Estimating & Bidding

Words: Domenic Livoli
Photo: odinbar

Another fall is upon us.  Hopefully everyone has had a productive and profitable summer.  The market is still robust for construction.  Developers are still trying to build multi-family housing, single family homes and commercial buildings.  That is a good sign for all of us.  The public market has seen a bit of a slowdown.  There are some schools and public safety buildings that are being bid.  It is steady.  Slow and steady all wins the race.  

Despite having many projects to bid, there are some major developments in the country and the world which will affect the way projects are bid and proposals are sent.  It is the bad nine letter word- INFLATION!  We have seen it all- supply chain issues, rising gas prices, shortage of truck drivers, demand surpassing supply and a few other factors.  This is really throwing a wrench into how projects are moving forward.  Last year, lumber prices shot up and builders sat back and put some plans on hold, rather than proceed and bear the cost.  That is a gamble because if prices continue to go up, then the lumber a builder thought was high could go even higher.   Another factor would be if a builder waited and interest rates went up, then the builder would be paying more to borrow.  Potential home or property buyers would also be paying more, and that could put people’s plans on hold.

On the masonry front, I am seeing the increases in materials while estimating the projects that are coming in to bid.  Mortar and cement has had three increases since January 1^st.  Wire products, along with all the accessory prices have seen a 20% increase.   Insulation has seen a 10% increase, with a forecast for more in 2022.  Trucking materials to different states has increased substantially with the shortage of drivers and price of fuel.  Suppliers are putting notices on their quotes that prices are only good for 15 days.  

Unfortunately, for projects under contract, this could be a large problem for mason contractors.  Unless you have purchased and paid for materials previously, you will have to pay current prices for materials that costed 20% less about 5 months ago.  That all takes away from the profit on the bottom line.  Once a contract is signed, you are obligated to construct the project for a set price, unless there are escalation clauses in the contract.  On most public projects, there are clauses built in that basically say you cannot go back for escalation and that usually applies if the project maintains its schedule.  If a project is delayed, then there would be opportunities to get labor and material increases.

The current situation is making developers slow down and wait.  The project bids multiple times and the developer sees the progression of the bids and documents.  When a developer gets a figure in their head, it is tough to get it out.  If they only want to pay so much for the project, they keep manuvering to try to get the project done for the number that they want to pay.  

Unfortunately, if they sat on the sidelines and waited, now the project must be repriced.  When new prices come in, then reality sets in and many do not like that.  The costs for bidding it today are different for when it was bid 6 months or a year ago.  It is a gamble.  Do they wait, hoping things will go down?  Again, that could backfire and prices could go even higher.  It is a fine line to tread.

As mason contractors, you need to know how to project forward on how to put together bids for projects that in which masonry might not start for 6-8 months.  Large projects that are being bid right now with no shovel in the ground probably will not see the masonry begin until at least next summer.  A lot could happen between now and then.  The looming question is- HOW CAN WE PROJECT FUTURE COSTS?  Unless we have a crystal ball or a time machine, we cannot predict for sure what costs will be next month or next spring.  How do we proceed to estimate projects and put out bids in these uncertain times?    

Labor was always the critical factor that drives the costs of the project.  Masonry is a unit of productivity.  The more units a man can lay in a day, the less it costs to lay the unit.  For the open shop contractors, if you have given your employees raises recently and don’t plan on giving any more any time soon, then you can fix your labor costs, as long as your workforce is good and current market conditions are not making those wages go up further.  For the union contractors, if their contracts still have time before renegotiation, then the raises for wages and benefits are pretty much set.  

With the increases we have seen lately, material costs are now becoming critical.  We know what a supplier can sell material for today or for the next few weeks.  How do we now what that product will cost next summer?  

One way to keep up on costs is to get material prices for every project.  While it is tedious, it will save you money and possible oversights on how much materials have risen.  If you bid three or four projects a week, then sure- use the same prices for the same materials.  If you encounter different materials that you have no price for, but have a sheet with the price from six months ago, then you are using wrong prices.  I always take the price and apply what I think were the percentage increases in the last 6 months to come up with a current price.  

The first step in gathering accurate material and labor prices is to get an updated schedule.  When will your work be performed?  If you know can see when the masonry will be built, then you can predict which pay period you will have to carry for masons and laborers if it’s a union or prevailing wage project.  Now for the materials.  Next step would be to get prices from your suppliers and see what kind of time limits they are placing on the pricing.  After that, it gets a little dicey.  If you get today’s prices and the project is going next summer, you must put an escalation factor on the materials.  How much do you put on? Keeping good records of past increases could allow you to forecast future increases.  If material has gone up 20% in the last 6 months, you may want to put a 20% increase on your bid if the work won’t start for another 6 months.  It is reasonable and if material goes down, then you have a cushion in there.  If you guess right, then you are even.  If you guess wrong, you hope it is not by much.  The goal is to cover your material costs and still be competitive.  

I have estimated projects that are phased until 2024.  That is even more difficult to predict.  Unless you have time to break apart the estimate into individual phases as separate projects and use labor costs for that phase, then I usually pick a labor cost that is in the middle of the project and use that for the whole project.  For materials, I try to take the total material cost and project one percentage for the first year on the whole material cost, then percentages on partial remainders of the materials, knowing that a certain percentage will be for the next year and compound the increase for the remainder in the following year.  

This gets to be a numbers game.  Keeping control of this is your number one priority.  A good estimate is only as good as your ability to anticipate market conditions.  While we cannot be totally certain of material costs for next year, we can put forth an educated guess given what we have seen in the recent past.  Things will level off eventually- they always do.  Until then, things will be a little rocky.  With good planning and forecasting, let’s hope that you can put out quality, comprehensive estimates that will generate work and also generate a fair profit.  That’s what we are in business for.  Best of luck for a safe and profitable 2022!