Construction & Demolition Recycling,
July-August, 2004 by Bill Gumbiner
Successful demolition estimating is a process of using the organization’s past project performance data along with checking and re-checking all items that will affect the final price of the estimate.
The estimator must determine whether the price developed looks reasonable, based on the organization’s past experiences.
As a long-time participant in the demolition industry, I can recommend several techniques and tools that can help a contractor develop a helpful estimate for a project under consideration.
A WINNING FORMULA
To develop a competitive demolition estimate, remember the following formula: Cost Estimate = (V x ROP x COP) + DC – SC.
In this formula: DC = Direct Cost; SC = Salvage Credit; V = Volume of Material to be Demolished and Removed from the Project; COP = Cost of Production.
A demolition estimator’s primary responsibility is to determine the following five critical items as accurately as possible:
* The Volume of material to be demolished and removed off site.
* The Rate of Production based on an organization’s past experience with similar projects.
* Cost of Production based on current labor, equipment and disposal cost.
* Demolition Direct Cost, which includes permits, insurance, travel cost, landfill, utilities disconnects, site grading, security, testing and environmental requirements.
* Salvage Credit, or the estimated current market value of salvage and scrap items that will become the property of the contractor and when credited to the project estimate will help lower the final cost to the customer.
A demolition estimator must develop the good habit of using an estimating system that includes the me of “common denominators” as they relate to the demolition projects being estimated. This can include labor hours and days, tons, truck loads, cubic feet, square feet and cubic yards. This enables the estimator to determine the box or window into which the work being estimated should fit, based on the organization’s past performance.
The demolition estimator’s most important task could be to determine the volume of material to be demolished and removed from the work site.
During the estimating/bidding process, estimators must use several means and methods at their disposal to determine the closest approximate volume of material to be demolished and generated from any demolition project. Information to create the estimate can come from a number of sources:
* As built drawings, “take-offs” and additional project documents furnished or available from the owner; soil borings, environmental surveys, etc.
* The direct “field take-off” method is physically walking the site, to determine the size, location and construction of each building to be removed and viewing the site to evaluate the existing condition of structures and material to be removed, including access and egress from the site.
* Use “rules of thumb,” based on information taken from the data captured from projects completed by the estimator’s organization, the estimator’s past experience and knowledge working on similar projects.
When determining the estimated volume of material to be generated from the demolition of structures, the estimator must reference the volume and results of his organization’s completed similar demolition projects and make necessary comparisons.
RATE OF PRODUCTION
To determine the rate of production for material generated from the project, follow these steps:
1. Determine the type, size and duration of heavy equipment required to perform the demolition work as proposed.
2. Review all surrounding field conditions that may limit normal unrestricted production, including the access and egress for personnel and equipment. Observe pedestrian and equipment traffic patterns and activities on roads to be used for access and egress during all phases of demolition production activities.
3. Observe the access and clearance necessary for large “oversize” heavy equipment to perform as the work sequence is envisioned.
4. Refer to basic, proven “rules of thumb,” based on conditions of similar type projects and the company’s past experience.
NOTE: In determining the rate of production of the work to be performed, refer to the rate of production results of previously completed similar projects.
COST OF PRODUCTION
The estimator/bidder should consider the following factors when developing the costs of production:
1. Determine the type, size and quantity of major heavy equipment and personnel necessary to perform the work.
2. Determine the amount of equipment and personnel to:
a. be obtained locally or;
b. that will have to be transported to the project from the company’s home base.
3. Compare equipment rates and transportation costs for locally procured equipment vs. the cost for company-owned equipment transported from the home base to the job site.
4. Determine the local labor market, including cost, and investigate availability of qualified personnel from the local labor market. Evaluate local equipment and labor vs. the cost to provide the organization’s equipment and personnel for the project with additional out-of-town costs and perceived efficiency.
5. When estimating projects out-of-town (more than six hours of travel time) and staffing the project with the organization’s equipment and personnel, evaluate using sub-contractors for certain portions of the work vs. the cost to self-perform work.
6. Contact local disposal sites and determine the cost per unit (cubic yard, ton, load) of each type of material to be disposed of or recycled.
For those who perhaps don’t understand the demolishing business, it is a business of many variables. The variables include:
1. The type and quality of labor available to perform a specific project.
2. Type and amount of heavy equipment necessary and available during the time frame of the project.
3. The availability and experience of labor during the time frame of any given project.
4. The weather to be expected during the time frame the proposed project is to be performed.
5. Regulations that may affect pricing including special concerns that may be imposed by government agencies or owner’s documents.
All these listed items are variables that create an industry in which costs are highly susceptible to volatile markets: labor, equipment, disposal and salvage. Demolition is anything but an exact science.
It is possible, in the demolition industry, to bid a project with a mark-up of say 25 percent, and the project might actually make 100 percent profit or turn in to a loss of 100 percent. These types of variables and potential market swings have at one time been experienced by demolition contractors and are considered the greatest risk in the demolition industry.
To be successful, it is essential that the estimator/bidder establish what I will refer to as the “box.”
The box represents the bidding window with the low side cost and the high side cost estimating of any given project. The ability to accurately determine those estimated costs could help the estimator/bidder avoid the estimating disasters encountered by most demolition contractors with experience bidding on diversified projects.
If the estimator/bidder understands the availability of in-house completed project data and the organization’s past operating costs (rate of production), and he or she, of course, understands those costs, the chances of the demolition company walking into the jaws of a large loser are greatly diminished.
The implementation and use of in house data retrieved from past projects can offer insight for estimators in estimating their organizations’ future demolition projects.
The amount and quality of information needed by estimators in all phases of completed demolition projects cost should include the type of information that would provide the costs taken from past completed projects broken down by different cost centers, while at the same dine reflect the percentage, or dollar value, of each cost center as it relates to a series of common denominators used by the demolition industry.
It is important to establish standard accounting cost codes and standard common denominators to be used in preparing job estimating. The information generated by the cost codes and furnished to the estimator will allow the estimator to prepare a supportable cost estimate.
Once the standard cost centers are established, the amounts posted to those cost centers on individual projects would be related to specific common denominators. The result of the calculations would be considered a “unit price” for each cost center for past work performed.
The common denominators demolition estimators should use include:
* cost per net ton
* cost per square foot
* cost per worker day
* cost per cubic foot
* cost per truckload
* tons of steel produced per worker day
* cost per cubic yard estimated
* square foot produced per worker day
* cost per worker hour.
This type of cost breakdown should provide estimators/bidders with a comprehensive breakdown by categories, allowing him or her to determine the rate of production on any similar project completed by the organization. The estimator/bidder should be able, by using the past data information, to develop a bidding window–neither too high nor too low.
TRYING IT OUT
Here is an example of how past project information can be used by the estimator/ bidder.
The estimator/bidder is given the assignment of bidding a demolition job that requires considerable subcontractor work (more than 20 percent of the total cost). Previously, the company had completed a similar job in which it had successfully captured the job cost, using standard cost codes. The previous projects completed by the organization did not have subcontractor cost exceeding, say, 5 percent of the previously completed project. It would be easy to extract the subcontractor cost information from the result of the captured job. Many jobs are similar, but never the same.
The goal is to accurately determine the rate of production and the cost of that production, based on the company’s capabilities, thus establishing the organization’s “true” cost of production.
The demolition industry is a business that requites the moving of material from point “A” (job) to point “B” (disposal or recycling site). In order to accomplish the task and to move a specified amount of material, the estimator/bidder must know three things:
1. The volume of material to be moved;
2. The rate of production, or how quickly material will be generated; and
3. The cost of that production–the organization’s charge for personnel, equipment and disposal.
Once the estimator/bidder has accurately established these three key items, he or she can prepare a bid competitively and with consistency, eliminating extreme swings in variable costs resulting from a failure to collect past project data to determine the organization’s true rate and cost of production.
To achieve the organization’s unit prices, the estimator/bidder will need to make a sincere effort to undertake job time-study work. More specifically, time study on existing projects can be done to capture data for future estimating.
An example of projects in which data should be gathered would be comparing strip-outs of office buildings vs. hospitals, and how costs are affected based on each project’s conditions.
By tracking strip-out, cost and production, estimators/bidders can use the information on future projects as well as allow operators to make adjustments to similar ongoing projects prior to completion, ideally resulting in savings to the organization.
It would be fundamentally sound to say that if the he or she knew how the job costs were spread among as many as 20 to 30 different cost code centers and how those cost code centers were affected by the else of job-related common denominators, the estimator/bidder then will be able to analyze those cost and production rates at the completion of each project. Additionally, he or she can determine how well the estimated cost and production rates compare with the actual job cost and how well the rate of production estimated compared to actual production rate.
The organization could then share the information acquired with its other estimators, making them aware of where the specific job costs occurred and indicating where the estimate either made or lost money, allowing adjustments and cost savings on future projects.
While the variables involved in demolition create an industry that is highly volatile and make project estimating a challenge, carefully tracking and referring to a company’s past experience can help in bidding future projects with similar requirements.
It is possible in the demolition industry to bid a project with a mark-up of 35 percent and to then either make a 100 percent profit or to lose an equal amount. The types of variables encountered by the demolition contractor and the potential of large swings, either good or bad, create an industry of high risk with the possibility of fair return on investment only when the organization establishes a data-capturing system that provides information on its real costs and real rates of production. This data collection can limit the downside risk of being saddled with a real stinker.
The author is a 40-year veteran of the demolition industry and is a principal, along with his brother Les, in Demolition Industry Consultants, LLC. Bill and Les have served as corporate officers of estimating, project development and operations for some of the Nation’s top demolition contracting firms. Bill can be contacted through the www.demolitionhelp.com Web site, via e-mail at email@example.com of by phone at or 888-440-DEMO (3366).
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