Construction estimating is the process of forecasting a project’s costs. However, true project costs are only known once the project is completed. There are several types of construction cost estimates. There are two main ones: preliminary (budget) cost estimates and detailed cost estimates. Many times, an architect will solicit budget estimates from contractors or independent estimating firms to help their client determine if the project can move forward. A good estimate prevents the contractor from losing money and helps the customer avoid overpaying.
The purpose of an estimate has a different meaning to different people involved in the process. To the owner, it provides a reasonable, accurate idea of the costs. This will help him or her decide whether the work can be undertaken as proposed, needs to be modified, or should be abandoned. To the contractor, it must provide the cost of materials and labor to install the project as well as make a profit.
Accurate estimating is the foundation of profitable contracting. Accuracy must be based on several factors. The estimator must understand the type of construction, the project schedule, availability of skilled workers, and the construction sequence to produce an accurate estimate.
The product of estimating is the estimate. The product of the estimate is a project contract. The product of the project contract is profit. The skilled estimator must understand the purpose of the estimate to produce an accurate estimate. Before we dive into the purpose, let’s consider the key ingredients that make up a successful electrical estimate:
1. Selection of materials — Residential, commercial, and industrial projects require uniquely different materials. A receptacle designed for a residential home cannot be installed in an industrial hazardous location, and the cost difference in these two types of receptacles can reach several thousand dollars. The estimator must select the proper materials that meet the requirements of the contract specifications, the National Electrical Code (NEC), and the authority having jurisdiction (AHJ).
2. Required quantity of materials — Accuracy is key to the estimating process. Quality detailed installation drawings should provide the estimator with the ability to determine accurate quantities of materials required for the project.
3. Material pricing at market levels — The contract technical specifications provide the product manufacturers and model numbers for materials to be installed. It is paramount that the specified materials are installed as outlined in the documents. Substituting specified materials with non-specified products can be costly to the contractor. Typically, substituted materials must be approved by the architect and engineer of record.
4. Labor requirement — The estimator must have a full understanding of labor units. Each item required to build a project has an associated labor unit. Labor units require adjustment due to the conditions of installation. For example, a luminaire installed in a warehouse at 30 ft above the finished floor will require more labor for the same luminaire being installed at 10 ft. Labor units are determined by the project type and conditions of installation. In addition to direct labor, most projects will have indirect labor, such as a non-working foreman, design engineer, and project manager. Typically, indirect labor is related to the project’s administration and supervision.
5. Equipment, tools, and consumables — Equipment such as lifts, generators and trenching machines must be included in rental costs if you do not own the equipment. Consumables are materials and tools that the estimator doesn’t include in his take-off. These items are difficult to quantify. Consumables are real project costs and should be included in the estimate. Following are some examples of consumables for the average project: bandsaw blades, drill bits, electrical tape, phasing tape, rags, and threading oil. One method of covering these costs is to use a percentage of your total database material on the project. Here are some suggestions: commercial (2%), correctional (3%), and industrial (5%).
Now let’s consider the purpose of the estimate, which is ultimately two-fold.
• The estimate allows the contractor to enter into a contractual agreement with confidence. Before signing a contract to build a project, you should have confidence the estimate is accurate in material and labor costs. There are both direct and indirect labor and material costs. Construction carries risks, many of which are uncontrollable by the electrical contractor. Risks in construction can never be eliminated. They can be mitigated to some degree but never totally removed. Labor overruns are real and quite common. However, if you produce a quality estimate that is accurate and complete, signing a contract can be done with confidence.
• The estimate serves as a plan to execute the project profitably. The estimator should organize his or her work with project management in view. A detailed and well-organized estimate will give the project manager a jump-start at efficiency. Most projects are comprised of various systems, such as lighting, branch wiring, feeders, fire alarm, and so forth. When the estimate is organized by these systems, it will provide project management with material listings for each system. If the project is a multi-story building, having a breakdown by floor also provides good information about materials and labor for an efficient installation. Project management will need to focus on planning material deliveries, adequate tools, and providing the workforce with good information to install the work as efficiently as possible.
Contracting in the simplest form is a three-step process:
1) Get the work.
2) Do the work.
3) Get paid for the work.
When a company can sign a contract with confidence and the project manager has a plan to execute the project profitably, all three of these steps will be fulfilled — and will serve as proof that the estimator has done a great job.
Kiper is an independent electrical estimating trainer and consultant based in Niagara Falls, N.Y. He can be reached at [email protected].
