I continue this blog series to break a decades-long silence in the construction industry -the nine true secrets of successful estimates.
THIRD SECRET
The third secret to be revealed is the hourly rate for craft labor. A sub-secret to this is the hourly rate for staff labor and it has similar principals. The labor rate is the cost per hour for the craftsmen on the project.
To determine any craft rate, whether union or open shop, the estimator starts with the basic wages and fringe benefits. However, this is just the starting point. To the wages and fringes, the estimator needs to add what are commonly called payroll burdens. These burdens are FICA (Social Security), FUI (Federal Unemployment Insurance), SUI (State Unemployment Insurance), WC (Worker Compensation) and others mandated by legislation and/or company operations. These burdens, plus the base wages and fringe benefits, determine the hourly cost of a craft classification (ex: a Carpenter, Pipefitter, etc.).
From the point of having the individual craft classification, the estimator typically needs to develop a crew rate. A crew rate can consist of a number of journeymen, a foreman and/or a general foreman or variations on this hierarchy. In this crew there could be ten journeymen, one foreman and an allocation of a quarter of a general foreman in the mix. A variable to this mix is that the foreman and general foreman may or may not be what is termed a “working” member of the crew.
In select cases, where someone is being unrealistically optimistic on hourly costs, there may be ten “apprentices” and one journeyman as the crew. This is unrealistic in that the lowered productivity of the “apprentices” offsets any gains in the hourly rates used in the estimate. If you don’t believe this one, check out how to train people effectively on the job; it is not a ten to one ratio. Training an estimator is more of a two or three on one (skilled to beginner) ratio.
The hourly rate can also involve a mixed crew where a mix of different crafts for a work crew for the performance of the work. In a case such as this, there may be a crew that is comprised of six carpenters with four laborers providing support to the carpenters. It may be a case where there is an operator and a laborer working together.
Overtime or the lack of overtime is another consideration in determining the calculation of the hourly rates. A project that is scheduled for completion using a forty hour work week (watch out for areas that have a standard 35 hour week!) will have a modest amount, if any, of overtime costs required in the estimate. A project that is scheduled for extended 50, 60 or even 70 hour work weeks will have a substantial amount included for overtime and loss of productivity.
Will the hourly labor rate determination be perfect? Again, the answer is “No.” No one company has a lock on this secret; all of the successful firms know one of the secrets to a successful project is having a reliable determination made of the hourly rates required to perform the work.
Don’t miss out on the remaining secrets! Check back soon!
