At a time when construction costs are rising and construction workloads are decreasing, estimating software is one tool that contractors can use to improve their ability to quickly and accurately determine the costs, and profits, associated with construction projects. In these tough times, the ability to provide clients with a detailed, thorough cost estimate can mean the difference between winning a job and losing it -- even in the face of lower estimates from less-organized outfits. Here we talk to three estimators about how construction estimating software is helping them.

Introduction

The weak economy, combined with the rising cost of materials and fuel, is the biggest hurdle companies face today, noted a May 2008 report by QPS Companies Inc., a Milwaukee-based recruitment and staffing firm. What's more, according to the American Institute of Architects' semi-annual Consensus Construction Forecast, which was released in July, these factors are contributing to a 1.2% decline in inflation-adjusted activity in 2008, with a project decline of 6.7% next year.

"The more pessimistic forecasts this round stems from the lack of growth in the overall economy, the ripple effect from the faltering housing market and the anxiety in the credit markets leading to a restriction in lending for all types of construction projects," AIA Chief Economist, Kermit Baker, said in a statement.

"Another key concern for the industry is that the cost of construction materials has increased more than twice that of consumer products and services -- up 37% vs. 18% since 2004," Baker added. "Petroleum-based materials and other key construction commodities such as steel, concrete and stone have experienced very sharp price increases in recent years."

IT gives contractors an edge

Given that materials are, generally, more costly and can be harder to procure, it is vital that contractors eliminate the guesswork from their estimates. Before the mainstream adoption of computers and construction estimating software, most contractors used pencil and paper to tot up the often-complex mix of figures and suppliers. This manual process could generate inaccurate numbers and took hours or days to produce, said construction estimating professionals.

"I used to do estimating manually before moving to Clear Estimates about 18 to 24 months ago," said Jason Kirkpatrick, founder and owner of Kirkpatrick's Construction LLC, a Centreville, Virginia-based provider of high-end residential remodeling services. The software cut my estimating time in half. That means I have more time to delegate and work in other areas of the business."

Correct estimating is critical to a builder’s business. "How do you know how to sell something if you don’t know how much it cost you?" asked Brian Conaway, president of Conaway Homes in Tyler, Texas. "We price everything right down to the penny. We know exactly what our costs are on everything."

Staying the course, despite temptation

While sales of new and existing homes have fallen over past months, a number of contractors have continued to thrive, partly because of their mastery of construction estimating software. And those contractors in growing industries -- such as the energy, public sector and infrastructure markets -- credit their estimating skills and software for improving their competitiveness and bottom line.

Some contractors have not adjusted their cost estimates or started using multiple formulae to adjust to the more competitive market. It's difficult, but it has worked.

Kirkpatrick said his strategy is to stick to his guns and explain to his clients why, as he put it, "our pricing is very well going to be higher than one person with no overhead, who's operating from his truck.

Added Kirkpatrick, "I have not lowered my margins because the market's slowed down, but I've needed to work twice as hard to close a deal," since clients are taking longer to commit to projects and are shopping around, even if they have a preferred contractor. As a result, if Kirkpatrick's Construction finds that a prospective client is seeking many, many bids, the company declines to participate because it becomes too time-consuming and unprofitable.

For its part, Conaway Homes' in-house IT solution has dramatically improved the company's productivity, said Conaway. "We can handle a lot more homes with less people because it's so automated," he said.

The construction software has also allowed the contractor to build better relationships -- and pricing -- from vendor partners. One large supplier, located 100 miles away, frequently works with Conaway Homes because the builder's tightly integrated estimating, accounting and scheduling software generates no paperwork. This speeds up payments and satisfies customers -- all the more important in an uncertain market, Conaway said, because "reputation means a lot."

It is not surprising, then, under- or over-estimating project costs can jeopardize a job or a business relationship. In some cases, the builder must eat the overrun; even if the contractor is paid the difference, a bad estimate can affect future project bids.

"I don't want to kill a project by being too high or come in too low and give a false sense of hope, said Bruce Bradley, manager of the estimating department at Fluor Corp. in Sugar Land, Texas. "What you're left with, you hope, is a really accurate definition of what a project's going to cost."

Making sure the price is right

Many construction estimating software tools ship with pricing databases customized for the buyer's geography. But savvy contractors said they rely more extensively on their own pricing information.

Regional differences -- in exposure to natural disasters such as hurricanes, as well as varying minimal wage and insurance requirements -- can affect the cost of materials. In Rhode Island, for example, $19.08 of every $1,000 in gross domestic product (GDP) is spent on miscellaneous manufacturing, compared with 34 cents per $1,000 in GDP in Arkansas, statistics site StateMaster.com found. In addition, pricing for labor and services also reflect the local pricing range. Finally, a contractor has different price scales, depending on the volume of business it conducts with a certain supplier, which will not generally be reflected in pre-programmed estimating databases.

"I've found the majority of my colleagues and I end up customizing the pricing so it's in line with our company," Kirkpatrick said. "It would be unadvisable for someone to use cost averages -- unless he wants to go into another line of business soon."

It should be said, though, that construction estimating software that captures price changes can help contractors keep up with price increases -- or decreases -- that will impact the bottom line. By teaming experienced estimators with quality software, contractors can reduce some of the risks associated with bidding out projects during a time of frequent cost adjustments.

Conaway Homes, for example, tapped its 30-year experience in the production builder market to generate pricing for its custom-built construction software suite, said Conaway. As previously noted, the family-owned firm's software is accessible by many of its vendors, which creates invaluable real-time pricing and inventory information, he said.

"When we go into the system and build a job -- which takes, literally, 30 seconds -- it automatically produces every purchase order, all the budgets, everything. It's an unbelievable timesaver," said Conaway. "I think technology definitely makes us run more efficiently. The key to the whole thing is building better and consistent product to give to the consumer at a better price."

To keep construction estimating software both easy to use and useful, savvy contractors are investigating their options and, at the same time, considering the source and quality of the data they will use within their software to create accurate estimates for clients. After all, if the price is not right, contractors and their clients lose. 

About the author: Alison Diana is a freelance writer and editor with Professional Ink, a firm that partners with publications, public relations firms and marketing professionals to produce articles, trade show coverage, press releases and corporate newsletters. As a writer with Professional Ink, Diana's bylines have appeared on LexisNexis, Florida Today, the New Jersey Star-Ledger and 2020 Software. Her prior roles include managing editor at Computer Reseller News.