This newsletter is #7 in the series in which I share with you my methodology for electrical estimating. I explain how to determine the material cost, labor cost, and the calculation of direct job costs, overhead and profit. Estimating is a skill that can make or break a career, and make or break a company, and I want to help you understand the estimating and bidding processes so that your business can be profitable. You need to know going into a job how you can avoid failure - which in some cases might mean not taking the job!

The following content is extracted from Mike Holt's Guide to Electrical Estimating.

An accurate estimate must include all the direct costs including; labor (taxes, vacation pay, holiday pay, medical, and retirement), material, sales tax, subcontract and rental expenses, direct job expenses, and overhead.

Author’s Comment: Profit is added to the estimate total as the final step before submitting the bid.

Ignoring the Specifications
Plans and specifications work together to communicate the requirements needed to complete the project. The estimator is required to include all the costs required to comply with them both. Thinking that “you will get away without including a requirement” isn’t a good strategy if you plan on staying in business.

Ignoring Errors in the Prints and Specifications
Be sure to look for errors and omissions in the plans and specifications during the early part of the estimating process. Submit a request for information for clarification or correct the errors in your bid document so others will be submitting bids comparable to yours. Counting on unnoticed omissions or design errors in the job documents to create a change order in your favor is a sure way to create conflict and lose money after the bid is awarded.

Purposely ignoring errors in the prints and specifications shows your lack of honesty, or worse your lack of technical ability and professionalism to recognize the requirements of the project. You’re the expert and should be guiding your customer through the entire process even before you’re awarded the bid. Be doing so, you’ll create a reputation as a partner with the contractor and customer that will make it easier to discuss real changes in scope later in the project. Comparing the specifications to the version of the NEC and all other applicable standards that are in effect where the project is being built is imperative.

Review your supplier’s bill of materials for compliance with bid requirements before submitting your bid and understand that something as simple as the wrong brand of wire can be a very costly mistake. Discuss any needed changes with the customer, contractor, and engineer and update the project documents before completing your estimate and submitting the price.

Meeting the Lowest Bid
“Hey, if they can do it for that price, so can I!” Again, not a good business plan. An estimate is based on your historic ability to do a specific type of work. Since every company has different practices, employees, and skill sets, it’s possible for your competitor to make a good profit on a job at a much lower price than you can. When you discover you weren’t the low bidder, check your work for errors. Sometimes a simple error will take you out of the running. You need to learn from your mistakes, so you’ll know what to look for the next time.

The “Shot-in-the-Dark” Method
“Let’s see, this project has five electrical drawing pages so it should go for about $10,000. Yeah, that’s the ticket, $2k per page . . .” With this method, the price can be way out of line, either very high or very low, and you’d better hope you aren’t awarded the low-price jobs.

The Square Foot Method
Estimating a job by the cost per square foot should be considered a “Shot-in-the-Dark” method, although tracking these costs can be a way to help you check your estimate. Square foot pricing is a method that general contractors use to put together budgets based on generic averages of the cost to build different types of buildings. While this will help you form an idea of the cost of a building, it doesn’t account for the many special considerations that make every project unique. Simple things like a lighting package, different wall construction types, or the height of the ceiling can add a huge amount of cost to the job and erase all hope of making money on a project. Stick with accurate estimating methods instead of “guesstimating” so you can make the most money on every job.

We'd love to hear from you about this series, and the ways you're using it. Send us your comments and feedback by clicking on Post a Comment below. Look out for the next part in this series a month from now, and please share with your colleagues.

This content is extracted from Mike Holt's Guide to Electrical Estimating textbook. If you have enjoyed this newsletter, you can get the full content in Mike's Electrical Estimating DVD Library here.