Who and what is an estimator?
It’s amazing the number of industry people that say they are estimators.
After a couple of questions it turns out that they count the number of outlets, use their company’s standard ‘price per point’ formula, add the cost of the feeders then submit the quotation.
Such people cannot be considered estimators, or even ‘count and measure’ clerks, because any trades person should be able to carry out this basic task.
In a small electrical contracting business the estimator is usually the owner. In a medium-size business the estimator is the owner or a member of the management team. In a large contracting business the head estimator is a member of the senior management team or a company director.
In any contracting business it is essential to have a competent estimator if the business is to stay viable. Any trades person working on familiar projects should be able to list material quantities, but they often come up short when it comes to labour and myriad other obligations.
Accountants, lawyers and bookkeepers are available if you need help in conducting your contracting business. But unless your business is based primarily on cost-plus jobs, you will go broke without a proficient estimator.
Statistics show that more than 55% of new contractors go into liquidation in the first year of operation, mainly because they did not allow enough money to complete a project.
An estimator’s job is not only to produce an accurate estimate but also to protect against risk.
The size of the company is irrelevant – someone must assess the risk associated with signing a contract and performing the work.
For each major risk, one of the following approaches must be selected:
- Avoid – eliminate the threat by eliminating the cause.
- Mitigate – Identify ways of reducing the probability or the effect of the risk.
- Accept – Nothing will be done.
- Transfer – Make another party responsible for the risk (insurance, outsourcing, etc).
For each risk, the estimator should take into account probability, prevention or mitigation. This may include prototyping, adding tasks to the project schedule, adding resources, etc.
However, even on the most straightforward projects, the estimator is faced with numerous ambiguities and risks. It is crucial to assess the viability of a new project and consider whether it is in the company’s best interests to price the job.
A well-organised estimator has a checklist to be applied when making this initial assessment:
- Scope of works (Can we define, specify and document what is expected of us?)
- Do we want this project? (It may not suit our style of business.)
- Can we finance the project? (Determine payment terms and progress claim schedules.)
- Is the location within our scope of travel? (Distance may price us out of the job.)
- Do we have the staff expertise? (We may need specialised personnel.)
- Is there out-of-hours work? (Penalty rates will apply.)
- Do we have the tools and equipment to handle the project? (Hire costs may price us out.)
- Do we have the workforce capacity? (Assess the contract schedule.)
- How do we get labour and materials to the work site? (Special transport and lifting gear may be required, permits may be needed, etc.)
- Can we securely store our materials and equipment? (They may be available on site, or we must supply our own.)
- Will this project generate future work? (Consider expansion opportunities.)
- Who authorises variations, claims and payments?
- How is the payment performance of the head contractor, developer or client? (We may need to run a credit check.)
- Does the Security of Payment Act apply to this job? (Be sure you understand the cover.)
Once the decision is made to proceed, consider these key best practices:
- Use standard processes and accurate take-off procedures to ensure that no portions of the estimate are omitted, and make comparisons with similar projects.
- Ensure access to detailed documentation and historical data.
- Conduct a risk analysis – known costs should be included and allowance made for costs not yet established.
- Conduct an independent review to establish confidence in the estimate.
The matters that substantially increase risk in the planning stage are:
- Project duration – be wary of long-term programs.
- Dealing with developers – they don’t have to be licensed, many have a $2 paid-up capital structure and you will be an unsecured creditor.
- Working in accordance with, but not limited to, various Standards – do you know them or have access to them?
- Outdated data – economic conditions are continually changing and must be considered when referencing historic information.
- Lack of supporting documentation – all estimates should be linked back to the relevant data.
- Shortage of historical data on similar projects for comparison.
Starting with the tender documents, estimators need to read the entire specification.
This is more than the electrical section. It includes the tender invitation, closing date and time, instructions, scope of works, construction schedule and parts of other non-electrical sections.
You must assess the variation requirements and determine whether any clauses are unacceptable. You must navigate and understand the language assigning fault if anything is wrong with the documents, or if anything is missing, and look for inclusions in the specification that are not shown on drawings.
Next is to read the electrical section of the specification and make reference marks with a pencil or sticky notes against items or clauses that may differ from the average job.
On a second reading of the specification note the reference mark with page and paragraph number and record it on the title sheet.
If unfamiliar with a clause, reference or Standard, it should be followed up to safeguard what could be a costly omission.
Many years ago I came second on a multimillion-dollar project. As it transpired, the winning tenderer had left out the reference to an international Standard shown on one line in the general section of the specification. That was worth $800,000, and it put them into liquidation.
Check the plans to confirm you are familiar with all aspects of the job. If necessary, make comments on sticky notes. If the specification and plans are not clear and understandable, another read through should be carried out and all contentious points discussed and agreed before starting the take-off.
In the case of an existing building it may be advantageous to visit the site to get the correct understanding and appreciation of the job. You may also be able to take a few check measurements.
So the take-off begins, and although it is the most basic of the estimator’s job it requires great concentration and diligence to ensure there are no omissions. You must count light fittings and wiring accessories, measure cables, conduits and ducts, and record the quantities on pricing sheets.
During this phase, contact suppliers to find the most acceptable prices for materials and ensure that they are including the total quantities. Any suppliers outside Australia will need to account for import duties and exchange rates.
If subcontractors are required for specialised sections of the project, the estimator must ensure that the subcontractor has covered all the requirements in the scope for that section of the works. It is crucial to confirm that all suppliers and subcontractors are capable of meeting the building schedule.
Although the take-off of material and subcontractors has been counted, measured and priced, and the company’s labour rates have been applied, the estimator’s job is still not finished. There are ‘incidental Items’ not always shown in the tender documents that can be minor or major costs.
Many incidental Items are covered in general overheads, but overheads may need to be extended due to the nature of the particular job, including:
- Liquidated damages
- On-site administration
- Supervision of the workforce
- Co-ordination with other trades
- Site accommodation
- Travel, accommodation and living away from home allowance
- Site induction program
- Site health and safety representative
- Risk assessment
- Site transport
- Permit-to-work system
- Type test certificates
- Fire precautions
- Tools and equipment
- Utilities – power and water
- Partial hand-over
- Waste disposal.
It is common to refer to these Incidental Items as project overheads. However, it should be noted that these are direct costs specific to the site. In many instances they are not fully covered in general overheads.
Finally, it is important during the progress of the job to keep abreast of any substantial differences between the estimated cost and the budget for remaining work. There may be work phases or tasks with no budget left.
A competent estimate is the foundation of project profitability.