How to estimate a construction job
You can’t make money if you don’t know how to estimate a construction job and know your costs.
Here is how to estimate a construction job, whether you are a contractor preparing an estimate for a competitively bid project or just trying to figure out costs for the construction work you want to do.
Before you start to estimate a construction job, review any plans and specifications, and see if you’ll need suppliers or contractors to complete the work. If so, get them the information they need to price their work as soon as possible. Waiting until the last minute usually results in pricing that is inaccurate.
To be sure you have enough time to receive and review your subcontractor and supplier prices, and make their due date at least a day before your bid is due. Request detailed written proposals from subcontractors and suppliers. If time does not allow, take detailed notes for bids you take over the phone.
In order to estimate every construction job, whenever possible, get at least three bids. Subcontractor bids often vary significantly, and if you have three bids for each trade, you can make a better informed decision about what number to use in your bid. As the bid process proceeds, be sure your subcontractors receive any changes or revisions.
When you have the bids, create a bid comparison sheet and list the key items the subcontractors will include. Many times, contractors bidding the same work will include different things in their proposals. Use the bid comparison as a guide to review the bids you receive and help you equalize the bids. Add money to a bid for something one bidder has excluded, but other bidders included.
Create an estimate recap for all your costs and bids. Divide all costs into three basic categories:
- Production Costs include all material, labor, equipment, etc. to actually put a building component in place (i.e. foundations, windows, roof)
- Non-Production Costs, also called General Conditions Costs or Direct Overhead, include all material, equipment, and costs that are directly attributable to completing the work, but are not an actual part of it (i.e. temporary toilets, dumpsters, supervision costs, the cost of electricity to build the project)
- Indirect Overhead includes other costs needed to maintain your business that are not directly attributable to the project (i.e. rent, phone, electricity costs for office). Identify and quantify these costs, and then increase your hourly rate for manpower to cover them or add a line item for each project you estimate.
General Conditions (non-production costs) may include 20 or 30 line items, depending on the complexity of the project. Create a recap sheet and list the various items and costs you anticipate. Many of these are directly related to how long a job takes, so you need to have an idea of how long the project will last. For example, if you estimate you’ll need two temporary toilets per week, you need to know how many weeks you’ll use them to determine the total cost.
When you have the General Conditions and Production Costs, subtotal all 16 divisions. Your profit, indirect overhead, and insurance costs are often calculated as a percentage of that total. Combine those costs with your subtotal, and you have the cost of the entire estimate.
Estimate a construction job using these tips
Read any written specifications, before you start any quantity take-offs on the plans. Many times, key differences or special requirements are included in the specification book, and you should note these before proceeding.
When you start to review the plans to determine the material and labor required to do the job, these tips will help keep you organized:
- Look through all the plans and get a sense of the work first.
- As you proceed with your detailed take-off, use highlighters or colored pencils to mark up the plans, so you’ll know when you have included something.
- There are many ways to collect the quantities you’ll need to prepare estimates. Some contractors use software programs, many use specialized forms, and others have created their own forms.
As you estimate quantities, make sure you know what scale is used on the drawing or detail. Check the scale with other plan sheets as sometimes the incorrect scale is written on the plans by the architect. If you think you’re looking at ¼-inch scale drawings, and they’re actually 3⁄16-inch, your quantities will be wrong. That will significantly influence your material and labor costs.
Once you’ve estimated the material quantities, add an appropriate amount for wasted material. Next, determine the cost of the materials, the cost of the labor to install them, and any related equipment costs.
Contact your source for the materials you need and, if you cannot obtain a price for the total quantity, get the unit prices and determine your total material costs. For example, you need 434 feet of pressure-treated 2 X 4 studs. Your supplier sells those in 16-foot lengths for $15 each. Divide 434 lineal feet by 16 feet, and round up to the nearest full piece. In this case, you would need 28 16-foot 2 X 4s, for a total of $420. Don’t forget things like screws, glue, sales tax, delivery charges and other incidental costs. Once your material cost is calculated, move on to the labor costs.
Calculating labor costs takes experience. Focus on the larger line items first, since an error on these can make a big difference in your total estimated cost. Using your material quantity, try to determine your rate of production. For example, your job has 1,250 lineal feet of wood base. You estimate your carpenter can measure, cut and install 20 feet of base per hour. Divide 1,250 feet by 20 to determine you’ll need 63 hours. Remember someone will unload the material and distribute it to the various parts of the project. That requires time as well, and you need to add this additional time to the hours you calculate to install the base.
Multiply your hours by your hourly rate. Hourly rates vary widely, but the basics are gross hourly wage, plus benefits, and state and local taxes. Many contractors add a value to cover a portion of their indirect overhead costs to the hourly rate. Once you have total hours for each line item, total the hours and multiply to get your labor cost.
To accurately estimate a construction job, the next item to consider to estimate every construction job is equipment costs. Do you need to buy or rent scaffolding or perhaps an aerial lift? Once again, time is key. Determine how long you’ll need the equipment to correctly estimate the cost.
When your material, labor and equipment costs are completed, total them for that section of the estimate. The goal is to get everything in a format you can follow later, or use on future estimates as a comparison.
Finally, have someone check your math on both the material and labor take-off sheets, and prepare your bid.
When You Have Bid Documents
When you get the bid documents, verify that you have everything you should have, including instructions to bidders, the plans, the specifications, any addenda that may have been issued, and the geotechnical report if any below-grade work is required.
Confirm the bid date and time so your bid will be on time. Look for dates and times of any mandatory walk-throughs so you don’t miss them. Verify who will pay for the permit, if a bid bond or performance/payment bond is required, and if liquidated damages or unusual insurance are contract requirements.
Find out when the work is scheduled to start, and if any premium time work is required. This will help you determine if any special winter conditions cost should be included in your estimate.
Look at the bid form, if there is one, to see what information must be provided. Many times a bid will require unit prices, costs for bid alternates, or other costs or items that need to be determined. Fill out any parts of the bid form that you can ahead of time.
Try to get a feel for the duration of the project. Most bid forms require that you state your intended time to complete the work, and many other costs are related to the time required.
On bid day, make sure you have followed the required instructions, such as number of copies of the bid to be submitted, whether sealed envelopes are required, etc. And, finally, make sure you know where the bid is going and allow enough time to get it there. Factor in traffic, so you know you’ll be on time.
Noting the Plan Sheet Number on an Item
Noting the plan sheet number on an item serves four purposes:
- If you estimate all material quantities first, it’s easier to go back and assign your labor costs if you know what detail you were looking at. A 2 X 4 around a window opening at grade requires much less labor to install than one that is 40 feet in the air under an eave.
- The added sheet and detail description make it easier for someone else to review your work
- If a plan revision is issued, you can easily compare the new detail to the old one and verify the impact of the change.
- When you are building the project, you can compare actual field labor and material costs more accurately. If the work in your estimate is lumped together, it’s impossible to see where you under- or over-estimated.
