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Estimating- The New Normal

Covid-19 and the Impact on Construction Estimating.

Construction is resuming but the effects of COVID-19 has drastically altered the industry’s mode of operations forever.

As construction workers make their way back to work whether it’s continuing a project left hanging or starting something new, realities must be faced.

The economic effects of COVID-19 will have immeasurable effects on the bottom-line.

Safety has always been a vital part of building however now the added expense needed to comply with the new normal will wreak havoc.

COVID-19 isn’t the same type of work-related hazard the industry is accustomed to. Most likely none of the cost factors now required will have been budgeted for on previously awarded contracts and the list is formable;

  • controlled access to sites,
  • material delivery disruptions,
  • temperature checks,
  • two week quarantine,
  • reduced labor force – both in the field and in the office,
  • material shortages
  • social distancing,
  • staggered start times,
  • wide-ranging disinfection for tools, work surfaces, equipment, machinery and hands.
  • longer completion times affecting sequencing and finish dates,
  • additional scheduling & sequencing.
  • cost overruns
  • many more not listed……

Unfortunately the contractor with work in progress is most vulnerable. Contractors working with a fixed cost contract is the norm and are married to the terms by which it has been agreed upon from the project outset; before Copvid-19 restrictions.

The original Construction Estimate most certainly did not anticipate being faced with a Pandemic of epic proportions. Staying competitive with Construction Estimating is difficult to achieve in normal times. Factoring in a large contingency fund is a luxury that probably doesn’t exist.

All these factors will change and the entire philosophy of Construction Estimating procedures that were established for decades and must adjust to the reality of the new standards.

The one constant we know is the cost of building will go up and with that comes a domino effect. There will be less project opportunities because owner’s budgets may become unaffordable for the planned project. Fewer opportunities for contractors will increase competition and to win a job Contractors will cut costs to the bone.

The result will not be pretty. The tendency to adjust their bid estimating will inadvertently produce many business failures.

  • Under estimate real costs
  • Less opportunities. Too many contractors vying for the same job 
  • More competition will force unrealistic costs
  • Low costs leave zero room for error
  • One error may be the difference in bankruptcy or staying afloat
  • Increased time to complete projects.

These affects the Contractors General Conditions by enlarge is driven by length of time on site.

The result is higher costs to complete projects.Other considerations will be the impact it will have on OSHA standards and Insurance Company costs. Some projects may be subject to local Health Department Standards as well.

Until Contractors receive any new OSHA Regulations or Insurance Companies analyze risk, the effects to their Estimating Departments approach will be challenged to allow for the potential of increased costs: both Direct & Indirect.

The above outline mainly illustrates the effects it may have on Commercial Estimating departments for Commercial and Non Residential Contractors.

Residential Contractors are also affected by the Covid-19 pandemic. These companies tend to be smaller companies with only a few employees. Many are Mom and Pop businesses.

Conducting business in the residential market is quite different than working in the Commercial sectors.

To some extent Residential Contractors incur many of the same extent that a Commercial Contractor will with the General Condition Expense’ but do not allow for it in their estimate.

General Condition costs along with indirect costs tend to be much smaller but they are still a reality of doing business and a real profit killer; particularly when not accounted for.

Indirect costs can come in various ways and can add up in a hurry vastly cutting into profit.

Some Example are as follows:

  • Office Rent
  • Office Utilities
  • Office personnel
  • Office supplies
  • Computer, printers, scanners and fax machines
  • Desk & chairs
  • Tool & Equipment rentals
  • Insurances; Workers compensation, General Liability, Risk
  • Personal Protective Gear Expense
  • Legal expense
  • Accounting expanse
  • Vehicle loan expense
  • Fuel expense

A typical Residential Contractor will insert profit and overhead to their bottom-line. It must be realized that the overhead line item will cover only a fraction of their General Conditions, so many projects must be in progress concurrently to cover those monthly expenses.

To recap all of the Construction Estimating variables affected by Covid-19 it’s clear that two masters must be served.

  • Construction estimating philosophies that anticipated projected costs must receive special attention and insight.
  • Reduced Direct and Indirect company costs must analyzed in order to stay competitive and win projects.

There are some helpful ways to aid in decreasing Main Office expense.

For the Contractors in the Commercial sector hiring a Freelance or Outsource Estimating Company makes sense as savings can be realized on Workers Compensation Insurance, General Liability, Payroll fees, Vacation, Sick days; all of which add costs to the company which may not be necessary.

Outsource Estimating Companies are an excellent approach for assistance when needed.

The Freelance Estimating option can be a good first step in solving those monthly anchored indirect costs and can increase the likelihood of winning your bid. 

Residential Contractors can have a Residential Estimating Service help address those hidden General Conditions costs that they never accounted for.  

Construction Estimating Companies can make a big difference to a Residential Builder offering a more professional approach, assist in covering costs never accounted for while relieving the builder to focus on what they do best, Build! No more time working all day only to work a double shift that evening estimating another potential job.

As covered earlier in the topic, many projects are needed to help recover those constant monthly General Conditions Expenses so it’s imperative to have a constant backlog of work feeding the never-ending costs of doing business. Utilizing an Outsource Construction Estimator will help keep your company ahead of the curve.

With the Covid-19 pandemic changing the construction industry forever both Commercial and Residential Builders need to find ways to reduce costs  to keep pace and evolve their business model while developing means and methods that ensure personal and others, including surrounding areas, stay safe.

 

 

CHIANELLI ESTIMATING

 

 

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COVID-19 CONTRACTOR IMPACTS

Commercial Estimating

CONSTRUCTION ESTIMATING & OUTSOURCING

Early spring is the time of year when the construction industry normally begins to ramp up. The winter thaw begins, your mind set changes with the smell of the fresh spring air, warm breezes, the ease of moving around and the days stay lighter longer; but not this year.

This year is like no other we’ve experienced in modern history.

To some extent COVID-19 has not only affected and disrupted every person, family and business in the nation but much of the world.

It will effectively change our way of life and the manner in which we conduct business forever.

With the mandatory closure of non-essential businesses during the quarantine period most companies are forced to lay-off or furlough their employees. Some employees have even offered to use their use their POT or take leaves of absence in an attempt to help their employer weather the storm. Unfortunately even those efforts may be in vein. The longer it takes for the country’s engine to restart the more damage will be done in its wake and many business may not be able to recover or survive at all.

The Construction industry is one example. As America was enjoying a booming economy, employment at incredible high levels, unemployment at an all-time low, the unthinkable happened. In just a few weeks construction industries have come to a screeching halt and they find themselves laying-off and furloughing employees rather than building up their forces which would be the norm about this time of the year. This pertains to both field tradesmen, supervision as well and office personnel and management. No one is safe. 

Instead of the normal spring boom, construction sites have been asked to shut down and have been secured in place. Some projects may be delayed and other may be outright canceled altogether.

Everyone’s health is at risk. It’s frightening how quickly a virus can overtake someone’s life. All preventive measures must to be taken for the preservation of health. We must all learn new ways of living smarter, including more efficient ways of running our businesses.

So what happens when the engine get restarted and the stalled construction sites reopen, projects that were  put on hold will be back in the works and new jobs will be out for bid.

There will be an overall increase in the cost of construction.

There will, no doubt, be material shortages and backorder delays. Material made and bought from China will be delayed due to their slowed production. For contractors to substitute material with “Made in America” goods is more expensive. So either the contractor will take the hit to his bottom-line or if he can pass it along to the owner for recovery, either way, there will be cost increases for someone. There will also be a huge supply and demand market which will overwhelm suppliers and congest delivery schedules.

The good news is there will be a huge demand for labor in all trades and the ancillary supporting businesses and vendors.

Although there will be a demand for labor, to be compliant with today’s six foot personal space standards, the manner in which tradesmen work may need to be reassessed or retrained for new means and methods, at least for a given time. How will this affect crew sizes or work space? How will it affect schedules? Will new OSHA regulations need to be adopted? When the effects of all the personal space compliance criteria is ascertained, I believe it will find the costs of constructions will have increased. 

Subcontractors will be a high commodity and their availability will be limited due to the revival of construction projects resuming simultaneously. High demand will increase costs.

Building Inspections and Special Inspections will feel the crunch as the need for site inspections and lab testing will be overloaded. This will slow down job progress waiting for inspections and approvals which ultimately move the project to the right.

The main office overhead is an indirect expense for contractors that is best kept to a minimum. It’s a cost of doing business that can be a major drain to the company’s bottom-line. In market turn-downs and lean times the main office overhead is still a monthly constant.

COVID-19 and the fallout has been a tough pill for America to swallow. One of the major lessons learned is to restructure the interoffice staff to have the ability to work apart or virtually. Depending on the company size, it may be a good fit to help cut costs with the main office overhead if set up properly. 

Another avenue to pursue could be to outsource some tasks. Many contractors are using Outsource Estimating and Estimating Companies to assist them with their office staff and team. It relieves them from the payroll burdens and Workmen’s Comp. Insurance, vacation pay, sick pay and more. Depending upon the experience level that could well equal a cost of 70K-100K or more per person annually. Outsourcing should certainly realize a company saving.  Every year the construction industry goes through cycles which has Ebbs and Tides. Rarely does an estimator have 52 weeks of fulltime estimating work.  During those weeks when an estimator is not needed, the contractor should not be spending money needlessly.  The same can be said for Project Scheduling, Submittals, Owners or Site Rep Services, Project Managers. This is when outsource estimating services can be extremely beneficial to construction companies of all types, including residential construction, and commercial construction. 

We must all adapt to the new ways. Be Safe!

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Construction Estimating

Construction estimating is an important task that should not be overlooked or done in a careless manner.

Failing to prepare a reliable construction estimate could make the difference between a successful project and a complete fiasco aided by a calamity of errors.

Preparing an estimate does not come without a cost. A good estimate requires time to develop which directly effects the Owner’s, Contractor’s, Architect’s and Engineer’s cost of doing business.

Many times those costs are not recovered, however; they could make the difference in keeping the Builder or Owner solvent or ending up with a failed project or worse yet bankruptcy.

Construction estimates can be developed in house or there is always the option to engage an Outsource or Freelance estimating company.

Recently Contractors and Owners have found that Outsource Estimating is becoming a practical way to cut overhead. They do not have the burden of carrying costs like workmen’s compensation, general liability insurance, unemployment related costs, vacations or sick days, etc.

Builders and owners both are concerned about the financial impact or cost overruns and failing to complete a project.

Cost estimates will help outline the project’s scope and feasibility. Both contractors  and owners use them when deciding whether to bid or build a project.

Developing a well-planned estimate, including soliciting multiple bid proposals for materials and subcontractor work, will help ensure the estimates accuracy.

It also aids in gauging bid proposals received from material vendors or subcontractors. It is best to have an idea of what an item will cost when proposals are received to guard against over paying or in determining if the proposal cost is too low.

Choosing the lowest bid is not always the best practice. Many times contracts are awarded to the lowest bidder, only to find that the contractor cannot perform the work or sustain the additional costs not allowed for in the bid. Should a contractor fail, it can open up an onslaught of problems, which could lead to a domino effect putting the project in peril; lawsuits, liens, lost time and progress to name just a few.

Having another company come in to take over the previous contractors, due to their failure, can lead to premium costs charged knowing the owner is distressed and can take advantage of the situation. Suddenly cheap became expensive; notwithstanding your anticipated project cost just went out the window.

While estimating project costs are imperative to a project’s success, even a finely honed estimate cannot provide absolute precision. An accomplished estimator will account for as many factors, however there are occasions where unexpected costs can happen once the project begins; weather, shortage of labor or materials, production rates are a few examples.

Bottom-line investing in a well-developed construction estimate whether using an in house estimator, an Outsource or Freelance Estimating companies will pay many dividends.

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Why You Need A Good Cost Estimator

Cost Estimating has been a part of the construction industry since any structure was ever built. What better way is there to figure out how much a project will cost, present clear expectations to clients, and keep the project cost managed throughout the job? You wouldn’t buy a car without knowing the overall price, what your options are, and how much the monthly payments will be, would you? The last thing any consumer wants to do is to haggle over construction project costs with an ‘invisible’ person behind a closed door. Cost Estimating Construction in today’s building industry spells out, not only the cost of a job, but allows the job to stay relatively financially secure, with the least amount of cost overruns.

Quality estimates are typically comprised of Direct Costs and Indirect Costs.  Direct Costs typically include and cost or expense that can be associated with the specific project. This would contain team wages, costs of direct materials, fuel for equipment, etc. On the other hand, indirect costs would include quality control, management, security costs, utilities, overhead, costs that are shared across a number of projects, not billable to any specific job.

When this type of estimating is utilized in the construction industry, reports can be created throughout the time-line of a job in order to better understand and project the actual costs as it moves toward completion. Changes in actual costs vs estimated costs can be understood and problems can be resolved before they can get out of hand. Cost Estimating is always an ongoing project, especially during the execution of a large, time-consuming job. Whether you’re in the residential or the commercial construction business, the reports that can be generated by a good cost estimator may prove to be crucial. Changes often occur and become necessary  during the building process and as a responsible builder you should be able to insure accuracy and positive outcomes. Proper estimating is an on-going process of checks and balances and is the key to best protect the construction company as well as the client.

 

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Getting It Right The 1st Time

Do you need your construction estimate ‘yesterday’? Is the material take-off list imperative for your bid, and the bid opening is due tomorrow? As you know, this situation happens more frequently than we’d like.

Calling an outsource construction estimating service is a convenient way to go to assist you when  these predicaments arise. You’ve seen their advertisements  promising your completed estimate in one day, no matter if your  plans or drawings consist of 1 page or 30.  Whether your company is large or small, the ‘bottom line’ will usually guide your decisions to get the job done. Calling them seems the right way to go. But before you do…know who you’re dealing with, read the fine print. Generally, people learn that what sounds ‘too good to be true’, usually is!

As a contractor you need an outsource estimator that, not only has the  numbers,  but also has your back. This process is not like buying a hammer at a hardware store. Establishing a relationship with the outsource estimator of your choice, requires learning to “dance” with one another. They should be prepared to work with your company as a teammate, following your lead on projects, and working together. Communication is key, and being able to go over a job with you and explain important points of the estimate with you is a major part of the process.  Achieving this requires a construction estimator that is qualified to examine your plans thoroughly, making sure that they are ‘all inclusive”, and that the scope of the job and the specifications are clearly understood.

Taking off plans can be as easy as putting measurements in an estimating program. But when construction estimators can not explain how and why the calculations work in your specific project, it can lead to errors, leaving you scrambling for information and the correct numbers to win the job for your business. Ever hear of the old saying, ‘cheap is expensive’? Inadequate  estimating can lead to many unforeseen on-the-job difficulties and problems. Although many construction jobs require legitimate change orders,  a comprehensive original bid package can sometimes help to cut down on ‘in-the-field’ alterations and possible misunderstandings on the job. Having a construction estimator that understands  a defined  scope of work for a job, and can prepare project schedules that work for you and your company. This can ultimately save you money in materials and prevent an owner or contractor from facing costly work stoppages or delays, while resolutions to the problems can be found.

So how do you get it right the 1st time?? Stay true to your own high standards as a contractor.

  1. The construction estimating company you choose should have a keen eye for reading construction Drawings and Specifications.
  2. Find the construction estimator that best reflects your own standards, qualities, and integrity.
  3. Make sure they have ‘on the job’ experience, which gives them a deeper understanding surrounding the scope of a job and timely scheduling to save you time and money.
  4. Be sure that the outsource estimator is someone you can the build a relationship with; this makes future projects easier to navigate, leading to positive results.

Most of all, as you keep an eye on your ‘bottom line’, remember that you need the information that is crucial to winning the job bids you want. In this case, practice DOES NOT make perfect. The ‘practice’ only costs more money in the long run. The right construction outsource estimator can help you get it right the 1st time.

 

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Where Did The American Construction Worker Go?

Sure, the building business slowed down for a spell!  Back in 2010 and 2011, things looked pretty bad for the Construction Industry.  However, now it is on the rise, fast and furious. In many cities across our great nation, the building of residential and muti-residential homes can hardly keep up with the population booms! The Bureau of Labor & Statistics,  & the U.S. Department of Labor, states that the construction industry has projected growth rate 12% faster than the average, for all occupations.  The Construction Industry is now suffering a major gap in the skilled and unskilled labor force to keep up with work flow. Some businesses are having difficulty filling skilled labor positions, which in turn is preventing some delays in the completion of projects, according to the Bureau of Labor and National Association of Home Builders (NAHB)

Why is this happening now? Did they all disappear? Well if you look at the situation on the surface, it would appear to be so, but not really.  When the Construction Industry bottomed out, so to speak, back in 2011, about 2.3 million construction jobs were lost. There were about 1 million less residential construction jobs to be had. Many of the skilled workers dropped out of the industry and never went back, some retired, and some went toward college educations and office jobs.

Now that we have discussed how history and statistics explains part of the decreased numbers of construction workers. Maybe we can touch on some reality.

It is tough to attract young workers when there is the perception that construction work is dirty. That is not perception…that is fact. But, what about when you create something from the ground up and get that feeling of personal pride? The personal satisfaction of a job well done?  Construction does not always remain in the trenches. Learning and working a trade can lead to personal growth and self-education. Many individuals have become more, perhaps a Construction Estimator, or a Commercial Estimator.

Another factor that young people of today have noticed is that during the last recession, the construction industry suffered some periods of unemployment. What they do not see is that a national recession usually adversely affects every part of economy. In fact, residential construction and commercial construction is coming back quicker and stronger and will remain so for a long time.

The last thing that seems to stop our young people from going toward a construction career is the old song words, “Mothers, don’t let your children grow up to be construction workers…” (I always thought that was supposed to be ‘cowboys”) but someone changed the words! I understand that today’s parents want their children to go to college and get that high tech career that requires college and beyond, not to mention fighting for an entrance level position and $100,000 to $200,000 in debt or more.  Learning a skill in the construction trades can lead to high paying position, sometimes quicker than climbing the corporate ladder, or maybe even owning your own company. With the growth in the Construction Industry, as it stands, opportunities in the field are growing, such as Job Estimating positions; Project Bidding, or Project Management.

So in answer to the question, where did all the American construction workers go? They are out there, but we all have to make a concerted effort to let the young people of America know that there is a place for them in this industry. A place that can offer them a good life, with a profitable future. Schools need to embrace the idea of bringing back trade classes for our high school students. Many young people cannot afford college; many have amazing hands-on-skills that are not being tapped for their potential. And for the record, having an education can only enhance the possibilities, as to how far an individual wants to grow in the Construction Industry. Thinkers and dreamers will always hold a secure position in creating our future; but since the beginning of time it was the ingenuity of the Builders and Construction Trades that raised villages to towns, and towns to cities. As the industry grows, it needs to cultivate a new crop of dedicated, educated, and hard working individuals to take on the challenge of this growing field.  As family construction businesses built the America of our history, there needs to be new ‘families’ who are ready to build and transform the cities of the future so we can all live out our dreams.  The Construction Industry needs to become a ‘generational industry’ in America once again.