good. It was slow from 9/11 until
the end of last year, but now our crews are busy all the time.
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PHOTO: TRUMBULL CORP. |
“We bid on an as-needed
basis,” says Greff. “If we need work, we bid closer to
our cost than if we’re really busy. If we’re not busy,
we look at every job that comes along. If we’re busy for two
or three months, we look for jobs starting three or four months
out. It depends on our current workload.”
“And if we really
need work, we jack the expected production rate up, lower the unit
price, and hope the foreman can get it done on time,” says
Greff. “We have records of the best job and the worst job,
so we know what kind of production the crews should get.
“I have historical
production rates in my head, but on larger jobs, we sit down with
the superintendents and figure out an estimated production rate,”
Greff says. “And we do have information about production rates
digging at various depths and soil types.”
A $1 million job can
keep a crew busy for four to five months. But a $20,000 job takes
only a couple of days or so. “Sometimes we put two crews on
the same job, if there’s room to work, or the owner wants it
done faster,” says Greff.
Twin Peaks uses estimating
software called eCaliper by Marathon Systems. It integrates fully
with the company’s accounting software. That way, the accounting
software can keep track of actual hours worked and money spent against
the original budget. “If we bid 100 hours of backhoe work and
it comes in at 90 hours, we can see if we made or lost money,”
says Greff.
Until business improved
this year, profit margins were tight. “We were trying to break
even, and if we made 1%, we were happy,” says Greff. “Now,
we’re shooting for around 7%, after covering our overhead and
pretax costs.”
Daniel C. Brown is
the owner of TechniComm, a communications business based in Des
Plaines, IL.
GEC
- September/October 2005
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