Is It Overhead or a Direct Cost?

There’s a thin line between overhead and direct costs in project estimating. Further implications exist in those direct costs that relate directly to project coordination. Many factors cause price fluctuations on the same project depending on the expected efficiencies of administering the project. Often these efficiencies depend on strangers’ skills, which can turn a decent job into a nightmare. The first place where differences occur between two contractors is often the project schedule. The electrical estimator should develop a personnel loading schedule that is based on sound experiences of same-type projects and, at minimum, is a simple bar graph with project markers. Since it should reflect the construction industry’s “custom and practices,” skilled estimators or supervisors should review the project. If developed properly, such a schedule can be a valued tool for the project administration, and also be a record of what to expect in the event of a later claim on the project. Not surprisingly, there is a vast difference between construction managers’ and contractors’ project schedules. A contractor that enforces schedules is one that every subcontractor can bid competitively. Maintaining a realistic schedule is vital, but often subcontractors have found that little effort was made to use the schedule to coordinate the project’s various operations. If the subcontractors weren’t keeping tabs on a project, there would be nothing but surprises. The lack of scheduling means that every craft on the project decides independently when to show up to perform their operations, which causes confusion. Only the owner can control the selection of the general contractor. But owners also must finance the project and often, they fall subject to far-out construction project management ideas. For example, one contractor decided to build the project backwards—truly—from the outside in. This obviously caught the electrical contractor and every other sub by complete surprise, and the unpredictable actions made the contract dispute an expensive one. Another abuse is a project with inadequate site administration. This can be reasonably predicted based on prior experience with the general contractor, which is why estimators need to be informed about the firms’ practices to which they will bid. Unknown contractors frequently puzzle estimators, so it’s advisable to maintain many industry contacts that can help to fill in the missing pieces of information. Temporary power is another unanticipated burden. In recent years temporary systems’ complexity and risk have increased. Adherence to OSHA regulations regarding temporary power can indicate the extent of capital outlay for equipment. The associated labor of properly installing and maintaining the system can be a major cost factor. Temporary power can extend the electrical contractor’s liability and time line, and the true costs must be anticipated as closely as possible. Temporary power requires close scrutiny if the item costs are included in the bid package. The contractors we bid to vary in performance expectations. It’s not so much the electrical installation itself as it is the many circumspect items that blind-side subcontractors, such as trash removal. This is generally not considered an important cost factor, until the contractor begins to back charge at exorbitant rates. The way the electrical materials are purchased can reduce trash. For example, fixtures come in boxes or they can be bought palletized and shrink-wrapped. The latter is obviously a more efficient way to offload and place the fixtures, but more important is that the amount of trash is reduced considerably. Job site personnel will also influence trash generation. Including a reasonable cost in the estimate will establish the fact that an amount was included in the bid, should there be later litigation. In high-rise work, a cost factor is that personnel, materials, and equipment will have to get to the floors where the work must be done. What is the policy of those accepting bids for sharing the hoist time and costs? Will the hoist time be based on a mutually arrived-at schedule or one that is mandated by the entity paying for the rental of the hoists? These significant costs need to be considered realistically before a price is called to a particular contractor. The bottom line is that knowing the firm to which a bid will be given is a keystone in having a profitable project. This is in no way discriminatory pricing, though some will protest loudly that it is. The same price to any and all customers can be a disaster, and perhaps more so if the information leaks out to steady customers. The estimator is responsible for knowing the contractors’ practices, and keeping up-to-date with information from the field and your competition. 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) 597-1877or by e-mail at

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