Presenter: Victor C. Tyler, P.E.

Estimating and Bidding Strategies that Drive Best Practices

Victor C. Tyler, P.E.

•President/ owner of Tyler Construction Engineers, P.C.

•Licensed Professional Engineer in state of Tennessee

•Author “How To Estimate Road Construction Accurately”

•Cost and Pricing Specialist

•Management consultant to the engineering & construction industry

How Time In Construction is Spent

Opportunities for improvement

Planning makes actual installation more efficient

Other activities such as site movement, material logistics, general non-productive time and rework is minimized

64% Installation

36% other activities

The Average Construction DayDESCRIPTION % HOURS/DAY

Study Plans 3% 0.24Material Procurement 3% 0.24Receiving & Storage 3% 0.24Mobilization 5% 0.40Site Movement 5% 0.40Layout & Marking 8% 0.64Actual Installation 64% 5.12Cleanup 3% 0.24Breaks – Non-Productive 6% 0.48TOTAL DAY 100% 8.00

Look at 176 Man-hour Month

Where can we improve?

DESCRIPTION % HOURS/ MONTH

Study Plans 3% 5.28

Material Procurement 3% 5.28

Receiving & Storage 3% 5.28

Mobilization 5% 8.80

Site Movement 5% 8.80

Layout & Marking 8% 14.08

Actual Installation 64% 112.64

Cleanup 3% 5.28

Breaks – Non-Productive

6% 10.56

TOTAL MONTH 100% 176.00

For one employee approximately 63 hours per month is spent on activities other than actual installation

…. approximately 760 hours per year for that one employee.

$45,619 per yearIf you have 4 full-time field employees

paid at $15 per hour …

That’s why I talk about productivity in the estimating processes for both

field employees and equipment.

Today’s TipUse accurate rates and reduce idle time.

Only _____ ______are 100% Productive!

Lunch Breaks

8

Estimating Accurate Job Costs

Bidding on Profitable Jobs

Making Profits on Every Job Won

Thus the top priority for the estimator is to estimating accurate job costs.

The job of every estimator is to help his or her firm acquire profitable work.

Strategy

Tyler’s Cost Strategy 101

1. Organized and document data

2. Be detailed and factual

3. Base the estimate on historical data

4. Use a predictable, measurable and repeatable

processes (use checklists, templates, software)

5. Always monitor your progress and make

adjustments as required

Tyler’s Cost Strategy 101

6. Know and understand your costs

(Labor + Material + Equip + Subs + Job Site Overhead)

7. Make the estimate comparable to the P&L

Statement

(Revenue – Job Cost – Overhead = Profit)

8. Cost first,…then price

(Price = Direct Costs + Overhead + Profit)

Know Your …Direct Job Cost

• Material

• Labor

• Equipment

• Subcontractors

• Other direct cost

Know Your … Job Site Overhead Costs (General Conditions)

Labor Burden

Indirect Labor

Job Supervision

Tools & Consumables

Insurances

Travel

Other

Cost First, then Price

.Strategy

Accounting is BORING!

Bid Price Structure

Contract Price

Total CostTotal Cost

Direct CostDirect Cost

LaborLaborMat l.Mat l.

Jobsite OHJobsite OH MarkupMarkupWork Item CostWork Item Cost

Gen & Admin.Gen & Admin.

ProfitProfit

ProfitProfit

MarkupMarkupJobsite OHJobsite OHSubsSubsEquipEquip

Estimate Summary

The Estimator’s View

Direct Costs …………………….. $$$Direct LaborEquipmentMaterialsSubcontractors General Conditions

plus Labor Burden (%)

plus Job Site Overhead (%)

equals Total Direct Cost ……….. $$$

plus General & Administrative (%)

plus Profit Rate (%)

plus Bond Rate (%)

equals Total Contract Price ……… $$$

Company Income Statement

The Accountant’s View

Contract Revenues …………………… $$$

minus Direct Cost of SalesDirect LaborEquipmentMaterialsSubcontractorsOther Direct Costs

minus Indirect Costs .……………… $$$Labor BurdenBenefitsIndirect Expense

equals Gross Profit ………………… $$$

minus General & Administrative Expenses

equals Income (Loss) Before Taxes …… $$$

Understanding Risk & Pricing

Project A

Project B

Project C

LaborMaterialEquipmentSubcontractorOther

$10,000$20,000

$5,000$169,000

$2,000

$50,000$70,000

$7,000$76,000

$3,000

$90,000$90,000$20,000

$2,000$4,000

Total $206,000 $206,000 $206,000

Overhead – 10% $20,600 $20,600 $20,600

Profit – 12% $24,720 $24,720 $24.720

Total bid$251,320 $251,320 $251,320

Example from Book, “Managing a Construction Firm on just 24 hours a day”, by Matt Stevens

Understanding Risk & PricingProject

AProject

BProject

CLaborMaterialEquipmentSubcontractorOther

$10,000$20,000

$5,000$169,000

$2,000

$50,000$70,000

$7,000$76,000

$3,000

$90,000$90,000$20,000

$2,000$4,000

Total $206,000 $206,000 $206,000

Dual Overhead AllocationLabor/Equipment – 15%Material/Subs/other –5%Office Overhead – 10%

$4,500$9,550

$20,600

$8,550$7,450

$20,600

$16,500$4,800

$20,600

Profit – 5% $12,033 $12,130 $12,395

Total bid $252,683 $254,730 $260,295

Example from Book, “Managing a Construction Firm on just 24 hours a day”, by Matt Stevens

Margin vs. Markup

Job Profit and Loss Statement

Sales ……………. $ 700,000 Less COGS …... 507,000Gross Profit ……. 193,000Less OH ………..… 175,000Net Profit ..…….. 18,000

As a % of

Sales

100 %

72 %

28 %

25 %

2.6 %

MarkupAs a % of

Direct Cost

138 %

100 %

38 %

34.5 %

3.6 %

Basic Cost Summary % of

Revenue

Revenue $ 700,000 100.00

Labor 120,000 17.14

Material 300,000 42.86

Equipment 75,000 10.71

Subs 12,000 1.71

Overhead and Profit

193,000 27.58

Expanded Cost Summary % of

Direct Costs

Revenue $ 700,000 136.72 %

Direct Costs

Labor 120,000 23.44

Material 300,000 58.59

Equipment 75,000 14.64

Subs 12,000 2.34

Other Cost 5,000 0.98

Total Direct $ 512,000 100.00

Job Site OH

Labor Burden $ 40,000 7.81

Supervision 75,000 14.65

Total Job Site $ 115,000 22.46

Total Cost Input $ 627,000 122.46

Gross Profit 73,000 14.26

Overhead 55,000 10.74

Profit $ 18,000 3.52

Quick Study Example:Cost Multipliers

You are preparing a bid for Project XYZ and have estimated the direct costs as follows: Direct CostsLabor - $ 75,000Material - $150,000Equipment - $ 75,000Subcontractors - $ 50,000 Create an estimate summary utilizing the cost multipliers we calculated. Therefore, the estimate summary becomes: Direct Cost (labor, material, equipment, subcontractors) = $ 350,000.00Labor Burden: $ 75,000 x (25.93 % ) = 19,447.50 Job Overhead: $ 350,000 x (14.53 %) = 50,855.00

$ 420,302.50 Office Overhead: $ 420,302.50 x (7.81 %) = 32,825.63

Total Project Cost (without Profit) = $ 453,128.12

Strategy to winning more profitable work.

• Position (Market)

• Project

• People

• Product / Service

• Price

• Production

• Profit

Best Practices …

• Know Your Cost (Estimating)

• Understand Your Cost (Project Management)

• Control Your Cost (Project Accounting)

• Continuous Improvement (Always)

on each & every job

More Predictable

QUESTIONS?

810 Dominican Drive, 3rd FloorNashville, TN 37228

dbe_supportive_services@tyler-engineers.com www.tyler-engineers.com

1.888.385.9022615.469.5398

Thank You!