How to Do a Construction Estimate-Step by Step Guide
Construction activities are complicated, unique in nature, and are labor-intensive. By the same token, their estimate is also a bit complex and requires more prep work. Determining the cost estimate requires you to consider several factors including market dynamics. However, your survival as a construction business lies heavily with the accuracy of your estimates and quotes. They’ll exclusively decide whether you’re going to win or lose a profit.
Doing your estimate from scratch is a whole lot of work especially when you’re after accuracy. If you aim too high the bid will go to someone else but bidding too low will cost you the profit margin. So, what’s the solution?
Well, the solution is not simple or easily achievable. You just have to balance both the upper and lower limits. You need to bid low enough to compete with other companies offering the services and high enough to include labor, material, equipment, and indirect costs of doing business – plus profit margins.
Want to know more? Don’t worry; we’ve made this handy guide about how to do a construction estimate so you can convert bids and win more projects.
How to do a construction bid?
Whether it’s your first time bidding on a construction project or if you’ve done that several times before; learning the tools and tricks will help you to make accurate construction estimates.
Step No. 1 – Review the Project Scope and Specifics
Where to start? Well, if you’ve already found the right work to bid on; you can start by reviewing the project scope.
At this stage, you have to be pretty sure about the project scope and the client’s objective of undertaking the project. You need to figure out what type of services you have to offer, what costs will be involved in completing the tasks, what’s the completion date, and what are the client’s expectations. In many cases when the client doesn’t know about their requirements, you have to ask questions about the scope, cost, services needed, and expectations from the project.
After knowing all the basics and project specifics, the next step is to jump to the actual part – the construction estimate. You will take off quantities after reviewing construction drawings and specifications. You have to be sure about the steps involved and the things require. Add every piece of fixture and material you need along with the labor you’re going to hire. The best way is to break down each milestone of a project into individual items.
Many large-scale construction projects have specifications and contract documents. They include all the contractual requirements you have to meet while executing activities at the site. So, you must review them all and no special requirements that may be costly to undertake. For projects that don’t have a well-defined scope, you need to be pretty sure to have an agreement with the client. You can ask your client about their interpretation of the project and the scope of work. Jot down all the information at hand and comply with it while preparing the cost estimate.
Step No. 2 – Workout a project timeline and deadlines for milestones
After that you’re all set and familiar with the project scope, deliverables, and specifics; now is the time to work out a project timeline. In most cases, the client will ask you about the approximate timeframe it’d take for the completion of the job.
The best way forward is to set forth project milestones and breakdown each section of work into activities and depending on your best assessment and experience give each activity some duration. Don’t forget to take into consideration the activity related to going through parallel activities at the same instant. Anyhow, you have to be pretty sure about your schedule and similarly have to be clear with the client in terms of any uncertain and possible factors that could delay your project.
Step No. 3 – Identify the works you need to sublet
Whether you’re looking to undertake a megaproject or your client asks for early completion of works than a normal schedule; you may have to sublet a portion of your work to meet the deadlines.
Subcontractors will offer some extra hands on a large project and it is a cost-effective way to bring them on instead of burning out.
So whatever the scenario is, you have to price out subcontractors and factor them in your estimate.
Step No. 4 – Estimate and Takeoff Material Quantities
Measure Quantities using Digital Software
For estimating quantities and calculating areas or volume, you can either go with manual calculation or if you are aiming for a large-scale project you can go with digital takeoff software. Programs like PlanSwfit, Bluebeam, Stack, and ProEst are handy in such scenarios.
Manual hand measurements are tedious and there’s always a chance of error. In contrast, estimating software streamlines and automates the takeoff process. You can embed and import project drawings and after setting the scale; you can estimate the quantity regardless of how complex the shapes are. Due to such reasons, a lot of construction companies and businesses are transiting from hand measurements to digital takeoff software.
Different Methods of Construction Estimates
One of the most common methods of estimating in construction is; unit rates. Depending on the type of material or resources, you can determine the amount based on the market scenario and your profit to undertake unit quantity like the per piece, meter, kg, etc. Now that you have a unit price you can just multiply the estimated quantity with the unit price to prepare a cost estimate. Many planning engineers try to establish a work breakdown structure of each section of work and assign resources to establish a cost estimate.
Add a percentage for Waste
While estimating the cost of the material you have to be realistic in terms of allowance for waste in construction materials. No matter how effective measures you take during construction to minimize waste, it is not completely avoidable. While dealing with wooden sections, you need to produce custom sized designs that require cutting. Similarly, some amount is wasted while moving materials around the site or during storing.
For waste allowance, you can consult exact material waste rates for different jobs and materials. Like for brickwork, standard practice is to allow for 20% wastage while for the good practice you can lower it to 10%. Similarly, for the concrete block, you can add 5 to 10% wastage. So, make sure you add wastages in your materials to avoid potential problems. Try to keep a record of your actual waste versus estimated wastes to formulate a site waste management plan and save money in the long run.
Step No. 5 Determining labor and material costs
The unit rate method is most accurate of all but it is time taking and has to be detailed. Another method is the square footage method. It involves calculating the cost of construction by multiplying the square footage or covered area of the structure by the cost per square footage rate established by experience. This method is used only for rough cost estimates of building or structure and is not an accurate way.
Apart from the material cost that you can determine based on the above methods, the other share of cost is for the labor cost which accounts for about 40 to 50 %. The cost of labor depends on a host of factors including the type of construction activity, complexity or nature, required expertise and experience, and the area of construction. You can enlist the type and amount of labor required and multiply the same with unit hourly rates.
Heavy Equipment Costs
Detailed cost estimates must include the cost of heavy specialized equipment that goes directly under the head of direct costs just like material and labor. So, try to prepare a list of various types of construction equipment needed for each phase. There are two portions of the equipment costs that you have to consider. The first portion, which is the bigger portion, encompasses the cost of acquiring and operating the equipment during the construction process. While the second one, the smaller portion, is for the hand tools you may have to use.
You have to estimate the equipment costs separately for general use items and specialized used items. General used items are shared by all subcontractors at the site and they are like forklifts, pumps, cranes, and air compressors. Specialized items include tractors, scrapers, shovels, loaders, and backhoes. If you already have the equipment you just have to include operation, depreciation, taxes, and insurance costs. But if you want to own new equipment it will include initial financing costs as well. Operating and repair costs include storage, fuel, and lubrication costs.
You can determine whether you need to hire equipment on rent or buy a new one depending on the frequency of its usage. In the case of renting equipment, you can include its rental costs in the estimate.
Step No. 6 – Compare your costs with that of your competitors
When you’re in construction business, you can learn a lot from competitors. Researching and knowing about your competition is a crucial step in living through it. So, make sure you know how much competitors are charging for similar projects.
The best way of dealing with such is to neither price too high nor too low. You can consult their website for the costs of their services or you can join a trade union to have a measure at their capabilities. By doing competitor analysis in construction bidding you can uncover hidden weaknesses and threats while maximizing your opportunities in winning a bid.
Step No. 7 – Incorporate contingencies and uncertainties in your estimate
One of the crucial phases of construction estimating is incorporating contingencies and their impacts. It is no doubt that construction activities are uncertain and involve risky maneuvers. Contingencies in estimation are the addition of an amount to the estimate to allow for items, conditions, or events such that their impact or effect is uncertain.
You need to go through detailed risk analysis of all activities in a project and add associated costs into the estimate. There may be situations like design or scope change or there can be days lost to wet weather for construction. The labor can go sick or you may have to strain the labor with training sessions. All such things factor in the estimate to avoid major setbacks during project execution.
Step No. 8 – Include Profit Margins
Your profit margin is the amount left over after paying for a project’s cost and overhead. This percentage has to be properly assessed so that you can make money while staying competitive. You can use this money to reward your employees or you can reinvest into business growth or you can even save some as a safety cushion for future losses.
Setting a profit margin is a little bit of a trial and error procedure. When you’re new and fresh you need to find a minimum point where you can win a project. Once you’re there with a win you can marginally increase the amount and grow in the process.
Let’s say your estimate for a project is $900 that includes $600 for labor, $240 for material, and $60 for overhead. So if you assume a profit of $100 you get an overhead markup of 11.11 percent. You can add this percentage to your project estimate to incorporate profit.
Step No. 9 – Project Exclusions & Inclusions
Your bid and estimate have to be specific in terms of the services you’re going to offer and also the exclusions. Use the same language as that of the specifications and drawings to make it easier to understand for the general contractor. Such a list of inclusion and exclusion will not only avoid confusion but will also avoid conflict in the future.
This list will further help you in reviewing if all the important things have been covered out of the scope and nothing major is missing. In the case of lump sum bid offers, this list is crucial and is the only way to provide detailed break-out systematically.
Step No. 10 – Take expert insights where you feel lost
If you’re a newbie or it’s your first time dealing with a specific type of project, never hesitate to take expert insight. You can take help from subcontractors or consultants to avoid cost overruns. You can also outsource construction takeoff services that have hands-on experience in preparing a bid that converts.
In contrast, when you’ve experienced you already know how to determine project risks and reduce costs accordingly by assessing the project site and nature of work. So, try to look at all the aspects of the project and details. Look into your insurance coverage closely and make sure the emergency funds are there to tackle the risks and damages.
Step No. 11 – Now it’s the time to submit your bid
While you’re bidding as a subcontractor, make sure the GC asking for the estimate/bid was awarded the job or otherwise. Your bid has to be impressive and preparing winning bids is not too hard. Try to prepare a bid document template for your company so you can easily insert details of the project and timely submit the estimate.
Step No. 12– Follow up
Staying in touch with the client after bidding can be handy at times. You can dramatically increase your close rate by proactively following up after the submission of the bid document. However, allow a gap of three to five business days to the client so they can review your submitted bid.