HOW CONTRACTORS ESTIMATE

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Most contractors use a mix of techniques to arrive at their estimates. Many use some combination of stick estimating and unit-cost estimating, with a little human judgement to help them make final adjustments for conditions that may affect the cost of construction (almost always in the upward direction). Except for very small or simple estimates done with paper and pencil, most contractors use estimating software to help with the project — most often a spreadsheet to help keep simplify the task and make easy revisions as prices change or work is added or subtracted from the estimate. But whether they are using a pencil and paper or the most sophisticated software program, the process is essentially the same:  they are either adding up costs stick-by-stick, or plugging in unit costs that they either got from a book or (much better) developed themselves based on experience.

ESTIMATING BY THE STICK
This approach still has its advocates. It basically breaks down the project into the smallest units of materials and labor, counts them up, and comes up with a highly detailed cost breakdown. If nothing if left out and the contractor has good historical data on how long it takes his crews perform various tasks, this is often the most accurate, but most painstaking, approach. It is most often used in remodeling work where unit-cost pricing tends to break down, because nearly everything goes slower than in new construction.

ESTIMATING BY UNIT PRICING
This is similar to estimating using a unit-pricing guide, except that the contractor creates his own cost book. Rather than trust numbers from a book, a contractor uses his own historical data for labor costs and the latest quotes from the lumberyard for materials. Using worksheets (or estimating software) contractors are then able to create their own unit costs for individual items such as a square foot of installed hardwood flooring or roofing shingles, or for more complex “assemblies,” such as a linear foot of 2×6 exterior wall, including insulation, drywall on the interior and siding on the exterior.

To generate a materials list, contractors do a takeoff from the plans – either manually, using software, or some combination. Many lumberyards will do free materials takeoffs for contractors, but few rely on these without rechecking the numbers.

With the help of  spreadsheets, unit pricing can be very fast and accurate. The key is to have a comprehensive checklist to help you remember every item and to have good historical data on labor costs. To develop accurate cost data, contractors compare their estimated costs to actual costs and fine-tune their cost data over time. The process or comparing estimated to actual to estimated costs is called “job costing.” As an owner, you will not have that data and history to rely on, so the cost books (or actual bids from subcontractors) are your best bet for labor rates.

For subcontracted work, a contractor will get bids from his subs, or may bid the job based on his subs’ standard rates. For complex jobs or anything out of the ordinary, the general contractor would want a fixed bid from the subcontractor.

The less experienced a contractor (or you) are at estimating, the easier it is to miss significant costs – especially soft costs such as permits and fees, prep work, trash removal, and so on. In remodeling, it is easy to overlook the tedious work of fitting and matching new work to old, and the additional time it takes to work in an existing building that is probably neither square nor level and may have hidden damage or other hidden problems that drive up costs.

Leaving out a few “small” items can end up costing a bundle. A good estimating checklist is any estimator’s best defense against overlooking significant costs.

 






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