For subcontractors, a strong profit margin hinges on your ability to accurately estimate costs. But no two projects are the same. Unexpected costs crop up all the time, and they threaten even the most painstakingly crafted bids.
To help subs tackle this, Billd tapped Clay Young, Owner of Falcon Electric and former Chief Estimator at Critical Electric Systems Group, who has bid over 1B worth of projects, on how to consistently capture unforeseen costs and make your estimates as accurate as possible. Here’s Clay’s system for winning work at the right price and reducing margin erosion.
Accurate Estimates Start with a Standardized Process
Young listed a series of meetings that should happen with every estimate. This meeting workflow, ideally, will become second nature to your team – something they readily expect and know the agendas of.
Clay emphasized that this process isn’t meant to be death by meetings – instead, they are codified opportunities to get the right people involved at the right time.
The most important meetings are:
- The Kickoff Meeting
- The Mid-Estimate Review
- The Final Estimate Review
The Estimate Kickoff Meeting
What it is: Everyone is familiar with the Estimate Turnover meeting, where the estimating team turns everything over to operations after they win that project. The Estimate Kickoff is exactly that, but from the sales team to the precon department. For most subcontractors, this meeting doesn’t happen, but it needs to. And when it does, it should be extremely structured, with the same agenda, questions and attendees every time.
Why it needs to happen: Oftentimes, estimators are simply told by the sales guy, “Hey, here’s a link to the plans and specs. Go do it, and I’ll meet you at the final estimate review.” But this method just won’t work anymore. We see far more design-build, design-assist and integrated project delivery methods, where many decisions are happening earlier, in the preconstruction phase. All this information needs to be diligently communicated to the precon department. This meeting is the way to do that.
Goals of this meeting:
- Get the precon team aligned on everything that has been sold or designed for this project.
- Set clear expectations early. Assign specific responsibilities to specific estimating team members, with clearly defined due dates.
The Mid Estimate Review
What it is: Young asserts that 90% of subs don’t do this. It’s simply a check-in on the state of the estimate. Depending on the size of the job, this can be an all-hands-on-deck kind of meeting, to ensure information flows to all involved. This meeting, according to Young, can be a bit less structured and more freewheeling.
Why it needs to happen: The necessity of this meeting was born out of frustration from estimators. Young has seen the following scenario play out plenty of times: the estimator gets told to do an estimate, and 3 hours before its due, the VP of Ops comes in and says “There’s a better way we could do this, change it.” Now under a time crunch, your estimate becomes a guesstimate, where you’re rushing to get something out the door and the last few weeks of work have been wasted. Naturally, morale goes down. For this reason, Young has found that many estimators love this meeting. The mid-estimate review prevents those late-stage, panicked changes.
Goals of the meeting:
- After estimators have gone through the specs and familiarized themselves with the drawings, find out what their specific approach is.
- If you, as an owner and/or chief estimator, have an entirely different approach, this is the best time to reconcile these differing ideas.
The Final Estimate Review
This isn’t one of those meetings everyone skips out on. Most people do it, and it needs no introduction or justification. However, Young uses specific goals to improve the efficacy of these meetings.
Goals of the meeting:
- Don’t veer from the process. Maintain the same structure and the same attendees of these meetings every time. An unstructured meeting could give estimators a false sense of security around the quality of their estimate, because key questions weren’t asked that would’ve exposed specific flaws.
- Use these meetings as opportunities for employee growth. Young likes to push estimators to go to the front of the conference room and present their estimate. This is where the chief estimator is going to poke holes in the estimate, if necessary. But it’s not about getting them in front of the room and telling them they’re wrong. That doesn’t build confidence. It’s about making them defend their estimate and probing into what informed their logic.
- See how the current project stacks up against any benchmark data you have on previous jobs with similar scopes. This helps you see where this estimate falls in comparison to them.
- Talk through jobsite logistics and get operations feedback on anything the estimating team may have taken for granted when they put the bid together. We’ll discuss that more in depth later in the article.
Create Opportunities for Collaboration Between ‘Get Work’ and ‘Build Work’ Teams
Throughout Young’s presentation, one theme was crystal clear: Well-rounded team involvement throughout the lifecycle of an estimate is the best way to ensure accuracy. When you involve the right team members, you can spot an issue before it becomes an unexpected cost. That means involving operations, supers, the sales team, PMs and even more key players.
So how do you achieve that level of involvement without pulling everyone away from their other responsibilities, especially ops guys? First, you have to acknowledge that the early involvement of ops is your best bet at catching unforeseen costs. Second, if you use the right process, you can guarantee the most efficient usage of their time.
Best Practice: Facilitate Company Wide Collaboration with Microsoft Teams and Slack
To facilitate more communication, out of the meeting room, Young recommends using Microsoft Teams and Slack, but in a very specific way. By creating specific channels with specific purposes, you organize communication and promote transparency between members of the team.
Young recommends you create the following ‘Get Work’ sub-channels:
- Preconstruction channel
- Business Development channel
- Estimating channel (with a sub-channel for each project)
- The estimating team
- An operations super
- The PM who is likely going to be doing that project
- The VP of operations
- A General super
In the channel for a specific project, tell the estimating team to look out for things like weird notes on a drawing or weird language in the specs. They can drop what they find in that channel and ask for feedback from the ops team. It may be something the ops team has intimate knowledge of, which adds value early on. It also gives the operations team much more time to get looped in on a project and digest all relevant information.
Two of the Most Unpredictable Cost Centers
To capture unforeseen costs, you have to go beyond what you’re building and consider how you will build it. Clay points to the schedule and logistics plan as two areas where subs are at risk of missing details and underestimating cost.
1. The Schedule
Most of the time, subcontractors don’t receive a schedule or they’re handed a subpar one – which is a shame, since schedules are a treasure trove of information that can help you spot unforeseen costs. So, in the absence of a schedule, there are a few things Young likes to seek clarity from the GC about:
- Number of activities: Evaluate the number of activities outlined in the schedule. This reveals whether the GC has a firm grasp of what’s involved in your line of work, or if they just “threw darts at a board” to come up with a schedule.
- Float: Assess float (the time between activities) in the schedule. Ask whether the GC has accounted for float and who is responsible for managing it.
- Milestones: Scrutinize milestone dates, including the initiation of liquidated damages. In some cases, paying liquidated damages might be a more cost-effective option than rushing to meet an unrealistic schedule where you’d incur significant manpower expenses.
- Substantial completion: Be aware that some manufacturer warranties may not align with the contract’s substantial completion date.
Young also offered a few extra schedule evaluation tips to strengthen your process:
- Engage Operations: Collaborate with operations here, they can provide valuable insights when reviewing the schedule.
Make the Schedule Yourself: If the GC doesn’t have a schedule, don’t throw your hands in the air and say “Oh well.” Take the initiative to create one yourself. You add value to the GC just by doing this because they can integrate your schedule into their baseline schedule.
- Add Your Prebid Schedule to the Contract: Include a prebid schedule in the contract exhibits. This ensures that when the GC inevitably compresses a schedule later on, you have a baseline schedule rooted in your initial estimate for pursuing change orders. This baseline schedule can be crucial in securing the necessary resources and budget to meet an accelerated timeline.
2. Logistics Plans
Logistics planning is more common on bigger construction projects, less so on smaller jobs. However, logistics can be a hotbed of unforeseen costs if you don’t think through them carefully. Every estimate contains a series of logistical assumptions. That’s why it’s critical to be forward-thinking and clarify these things in your proposal.
For Example: When you put together an estimate, you may assume that your vehicles can park right at the job site. But in reality, you may have to park a mile down the road, meaning you’ll need site trucks or vans to transport your workforce. As an electrical subcontractor, Young likes to consider logistical issues like the number of tower cranes on-site, or the number of trailers.
How Accurate Bids Strengthen GC Relationships
When it comes to bidding, remember: you don’t need to be the lowest number, but you do want to have a reputation for being the most accurate number. You want GCs to hesitate to submit their bid until they’ve seen your estimate, because they know yours is the most accurate in your trade. By implementing a careful, repeatable process for building and reviewing your estimates, you can win more projects, impress GCs and skillfully avoid unforeseen costs.