Estimating Economics

By Eric David | Aug 15, 2002
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Most of what project estimators work on resembles what they will be working on in the next six to nine months. But what of those longer-term projects? How can labor and material predictions be sufficiently accurate to cover such periods and ensure that the project will benefit the contractor? Obviously, predictions are always risky, but their risk can be lessened with readily available databases.

In-house sources are obviously the more meaningful ones if adequate records have been kept over a representative time period. If an example of three years is used, then some history will evolve that may be of help in attempting to make a reasonable cost projection for a like period. As with any projection, it will only be verified after the project is done. The people we bid to, though, couldn’t care less at that point. So the first data to look into are any records that have been retained of a similar project completed in the past. These records may reveal applicable trends to a current estimate.

The National Electrical Contractors Association (NECA) chapter covering the project’s location often can provide information on future labor rates. Obviously, the data can only be that already negotiated, as I doubt that any chapter person would hazard a guess. Some chapters send out the applicable information for their own and also neighboring jurisdictions. Unfortunately, too often, these information sheets don’t get to estimators. Estimators might suggest that any price information that comes to the company be copied and distributed as soon as possible.

Published future labor rates are only one part of arriving at labor costs. The further consideration has to be the availability of a sufficient pool. The NECA chapter can again determine this. Any of the many other sources that track development in a given area should also be accessed. Typical are governmental planning departments, chambers of commerce and like sources. The best approach for obtaining this information is to constantly scour newspapers and similar sources and become aware of what is going on in the area.

Material prices are somewhat less difficult to predict, although there are the obvious exceptions, such as copper wire. A means to check copper trends is to read the newspaper’s financial pages, where listings of commodity futures are indicated. This won’t disclose a price for wire, but it can signal a trend that prices might rise soon. The same holds true for prices on steel and similar materials that affect our trade.

While it is not a common practice, some items have included escalation clauses in their price quotations. In one period some years ago, contractors were subjected to an escalation clause on switchgear that used silver. The final price depended on the cost of silver at the time the gear was delivered. In a similar situation, it might pay to bring the material into storage, although this also produces an appreciable cost factor. Negotiating a price protection with your supplier is another option.

When all else fails, there are always economic statistics. There’s a tongue-in-cheek temptation to refer to some of the humorous quotations as they affect statistics and economists. In reality, though, there is a benefit to using such sources.

The cost reports published in Engineering News Record (ENR) are one reliable source. ENR published statistics on various building materials throughout the year in various editions. For example, conduit is one of the prices tracked. This type of information can be of considerable reference value.

The granddaddy of sources is the Department of Labor Cost of Living (COL) Index. There are various indices, but the COL is a rational yardstick. The index’s Web site can be accessed at The figures for the period of March 2000 to March 2002 indicate a 7.6-percent increase, while a similar period from ’96 to ’99 indicates a 9.3-percent increase. Comparisons of company records might produce parallel percentages. If there is a great disparity in figures, then there may be valid reasons that defy statistical review.

The bottom line is that predictions are fraught with danger and contractors have few choices on firm bid projects. Making predictions is an art. If someone knows a secret of making valid predictions, then I would question why he or she is in the electrical contracting business. Predict future prices with facts and caution to the benefit of your business. Owners and general contractors abhor incomplete bids.

These may be some of the reasons why so many projects are being negotiated rather than bid with firm prices. EC

DAVID is a professor of electrical technology at Long Beach City College, Calif., a consultant and an expert witness. He can be reached at 562.597.1877 or by e-mail at [email protected].


About The Author

Eric David is a professor of electrical technology at Long Beach (Calif.) City College, a consultant and an expert witness. He can be reached at 562.597.1877 or at [email protected].


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