Some think that a “labor only” estimate is an estimate less the cost of the materials and equipment. There is really no such thing as a “labor only” contract. The reasons are many. The contractor’s labor forces must be supervised, tools furnished, and equipment coordinated.
When an owner furnishes materials, there are added labor costs and risks to the contractor. The contractor must calculate all direct and indirect job costs to be included in the labor rate. If a contractor only bills the client for direct labor costs, the contractor is sure to lose monies.
Therefore, the contractor must account for all project costs either in the overhead percentage or it must be added to the hourly labor rate charged to the owner.
The following are some possible costs that must be considered:
- Material and equipment coordination
- Tools furnished and depreciated
- Field supervision
- Non-working foreman
- Receiving and checking materials as delivered
- Material and equipment storage
- Insurances
- Inspections
- Equipment rentals
Depending on the size and complexity of the project, labor only projects can pose the following:
- Difficulty in getting information for installation requirements
- Lack of someone with authority when dealing with owner’s vendors
- Delayed material and equipment deliveries
- Uncoordinated deliveries
- Owner supplied equipment may require assembly
- Shop drawings not available from owner’s suppliers
The main concern when bidding a labor only project is the amount of overhead percentage placed on the final bid. The overhead percentage may need to increase on a labor only project.
Remember, estimating is expensive, poor estimating is costly, but quality estimating is profitable.