The Sad Reality of Hidden Costs

April 21, 2011

Here’s the sad reality of hidden costs: if you knew what they were, you would account for them; but, on the other hand, if you did account for them, you wouldn’t get the job. Think about that for a minute …

So, with a few exceptions, most integrators are trying to finish jobs in profitable territory knowing, all the while, they went in as lean as they dare to go. That’s when it happens. That GC you are working for calls you over to discuss a few concerns brought to his attention by the EC. Or, maybe it was your purchasing agent who stops by your office with a question about freight allowances. Or – my favorite – the project manager heading toward your office at the end of the day with the prints and spec book in hand.

Our industry is pretty good about not forgetting to account for equipment on jobs. And, while it seems we all know companies that may forget the markup, for the most part, the hidden costs aren’t in materials anymore. So, what’s that leave? Job-related expenses, overhead burden, sales expenses, design, installation, warranty labor and – don’t forget – profit. You should probably start with that.

Overall, our industry is getting much better at anticipating and pricing accordingly for the fixed costs that need applied to projects. But, to me, it still seems that labor is the wild card. Even with the most elaborate estimating and job-costing tools, we can’t predict the unusual (and sometimes ridiculous) things that happen on job sites. I see this as a non-recoverable variable cost associated with certain types of projects.

For example, I’ve heard young project managers say things like, “We can do that system easily in less than 200 hours.” Then, I’ve heard the more experienced project manager reply, “Well, not there you can’t.” The point is that we often underestimate the variable costs associated with difficult project types that require things like security clearances, elevator wait times, daily project or safety meetings, unfamiliar lockout/tag out processes, new types of documentation, close-out procedures, never-ending training sessions and parking. The list goes on and on.

Lately, our members have been calling me very frustrated with the mountain of paperwork, contractual forms, and requests for additional information that seem like they don’t even apply to them. All I can imagine is that as our scope of work has become larger and more expensive; we have now entered into a new normal.

The best advice I have when working with a first-time customer or project is to assign someone (or yourself) to fully investigate the hidden costs associated with that project. Talk to ECs who work there. Talk to the GCs. Talk to HVAC folks or whoever you know who does other contract services and see how easy that client is to do business with. My guess is if they are easy or difficult for others, your experience will be similar. Job sites are no different: some are great, and others horrible.

Member Access