This post is the fourth 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.

Proposals are different, yet somewhat the same. Yes, that’s an intentional oxymoron.

Essentially, it means you can start from a template and then customize it according to conditions and requirements. Once you master the basics of proposals, you can easily refine the variables, project by project.

And while these proposal placeholders may seem unrelated by title, they depend on each other to form the big picture:

• Contract Completion Dates
• Liquidated Damages
• Permits and Liens
• Resources

Contract Completion Dates

Predictably, most contracts have completion dates. This deadline will impact the project, in both time and costs. The most common types of completion dates are:

• Completion date: when the job must be completed
• Calendar days: literally, the calendar days when the job starts
• Work days: certain days of the week or months of the year which do not count against the project time

Liquidated Damages

Liquidated Damages (LD) are costs to the contractor if the completion of the job goes beyond the contract time. Liquidated Damages are usually defined as a ‘cost per day.’ Obviously, this cost can impact the proposal amount, as it could represent hundreds or hundreds of thousands dollars. If the contractor thinks the project cannot be completed within the contract timeframe, the impact of LD should be considered. The LD amount can be added to the proposal, or the cost impact of working overtime to shorten the time frame can be included.

Permits and Liens:

• Permits, including environmental, water and shore protection, right-a-way, utilities, etc., may be required and must be obtained before work begins.
•  Liens are a type of “bond,” or security interest granted to subcontractors and vendors as protection for payments. If payments have not been made, liens can be delivered to the contractor, whereby the legal community gets involved.

Resources

• Labor: There can be two different contract wage scales required for a project. The contract may require “Davis-Bacon” wages. In general, Davis-Bacon requires union wages to be paid on public works projects and non-Davis-Bacon means local wages may be paid for other type of projects. When using the Davis-Bacon scale, the proposal lists wages for the different trade categories, i.e., carpenters, operators, labors, etc. Clearly, the labor wage scale impacts the proposal amount.

• Equipment: Equipment costs are a major financial component of the proposal. There are copious decisions to be made, such as:
  • Does the contractor own or rent?
  • Does the contractor need to own some and rent others?
  • If equipment is owned, how does one determine the cost?
  • How detailed should the costs be?
  • Does one want to separate the ownership costs from the operating costs?
  • Does one want to separate the fuel costs?
  • To determine an hourly rate, what usage should be used (in other words, how many hours per day/week/month/year)?
  • Does one consider standby time?

In general, the more detailed the rate breakdown is, the more information the contractor has to refine in the project costs. For example, if fuel costs are separated, the contractor would need to determine the fuel costs based upon the cost of the fuel by location, equipment type, etc. This can have a major impact on the project costs.

If the ownership and operating costs are separated, decisions can be made on a job-by-job basis as to how much to charge to the proposal. For example, if the actual cost of the piece of equipment has been met, the contractor may choose to only charge the cost of the operating the equipment.

• Material: Some contracts specify USA-manufactured materials, typically for steel, rebar, cement, etc. This also can have a great impact on the proposal amount.

To sum up, once you have a high-level understanding of the primary components of proposals (similar), you will quickly understand how to plug in the details (dissimilar) from the estimate.

And that’s how you resolve an oxymoron.