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9 Cost Centers for Capturing Unforeseen Costs

Clay Young’s LinkedIn series on capturing unforeseen costs is some of the most comprehensive estimating content on LinkedIn. Here are the links to all 10 posts from his series, each covering a different cost center and what to look for:

About the Contributor

Clay Young

Clay Young is the Owner of Falcon Electrical Contractors. He wins 55.5% of bids with his Bid Less, Win More strategy.

Business Outcomes

This is an edited version of a post written by Clay Young, which originally appeared on his LinkedIn profile.

1. General Conditions – Capturing the Unforeseen Costs – Link to Original Post

Indirect, general expenses, job-related overhead (JRO), G&A, or general conditions, as it is commonly referred to in the commercial world, are a critical part of determining the right cost and selling at the right price. Capturing these unforeseen costs can make the difference in a positive or negative project.

To start, you need to understand and spend some time studying the following:

  1. Project Schedule
  2. Construction Phasing
  3. Logistics Plan
  4. Jobsite Access
  5. Constructability (Means & Methods) – how is your team going to build the project?
  6. Manpower Availability
  7. Equipment Needs
  8. Operating Costs – office rentals, utilities, printing needs, signage, safety, cleanup, expendables/consumables, insurances, etc.
  9. Allowed Project Working Hours
  10. G&A – what is it, and how should it be calculated?

The ability to quantify and capture the unforeseen costs in every estimate that are not apparent when looking at a set of plans or in a spec book is an acquired skillset. The more time spent understanding these commonly overlooked or skimmed-through documents, the better your estimate will reflect true cost, and the easier it will be to quantify and qualify them. In this post, I will dive into each area and peel back the curtain to reveal the thought process needed to capture the unseen.

2. Project Schedule – Link to Original Post

This is an often overlooked bid document if you are lucky to get one at all during the bid process. I am a stickler for getting a construction schedule regardless of how detailed it may be at bid time.

Why? Because it’s the basis of my general conditions estimate. At a minimum, get a construction duration but push to have a prelim schedule, and it should be an exhibit in your contract prior to execution.

What am I looking for when I look at the schedule?

  1. Start Date – does it fit with our manpower availability, or will it require us to hire up? Is it a reasonable date given the nature & complexity of the project?
  2. Boots on the Ground – when is our first activity scheduled & is it a reasonable duration?
  3. Number of Activities – this lets me understand if the GC really understands the project & has broken it down such that it captures realistic durations for the scope assigned.
  4. Has Float Been Considered? I like to look at this versus the # of activities & tightness of schedule. It shows me the likelihood of our schedule getting compressed.
  5. Milestone Dates – are there any liquidated damages associated with this date? We typically see a schedule compression around milestone dates & we try to account for these added man-hours, supervision requirements, & potential shift diff or OT expenses.
  6. Substantial Completion Date – this date is important for numerous reasons. First, it usually starts the warranty period. Does my manufacturer’s warranty cover the prime contract warranty period? If not, we need to add more money to cover the period or make note to negotiate the warranty period according to the manufacturer’s warranty in the contract with GC. Second, this date also lets me understand how long I will need nonproductive hours on-site (PM, APM, Superintendent, Foreman). It is the basis for my approach to building Indirect Staffing on the project. Third, there usually are LDs associated with the SC date, so I want to understand the risks I am taking on and how I need to capture it – in some cases, I build in some contingency; in other cases, I decide to mitigate it through contract negotiations. It isn’t always a clear-cut decision either.

Did I mention that this schedule is the schedule that goes into the contract as an exhibit? Why? Because that builds my case for a change order to extend my general conditions if the schedule goes over. As soon as I see an updated schedule sent out, I bump it against the prelim schedule, and I put the GC on notice if I see durations compressed, dates changed, or overall project extended. It’s just a notice to lay the groundwork for a future change order should the schedule not come back into order as I initially bid it.

The schedule is super important! It must be reviewed.

3. How to Quantify the Unseen Costs of a Project Schedule – Link to Original Post

  1. Start date and manpower availability: If I know I will have to hire up for the project due to the timing of the start date, and our initial activities are at peak manpower, I ensure to add onboarding costs for new hires to my estimate. I always assume a turnover of some percentage in all of my estimates and incorporate this cost in my general expenses. Still, I add more to it if I can forecast and see that our peak manpower will require us to hire up.
  2. Start Date and Preliminary Schedule/Activities: If the preliminary schedule or activities seem unrealistic pre-bid, it provides a great opportunity to point it out and initiate discussions with the GC. This allows me to have some influence over the schedule at a time in the project when I ordinarily wouldn’t have.
  3. Manpower Curve: We examine the schedule and our estimated MHrs to determine peak manpower. If manpower spikes to 40-50 people, we understand the need for more nonproductive supervision during this period, and we add nonproductive foremen based on the number required at peak times. Our indirect estimate will include multiple nonproductive foremen over various months to reflect the manpower curve.
  4. Milestone Dates: This aligns with peak manpower and understanding the need for more supervision around these dates. More milestones usually equate to more supervision, but not always. A manpower curve should be used and understood to help quantify your needs. I will share the one I use in future posts.
  5. Substantial Completion Dates: This date allows me to understand the project’s duration. This date, along with the overall project cost, is what I use to determine how many hours my PM should be on this project. For example, if we want our PMs to be responsible for a predetermined amount of revenue per year, let’s say $10M annually, and the project is a $5M job completed in 1 year, I start as a rule of thumb by saying 5M of 10M is 50% of what that PM should be responsible for that year. Therefore, the number of hours becomes 1040 (50% x 2080). I only use this formula for projects with 12 months or less. As for a superintendent’s time, I prefer my super to be on the jobsite (non-productive) for the duration of my team’s work. Check the specs (Section 01 General and Supplemental Conditions) to see if one is required full time even when your team is not on-site.
  6. I also examine the SC date and whether LDs are tied to it based on our worst production rates ever, considering if we can get it done or not. If everything goes wrong and we perform at our historical worst without adding manpower, I analyze how many days over the SC completion that would be and how much per day it will cost me. Some other analyses are done before I determine the exact amount to carry in my estimate as part of my risk contingency.

4. Unseen Costs Associated with Construction Phasing – Link to Original Post

  1. This is more common on mega jobs, where the engineer/GC/owner has had sufficient time to carefully consider things. You will usually find it within the drawings, but occasionally it emerges in supplemental conditions or other documents. In commercial projects, a phasing plan is less likely, but you can create your own with the assistance of your ops team.
  2. Are there opportunities to have multiple “heads” progressing simultaneously? A “head” is essentially a separate group of workers, possibly operating from opposite ends to meet in the middle. A second head may be necessary to meet project milestones. These heads have specific missions and goals different from the overall project team. Understanding these allows you to incorporate the needed supervision for these specialized groups. They may require special tools and equipment, work different hours, and possess specialized skills that translate to higher wages. All these factors need consideration when evaluating the phasing plan.
  3. Examining specific site access as it relates to the phasing plan is crucial. Access is often challenging, especially when deploying multiple heads. Paying attention to this detail is essential, as it can impact man-hours, potential LDs associated with milestones, and material deliveries.

There is much more to discuss about construction phasing. A key takeaway, however, is to ALWAYS INCLUDE YOUR OPS TEAM! Countless projects in my career were won because of the insights, envisioning of the build, and risk exposure provided by the Ops team.

5. Logistics Site Plan – Link to Original Post

What information can be gathered from a logistics site plan that you always need to consider?

  1. Temporary Power
    • Temporary Parking Site Lights
    • Tower crane – typically only shown or mentioned on the logistics site plan
    • GC trailer configuration
  2. Construction Parking in relation to the jobsite
    • This may require bussing/shuttling to and from the site
    • May necessitate city permits to park on the street
    • This may require your workers to walk a considerable distance – have you factored in the nonproductive time from clock-in to the actual jobsite?
    • Will the yard require special materials to construct, or is it already set up for construction parking? If you are a civil sub, you will want to capture this, and it’s unlikely to be shown on the plans and specs.
  3. Deliveries
    • Material handling for deliveries – where is the material getting dropped off, and how will you transport it from the drop-off point to the jobsite?
    • Laydown yard – where is your designated laydown yard? Or, even more critical, have provisions been made for you to have one? If not, you need to identify another location within proximity, adding costs to your project.
    • Will your site require a work truck to haul materials to and from the drop-off point? Will a mule ATV suffice?

These are just a few considerations when examining the logistics site plan.

What other items should be considered?

6. Jobsite Access – Link to Original Post

This is closely tied to the logistics site plan and the physical movement around a site. It also relates to the following aspects:

  1. How early can work commence each day?
  2. How late can work be conducted on-site?
  3. Is it in a festive city, like New Orleans, where festivals may impact construction schedules? For instance, in Birmingham, AL, during the 2022 World Games, the permit office was not issuing permits or inspecting work during the month-long event.
  4. How will you access your jobsite? For instance, when working for Mass Electric (a Mass Transportation specialty contractor), there were instances when workers had to park at a light rail station and take the train to work. In tunnel work, there were limited access points along several miles to enter the tunnel. How are you planning to transport material and workers? Can you work at opposite ends and meet in the middle, or do you have to start at one end and work your way to the other?
  5. In high-rise construction, consider the number of elevators available to transport workers and material. Have you calculated the potential downtime and lost production based on a single communal elevator for the entire jobsite? It might be cost-effective to erect a dedicated buckhoist or manhoist for your team to minimize downtime. We implemented this on a project and found it to be much more efficient.

While these scenarios may not always occur, failure to consider them with your ops team and with clarity as an estimator could result in significant financial losses for your company.

How can owners help ensure a thoughtful approach to these considerations? Adopt a “Bid Less, Win More” mentality!

  1. Refrain from being a bid machine and avoid bidding on every opportunity that “feels” good.
  2. Thoroughly vet opportunities using historical project and contractor data. Refer to previous posts for criteria in making these determinations.
  3. Select opportunities that allow your estimator ample time to delve deep into the RFP, ask questions, engage with the GC, and conduct a quantitative survey of all documents. Estimators who bid excessively are likely guesstimating, lacking the necessary due diligence. Slow down and dive deeper.
  4. If you are a small company owner, be involved in the final estimate review. In a corporation, ensure that stakeholders and key decision-makers at the highest levels are involved to ask critical questions and scrutinize the estimate for unforeseen costs.

7. Constructability – Link to Original Post

Does your estimating team collaborate with operations to gain insight into means and methods associated with the opportunity?

Many departments avoid this collaboration due to a longstanding “blame game” between preconstruction and operations. One side may think there’s plenty of money in the project, so if it fails, it’s “operations’ fault,” while the other side blames preconstruction for not allocating enough money. To resolve this issue, both parties must come together to find the right way to build the project.

Operations often sees the budget and instantly claims, “it’s not enough.” While I appreciate this, it’s akin to the constant nagging of a high-profile coach to the referees—if they can get more, why not try? However, there’s a time and place for these discussions, and a prebid brainstorming session isn’t it. Cost should not be the focus at this stage; rather, the discussion should center on constructability and ideas on how the project will be built and completed. Once these ideas are fleshed out and agreed upon, the estimators can proceed with their work.

What I’ve observed is:

  1. Operations often builds it differently than estimators estimate it.
  2. Operations frequently identify items that estimators overlooked or hadn’t considered, countering the misconception that operations always adds money to the bid. In reality, operations often cuts costs from the overall estimate by employing innovative approaches.
  3. Estimators may realize that the field doesn’t execute tasks the same way it was done 30 years ago. Technology has revolutionized construction, with new tools, improved installation methods, and the influence of robots and AI on how we build. It’s crucial for estimators to collaborate with the field to understand the latest approaches.
  4. Constructability meetings involve a discovery stage where various ideas are proposed, and the best approach needs thorough vetting and buy-in. In the fast-paced commercial world, these meetings are most effective early on, especially in a design-build or design-assist project delivery scenario. For hard bidding, a different approach may be taken, bringing new technology and field methods to the attention of estimators and even having them conduct Field Operating Reports (FORs) to gain insights into productivity rates.

These are a few things that can bring big results when constructability meetings happen prebid. Capturing these unforeseen costs in this particular topic is more about understanding approaches and how it will be built than anything, but it almost always exposes an approach that isn’t being thought of.

8. Manpower – Link to Original Post

How does manpower availability relate to cost, you may ask?

If you do not have manpower available, you will incur additional upfront costs for the following:

  1. Onboarding new employees to your company’s culture and processes.
  2. New equipment (laptop, phone, etc.)
  3. New safety gear
  4. Training
  5. Possibly higher costs per hour to attract workers to join your company
  6. Lost productivity due to unfamiliarity with the team and acclimatizing to your company’s field practices

These are just some factors to consider. How do I quantify this?

  1. We have a metric for the cost of onboarding new employees, and I incorporate that number into my estimate if I anticipate the need to hire additional personnel.

How do I determine when I need to hire more staff?

  1. We utilize a company-wide manpower curve that outlines our ebbs and flows of manpower over the next two years. We review it every two weeks, and depending on the jobs in backlog and their schedules, we aim to maintain an even number of staff or grow the field in alignment with our annual goals during growth periods. The company manpower curve informs us if we are at maximum capacity with our staff and if any are coming off a job. The project manpower curve specifies our peak manpower and when it occurs, allowing us to decide if hiring is necessary. At that point, we adjust our estimate to accommodate the additional costs.

What about the loss of production associated with new hires?

  1. There is an adaptation/acclimation period for new hires, so we factor in some loss of production time for the first three months from the anticipated hire date. Alternatively, we may be proactive and hire them early, spreading the cost of their monthly salary over a few jobs during the early months of their employment.

These are considerations we take into account, and we only add these costs to estimates during growth periods. The primary reason is to minimize the impact of hiring a large number of people for a single project.

It’s a collaborative effort and strategy involving your HR department as well. Engage them early so that your needs can be met in a less stressful manner.

9. Equipment – Link to Original Post

Consider the following factors when incorporating equipment into your estimates:

  1. Delivery and Pickup: These costs are often overlooked and can be significant if not managed effectively.
  2. Gasoline/diesel associated with equipment use.
  3. Tire wear/routine maintenance/Repairs/replacement of rubber tracks, etc. Ensure there’s a line in every estimate that reflects these costs. Essentially, build a “pot of money” for unforeseen expenses.
  4. Idle time: If you own the equipment, are you factoring in the cost when the machine is not in use? Consider having two different rates in your estimate—Operating time, which includes the operator’s rate, and idle time, which excludes the operator’s rate. Remember, you still have to pay for the machine even if it’s on a jobsite not being used.
  5. Cost to insure the equipment: Confirm if this is included in your equipment rate for both idle and operating times.
  6. Training of personnel on the equipment: Recognize that this incurs lost time, and try to recoup these costs through adjusted rates.

I’m sure I’m overlooking some items as it pertains to equipment. Utility professionals have probably seen more items come up associated with your equipment fleets. Please add those items in the comments to help educate the network!

10. General Expenses – Link to Original Post

  1. Office space/jobsite trailer: Evaluate when the GC requires your on-site presence based on the project schedule. If the project mandates a full-time superintendent or project manager, add a trailer from a month before it’s needed until the project’s end. Account for delivery and setup costs associated with the trailer.
  2. Mobile Storage: Assess delivery schedules to determine the quantity and duration needed. Ensure you account for delivery and pickup costs.
  3. Printing needs: Include funds for plan reproduction, owner’s manuals, commissioning pamphlets, etc. Allocate $500-$1000, depending on the plan and specs size, for reproduction costs, with additional funds for other printing needs.
  4. Cleanup Crew: Add a percentage of Total Direct Labor Cost (typically 0.01% to 0.02%) for general jobsite cleanup. If there are specific instructions on cleanup and participation in a blended crew based on on-site hours, calculate the required amount.
  5. Safety: Allocate a percentage of Total Direct Labor Cost (typically 0.02% to 0.04%) covering safety goggles, gloves, ear protection, and safety luncheons. Specialty safety helmets are listed separately due to their significant investment compared to traditional hard hats.
  6. Insurances: Incorporate insurance costs into the burden percentages for direct labor.
  7. Include permit costs in general expenses, along with temporary power needs.
  8. Other costs: Tailor to your project’s requirements, such as travel, per diem, lodging, parking permits, jobsite badging, site orientation, drug testing, ice/water, equipment fuel, etc.

While not exhaustive, this list provides a framework for capturing essential expenses. Feel free to share additional items specific to your trade in the comments.

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