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More on Compensation: Advice for the Owner

As stated in a previous article, “We don’t get paid to estimate
projects, therefore, estimating is only a necessary evil at best.”
Yes, estimating is a necessary evil, and you had better pay close
attention to this necessary evil, or expect to have it take a big
bite right out of your net worth.

Whether your estimator is in-house or freelance doesn’t matter.
If they are paid a salary plus bonus, paid by the job or paid a
straight commission—doesn’t matter. What does matter is if the
quantities are correct, and if those quantities are entered correctly
into the estimate using labor cost and material cost that
are relevant to that particular company (and project).

The estimator should be competent in his ability to read drawings
and specifications, and he should be able to quantify the
items (or assemblies) into an acceptable estimating format—
These are the first requirements. Second, the estimator must
have the labor, material cost, labor burden and overhead/profit
margins provided to him by a person who knows the cost and
is in a position of accountability within the company.

A review of the estimate must take place by someone after the
estimator has completed the estimate. How can you have any
certainty that you are providing a bid that you can live with? As
an owner of the company, or chief estimator, you must review
the estimate and have a system of checks and balances to ascertain
the validity of the estimate. what is the square foot/linear
foot cost of the items? Do I have the proper amount of equipment
budgeted for the job? What are the ratios of labor to material?
How much markup can the market bear? What is the over-all
square foot price of this project as compared to a similar project
previously bid?

You should have as much “control” over your estimates if they
are produced by your estimating staff or by a free-lance estimator.
In either case, you, the business owner, must establish
the parameters for the estimate and know what you are looking
at when the estimate is completed.

Compensation for the estimator. The type of compensation
you should provide for an estimator is limited only by your creativity.
Over the years during which I have had the responsibility
for an estimating department, I have also seen numerous
compensation plans. Whatever compensation plan you choose
should provide enough reward to the estimator to keep them
interested in the job they are performing and committed to the
company they serve.

One plan that I appreciated in my early career was a bonus plan
tied to the profitability of the projects that I had secured and
completed. The bonus was paid out each spring, each fall and
at the end of the year. If you did not have a particularly good
year, then it was up to the boss to decide if you should receive
a discretionary bonus. This arrangement worked well for me,
it kept me motivated and gave me something to look forward
to. It must have also worked well for some others because most
of the estimators with this company are still there after 25 years.

Free-lance estimating. Maybe using a freelance estimator is the
way you should have your estimates prepared. You would not
have to consider a compensation plan, and you also would not
incur the usual business costs: payroll taxes, insurance, vacation,
vehicle or computer-related cost.

As I stated earlier, do not give up “control” of the estimate.
Establish the parameters for the estimate and review the estimate
just as you would review an estimate produced by your
estimating staff Look for a free-lance estimator who has a good
reputation within the industry. Initially, you might get him to
prepare an estimate on a project you have already bid just to
compare his estimate with yours. The free-lance estimator may
offer several different pricing arrangements for his services. Some
of the ways these services are priced: price per job, unit price per
square foot, or an hourly rate.

Comments? Send your e-mails to [email protected], or fax
to (703) 534-8307.

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