Presenter: Victor C. Tyler, P.E. Estimating and Bidding Strategies that Drive Best Practices

Victor C. Tyler, P.E. President/ owner of Tyler Construction Engineers, P.C. Licensed Professional Engineer in state of Tennessee Author “How To Estimate Road Construction Accurately” Cost and Pricing Specialist Management consultant to the engineering & construction industry

How Time In Construction is Spent Opportunities for improvement  Planning makes actual installation more efficient  Other activities such as site movement, material logistics, general non- productive time and rework is minimized 64% Installation 36% other activities

The Average Construction Day DESCRIPTION %HOURS/DAY Study Plans3%0.24 Material Procurement3%0.24 Receiving & Storage3%0.24 Mobilization5%0.40 Site Movement5%0.40 Layout & Marking8%0.64 Actual Installation64%5.12 Cleanup3%0.24 Breaks – Non-Productive6%0.48 TOTAL DAY 100%8.00

Look at 176 Man-hour Month Where can we improve? DESCRIPTION % HOURS/ MONTH Study Plans3%5.28 Material Procurement3%5.28 Receiving & Storage3%5.28 Mobilization5%8.80 Site Movement5%8.80 Layout & Marking8%14.08 Actual Installation64% Cleanup3%5.28 Breaks – Non- Productive 6%10.56 TOTAL MONTH 100% For one employee approximately 63 hours per month is spent on activities other than actual installation …. approximately 760 hours per year for that one employee.

$45,619 per year If you have 4 full-time field employees paid at $15 per hour … That’s why I talk about productivity in the estimating processes for both field employees and equipment. Today’s Tip Use accurate rates and reduce idle time.

Only _____ ______ are 100% Productive! Lunch Breaks

8 Estimating Accurate Job Costs Bidding on Profitable Jobs Making Profits on Every Job Won

Thus the top priority for the estimator is to estimating accurate job costs. The job of every estimator is to help his or her firm acquire profitable work.

Strategy

Tyler’s Cost Strategy Organized and document data 2. Be detailed and factual 3. Base the estimate on historical data 4. Use a predictable, measurable and repeatable processes (use checklists, templates, software) 5. Always monitor your progress and make adjustments as required

Tyler’s Cost Strategy Know and understand your costs (Labor + Material + Equip + Subs + Job Site Overhead) 7. Make the estimate comparable to the P&L Statement (Revenue – Job Cost – Overhead = Profit) 8. Cost first,…then price (Price = Direct Costs + Overhead + Profit)

Know Your … Direct Job Cost Material Labor Equipment Subcontractors Other direct cost

Know Your … Job Site Overhead Costs (General Conditions)  Labor Burden  Indirect Labor  Job Supervision  Tools & Consumables  Insurances  Travel  Other

Cost First, then Price

. Strategy

Accounting is BORING!

Bid Price Structure Contract Price Total Cost Direct Cost Labor Mat l. Jobsite OH Markup Work Item Cost Gen & Admin. Profit Markup Jobsite OH Subs Equip

Estimate Summary The Estimator’s View Direct Costs …………………….. $$$ Direct Labor Equipment Materials Subcontractors General Conditions plus Labor Burden (%) plus Job Site Overhead (%) equals Total Direct Cost ……….. $$$ plus General & Administrative (%) plus Profit Rate (%) plus Bond Rate (%) equals T otal Contract Price ……… $$$ Company Income Statement The Accountant’s View Contract Revenues …………………… $$$ minus Direct Cost of Sales Direct Labor Equipment Materials Subcontractors Other Direct Costs minus Indirect Costs.……………… $$$ Labor Burden Benefits Indirect Expense equals Gross Profit ………………… $$$ minus General & Administrative Expenses equals Income (Loss) Before Taxes …… $$$

Understanding Risk & Pricing Project A Project B Project C Labor Material Equipment Subcontractor Other $10,000 $20,000 $5,000 $169,000 $2,000 $50,000 $70,000 $7,000 $76,000 $3,000 $90,000 $20,000 $2,000 $4,000 Total$206,000 Overhead – 10%$20,600 Profit – 12%$24,720 $ Total bid $251,320 Example from Book, “Managing a Construction Firm on just 24 hours a day”, by Matt Stevens

Understanding Risk & Pricing Project A Project B Project C Labor Material Equipment Subcontractor Other $10,000 $20,000 $5,000 $169,000 $2,000 $50,000 $70,000 $7,000 $76,000 $3,000 $90,000 $20,000 $2,000 $4,000 Total $206,000 Dual Overhead Allocation Labor/Equipment – 15% Material/Subs/other –5% Office Overhead – 10% $4,500 $9,550 $20,600 $8,550 $7,450 $20,600 $16,500 $4,800 $20,600 Profit – 5% $12,033$12,130$12,395 Total bid $252,683$254,730$260,295 Example from Book, “Managing a Construction Firm on just 24 hours a day”, by Matt Stevens

Margin vs. Markup Job Profit and Loss Statement Sales ……………. $ 700,000 Less COGS … ,000 Gross Profit ……. 193,000 Less OH ………..… 175,000 Net Profit..…….. 18,000 As a % of Sales 100 % 72 % 28 % 25 % 2.6 % Markup As a % of Direct Cost 138 % 100 % 38 % 34.5 % 3.6 %

Basic Cost Summary % of Revenue Revenue $ 700, Labor 120, Material 300, Equipment 75, Subs 12, Overhead and Profit 193, Expanded Cost Summary % of Direct Costs Revenue$ 700, % Direct Costs Labor 120, Material 300, Equipment 75, Subs 12, Other Cost5, Total Direct$ 512, Job Site OH Labor Burden$ 40, Supervision 75, Total Job Site$ 115, Total Cost Input$ 627, Gross Profit73, Overhead55, Profit $ 18,

Quick Study Example: Cost Multipliers You are preparing a bid for Project XYZ and have estimated the direct costs as follows: Direct Costs Labor - $ 75,000 Material - $150,000 Equipment - $ 75,000 Subcontractors - $ 50,000 Create an estimate summary utilizing the cost multipliers we calculated. Therefore, the estimate summary becomes: Direct Cost (labor, material, equipment, subcontractors)= $ 350, Labor Burden:$ 75,000 x (25.93 % )= 19, Job Overhead: $ 350,000 x (14.53 %)= 50, $ 420, Office Overhead: $ 420, x (7.81 %) = 32, Total Project Cost (without Profit) = $ 453,128.12

Strategy to winning more profitable work. Position (Market) Project People Product / Service Price Production Profit

Best Practices … Know Your Cost (Estimating) Understand Your Cost (Project Management) Control Your Cost (Project Accounting) Continuous Improvement (Always)

on each & every job

More Predictable

QUESTIONS?

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