I have seen it done many different ways; I have heard twice as many opinions. Sometimes it’s a specific dollar amount entry or a small percentage value; sometimes nothing at all. No matter what it is or how it is done, one thing is certain: Tools and equipment are hard job costs and should not be omitted from any estimate.
The myth: “I’ve already paid for that equipment; I don’t need to include any cost for it on this job.”
The reality: Even though your company owns its tools and equipment outright, they still cost the company money to use and maintain—especially equipment such as forklifts, scissor lifts and trucks.
Tools and equipment also are expensive to replace when they get stolen, and it is expensive to insure them. Perhaps you should include money for ‘insurance premiums’ in your bid? This way, when one of your new trucks gets a dent or a broken window, you might not hesitate to get it fixed and report the loss to your insurance company.
You are going to buy tools in the near or distant future. How are you going to pay for them? If you carry a small amount in every bid for “future tools,” as you win projects, you will bring in money for these future expenditures.
Do you supply your electricians with cordless drills, screwdrivers, pliers, dikes, tool belts or other miscellaneous tools? These may not seem like much, but if you contribute $100 per man for a 10-man crew, that’s $1,000.
If job boxes and other storage containers are required, does your company have enough to spare another two or three for the project you are bidding today? If you win this contract, will you be able to supply the project without borrowing from Peter to pay Paul?
Knowing which types of tools and equipment (and how many pieces) your project is going to need is important. The obvious ones get used on every job: ladders, job boxes, drills, etc. For these, simply adding that 1 or 2 percent of your total labor costs to cover them might be sufficient (notice I said “might” be).
A brief, prebid meeting with your tool manager(s) would be recommended for any bid. Discuss which tools you think will be needed, approximately when and for how long. Discuss the status of your current contracts and which tools they will require and when. Hopefully, you will be able to assess whether you need to carry more money for purchasing and renting certain tools and equipment.
Tools add labor to the job. Additional labor is required to mobilize, organize, coordinate, set up and operate all of the tools and equipment. At the end of each day, ladders need to be locked up (did you carry money for locks and chains?), lifts have to be parked and plugged in, job boxes and trailers secured. Generators need to be set up and connected, filled with gas, started and tested. How did you figure for this in your bid? What is it based on? (Speaking of gasoline, have you accounted for how expensive it has become?)
The larger tools and pieces of equipment require a deeper look. Generators, lifts, boom trucks, benders, pullers and trenching equipment all require additional labor to set up, operate and tear down. If you can, segregate the actual labor time involved for each of these pieces of equipment. Then you need to decide if the labor units you carried in your estimate cover the additional setup, operation and tear-down of these tools.
For example, if a generator is required for 30 days, and it takes one hour each day to check the gas level, start and test it, that’s 30 hours. If your labor rate is $50 per hour, that is $1,500. Or if you have 50 different feeder pulls and it takes an hour to set up the puller, that’s 50 hours. Add another half-hour to tear it down and put it away—we’re up to 75 hours (75 × $50 = $3,750). Now we’re talking some serious money. Do you want it covered in your bid or taken out of your profit?
“How will I win the bid if I carry all this money for tools?” you may ask. Too often I hear hesitancy on bid day because the contractor is afraid of adding too much and losing the bid. So, what are they thinking here? “I’m going to bid the job for less than I know it will cost. If I win, then I’ll just have to build it cheaper.”
Perhaps you figure tools and equipment get covered in your overhead percentage? OK, at least you are thinking about it. But is your overhead percentage correctly covering everything? If you are carrying 15 percent on each bid, how much of this is allocated to your tools and equipment?
The smartest action is to examine, study and decide whether the material costs and labor units you carry for your pipe, wire and other materials actually cover the additional labor needed for the tools and equipment required to install them.
If you are losing projects because you carried an additional 1, 2 or even 5 percent for tools and equipment in your bid, then something else is to blame. Of course, just because you lost a bid doesn’t mean you did something wrong. Perhaps your competition did. Maybe they didn’t think about the costs of tools and equipment. EC
SHOOK is the president and chief estimator for his estimating company, TakeOff 16 Inc. He has worked in the electrical construction industry for more than 18 years. Reach him at 707.776.0800 or sfs@TakeOff16.com.