Wednesday, January 16, 2013

Rough Estimates, Screwed (but Sometimes Blessed) Contractors

Well, remodeler Diane Menke may think it's "contracting 101" to properly estimate a job, and perhaps among the high professional caliber of d5R readers it is. But we've all known of remodelers -- and plumbers, painters, electricians, masons, etc. -- to way underestimate how much a project will really cost, and to end up in a deep pile of mess weeks or months later, when the client refuses to pay far more than they had been told the job would cost.

As construction attorney Andrea Goldman shared in Wednesday's d5R Answers discussion (where Diane posted her comment):
"Failure to properly estimate jobs is probably the biggest mistake I have seen contractors make recently.... Within the last month, I have received calls from at least four contractors who misbid the job, built all of their profit into the last payment and are having trouble getting paid. They have to put their own money into the job to finish it."
Sometimes a single such misbid can bring a business down. More often, it drives the contractor to cut corners and do a job that is sloppy or worse.

On occasion, of course, one contractor's bad estimating can benefit another, such as when the client has to hire a new company to come in and do the job right. I just wrote (for another publication) about a remodeler who scored a $400,000 project in such a scenario. His company did such a wonderful job that the clients have since referred his business for another $1 million in business, he estimates.

How have botched estimates affected your business, remodelers? Please weigh in here.


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Shawn McCadden said...

I agree with Diane. Estimating is or should be "contracting 101" stuff.

If you're a construction business owner you need to know what it takes to run a business, which is very different from building something. Not knowing your pricing requirements like markup and margin, or how to properly estimate the cost to produce a job are huge gambles. Lumberyards offer classes on new ways to use a chop saw. That's great for carpenters, but probably has little value for a business owner. I have seen where contractors and their suppliers both benefit when the lumberyards also offered business and estimating training opportunities. Of course, contractors would have to commit to attend.

Shawn McCadden

Abe Degnan said...

And once again, scope of work comes into play. Making sure you estimate for everything. If you use some cost book, make sure you get the right codes and all the codes included! Better yet, have a good set of books and company history for yourself so that you know what it takes your people to do a similar job in the past, and update it to the present.