Lawyers say that “bad” cases make good law and this actually does make quite a bit of sense. What they mean is that “bad,” or out of the ordinary cases, stretch the justice system and force it to rethink and clarify exactly what the law means regarding a particular set of unusual circumstances. As a result, a more effective and more just legal system is produced.
In like manner, landscape jobs that are extreme in one of their direct cost components (materials, labor, subcontractors or equipment) often require contractors to rethink their estimating and pricing procedures. A contractor in New England recently had such a job.
A customer wanted Chris and Greg Maroun of Steck’s Nursery in Bethel, Conn., to install 20 6- to 8-foot-tall white pines. The customer wanted a competitive price, which was about $300 per tree installed. The Marouns thought that a three-person crew could install all 20 trees in one 10-hour day if they used their skid-steer with a backhoe attachment.
Note: Sales tax, in this case, would be added to the total price of the job and is therefore not included in phase III margin & markup portion of the bidding process.
The numbers worked out as follows:
Phase I. Produce the product:
The trees with a 10 percent warrantee factor, amendments and fertilizer would cost the company approximately $180 each. Crew-labor hours would total 24 man-hours at the job site. The skid-steer with the backhoe attachment and trailer would be used for six hours on the job at a cost of $25 per operating hour.
Phase II. General conditions:
An extra four man-hours would be included in general conditions for possible future warrantee work. The crew truck was a one-ton pickup. Its cost is $6 per hour for up to a maximum of eight hours per day to have on the site.
Six man-hours are also included in general conditions to cover load/unload time and drive time to and from the job. Either Chris or Greg Maroun would be on the site for two hours at a cost of $20 per hour to supervise the job.
Additional cost data is as follows:
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ANALYSIS. At first blush, the bid for this job may seem fairly straightforward and routine. The bidding methods are certainly not unusual. However, upon further ratio and per-hour analysis, some very interesting numbers surface. For simplicity, some numbers are rounded.
How The Bid Looks On A Bid Worksheet | ||
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NORMAL MARKET RANGE: |
While the gross profit margin of 28.7 percent for this job is low for the residential market (it is normally 30 to 40 percent), the effective use of equipment and subsequent very high, 8:1, material-to-labor ratio translated into a very profitable job. A three-person installation crew can normally install a $1,500 to $2,000 job per day. However, labor-intense hardscape jobs bill out less per day while more material intense planting jobs, like this one, will bill out more. the above scenario explains why planting jobs tend to be more profitable than labor-intense jobs. If your net profit margin were running at 20 percent, would you rather have 20 percent of $1,000 per day or 20 percent of $6,000 per day?
Think what might have happened if this contractor was using material factoring as a method of estimating. It is not uncommon to multiply materials cost by a factor of two or three. The price would have been either $7,200 or $10,800, respectively. These prices would have been great if the market had allowed it. But in this case, the company would have probably lost what would have otherwise been a very profitable job had it stuck to factoring methods.
CONCLUSION. The Marouns knew their numbers, their crew’s productivity and their market. By combining all three together accurately in a bid, they were able to give their customer a good deal with a very marketable price for the 20 6- to 8-foot-tall white pines they installed.
They were also able to give themselves and their company a very profitable job, and a bonus to the crew.
Unfortunately, in “bad” legal cases, someone often gets the sort end of the stick. Non-standard landscape installation jobs with extreme production rates, material-to-labor ratios, etc., should not cause problems for the contractor who knows his numbers. They should present market opportunities. Everyone should come out a winner, especially the contractor.
The author is president of Smith-Huston, a construction and services management consulting firm based in Denver, Colo. He can be reached at 800/451-5588.
DISCLAIMER: The labor rates, equipment costs and other figures used here are industry standards and should be adjusted to accurately reflect production methods and costs for individual companies in a specific region of the country. The $15 G&A overhead cost per man-hour used is a rate that is generally accurate for a mid-size high-end residential landscape installation company operating under seasonal conditions.
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