In our last column, we focused on important modifications to itemized estimating, including the two most popular techniques: assembly estimating and unit pricing. This month we will move into the next step in the process — bidding.
BID PRICING
Bid pricing (material prices that an electrical contractor uses in the calculation of a bid price or quote) is a predicament to electrical contractors. Using safe material prices and then buying the material cheaper than they bid is one of the few ways contractors can make a profit. This is one of the little games that many contractors play to hide money in their jobs. If contractors stopped playing this game, they probably would stop profiting. It would be better to price materials exactly where you think the prices will be when you buy them, and add a little extra profit to the bid tabulations, but it is far easier for most to “hide” the extra money in the material figures.
So, remember, if you use the lowest material prices in your bid tabulations, you have no slack, which can really hurt if anything goes wrong.
BONDING
For contract-bid work, bonding can be critical. In return for a fee (usually around 1.2% of the contract price), a bonding company will guarantee the project's completion to the owner or general contractor for the specified amount. Many projects require this for obvious reasons. Bonding companies are careful. They like to see financial stability and expertise before they will bond an electrical contractor. In addition, they set a limit as to how much bonding they will give to that contractor for the year; once the contractor has reached that limit, the bonding company will bond no more new jobs. That's why it behooves the electrical contractor to make every effort to impress the bonding company's agent.
THE CONTRACT
The content of a construction contract is absolutely critical to your company's success. A construction contract spells out exactly how the job will be run, and how much your company will be paid.
The most common type of contract in use is the American Institute of Architects (AIA) contract. While not perfect, the AIA is considered a fair compromise for all involved.
Some contractor associations have their own contracts, which are pretty good. But these are contract forms; any notes made to these contracts can make them very dangerous. Take care as to what types of contracts your company signs. If the wording is unclear, take the contract to your company's attorney to see what he or she thinks of the contract and what changes should be made.
Don't ever be afraid to make any reasonable changes to contracts. If your requests are reasonable, the other party should not have any problem. If they will not agree to reasonable changes, you have good reason to believe that they will not be reasonable during the course of the project either. The stakes are too high: You are better off to lose a project than to lose your company. Remember, too, that the other party will look bad if they can't agree with you on the contract. They will have to go back to the other electrical contractors, who know that your company was the successful bidder and will who will wonder why your company turned down the job.
Be careful of contracts that are drawn up by the individual general contractor. Very often these contracts are strongly tilted in the general contractor's direction.
Reprinted with permission from NFPA Successful Electrical Contracting. Copyright 2001 National Fire Protection Association, Quincy, Mass. This reprinted material is not the referenced subject, which is represented only by the standard in its entirety. To purchase a copy of NFPA's Successful Electrical Contracting go to NFPA's online catalog at www.nfpa.org.