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Posted on Sep 04, 2024

problems 2 ,12,13,14 1. Many reasons why a contractor might choose to increase its bid fee were discussed in this chap- ter. Why might a

problems 2 ,12,13,14 image text in transcribed

1. Many reasons why a contractor might choose to increase its bid fee were discussed in this chap- ter. Why might a contractor choose to lower a lump sum bid fee or negotiated proposal fee? 2. When should the PM be located at the home office or the jobsite and is he or she then billable? 3. Without looking at the detailed home office GCs estimate on the eResource, what other items might be included beyond those which were listed in Figure 6.1? 12. What is the minimum fee, in both dollars and percentage of construction contract, a gen- eral contractor would need on an upcoming $10 million bid project? Assume the following parameters: $100 million expected yearly corporate volume, 2% HOOH budget, Owner's equity is $4 million, This project is estimated to have $1 million in direct craft labor, This project is expected to last 12 months, There is a full-time PM and superintendent without a PE, Cost accounting is performed out of the home office, Equity owners expect a 15% ROE. 13. How would your answer change in Exercise 12 if: a. Market fees are at 7%, b. This was a negotiated project, c. The GC will perform $1.5 million in direct labor, or d. The GC has sufficient backlog and is submitting a complementary bid to a past client? 14. Resolve the following breakeven questions using Table 6.1 There are an unlimited amount of questions and exercises that can be based on this table and analysis: a. What is the breakeven revenue based on $75 million of construction cost? Overhead and profit 79 b. Based on a revised negotiated profit of 5% and $75 million in construction cost, what is the total revenue? c. If a small contractor had an annual volume of $5 million and $4.5 million of that was construction cost, what would be its profit margin in percentage? d. If a large contractor had an annual volume of $532 million, and it desired a net pre-tax profit of 5%, how much fee in percentage and construction cost would it need to support that goal? e. Assuming a contractor could lock in on a fee (any % would do), other than cutting construction cost, and using only information you can garner from this table, how can it maximize its net profit percentage? Table 6.1 Breakeven analysis Breckeven Total Ideal Ideal Revenue Construction Stepped Variable Variable HOOH Profit as Fee, or Revenue Without Profit Cost Fixed OH OH% HOOH Total HOOH % of Cost % of Cost OH&P $50,000 $50,000 $0 $50,000 2.0% $0 $50,000 NA 40% NA $156,000 $152.000 $100,000 $50,000 2.0% $2,000 $52.000 52.0% 40% 56.0% $630,000 $610.000 $500,000 $100.000 2.0% $10.000 $110.000 22.0% 4.0% 26.0% $1,160,000 $1,120,000 $1,000,000 $100,000 2.0% $20,000 $120.000 12.0% 40% 16.0% $2.220,000 $2,140,000 $2,000,000 $100,000 2.0% $40,000 $140,000 7.0% 40% 11.0% $10,850,000 $10,450,000 $10,000,000 $250,000 2.0% $200,000 $450,000 4.5% 4.0% 8.5% $53,650,000 $51,650,000 $50,000,000 $650,000 2.0% $1,000,000 $1,650,000 3.3% 40% 7.3% $107,000,000 $103,000,000 $100,000,000 $1,000,000 2.0% $2,000,000 $3,000,000 3.0% 40% 7.0% $532,000,000 $512,000,000 $500,000,000 $2.000.000 2.0% $10,000,000 $12,000,000 2.4% 40% 6.4% $1,063,000,000 $1,023,000,000 $1,000,000,000 $3.000.000 2.0% $20,000,000 $23,000,000 2.3% 4.0% 6.3% Volume - Revenue - Contracted Construction Cost (Direct + Indirect) + OH&P (Home Office Overhead (Fixed + Variable) + Profit) Ideal Net (Before Tax) Profit $0 $4,000 $20,000 $40,000 $80,000 $400,000 $2,000,000 $4,000,000 $20,000,000 $40,000,000 1. Many reasons why a contractor might choose to increase its bid fee were discussed in this chap- ter. Why might a contractor choose to lower a lump sum bid fee or negotiated proposal fee? 2. When should the PM be located at the home office or the jobsite and is he or she then billable? 3. Without looking at the detailed home office GCs estimate on the eResource, what other items might be included beyond those which were listed in Figure 6.1? 12. What is the minimum fee, in both dollars and percentage of construction contract, a gen- eral contractor would need on an upcoming $10 million bid project? Assume the following parameters: $100 million expected yearly corporate volume, 2% HOOH budget, Owner's equity is $4 million, This project is estimated to have $1 million in direct craft labor, This project is expected to last 12 months, There is a full-time PM and superintendent without a PE, Cost accounting is performed out of the home office, Equity owners expect a 15% ROE. 13. How would your answer change in Exercise 12 if: a. Market fees are at 7%, b. This was a negotiated project, c. The GC will perform $1.5 million in direct labor, or d. The GC has sufficient backlog and is submitting a complementary bid to a past client? 14. Resolve the following breakeven questions using Table 6.1 There are an unlimited amount of questions and exercises that can be based on this table and analysis: a. What is the breakeven revenue based on $75 million of construction cost? Overhead and profit 79 b. Based on a revised negotiated profit of 5% and $75 million in construction cost, what is the total revenue? c. If a small contractor had an annual volume of $5 million and $4.5 million of that was construction cost, what would be its profit margin in percentage? d. If a large contractor had an annual volume of $532 million, and it desired a net pre-tax profit of 5%, how much fee in percentage and construction cost would it need to support that goal? e. Assuming a contractor could lock in on a fee (any % would do), other than cutting construction cost, and using only information you can garner from this table, how can it maximize its net profit percentage? Table 6.1 Breakeven analysis Breckeven Total Ideal Ideal Revenue Construction Stepped Variable Variable HOOH Profit as Fee, or Revenue Without Profit Cost Fixed OH OH% HOOH Total HOOH % of Cost % of Cost OH&P $50,000 $50,000 $0 $50,000 2.0% $0 $50,000 NA 40% NA $156,000 $152.000 $100,000 $50,000 2.0% $2,000 $52.000 52.0% 40% 56.0% $630,000 $610.000 $500,000 $100.000 2.0% $10.000 $110.000 22.0% 4.0% 26.0% $1,160,000 $1,120,000 $1,000,000 $100,000 2.0% $20,000 $120.000 12.0% 40% 16.0% $2.220,000 $2,140,000 $2,000,000 $100,000 2.0% $40,000 $140,000 7.0% 40% 11.0% $10,850,000 $10,450,000 $10,000,000 $250,000 2.0% $200,000 $450,000 4.5% 4.0% 8.5% $53,650,000 $51,650,000 $50,000,000 $650,000 2.0% $1,000,000 $1,650,000 3.3% 40% 7.3% $107,000,000 $103,000,000 $100,000,000 $1,000,000 2.0% $2,000,000 $3,000,000 3.0% 40% 7.0% $532,000,000 $512,000,000 $500,000,000 $2.000.000 2.0% $10,000,000 $12,000,000 2.4% 40% 6.4% $1,063,000,000 $1,023,000,000 $1,000,000,000 $3.000.000 2.0% $20,000,000 $23,000,000 2.3% 4.0% 6.3% Volume - Revenue - Contracted Construction Cost (Direct + Indirect) + OH&P (Home Office Overhead (Fixed + Variable) + Profit) Ideal Net (Before Tax) Profit $0 $4,000 $20,000 $40,000 $80,000 $400,000 $2,000,000 $4,000,000 $20,000,000 $40,000,000