Recession vs. Recovery Estimating: Is There a Difference?
Ulf Wolf / March 2015
We are all painfully aware of the challenges involved in landing jobs—any jobs—during hard times. It’s a country where the owner is king and the only language spoken is lowest bid.
In many areas, these hard times are now in the rear-view mirror and the road ahead looks brighter. How, if at all, is this positive shift in the market affecting estimating? It’s a question we brought to AWCI member contractors (along with some others), and here are the results.
Has the recovering market changed your approach to estimating at all? If so, how?
Gary Dillman, owner of Titan Wall in Florida, is cautious. “We are still maintaining a lean approach so we are not caught off-guard by any surprises that may occur with the economy,” he says. “We feel the economy is still volatile, though we are not afraid to spend money to make money.”
On the other hand, Mike Heering, president of F.L. Crane & Sons, Inc. in Mississippi, sees a definite change. “We no longer look at a job we bid as the last job out there,” he says. “We have moved past the ‘last-job’ mentality and are now bidding with a margin that allows us to make money to reinvest in our company.”
Todd Lawrie of Delta Contracting Service, Inc. in Michigan has a different perspective: “I believe that ‘recovering market’ might be a misnomer. What I see is a bit of an uptick in jobs but, more importantly, today there are fewer players that qualify to perform the work or can afford to do the work.”
Ed Davis, chief estimator at Daley’s Drywall & Taping in California, sees better times and welcomes them. “With the increasing amount of work,” he says, “we are now bidding projects with better margins for profits again. It’s not as much as we would like, but there is definite profit improvement in our current projects over those of a year or two ago.”
Joel Chambers, vice president of sales at J & B Acoustical, Inc. in Ohio, agrees: “The recent upturn certainly has allowed for better margins compared to the recent past. Up until now, we’ve had to keep them small in order to land work.”
For Dusty Barrick, president of Diversified Interiors of Amarillo, Ltd. in Texas, it’s more of a scheduling issue. “Our approach to estimating has not changed,” he says. “However, we do have to be more selective about what we look at in relation to our backlog and the proposed schedules of the work we have sold.”
Kurt Mehrer, president of Mehrer Drywall, Inc. in Washington welcomes the better times. “Today,” he says, “we can afford to limit bids to desirable customers. Gone are the days when a GC can expect us to give them a bid just because they asked for one. If they’ve never hired us, or if they have a history of bid shopping, we can politely decline and only bid the work we want.”
But Richard Ostrom, president of RAM Acoustical Corporation in Pennsylvania, has yet to see the recovery manifest: “Pricing in our area is still terrible, and most of our competitors are low balling what few projects are out there.”
Not so in Texas, according to Timothy Rogan, operations manager at Houston Lath & Plaster in Texas. “Today we are putting a reasonable profit back into our bids rather than just overhead and minimal margins,” he says.
Things are looking up in Vermont as well, where Giles Turgeon, president of Green Mountain Drywall Co., Inc., says, “It makes a big difference how you estimate when your schedule is pretty full. We don’t have to be as tight with our bids; if we aren’t awarded the job, there’s another one waiting.”
Says Joseph J. Brazil, president of Brazil Inc. dba Mainline Construction in New York, “We’ve started to increase slightly our labor rate to increase margins, and we’re now looking for a steady sales growth.”
Robert Aird, president of Robert A. Aird, Inc. in Maryland, has this take on the issue: “We’ve decided to move away from—as much as possible—the predatory general contractors/construction managers who are more interested in lining their pockets than giving the owner a proper building.”
Robert Sutton, estimator and project manager at Reitter Stucco and Supply in Ohio, adds, “We typically maintain the same approach to estimating regardless of the economy. We’re in business to make money.
“The one difference today is the type of client for whom we are bidding. Some clients follow the same rule of business as we do: ‘You get what you pay for.’ Other clients look to price only, and we usually know who these are.”
We also checked in with Vince Bailey, estimator at Berg Drywall of Phoenix and the “Estimator’s Edge columnist here at AWCI’s Construction Dimensions. In a recent column, he observed this: “Many clever subs are simply being more selective about what jobs they bid. They’ve abandoned the tactic of bidding everything on the radar screen that used to be the popular approach to the downturn, and have adapted to the greater volume by putting a finer filter on what comes through the pipeline.”
Excepting some areas of the country where the recovery has yet to make itself felt, the estimating trend today is clearly toward more selectivity and better profits, and that should be music to any estimator’s ear.
How Do You Win?
With the market heating up and the lowest bid no longer the primary consideration, how do you win the bid and land the project?
Shares Dillman, “Our focus is to produce a quality project on time and to take care of our customers through value and total commitment to service. Follow-up, follow-up, communication, communication are key. Winning a bid takes clear and concise proposals that encompass what is actually needed to build the project.”
Says Heering, “I am sorry to say that the low price still carries a lot of weight, but on the other hand, I do see GCs who are looking at bids a little closer and analyzing them to see where the best value might lie.”
Lawrie says he does not play the “‘I can beat that number’ game. Instead, I clarify the implied requirements inherent with any project and qualify my value to cost.”
Dave Wilmes, vice president at Advanced Drywall Systems, Inc. in Missouri, suggests, “Today, to win a bid I go the extra mile and focus on detail.”
For Barrick, price is still a strong factor. “Unfortunately,” he says, “it is still pretty dependent on price. We try to take care of our GCs and participate in work on the front end, but at the end of the day, the owners still tend to look for the low bid.”
Mehrer, happily, sees a change. “Quality and service make more of a difference than price right now,” he says.
Suggests Brazil, “We may drop the price for a new client to get through the door, but for the most part, we try to go the extra mile, be responsible and pay ourselves enough to be able to perform up to a certain standard.”
Aird seconds that. “Our reputation for proving good quality, service and safety in our work is paying dividends in work coming to us,” he says. “We still have to price the work, but most of our work is essentially negotiated.”
Bailey adds, “Several things help sell a job: an exemplary safety record, a thorough and well-expressed proposal, and demonstration of a strong knowledge of the project details all help. But the truth is, the bottom line is still the bottom line.”
The clear (and welcome) trend here is that job quality is making a comeback and is again playing a major role in landing bids. Price, of course, has not gone away, and probably never will, but it’s no longer the one, overriding criterion in securing the job.
The Incomplete Plan
During hard times you are often punished for pointing out the shortcomings of plans and specs—and adding the missing pieces to your bid, for the job invariably goes to the contractor who bids only the plans as drawn and comes in low.
Today, with the market rebounding, has your approach to incomplete plans and specs changed?
For Dillman, integrity rules. “We try to clarify our bid as much possible at bid time and never intentionally omit bringing up incomplete scopes or missing parts when in our ‘hearts of hearts’ we know it cannot be built that way,” he says.
Lawrie sees it this way: “Incomplete plans a year ago are no different from incomplete plans today or tomorrow. The customer has expectations that need to be met within a given timeline. If the plans are unclear, then the bid needs to clearly reflect your interpretation and understanding of the expectations, shortcomings and actuality of the final product. To me, the job is a cooperative effort.”
Shares Davis: “We try to identify as clearly as possible what we have and have not included in the bid, and we try to make our clients well aware of this prior to bid submission so that they can make the other subs look at the project in the same light, making all bids apples to apples.”
For Barrick it’s also about clarity, “We take care to address the areas in the plans or scopes that are in question. We make our bid coverage very clear.”
Mehrer’s standpoint is this: “We don’t have to bid projects with incomplete plans. There is plenty of fully designed work to bid.”
Observes Rogan, “Most plans are incomplete so you deal with it based on experience, good construction practices and your best guess about what is a proper detail. Unfortunately, with younger architects, technology and generic details have replaced the true design professional.”
Says Kevin Biddle, president of Mader Construction Co., Inc. in New York, “That is by far the hardest part of estimating today: If we see things that should be there but are not, we show them as a separate add to our price. This way, we are bidding apples to apples with our competition.”
In Brazil’s experience, “Basically, all plans and scopes are incomplete these days. Owners don’t want to pay exorbitant engineering fees to fully develop projects prior to construction. We figure on completing the engineering in the field.”
In Sutton’s experience, “It’s been some time since we’ve seen a complete set of bid documents at bid time. Most projects are bid with what we think of as the-first-go-around, and then the bulletins/addenda start streaming in. We are so accustomed to this by now that we don’t complain as much as we used to.”
When all is said and done, the project has to be built correctly or you will probably not be invited to bid again. Whether you include the complete cost or whether you bill as change orders during construction is a judgment call, but in the recovery climate, owners and GCs might be more receptive to the complete bid, with missing actions and items submitted as addenda, showing both the cost according to the plans, and the added cost to build it right.
Errors & Labor Costs
When asked how best to avoid estimating errors, it seems AWCI member contractors are like Santa in that they check everything twice—then call on another set of eyes to check it as well. This seems to be standard practice, a practice that Dillman sums up well: “We check, double-check and then check it again. There are always two sets of eyes on every bid that leaves our office.”
Adds Lawrie—tongue in cheek: “And it does not hurt to hold your breath and pray.”
However, in Rogan’s experience, “We all make errors but it is not in estimating, it’s in the guess-timating. The estimating is the materials, and they are constant.
“The guess-timating, however, is trying to guess: Can my guys produce this much under this or that condition? Is the GC friend or foe? Is something going to extend my on-site duration and increase scaffold cost? Is the project a well-kept site, or is it a mud hole that will slow production? Does the project have a smooth flow in one direction or am I going to jump all over the site and have loose ends everywhere?
“These are the kind of things that affect you at ground zero and are the only errors you’ll make in bidding if you are a seasoned estimator.”
As Rogan points out, given an accurate take-off, material costs tend to hold pretty steady; the moving target it labor. How do you best estimate it?
Here, again, is a clear consensus: Historical data—what were the labor costs on previous, similar jobs?
Says Heering, “We reference our historical labor costs, which we keep for many years. The one thing that has impacted labor cost of late are safety requirements that were not in play several years ago. Of course, safety is paramount, but we need to recognize its impact on labor cost.”
Of course, as Aird points out, historical data has to be kept up-to-date. “The best way to estimate labor costs,” he says, “is to have good production numbers from the field that are updated continually.”
The Little Extras
They seem to appear on every job—improper sequencing, damage by other trades, etc.—and they always cost you. The question is, how much of this can you foresee (and build into your bid)?
Says Dillman, “Today’s projects are very fast paced and it is often impossible to calculate all the extra costs that will be incurred from trade damage, multiple changes and improper sequencing.”
Heering agrees. “You can hope to eliminate these extras by getting most of them in your bid, but there are always those that rise up during the job,” he says. “Sometimes you can negotiate a happy medium with the GC and get part of it covered, or you might talk him into doing something that will help you out in another area of the job to even things up.”
Davis suggests trying to anticipate the extras. “We try to anticipate this as much as possible,” he says. “A lot of little extras can add up to a lot of extra cost. We attempt to identify what we have and have not included in our bid, and will sometimes mention the little extra stuff as exclusion or offer it up as a separate bid.”
Chambers says, “We do our best to avoid all the little extras by catching them in the bidding process. If you end up performing a lot of extras on a job, it can work against you in the long run, both in that the contractor may not use you in the future due to all the extras and in that it can make you look bad, like you rushed the estimating process.”
Says Sutton, “The ‘little extras’ can kill a project, and if you don’t understand that they exist, you probably shouldn’t be bidding the market. Most extras for us include setup, safety, access, electric, water and distance of travel within the project (including parking). Other extras can include background checks, ID badges, plans/specs for field use, storage, and the list goes on. You have to identify the requirements and make sure they are not only covered in your bid but visible for the client to see on your proposal/bid form. Make sure they can compare a complete bid to an incomplete bid.”
Pat Arrington at Commercial Enterprises, Inc. in New Mexico adds his experience: “If you can complete the ‘little extras’ that crop up during a project in under eight hours, do not ask for a change order, just write a letter describing the change. The owner and the GC will appreciate not spending as much time to generate the quote as it would to do the work.
“Then when a large change is requested, you can pick up these smaller costs. Stopping your production work to wait for an approved change order will cost you as much time as doing the eight hours or less change without a CO.”
Mike Chambers, president of J & B Acoustical, Inc. in Ohio, stresses this point: “I estimate the ‘little extras’ based on my work history with the contractors concerned.”
Observes Dillman, “It seems to me that many contractors still leave money on the table by bidding too low a margin. At the end of the day, this not only hurts them but it also hurts our industry as a whole by lowering the market value of the goods and services we provide.”
Adds Heering, “I think that most of us who have survived this last recession have learned many valuable lessons. One thing we should keep in mind is how easily we were talked into lowering our price to land that one elusive job, only to discover that our original price was correct. We have learned that it’s much easier to lower our prices than it is to try to raise them back to where we can actually run a good and profitable construction company again.”
Lawrie points out that “trust is a two-way street. While you are working to earn the trust of the client, they in turn need to earn yours. You are, we hope, no less deserving than they are. A relationship based upon this is worth more in the long run than the value of any one given project.”
As Mehrer sees it, “It’s time to ‘make some money,’ and I don’t think there is anything wrong with saying that. Our industry has been depressed for six years, barely getting by. We need new equipment, trucks and office space to handle what’s coming, and the only way we can acquire that and service the industry at the level needed is to make money and invest it back into our companies.”
Rogan predicts that “bidding jobs will one day be a thing of the past. With BIM and other technology, designers will know actual cost within a few percentage points and tell us how much they will pay for a certain job, take it or leave it.”
But Biddle justifiably laments, “I love that computer estimating has taken over, but the downside of this is that we no longer spend time in the GC’s office getting to know him. Computers are taking the person-to-person out of estimating.”
As does Aird: “Architectural drawings and specifications have—in many cases—become unreliable. Young draftspersons may be good at using computers and clicking and dragging standard details into drawings, but all too often the drawings simply don’t make sense.
“A capable architect must have field experience and a sense of the necessary sequencing of work. Without that, the whole process of drawing and building becomes outright painful.”
Arrington sums it all up with this: “Experience—and only experience—will keep you out of estimating trouble. You cannot know what to include without experience from working projects or closely watching them go up. New estimators should visit ongoing projects two or three times a week and observe what is going on.
“For one thing, they should hit the project first thing in the morning to observe the time lost getting crews started and actually ‘putting it on the wall.’ It’s all relevant.”
It is the profit realized today that allows you to realize a brighter future. The current—and, fingers crossed— continuing upswing in construction means that you can finally add healthier margins to your bids, and that makes for a bright, expanding future.
California-based Ulf Wolf is the senior writer at Words & Images.