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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!