This post is the sixth installment in a series of estimating basics. Designed for the new construction employee (engineer, estimator, and field personnel), we will take a high-level look at how the construction industry works, from the estimating point of view.

Assuming the pre- or post-bid schedule is created, there are additional processes and key factors crucial to the construction phase: cash flow, hand-off proposals, preconstruction conference, field meetings, and progress payments and billing.  Whew! “How about a nice Hawaiian punch?”

Cash Flow

If schedules are created, than cash flow diagrams can be generated. They can be important for the company in a number of ways:

• Based on the cash flow between cost and revenue, a finance rate can be applied to the “area under the curve.” This rate will generate a finance expense for the job. Since it can take up to 60 days before the contractor receives the first payment, the finance expense can be substantial.
• A good cash flow also can generate a resource histogram, which is a schedule of ‘resources over time.’ This can help in determining costs, for example, whether equipment can be shared between jobs, or if rentals are required to perform work simultaneously.

Hand off Proposal for Execution:

It is very important for the field personnel to know the details of estimate and proposal. Here are critical questions and items in providing the field the hand-off:

• Location of project / yard
• Have all utility conflicts been resolved?
• List of utility companies involved with point people and contact info
• List of subcontractors, executed contracts, verbal agreements conveyed , scheduled provided to subs
• Vendors supplying materials: check if all the purchase orders for materials have been submitted, and verify list of materials to still be ordered
• Notes during the estimating phase
• Provide the proposal bid items and unit prices
• A list of cost items, (work breakdown structure) used in the estimate
• Include the schedule that will be submitted to the owner

Preconstruction Conference:

This is the meeting with the owner before work begins, and prior to the official “notice to begin,” (which starts the contract time). At this meeting, the owner will want answers to these types of questions (which will drive his decision to accept/reject the schedule):

• Who are the subcontractors?
• Who are the major vendors?
• Who are the managing personnel?
• Who will make the final decisions?
• Who are the utility companies involved?

Safety and Operation Field Meetings:

Safety should never be taken for granted and weekly meetings are highly recommended. At these meetings, discussions on pertinent construction issues may prevent or eliminate injuries and deaths. A good safety record will have a great cost impact on insurance rates. Consider:

• If there is reinforcing steel, (especially vertical) can it cause a serious injury?
• Is work high off the ground being “tied off”?
• Is there adequate protection for trenches or holes in the ground?
• Are there power lines in the vicinity? Are cranes involved?
• Is there adequate ventilation?
• Is there an adequate supply of goggles, gloves, hard hats, lanyards, etc.?

Operations meetings are for planning the actual work. Discussions regarding these topics are typical:

• What was last week’s progress?
• What is scheduled for this week and upcoming weeks?
• Have all the materials been purchased and when will delivery be made?
• Are we performing to schedule?
• Is equipment on site or scheduled to arrive?
• Are all personnel scheduled?
• Do we need to work overtime to accomplish some portion of the work?
• What impact would overtime have on the cost of the job and how would it impact the schedule?

Progress Payments and Billings

Progress payments are usually done on a monthly basis. The contract usually has a “cutoff” date where all the work items accomplished are measured according to the pay item quantity list. The owner has a certain timeframe after the cutoff date to deliver payment. Also, the owner may hold what is called retainage, which is a percentage of the amount earned. Retainage is kept by the owner to ensure that no over-payment has been made. The retainage is paid when the job is completed.

Punch List

After the contractor believes the job is complete, there is the final “punch list.” The owner will inspect the completed project and “list” any items that need addressing. The final payment will not be delivered until all the punch list items are complete.  Delays in completing the punch list will delay the final payment for the project.