4 Bid Wisely, Estimate Accurately

Overview of Estimating and Bidding

  • Series Introduction: This article is the first in a four-part series on estimating and bidding in construction.

  • Purpose of Articles:

    • Debunk rationalizations for sloppy estimating.

    • Explain the achievability of accurate estimating.

    • Detail accurate labor cost estimating.

    • Obtain reliable and complete subcontractor bids.

Learning from Paul Cook

  • Influential Books: The author began with two key texts by Paul Cook:

    • Bidding for the General Contractor

    • Estimating for the General Contractor

  • Cost of Books: Combined cost of $150.

  • Key Takeaway: Cook emphasized the importance of separating estimating from bidding.

  • Essential Distinction:

    • Bidding is policy-oriented.

    • Estimating is fact-oriented.

Separation of Bidding and Estimating

  • Process Differentiation:

    • Estimators focus on direct costs of production.

    • Bidders apply adjustments for overhead and profit.

  • Organizational Structure:

    • In larger firms, estimating and bidding are handled by separate personnel.

    • Establishment of distinct physical spaces for estimating and bidding.

Importance of Mental Separation

  • Cognitive Shifts Required:

    • Estimating must rely strictly on facts.

    • Bidding requires a judgment call on added costs to secure jobs.

  • Risk of Commingling:

    • Allowing bidding thoughts to enter estimating can lead to skewed numbers.

    • Example scenario: Estimating framing costs based on a past, unusually successful project.

Phases of Bidding Process

Phase I: Evaluating Leads

  • Lead Evaluation Sheet: Critical tool for assessing potential projects before estimating.

    • Focus on Budget: Must ask about client's budget to avoid wasting time.

  • Client Engagement: Meet with the client, understand the project's dimensions.

  • Judgment Elements: Consider the following:

    • Size and complexity of the project relative to your capabilities.

    • Timeline and scheduling feasibility.

    • Financial outcomes and skill development opportunities.

    • Enjoyment and stress implications of the project.

    • Unique aspects that could justify lower profits.

Phase II: Bidding

  • Overhead Considerations:

    • Distinguish between direct costs and overhead (operational costs).

    • Overhead decisions can shape company quality and client value.

  • Overhead Allocation Methods:

    • Fixed percentage method.

    • Gross profit margin (GPM) method.

    • Capacity/time method (preferred by the author).

Profit Calculation

  • Determining Selling Price:

    • Selling price includes direct costs, overhead, and profit.

  • Profit Complexity:

    • Evaluating market conditions and company needs informs profit decisions.

    • Avoid rough estimations of risk—target specific risk areas accurately.

  • Risk Assessment Tactics:

    • Identify specific risk items proactively, such as unfamiliar materials or challenging dynamics with clients/designers.

    • Correctly estimate installation time and labor based on those identified risks.

Conclusion and Implementation

  • Building an Effective System:

    • Developing a strong estimating and bidding system will take time and effort.

    • It's manageable and essential for a smoother construction experience.

  • Author's Background: David Gerstel, experienced builder and author, emphasizes systematic learning in bidding and estimating.