Although more experience will enhance your estimating efforts, an understanding of bidding practices will help you prepare your next bid more quickly and accurately.
To properly estimate any job, you must have the ability to mentally visualize the mechanical requirements and materials required to complete the work. For the person who has specific electrical experience for that job, there's no problem. But if you've never done that type of work, the estimating task becomes next to impossible. So how do you simplify the estimating process and prepare yourself for the unexpected challenges of that next big bid?
Making sure you can read and understand the symbols on the blueprints and conditions of the specification is a good start to accurate estimating. Another factor is understanding the various types of bids. You can classify bids into five major categories, which include competitive bid, design/build, negotiated work, time and material (fixed fee), and unit pricing. To help you build a solid estimating foundation, let's take a look at how each approach works. But remember: No matter which method you choose, an accurate bid always includes labor cost including burden (fringes), material cost, sales tax, subcontract and rental expenses, direct job expenses, and overhead.
Competitive bid. You can use this type of bid for private, public, or government projects. You'll find these projects advertised in the classified and public notice section of your local newspaper, and in trade publications like the Dodge Report. This report lists projects by category (residential, industrial, and commercial) and total expected project price range.
There are two types of competitive bids: selected and prequalified. With the selected bid, only selected contractors meeting specific criteria receive invitations to bid. For example, you can get on special lists to receive invitations to bid on upcoming government projects. If you don't respond, they may remove you from future bid lists. If your company classifies as a minority business, get information about set-aside projects for minority contractors.
A prequalified bid requires you to demonstrate your ability to complete the project. You prove this capability with qualifications such as bonding capacity, previous experience, or financial capacity.
Design/build. Sometimes, a client may give you a general floor layout without much detail and expect you to design and construct the electrical wiring according to written specifications. We call this design/build. Knowing your customer's needs and having a thorough understanding of the National Electrical Code (NEC) is necessary with this method. Since profit margins are often high and all parties work together, design/build continues to be the method of choice by more owners and builders.
Negotiated work. Although generally not advertised, this type of work requires a limited number of contractors to negotiate the bid price. The electrical contractor and customer negotiate a price that satisfies both parties. Keep in mind, these projects often come with a flexible budget but tight schedule.
Time and material (T&M) proposal. Sometimes called fixed fee, time and material pricing is necessary when existing conditions make it difficult for you to provide a fixed dollar amount bid. You base this bid on a given rate per hour for labor (including benefits, overheads, and profit) with the material billed separately at an agreed markup. Many electrical professionals also use the this method to price change orders.
Unit pricing. Some customers award jobs to contractors on a unit price basis, where the unit price includes material and labor costs. This is often the case when the customer is not quite sure of the quantities of the specific items required on the project. By having a unit price, the customer knows in advance exactly what it will cost to perform specific tasks. Here's an example of unit prices.
• Single pole switch; $46.11
• Duplex receptacle; $45.50
• Lay-in fluorescent; $106.98
• Temporary service; $330.63
Contractors use unit pricing for almost all types of construction, including renovations, office build-outs, and change orders. The unit price must include the labor cost, labor burden, material cost, sales tax, direct cost, overhead, and profit. You also must update the value of each unit regularly to accurately reflect costs. Since this doesn't always happen, profits on unit price estimates tend to decrease on each succeeding bid; because material and labor costs typically increase before the unit prices are repriced.
The greatest disadvantage to a manually generated unit price estimate is you're unable to generate a bill of material for project management. You also can't track costs to be sure the job operates within budget.
Improper estimating methods. Although these outlined methods have their advantages in specific situations, many contractors continue to use improper estimating styles, including the following:
Ignoring specifications. You provide a price inaccurately reflecting requirements of the specification.
Meeting the lowest bid. The "if they can do it for that price so can I" attitude will get you into trouble every time. How do you know what the lowest price is anyway?
Shot-in-the-dark. "Let's see, this house has five blueprint pages so it should go for about $8500." You often give a shot-in-the-dark price because you feel forced to give a price. Often the price is way out of line, either very high or very low. Either way, you lose credibility with your customer. If the price is low, then you're forced to explain why you made a mistake or hope the customer doesn't award you the job.
Square foot method (ballpark price). If you have historical data on past jobs, you can use the square foot method to get an approximate budget. But be careful. Don't give a customer a price based on the square foot method because you didn't have time to estimate the job properly. When you give a ballpark price, put it in writing and clearly state this is not a bid price.
As in any estimating scenario, you can't anticipate all expenses in advance. However, experienced estimators accept a satisfactory margin of error. As with anything in life, the more experience you gain, the more accurate and confident you become. With increased experience and practice, you 'll more quickly complete an accurate estimate.
Sidebar: Ten Steps to Effective Estimating
When you start the estimating process, leave nothing to chance. By following these guidelines, you're on your way to a successful bid.
1. Understand the scope of work.
2. Visualize the installation and count and measure blueprint symbols (i.e., the takeoff).
3. Determine the bill of material.
4. Set material pricing and laboring.
5. Extend and total.
6. Create an estimate summary.
7. Apply profit and other costs.
8. Ensure bid accuracy and analysis.
9. Generate a written proposal.
10. Keep all documentation.