More and more contractors are being asked to bid on jobs that are 12 to 18 months out. Assuming your crystal ball is in the shop, how do you go about pricing jobs that are that far out?
There is only one way to bid any project with a significant lead time: You must include in the contract a right to re-bid if the project does not commence within a stipulated time. Our contracts state from 30 to 60 days. Any reasonable customer will understand that you cannot predict costs a year or more in advance. To do so only benefits the end recipient. Many contractors have gone bust trying to accommodate a customer with unreasonable expectations.
—Patrick Harvey, President, Patrick G. Harvey & Sons Contractors, Mission Viejo, CA
We ask the material supplier to price materials per the bid documents. Then we price labor with our best guess as to what the increased cost will be. Union contracts list increases for future years. You could get burned on materials or labor, but that is the risk all companies take in this business.
We are carefully hedging our bids with negotiated agreements with material suppliers; the continued study of the stock and precious metals markets, oil and steel prices, China imports/exports; our diligent attendance of all builder association functions; compiling and analyzing Southeast U.S. realtor predictions daily, including population movement demographics; and then throwing caution to the wind, flipping a coin on the nefarious labor market.
You can’t because the prices of drywall changes every other month. This is due to the gas prices, which keep fluctuating. This goes for other materials that I use due to this.
—Dave Mertz, Owner, Drywall, Plaster and Other Interiors, Quarryville, PA
You don’t if you’re in business to make money, or else you bid it with escalators attached.
—Duane D. Richter, President, Richter Drywall, Inc., San Antonio, TX
We would put an average percent reflecting the predicted increase in the price of materials and labor based on the past two years as an added item to the base bid. We’d follow with a disclaimer stating that these projections are based on experience modifiers full of uncertainty. We are not economists, but only contractors.
Bid at today’s rate with a 2% increase for anything unforeseen.
Get supplier commitments.
—James Calahan, Estimator, Calahan Drywall Acoustics, Cleburne, TX
I try to get material quotes as far out as I can. Then I will add a significant percentage to cover myself. I figure if they need a quote that far out, then they have to be willing to understand the high price.
I do not bid jobs that far out. I am a small contractor and holding a price that long is likely to be a disaster. I cannot afford the downside of jobs of that nature, and I am busy enough to not have to do so.
I use current pricing and add for increased labor costs that are foreseeable. The part of the bid that encompasses terms and conditions says the bid is contingent on unit pricing for volatile commodities such as steel. That way we are protected against wild price fluctuations and maintain a competitive position.
—Lin Spier, Owner, Lin Spier Construction, Martinez, CA
In most cases we are submitting a price good for 30-60 days. We advise the GC and/or owner that there may be changes in the price of materials and that we have quotes from our materials suppliers—which we can supply to them now or later. We also advise that we will obtain revised quotes from similar suppliers when the work is to be done, and the GC and owner are to pick up the difference if it is more than 5% of the original material cost estimated.
—Renny Huntley, Project Manager, WeKanDO Construction, Inc., San Juan, PR
I would like to receive credit, and the solution is to bid so far out.
—Casey Pugh, PTL Drywall, Parkville, MO
Predicting a project’s costs 12 to 18 months in the future is like predicting the stock market. There should be a combination of reviewing historical costs and visualizing potential project problems for the next year and half. With that information, you make an educated decision to cover the project’s expenses.
—Fred Sawyer, Project Manager, Pienkos and Son Inc., New Castle, DE
Suppliers will often either hold a price through a given date or indicate what their manufacturers anticipate as a not-to-exceed escalation. As for labor increases, a review of the average escalation for years past will give some idea. Oftentimes the crystal ball works better.
We will give them a preliminary bid with a clause stating that those prices are only good for a certain time frame. If the contract is awarded, then we will re-bid the job at current prices.
I am a drywall contractor in New Jersey. With labor and material going up as much as it has been, it’s almost impossible to be able to give a legitimate estimate. You can go real high, but you only risk losing the job. I say stay away from it and save yourself the aggravation.
—NJ Drywall Contractor
We give an allowance for materials, based upon current pricing, and resubmit material pricing again at 90 days out when our vendors can be locked into pricing. If they can’t be locked in, we can’t either. Labor is static right now so that is not a problem.
When we bid jobs this far out we have all of our vendors price materials and equipment and lock in pricing for at least six months. If we are awarded the job, in order to avoid any other increase that would not be covered, we would procure the materials and equipment and get it billed at the current price. As far as operating expenses etc., we would just add normal growth percentage.
We add an increase of 5% to our current cost for labor and ask for price protection on materials. If the price for material is more than 10%, we may take a risk by using a lower number; this is predicated on the type and quantity, material.
We are a small acoustical and drywall company, so we don’t bid on jobs that are more than three to six months out since we have price increases every quarter. But we tell the contractor that the bid is subject to escalate.
—Dale L. Tucker, Owner, Acoustics, Boise, ID
Should a job be requested for bidding so far ahead, our company would let the builder know that there will be an additional 5 to 10 percent added to the job based on the assumption of a material increase.
—Jesse Jaime, Climate Control Insulation, Inc., Mansfield, TX
We have to get price quotes from our suppliers for that far in advance and then as soon as the project is started, we have to stock the whole job ASAP, even if it’s months from when we will be on the project. Sometimes that causes a problem with the general contractor due to the storage area available as well as [the fact that] we are a finish trade so it could be a considerable amount of time before we can possibly start our contract.
—Sharon J. Kammerdiener, Owner, WRK Acoustics, Fontana, CA
We don’t!!!!
—Alain Rosellini, Owner, Designer Stucco, Broken Arrow, OK
I am an estimator for drywall contractors and general contractors, and bidding jobs that are 12 to 18 months out is much harder than more current jobs only because all the bidding is not the same. Most contractors, when bidding current jobs … usually bids are close together, but with jobs that are so far in advance, contractors must see what work they have lined up before the bidding starts. This is represented by the trade scale salary and benefits (and the raises they may receive) for 1 to 2 years out from your bid.
Material is one of your biggest guesses in bidding; you do not know what the price of material will be from the beginning of the job to the end of the job—usually an addition of 5% for every six-month period is a close add-on to your final material pricing.
The overhead and profit is also a great factor. If you do have or plan on having other work in the period you are bidding, the [future] job may go for a very high OH&P. But if you do not have any work or you think your company may be struggling at the time when the job is suppose to start, you may want to go with a tighter OH&P to make sure you get the job.
As an estimator I know that every job is very different, especially ones you will be bidding for a year or more from now.
—Anthony DiCiervo Jr., Freelance Estimator, Queens, NY
After the first month, I add 15% each quarter.
I price out my labor in anticipation of what my future cost should be. Then I separate my material cost based on the present quarter, qualifying with a clause that material cost will probably increase and that the cost will have to be adjusted prior to starting the project. Fair for them and for me.
We negotiate with our suppliers and see where they think the market will be, then put escalators on the materials and hope we win.
—Leon Kerns, President, Superior Interiors Inc., Boise, ID
