Charge For Every Job Cost Required!

Words: George Hedley

In the construction industry, every dollar counts, and every penny lost is wasted. Losing small change on your construction projects can add up to thousands of dollars at the end of the year. Maximizing profit should be a primary goal alongside completing projects on time. When you're busy managing projects, scheduling, and overseeing tasks, it’s easy to overlook financial strategies that can enhance your bottom line and allow you to make a lot more money. Consider implementing these effective strategies to increase net profits on your projects.

1. Calculate Accurate General Conditions Costs
General conditions encompass on-site project management, supervision, temporary facilities, utilities, and soft costs necessary for project completion. Accurately estimating these costs is crucial, yet many estimators rely on unit prices, which are rarely checked against the actual final job costs. For example, creating a budget for temporary toilets seems straightforward. A ten-month project should require 10 toilets @ $175 per month = $1,750. But when the field superintendent sees there are 30 to 40 men on the job, more than one toilet and more than one servicing a week is required. This can increase the actual job cost by as much as $400 per month or an additional $4,000 over the budget. Consider the same concept for temporary power poles, fencing, job trailers, security, trash bins, and cleanup.

Estimator’s Key Responsibilities:
The estimator’s number one job and accountability is to calculate an accurate estimate of what it will cost to build each project. After every job, they must look at the final job costs to see if they miscalculated or underestimated any project line items. Before pricing every job, the estimator should meet with the project manager, field superintendent, or foreman to determine what will be required to build the project's bid. Take a hard look to determine if you are charging the right price for:

  • Project manager, superintendent, and their vehicles
  • Project photos, sign, as-built drawings, etc.
  • Temporary facilities, trailers, toilets, sanitation, etc.
  • Temporary utilities, electricity, power poles, water, phones, etc.
  • Temporary fencing, gates, barricades, site lighting, heating, etc.
  • Safety, first aid, shoring, access roads, security guards, etc.
  • Water quality control, dust control, etc.
  • Trash, cleanup, window washing, final punch-list, etc.
2. Charge for All Change Order Costs
Change orders are formal written documents amending the original contract, detailing changes in scope, price, terms, time, or schedule due to additional work. Properly managing change orders is vital, as failing to secure written approvals before commencing extra work can lead to significant revenue losses. Often, contractors perform extra work without obtaining signed change orders and hope to get them approved after the added work is completed, which jeopardizes potential profits. When customers request additional tasks, getting formal approval can be challenging if you wait too long. This delay diminishes your leverage, leaving the customer in a position to negotiate terms or dispute the necessity of the extra work.

When your customer asks for extra work, why is it so hard to get it approved in writing? Everyone knows the contract requires signatures on change orders prior to starting extra work. But when you postpone getting formal approval for extra work until days, weeks, or months after the event occurred, you have no leverage with your customer. And when you have no leverage, your customer is in a great position to settle for a reduced discounted price, change their mind, or decide the additional work wasn’t really extra and should have been included in the original contract.

Manage change orders effectively by presenting a detailed cost breakdown. Before starting any additional work, provide your customer with a detailed cost breakdown of all change order costs and get it approved in writing. Use a standardized, detailed change order template to ensure all necessary costs will be accounted for. Include every cost it takes to do added work, including:

  • Project management and supervision to oversee and manage the work
  • Labor, equipment, materials, subcontractors, suppliers, small items, nuts, bolts, hardware, etc.
  • General condition costs related to extending the project duration, including:
         - Delay costs or time to do the added work
         - Temporary facilities - trailer, toilets, power, and utilities
         - Fencing, security, protection, barricades, and cleanup
         - Trucks, equipment, small tools, ladders, lifts, and delivery
         - Liability insurance and bond premium
         - Overhead and profit markup allowed per the contract
Don’t shortchange your company by not asking for everything you deserve. I see most change order requests presented as labor, materials, and hard costs plus a markup without extra required soft costs for the many items listed above. Failing to charge all appropriate costs in change orders can result in significant revenue losses. For instance, if your company generates $10 million in annual revenue with $500,000 resulting from change orders, not accounting for every associated cost can lead to losses of $50,000 or more each year. Making money in construction is challenging, but every advantage you take can significantly boost your profit margins. If you're interested in tools to enhance your profit, feel free to reach out at GH@HardhatBizcoach.com. By focusing on accurate estimates and ensuring all change orders are fully paid for, you will position your company for greater financial success.

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ABOUT THE AUTHOR
George Hedley CPBC is a construction certified professional business coach, consultant, and speaker, He helps contractors increase profits, grow, get organized, systemize, and move to the next level! He is the author of “Turn Your Construction Business Into A Profit-Making Machine!” available on Amazon.com. To schedule an introductory coaching session or get his free e-newsletter, email GH@HardhatBizcoach.com. Watch his videos at youtube.com/@HardHatBizCoach or download online courses and get his contractor templates at hardhatbizcoach.com.


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