June, 2020 - page 63
By: Herb Brownett, CCIFP
Estimating is a key part of a contractor’s ability to acquire work. Whether it’s a “hard” bid or a “negotiate” bid, accurate bids are essential. Bids are a double-edged sword. Bid too high, and you do not get work. Bid too low, and you lose money, sometimes significant amounts. There is an adage in the construction industry that a contractor bets the company every time a bid is submitted.
Therefore, it is critical that contractors leverage the best available technology to produce competitive and accurate bids. Yet studies show that the most used technology by construction contractors for preparing bids is spreadsheets. The appeal is understandable. Spreadsheets are easy to use and most people in the business world know how use them. This ease-of-use however is a trap. The pitfalls are significant.
The most dangerous threat is how easy it is to have an incorrect summation range or to corrupt an extension cell. I know of one situation where a contractor was bidding the installation of four expensive components in a wastewater treatment plant. They accurately calculated the cost of installing one component, but the extension formula to four was corrupted. As a result, they bid the installation of one component not four. That was a huge bid bust. This also cuts the other way. A formula error could result in a bid being artificially too high and cause the contractor to lose work.
The risk of this type of occurrence only ramps up if multiple users work on the same spreadsheet. Having multiple users in and out of the same spreadsheet is a recipe for disaster. Larger and more sophisticated bids tend to be collaborative in nature. Contractors need to be able to have multiple people work on a bid while maintaining the integrity of the overall bid.
Maintaining current costs for labor materials and equipment is another challenge of using spreadsheets. Whether each bid is a new spreadsheet, or templates are used, estimators must be very careful to make sure the rates are current. Frequently people copy previous bids as a starting point. The previous bid may have old rates.
You may ask yourself, why are these issues not picked up in review? Which leads to yet another issue. Excel spreadsheets are very difficult to review and do not leave audit trails and list changes.
For bids that are awarded, the last spreadsheet issue is getting the information accurately into the contractor’s cost system. This usually involves keying the bid numbers into an ERP system. As with any manual data entry transfer, there will be input errors.
Specialized estimating software can solve all of these spreadsheet issues for contractors operating across heavy civil specialties. To start with, contractors will have a centralized database. Labor rates, materials costs and equipment rates are easy to keep up to date and automatically used on bids. Good estimating software provides flexible work breakdowns and standard bid templates. It also provides for simultaneous use by multiple estimators, including synchronized mobile estimating. Finally, estimating software can track changes and provides an audit trail for final review. For awarded bids, contractors can use automated data transfer to load awarded bids into currently used ERP systems.
In summary, specialized estimating software gives heavy civil contractors the ability to bid more work with greater efficiency and accuracy. Don’t bet your company on a spreadsheet.
HERB BROWNETT, CCIFP, is the President of Brownett & Associates, LLC, a construction financial management consulting firm in Philadelphia, PA. Previously, he served as CFO, Senior VP, and VP of Finance for a variety of construction companies. Herb is a longtime member of CFMA, has served in numerous roles including CFMA’s Chairman.