You can classify bids into five major categories, including competitive bid, design/build, negotiated work, time and material (fixed fee) and unit pricing. 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. Two types of competitive bids exist: selected and prequalified. With the selected bid, only selected contractors meeting specific criteria receive invitations to bid.
A prequalified bid requires you to demonstrate your ability to complete the project with qualifications such as bonding capacity, previous experience or financial capacity.
Design/build. In a design/build project, the client gives you a general floor layout without much detail and expects you to design and construct the electrical wiring according to written specifications.
Negotiated work. In this type of work, a limited number of contractors negotiate the bid price. 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 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 required quantities of specific items. By having a unit price, the customer knows in advance what it will cost to perform specific tasks.
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. This is because material and labor costs typically increase before the unit prices are repriced.
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.
Mike Holt is president of Mike Holt Enterprises Inc., Tamarac, Fla.