Estimate Your Commercial Project
BY Mike Byrd
At the National Pavement Expo (NPE) held in Charlotte earlier this year, a standing-room-only crowd gathered to learn “Estimating Commercial Sealcoat, Striping, and Crack Seal” information. From that presentation, let’s look specifically at some tried and true guidelines for the company that’s ready to take on a subcontractor role on a commercial project.
While there are many projects you could take on—from crack filling to sealcoating to striping a newly paved lot—the foundation for estimating and bidding remains the same. From that base, we’ll look at some nuances to help you estimate smartly on those fine details.
When a general contractor has a project for you to bid, you should have a standard set of questions to either ask him or see the answers to in the project scope. When asking these questions, put them in an email so you have a record of the answers.
- Will this be prevailing wage?
- What’s the deadline (time and date) for my bid? In other words, when does the prime need your price by? Then, what is the projected start date? Obviously, these are not the same. The project start date will give you a good understanding of whether you have room in your schedule to perform this project. Also, if the prime is asking your company to start work prior to his receiving a final price, you might be working on a handshake deal, and that’s not a safe way to conduct business.
- Are there any restrictions on what days or hours we can work?
- Can you send me the most recent set of plans, with addendums? Often, there are addendums to the plans so make sure you’re working off the latest set. This is important to request in an email, so you have documentation that you sought the correct information. Also ask, what is the actual address for the project? You will need this to send your “notice of furnishings” as well, so you can activate your lien rights in the event the owner doesn’t pay you. It may sound obvious, but the last thing you want to do is count stalls or stencils based on 10-year-old parameters, assume you’ll mobilize for only one day when the project actually has multiple phases, or measure a parking lot adjacent to the larger, more problematic lot your crew will actually be working on.
- Is there an on-site contact? Who is that person and will that person have the authority to execute change orders?
- If this is a sealcoating project, does the prime expect you to execute one or two coats?
- If this is a sealcoating project, will we also be doing any crack filling?
- Will there be any changes to the existing striping?
This list of questions is the first step of the bid checklist you should be working on for each estimating and bidding process. Your bid checklist should be a standard for anyone putting together an estimate for your company. It will provide vital information about the project, and if designed correctly, can be used by your entire office for job setup, invoicing, auditing, material tracking and for your field personnel to build the project.
Keep in mind, new construction projects will require typically a 10% retainer to be held for a length of time depending upon the state and project type/size. You may consider that part of your costs. Among the items to include in your price, don’t forget:
- travel time to and from the job;
- shop time in the morning, and unloading time in the evening;
- all direct costs, indirect costs, and labor burdens (payroll+);
- permits, licenses, bonds;
- meals and perdium;
- equipment depreciation;
- the owner’s salary;
- margins and markups.
When looking at the items to include in your price, overhead is something your back office can calculate and have ready to add as a line item. Your direct costs will include those expenses that are directly specific to the job, such as materials, field labor, labor burden, equipment, and so on. Indirect costs will be those expenses involved with maintaining and running your business, such as rent, utilities, office labor, insurance premiums, software subscriptions, and so on. You can think of these as the leftover costs after you’ve calculated your direct costs.
Also look at the difference between profit margin and markup. Keep in mind, it’s not only acceptable, but necessary to mark up the price of materials. If you pay a certain price per gallon for tack, you don’t want to charge your client that same price. You have to “handle” that material, store it at a temperature you pay a utility to maintain, pay personnel to track it, and so on. The material is costing you money the minute it hits your tank so it’s costing you more than its actual price. Markup is the amount by which the cost of a good is increased to get to a final selling price.
Profit margin refers to sales minus the cost of goods sold. Thus, profit margin and markup are two separate accounting terms that use the same inputs, and analyze the same transaction, but show different information. They both use revenue and costs as part of their calculations.
When you consider the labor burden cost, you want to take into consideration all the expenses you pay to keep your employees. The actual hourly rate is the direct cost. The other benefits, such as taxes, benefits, uniforms, bonuses, special event lunches, airfare plus room-and-board for training at NPE, are indirect costs. Adding all these together gives you a picture of the true cost of your workforce.
When you have your price calculated, you’ll include at the bottom of the estimate your general conditions. This is the “fine print” that you tailor to your business to ensure basic conditions—which might seem obvious to you as a contractor—are not only spelled out to the owner/client, but also are agreed to by the owner who signs the estimate. That’s right: Make sure the owner, client, prime contractor signs the estimate before work begins.
The general conditions will differ from your policy statement, which should also accompany your estimate, in that it includes your general conditions, and expands on your guarantee/warranty; your definition of scope of work; your outline of mobilizations, concealed contingencies and unavoidable interruptions; and your definitions or allowances of field measurements, changes/change orders and additional work. This policy statement should also be signed by the project owner, client or prime contractor before work begins.
All the items we’ve discussed herein can be applied to just about any commercial project you’re going to bid. When it comes time to estimate the specific striping or sealcoating or crack filling or patching job, the details will start to change. For example, if you’re estimating the price for a simple striping job on an existing parking lot, knowing your overhead comes in handy. That robust back office can hand you that number and you can use it in a formula to determine how much you need to charge, per stall, to ensure you make a profit on the job.
The savvy accountant will be able to tell you, “Boss, we need to charge 35 cents (or 45 cents or whatever the number is) per 4-inch-wide linear foot to break even today.” If each stall requires 20 linear feet of striping and you count 50 stalls to stripe, you know you need at least $350 in the price to break even on the striping alone. Add in the flat/minimum rate you charge for arrows, ADA symbols, words on the pavement, light pole bases, bollards and so on.
When you go to estimate your sealcoating projects, you’ll most likely be bidding by the square foot. Be sure to check on the age of the pavement you’ll be sealing. Remember that an older pavement that hasn’t been treated for five or six years—or ever—will absorb more of your product than a pavement that has received regular pavement preservation care. Once again, that savvy back office can have a calculation—either a formula from the sealer supplier or something you’ve assisted in preparing for your region/climate—that takes application rate into consideration when you’re assigning a gallon value to the square footage.
Most sealing products on the market today will cover about 60 square feet of “normal” pavement per gallon of sealer. If you’re working on an older, more oxidized pavement, you will require more material for that 60 square feet. If you’re sealing a well-maintained or new pavement, you may cover up to 100 square feet per gallon of sealer. Again, work with your supplier and back office to get the best numbers to estimate with.
Whatever commercial project you’re looking to bid this season, getting the basics right and having that foundation in place helps streamline your process. The initial questions you get recorded answers to and the bid checklist you follow ensure you cover all your bases when including all the parts and pieces to eliminate surprises, thus extra costs you didn’t factor into your bid. Plan ahead for your commercial project estimating and you’ll have an easier time not only pricing your jobs correctly, but also making a profit on each one.
Mike Byrd owned and operated Midwest Parking Lot Maintenance LLC prior to selling the company in 2019 after Midwest PLM won NPE’s “National Contractor of the Year Award.” Byrd is now in Idaho working with the Knife River Corp., Mountain West Division as a heavy highway estimator and project manager.
The Importance of the Back Office
While many contractors reading this article have a business already started, let’s go ahead and discuss an element of the business you may or may not have given enough attention to: The office staff who have your back.
Throughout the estimating and bidding process outlined in this article, you’ll see callbacks to line items that an office worker, accountant or human resources manager will have at their fingertips. From reviewing various insurance policies to redlining contracts for you, the people in your back office are worth their weight in gold. In fact, Mike Byrd attributes much of his success to the well refined back office his wife Leigh Byrd built, managed and maintained. Without the support of Leigh and her team, Midwest Parking Lot Maintenance LLC would not have been able to sustain the growth and success it did.
During his National Pavement Expo (NPE) presentation in January 2023, Byrd reiterated the importance of the back office, spelling out, “A knowledgeable, organized and well-trained back office is the heartbeat of the entire operation. They will be on the front lines of protecting both your liability and your assets. They are responsible for filing insurance requirements, taxes, payroll, and keeping both accounts payable and receivable balanced.”
Here are some of the roles of the back-office staff.
- Accounts payable/accounts receivable
- Contracts/insurance/lien waivers/invoicing
- Payroll/payroll taxes/BWC/unemployment
- Job setup/crew tracking
- Vehicle licenses/insurances
- Drug testing/EEO policy/safety