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Old 06-09-2009, 11:10 AM   #1
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Reasons for big diff in fixed price bid prices


I've gotten three estimates from local roofers here in the Pittsburgh area for a new roof on our house. So far, the bids range from a verbal of $6,000 (nothing in writing) to $11,400, and I'm expecting one to come to me online today that exceeds the $11,400 bid and the fifth estimator will visit me this afternoon.

I have nearly 40 years' personal experience managing large, complex engineering and construction projects in the power industry. For me, a typical project is $100 million and up. And much of that has included projects in which more than half the total project cost has been for fixed price contracts for equipment, construction labor, etc. So I know a lot about how to evaluate fixed price bids. But not in the home roofing area.

I know that you have to put all the bidders on the same page with respect to scope and requirements. For roofing, that means they all have to measure the size correctly to estimate roughly the same quantity of shingles, etc. They all have to understand the owner's needs for things like new drip edge, new flashing around vents, new ridge vent, etc., consistently, so that everyone bids the same tasks, the same requirements, etc.

So let's assume, for the moment, that they all know how to run a tape measure. Let's say I know they all know I want the job to include complete drip edge along all rakes and behind all gutters, with all existing gutters to remain. Let's say they all plan to install a completely new ridge vent and new flashing. I.e., let's say I'm reasonably satisfied that they all know the "whats" of the job consistently and they all know the "how much" of the job consistently. [I know they're all pricing the same type of asphalt shingles with the same 25-yr guarantee, etc., so that shouldn't be the reason by itself for the spread, should it?]

From that point forward, what might be causing the wide spread in bid prices I've seen so far? I'm discounting the verbal $6,000; that's just too low to be credible. But I'm still looking at a spread from a bit below $9,800 to the $11,400 figure, and I won't be surprised if at least one of the two I still haven't seen are a $1,000 more than the highest I have now.

What am I missing? What questions haven't I thought to ask? If they all got the quantity right (one estimated 28 squares; the others haven't told me, and I know that in fixed price contracting I don't really care; I'm buying "enough" squares for him to do it right, even if he needs to do it three times!), could there really be that big a spread in labor rates between nearby competing bidders? Or is there something else at work entirely that I just have overlooked?

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Old 06-09-2009, 01:02 PM   #2
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Reasons for big diff in fixed price bid prices


A. Owner working on job and working for wages instead of company profit.

B. Owner and "Partners" Exempting themselves from Workers Compensation Insurance coverage, thus saving 38% of all of their Labor Burden Costs and probably not paying Unemployment withholding either.

C. Subcontractors being used. Are they Legal? Do they have insurance in effect? Did they underestimate their coverage or cancel their policy, just so that they can show an insurance certificate?

D. The 2 prices you compared are only about 15% apart. That seems reasonable, but looks higher because it is below 10 K for one and 11 1/2 K for the other, so psychologically, you are thinking a 9 Thousand dollar price versus one pushing 12 Thousand. Maybe and maybe not, but I am just throwing out options.

E. Expected Company Profit bid for to sustain remaining in business. 25% is the minimum Net Profit that a company should really shoot for, although 10% to 20% are found in abundance. But, what if just ONE $10,000 job does not get paid for by one home owner? At 10%, that would mean that they would have to do the next $100,000 worth of work, just to get back to where they were before they got burned from that ONE job. Could many contractors stay in business after that?

F. Accessory material prices and differences. 30# felt versus 15# felt. Cheaper and less efficient Ridge Vent products that do not perform as well as the premium ones, like Shingle Vent II, which also contains an external wind deflecting baffle.

G. Labor paid for speed and by piece work versus hourly for higher attention to quality and details. Speed problems will show up 2-5 years down the road. It may not leak, but there are still going to be problems that should have been done right the first time.

H. Overnight protection. Does one company tarp up the portion of the roof that was torn off and has not yet been shingled? Time in the morning and time at the end of the day for that.

I. Expertise in proper flashing and sealants to be used. What a difference from someone using roof cement black jack and trim coil versus proper heavy guage sheet metal and cutting reglet flashings and attaching with masonry anchors, versus zip screwing the corners of sheet metal flashings together.

I am sure I left out many other differences, but you can see there are many other things to consider if you want a long lasting quality installation.

Ed

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Old 06-10-2009, 05:49 PM   #3
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Reasons for big diff in fixed price bid prices


Could be some are better businessmen than others; they understand their true costs better and what profit is needed to stay in business at a return that makes it worthwhile and sustainable.

Could also be they know what their work is worth. An unusually low bid always scares me off. Others jump at the super low bid and think they are getting a bargain until they finally figure out they got what they paid for.
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Old 06-11-2009, 09:22 AM   #4
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Reasons for big diff in fixed price bid prices


Like Ed said, far to many reasons for the price difference,
some legit, some not.

I'm a one crew company, my over head is not going to be the same as say Boak n Sons due to the fact they are many times larger than me.

Fox Roofing:
3 partners do every thing from push a broom on clean up to sales, accounting, book keeping, etc.

Boak & Sons roofing and insulation inc.:
Have a few partners, numerous management personal, dozens of office personal, etc.

Thus of course their mark up is going to be greater than mind,
because they have so much more to contend with.

I used Boak & Sons as an example because they are a well established company in the Youngstown, Ohio area.
But their size don't make them any more reputable than me,
it just means they do a lot more work than me.

So if I give an estimate of 6400.00 and they give an estimate of 6850.00,
were both giving an honest estimate.

When you see an estimate several thousands off from the rest you get,
use that one for kindling and have a nice laugh over your evening fire.
Not even a one crew operation like mine can work five thousand dollars cheaper than everyone else and still give the same quality of workmanship.
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Old 06-11-2009, 06:45 PM   #5
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Reasons for big diff in fixed price bid prices


Quote:
Originally Posted by Slyfox View Post
Not even a one crew operation like mine can work five thousand dollars cheaper than everyone else and still give the same quality of workmanship.
So true, but that's the part that most people miss. Quality costs money, but most don't know what quality is.

The "big companies" around here have staff, but none of them actually do the work. It is usually hired out to illegals so the company can make money bidding the same or cheaper than everyone else.

There was one decent size company around here that had all employees, but they went down real fast. I knew a guy who worked for them for a day. He had no experience at all, and they sent him out to a siding job by himself.........

Out of all the builders we worked for in the last 30 years, there has only been one that I would hire to build a house for me. The rest were flip flop wearin' white collar boys who usually hired the cheapest subs. Luckily, back then they paid decent for roofing.
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