It is not uncommon for a project to appear profitable on paper only to turn out to be a financial loss once it goes into the field. The problem is typically not the crew; it’s the estimate and construction bid mistakes that are made at the beginning that are difficult to reverse once the work begins. A bid may even successfully clear all the internal hurdles, outbid the rest of the field and then be poorly funded, all without the first shovel being dug. Here are five indicators to watch for before your next bid is submitted and how to solve each problem.
1. The Takeoff Was Rushed
The number one leading cause of construction bid mistakes is a rushed takeoff. With a tight bid deadline, it’s easy to simply guess quantities, copy numbers from a “similar” project or simply overlook a proper waste allowance. But no two jobs have exactly the same layout, cut patterns, or site access; all will vary their quantities in ways that will only become apparent once material begins to run out.
- Indications of a hurried takeoff are:
- Suspiciously round, “clean” quantities on every line item
- No manual spot-check of the digital takeoff
- Loss of waste due to cuts, breakage or offcuts.
- Numbers drawn from an old bidding set and not from the current one.
This is one of the most common construction bidding mistakes you can make because it doesn’t become apparent until the materials are running low in the middle of the project, after which there is only a costly change order or a direct expense. These errors are most likely picked up by a second pair of eyes, even if it’s a quick 15-minute cross-check, before they ever get to the client.
2. Scope Items Are Missing
When the work is tacitly assumed during bidding, it is called a missed scope items estimate. The demolition is left to “somebody else’s scope. No line item for temporary fencing, dumpster rental or winter heat protection. A mechanical or electrical detail hidden deep within the drawing set can also be overlooked. These omissions are common in Residential Estimating Services where even a small missed scope item can significantly impact project profitability.
Not an isolated occurrence, these are among the most predictable construction bid mistakes that happen in the industry and not only because construction documents are full of information, compiled across multiple disciplines and easy to skim during an impromptu deadline. The value of a missed scope item almost never equals the cost of the material or labor and even when it does, it’s after the item has been discovered mid-project, when the costs of materials and labour are usually higher and availability is less than when they were bidding.
The trick isn’t more effort, but a system: a scope checklist, reviewed line by line with the drawings and specifications prior to the issuance of the bid, that picks up the majority of these factors early.
3. Labor Rates Are Outdated
Although material costs are the focus, labor is typically the bigger line item and the most unpredictable. If the productivity rates are not current, they are really bidding against an obsolete crew. The job crew is different, apprentices are promoted to journeymen or retrain, equipment grows older, or job site conditions might be quite different than the typical job the rates were established for.
Classic construction bid mistakes made by overly optimistic labor rates is a situation where it appears fine on paper and breaks down on site within 2 weeks. After labor hours begin to exceed budgets, there is no way to catch up on those hours after hours and pressure to make it up on the job is just adding fuel to the fire.
A good practice: After a job is completed, review the actual labor hours vs. estimated labor hours for that job and enter that difference into the rate tables. Construction Cost Estimating should be a dynamic process that’s enhanced by actual job information, not a “copy and paste” spreadsheet that’s carried over from one bid to the next.
4. Site Risk Isn’t Priced
Two projects may be the same size, size of work and have a very similar scope of work and yet have a vastly different level of risk. Dread difficulties with site access, an aggressive program, unknown subsurface conditions, an owner’s rep that is demanding, or a first-time client with no payment history should all be considered and incorporated into the number on the bid, but often don’t.
This is one of the lesser-known construction bid mistakes and it’s not so easy to measure as a linear foot of pipe or a cubic yard of concrete. Many estimators simply don’t consider it or use the same unchecked contingency percentage for all jobs, no matter what their circumstances are. The better way is to have a better score, schedule compression, site logistical considerations, design completeness and owner reliability and sizing the contingency to the actual exposure for that particular project instead of using a one-size-fits-all buffer.
5. Overhead and Profit Are an Afterthought
This is where most of the how contractors underbid jobs tales typically start. Many estimators create a detailed, thoughtful cost proposal for materials, manpower and equipment and simply add a percentage to the top of it, without determining if that percentage is sufficient to cover the year’s true overhead costs of the company.
The overhead recovery rate might not be based on current revenue forecasts, or the profit margin might be cut informally during a tight negotiation and you may end up bidding competitively and secretly making a loss when you break out all the overhead costs. This happens to translate directly into a low profit margin construction bids problem that many companies may only realize at the end of the year, when their financials are not as strong as they might have liked in the face of a robust backlog.
A healthier structure breaks the estimate down into three distinct layers: direct costs; calculated overhead recovery; a non-negotiable profit margin, which is below a certain bottom line. Its presence on three separate lines on the form makes it difficult to ignore the profit during a final review when panicking or when the other team is looking at it.
Bottom Line
All five of these are not “exotic” issues. The most common construction bid error, year after year, regardless of company size, is rushed takeoffs, missed scope, stale labor rates, unpriced risk and afterthought markup. Talent is what you have, but what makes contractors who strive to maintain their margins different from those who don’t? It’s process discipline: a detailed takeoff, a scope checklist, data on the cost of labor, a real assessment of the risk and a defensible overhead and profit formula.
Prior to the next bid going out the door, test it against these 5 checkpoints. Taking the time to spot construction bid mistakes on the estimate sheet will only take a few extra minutes. Field collection is very expensive.