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.