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Subcontract Prices

Subcontract Prices. And Estimating. “Thinking is the hardest work there is. That is why so few people engage in it.” Henry Ford. Got Me to Thinking. Alabama Background. Roughly $600 million in contracts let. Averaging 1800 subcontracts per year. Oddly constant over past few years.

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Subcontract Prices

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  1. Subcontract Prices And Estimating

  2. “Thinking is the hardest work there is. That is why so few people engage in it.” Henry Ford Got Me to Thinking

  3. Alabama Background • Roughly $600 million in contracts let. • Averaging 1800 subcontracts per year. • Oddly constant over past few years. • Office Engineer approves subcontracts • 70/30 split • GL, AL, Worker Comp • Paper Paper Paper

  4. David’s First Definition • Subcontract Price • Price for which the work could be done by the prime (including profit) if the prime had the inclination and ability to perform the item of work minus the costs of overhead associated with being the prime. • The subs are not doing it at cost.

  5. Main Questions • Why is there a difference between the contract amount and the subcontract price? • Is that amount consistent across a project? • If not, is it consistent across a group of items? • How can the DOT use this information? • How can we capture the information?

  6. Assumptions • The prime chooses the lowest quote for an item or items of work from the most competent vendor. • Different from the DOT. • The item of work is the only item being worked on by the subcontractor.

  7. My Theories • Prime bears risk. • ALDOT only has a contract with the prime. • Consequences to the prime for non-performance. • Support personnel by Prime. • Project manager, project supervisor, bonding • Prompt payment. • In Alabama, it is seven days. • Finding a replacement for non-performance of subs.

  8. Goals • To come up with a method of determining the “true” price of an item of work. • Qualification: ALDOT does not have the manpower to do cost based estimating. • Treat subcontract prices the way we treat contract prices. • Determine on which items contractors prefer placing overhead. • Determine if the sub being a DBE changes subcontract prices and overhead. • Determine what subcontract prices versus contract prices tell us about an individual contractor.

  9. What I Am Doing • Sample: Fiscal Year 2001 Subcontracts • Exclusions: • Partial item subcontracts. • Metric contracts.

  10. What I Found Before I Did Any Analysis • Unreliable data. • Subcontracts become public information. • Subcontracts showing no overhead. • Potential efforts to circumvent the 70/30 split.

  11. 630C070 Examples

  12. Construction Signs • Very common item subbed out. • Range 566.7% to -29.30%. • Average = 40.39% • Average minus $50 bid on $7.50 sub = 14.91% • Percent of total contract dollars let amount approximately 0.8%.

  13. Other Examples • Bridge items. • One set of items contract prices 50% or more under subcontract prices. • One contractor has the -0.5% syndrome. • One contractor has the 3.09% syndrome. • Hauling • Partial, but interesting.

  14. Estimated (Get it) Results • Tough to tell. • 13000 items. • Hard enough to get a history on prime prices. • My vision. • Smaller dollar items tend to be subbed out more often. • DBE overhead • Approximately 4.5%-5% above non-DBE. • Overheads fairly consistent across a project. • Data appears to be better for contractor specific analysis.

  15. Taxes • “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing.” • Jean Baptiste Colbert, Finance Minister to Louis XIV

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