Construction Industry FAQs
We've compiled a list of construction frequently asked questions for your reference
Construction Management Questions:
How to bid construction jobs
You should think of a construction bid as a proposal in a sense and what will keep your construction business alive. Not many projects will simply fall into your lap so to keep your business afloat you must make yourself known. When you give a bid for a project it includes your expenses and your profits and it is different from an estimate. Knowing how to place bids is the difference between success and failure in a construction business. When making a bid on a job you should make sure your bid is accurate and efficient. Make sure it lays out exactly what you can do to make your bid shine above the others. When making a bid you should take into account if you are equipped to do the job, if you are not never feel bad for passing on a bid. If you are a small business that is just starting you may want to consider bidding opportunities in government construction. These can include schools, transportation centers, government buildings. This is a nice place to start as the government is always looking for improvements and those jobs never seem to dry up when the economy is stalling. Whenever you are putting a bid in, there are a few tips you should always remember:
- always follow the bid instructions
- account for all your overhead costs
- work with subcontractors that are reliable and skilled
- ask for clarification if needed
- keep everything organized
- provide details when asked
- include testimonies from past happy customers
- track your bidding results so you can improve your process over time
What is a construction bond?
A construction bond is required for most job projects. It is a type of surety bond that is used by investors on projects. They protect against disruptions and financial loss that could prevent a contractor from finishing a project. A bond ensures that the project's bills will get paid. When a bond is submitted this means the party managing the work states they can complete the job according to the contract policy. In construction, there are three types of bonds that include bid, performance, as well as payment, and generally, three parties, are involved: the investor, the party building the project, and the surety company that backed the bond. When a contractor fails to comply with any conditions of the contract then the surety company that holds the bond, as well as the contractor, can be held liable.
What is takeoff in construction?
A construction takeoff is the total breakdown of all the materials required to construct something from start to finish. These can be referred to as:
- Construction Takeoff
- Take-Off or Takeoff
- Construction Material Take-Off
Each of the materials and components for a project is quantified and itemized by a person known as an Estimator. Of course, the list of materials used in construction is lengthy. Therefore, construction take-offs can range from simple to complex depending on the size and scope of the project. Accurate construction takeoffs are vital for maintaining the project budget.
How to estimate construction costs
There are numerous software programs available from Excel to purpose specific software packages to make this part of the project better. However, even these high powered programs work off of the same basic principles you can do by hand to reach your goal. For estimating construction costs you will need:
- Cost Database
- Construction Takeoffs
- Required Time
Costs and takeoffs are where your expenses originate by combining unit costs for materials and labor with amounts needed to fulfill the project. Time is a determining factor for how long action items will take, how much labor will be included, and when they need to be completed. And markups are necessary factors for calculating profit and keeping the business alive.
The basic estimation should simply follow a formula of:
Expenses + Time/Labor + Markups = Cost Estimate
What is lean construction?
Lean construction is a methodology used by construction companies to increase profits by decreasing material waste, decreasing time, and increasing efficiency in their projects. This is accomplished through an increase in strategic planning and control in broad terms. The benefits noted are:
- Using Fewer Materials
- Reducing Construction Delays
- Increasing Worker Efficiency
- Increased Schedule Reliability and Predictability
- Increased Job Satisfaction And Better Performance
Overall the goal is to optimize resources from materials to people and eliminate waste and inefficiency. Lean construction companies have to ensure everyone at all level buy-in and see the benefits. One of the major drawbacks of this method is, it is not how construction has been approached in the past. Therefore, people slow to change, or poor strategies and infrastructure for supporting lean construction, can derail the outcome.
How can technology be used to complete construction?
Technology and construction have been married together for decades, so it is only natural for the relationship between them to grow even closer with the advances we see today. The addition of mobile technology to the mix has increased efficiency and communication between the field and the home office exponentially.
Today, construction sites use current mobile devices and cloud-based technology for accurate real-time updates and situational awareness. This keeps all the stakeholders integrated together and up to date on things affecting the project's completion. Smartphones and tablets can send pictures and allow the users to work in project management software to monitor and document the completion of a construction project.
How to get on construction bid lists
When you are looking to get on a contractor's bid list, you may need to visit the contractor's office. Typically they have a room set up with plans and projects for bids. The plans may also be available online if you ask.
You would then need to contact the contractor's office and ask how to be placed on their bid list. Generally, you will need to fill out a Contractor Qualification Statement. This contains information on your finances, services offered, and your company history. Once you have done this, you should be set to start bidding. Always review the specifications and plans thoroughly. Make sure you are fully aware of what is involved in the project. After you have done this, submit your bid to the general contractor and wait.
How to open a construction company
Opening a construction business can be a tedious project to take on. You must follow several steps to ensure you have planned correctly for your next adventure. Always research your local market, make sure a construction company is needed in your area. After this, you will need to write a business plan. Standard business plans are used in different aspects of opening a business but are always required to obtain financing from a bank. If a business plan seems overwhelming to you, you can always get help. The next step is to register your business to make it a legal entity. You will then need to purchase all the licenses and permits you need to operate and secure your insurance. After all this, you can look into funding for your new business and then work hard to grow your business and make it successful.
How does a construction bond work?
A construction bond is also called a surety bond. It is a contract between the person who is having the work done (customer), the person doing the work (you), and the company that is making sure that the job gets done correctly (bond issuer). Contractors usually use a bond when building large homes, doing extensive remodels, or making a business contract. The bond acts as an assurance that the contractor will fulfill the agreement's terms and complete the project. They usually consist of these parts:
- The job will get completed
- Subcontractors will order the materials
- Labor paid for
There are three types of bonds. These include bid bonds, performance bonds, and payments bonds. A bid bond guarantees that the contractor has the finances and employees to complete the project. A performance bond works to protect the client if the contractor does not follow through on the project. Last, a payment bond protects the suppliers from contractors who do not pay for their materials on time.
How to bid small construction jobs
The construction business is very competitive and you’ll want to stay on top of bidding if you want to succeed. Frustrating problems from bidding include losing a bidding war and underselling your company. When you are bidding on a small project, you should walk through it with the client. This can show you precisely what they want to have done and where. You will also be able to learn what the client expects to happen. Sometimes an easier way to generate a bid is using bidding software. These can help you factor in the materials, supplies, labor and everything else involved. When developing a bid, make sure you will make a profit. Finally, you will present your bid to the client. A bid should include:
- an itemized explanation of costs
- a payment schedule
- payment requirements
- explicit information on if the prices are estimates or fixed
Once you have talked the bid over with a potential client, you will be able to move forward.
How to calculate overhead and profit in construction
Two of the most important figures are your overhead and profit margins when it comes to your construction business. If not calculated correctly, this can lead to tighter budgets, slow business growth, and in some scenarios, even negative bank accounts. If you have been in the construction industry, then you are familiar with the 10-10 rule. It is the industry standard for calculating overhead and profit. To calculate your overhead, you need to add up the monthly fixed costs of running your business. Then you can calculate by labor cost or by sales. If you calculate labor costs, you will divide your monthly overhead by your monthly labor costs. This will give you a figure of how much goes towards overhead. If you calculate sales, you will divide your monthly overhead by your average monthly sales, giving you your overhead markup percentage. When it comes to calculating your profit for a project, you will need to divide your profit figure by the total sum of overhead, material, and labor costs and multiply this by 100. This will give you the percentage of profit you have applied to project cost. When calculating a profit margin, you should divide your total project estimate by the complete project estimate minus the overhead, material, and labor costs.
How to get into construction management
The demand for construction managers is high. If you are looking to make it happen, you will need to balance education and experience. Most managers have some schooling of at least a bachelor's degree in construction science, management, or engineering. Then they have on-the-job site training and experience as a contractor or engineer. The next step is to focus on management skills. Some skills to focus on include:
- Project Management
- Workplace Flexibility
- Document Management
- Technical Skills
Once you have obtained an educational background in construction, on-site experience, and invested time into learning management skills, you should be on your way to becoming a manager.
What is a construction lien?
A lien in construction is a claim made against a property by a contractor or subcontractor who has not been paid for work done on that property. Construction liens are designed to protect professionals from the risk of not being paid for rendered services. A lien will make it difficult and often impossible for the property to be sold or refinanced. The laws vary from state to state on construction liens, and it is often referred to as a mechanic's lien.
What is design build construction?
In design-build construction, the delivery method replaces the traditional way, where separate contracts were given for design and construction. The contract, designers and subcontractors, and owners all work together. The team will build a project that meets or exceeds the owner's expectations. The 5 phases of the design-build process include:
- Team Selection
- Architectural Design
The design-build approach in construction is simply the most cost-efficient way to build.
Do I need owner's title insurance for new construction?
Title insurance is a form of indemnity insurance that protects the holder from financial loss and defects in a property title. The most common type is called lender's title insurance. This is purchased by the borrower and protects the lender. Owners' title insurance protects the homeowner's rights and interests in the property. This is a one-time fee that the purchaser will pay to ensure that the property claims a lien, encumbrance, or other claims his title insurer will handle the matter. The one-time fee you pay for owner's title insurance is significantly less than what you would spend in legal fees to defend your interests. It is always a good thing to purchase insurance for new construction.
How to estimate construction jobs
Construction jobs need to have accurate estimates. This starts with having accurate plans and understanding of the project. With the unit cost estimating method, it is faster than stick estimating. Unit cost estimating involves the following steps:
- Compile the line items for the job
- Attach a unit cost to each line item
- Total your numbers and have them checked by a second party
- Apply your markup
- Final price
You would then take this final price back to the potential customer and move on with the sale.
How to join a construction union
Construction unions have a long history. The 1935 Federal Labor Relations Act was the initial foundation of collective bargaining rights for workers in the United States, and it also provides the means for today's unions. Union-sponsored apprenticeships are the foundation of the construction industry and the most common way to become a union member. If you use the apprenticeship path, you will get training for the trade that interests you; this includes a salary during training and eligibility for membership. The apprenticeships will last 2-4 years. When you have finished the apprenticeship, you are a qualified tradesperson with certifications that make you eligible for professional pay and union membership. For workers who are already members of the construction industry and have several years of experience, they can apply directly with a union about membership. If you are already working for an employer or contractor with an existing contract with a union, you will often have the opportunity to join the union at your place of work.
How to run a construction company
Construction companies have to prepare and react to different economic environments, determining if they will thrive or fail. To ensure that their business will prosper, contractors must consider critical issues. These tips can help you run your construction company smoother and more efficiently:
- Have a positive attitude
- Hire good workers
- Train your staff properly
- Obtain referrals
- Teach your team good customer service
- Market your company
- Increase cash flow
- Control Overhead
- Improve the cost of jobs
- Increase your workers' productivity
- Collect on past due accounts promptly
- Use managerial accounting
What is a performance bond in construction?
In construction, a performance bond guarantees that the project will be completed. It requires having a collateral property or investment to back up the surety agency's requirements. A performance bond usually is issued by a bank or an insurance company, both of which will act as the surety. The bond is made to protect the owner against possible losses if a contractor fails to finish a project. Payment is only available to the property owner, and no one else can claim it.
How to write an estimate for a construction job
When you are writing a job estimate for your company, make sure you are putting together good quality estimates to make your company stand out. Your estimates should always include:
- Job description
- Materials and labor
- Total Cost
- Payment terms
- Sales and Company Contact Information
If all of this is included in your estimate, you are sure to land many bids for jobs in the future with your company. Keep the estimate professional-looking, with enough information but not overbearing.
How does a construction mortgage work?
A construction mortgage is used to finance the construction of a home. It typically requires only interest to be paid during the construction period. Once the house has been built, the loan amount comes due, and it becomes a standard mortgage. The loaned money is generally advanced in increments during the home's construction. Lenders can offer different options to make a construction loan more attractive for borrowers.
How much does a construction performance bond cost?
Performance bonds are used in construction as a guarantee to the owner that the contractor will build according to the plans and specifications that were agreed upon. Some of these bonds are very simple, while others are long and complicated. A performance bond's cost is typically less than 1% of the contract price if the contract is under 1 million. If the contract is over 1 million, the bond can be increased to 2%. Bonds can be costly depending on the credit of the contractor also.
How to calculate construction period interest
When a building is under construction, the construction loans payments are based on the loan amount drawn. This can be different if the loan is a hard money loan; in that case, the entire loan amount is deposited directly into an escrow account, and the interest is charged on the whole loan amount. It can be difficult to accurately determine what the payments will be as the loan amount can change at any time. A good way to get an approximate amount is: Find your interest rate Find the balance that has been drawn or borrowed from the lender Multiply the balance by the interest and multiple it by 12 This should calculate an approximate monthly interest-only payment You make payments based on the amount drawn or the loan's average daily balance. These payments will be made six months while it is under a construction loan.
How to measure quality in construction projects
If you invest in a project under construction, check and measure the project's quality. Checking for quality may not always be an easy task, but it’s something that should be done. Some things to check for include:
- The quality and type of soil where the building is being built
- Strength in structure design
- Strength of concrete mix
- Safety features in the design
- Paint or plaster quality
- Examine elevators work properly
These are just a few things that you can check to ensure the quality of the project you are investing in is up to par.
How to prepare a construction project schedule
When you are looking to make a schedule for your construction project, you should remember that this will take you some time. Making an accurate schedule is essential as it can save you money in the long run and some time. Gather information and get the right tools Call your subcontractors and see how much time they will need to get their job portion done. Order materials that could take weeks to come in. Contact local code offices about inspections. Enter Information- If you have a website or spreadsheet you are using to keep all your information together, use it to enter all your times. Be realistic - there will be delays on the project, such as ordering delays and the weather. Also, take into account any holiday season. Start a Schedule- set a start date for all the tasks that need to be done. Be willing to adjust - update and adjust your schedule as often as needed.
How to set up a construction business
If you are looking to set up a construction business, there are a few steps you should take into consideration. The first thing you want to do is research about if a construction company is needed in the area you live in. You will then need to draw up a business plan; this is necessary to secure funding in the future. Next is securing funds for your business through loans and grants. You need to pick a name out and a structure for your business. Register your business and obtain the certification license and insurance you will need. Open your business account at your local bank and start growing your business.
How to start a construction management business
When you are going into a construction management business, a good plan can often make the difference between success and failure. Starting a construction management business can be broken down into a few steps. These steps are:
- Develop a business plan
- Chose a location
- Secure financing
- Determine legal structure
- Register business name
- Obtain tax ID
- Obtain permits and licenses
- Understand your responsibilities
- Make your business grow
What are the objectives of construction management?
Construction Management represents the owner's interest and provides the oversight needed over a project. They work with all parties involved to keep the project on schedule and budget and the project's expected quality. Construction managers typically do some of the following on a project:
- Prepare and negotiate cost estimates and budgets
- Select construction methods and strategies that will work
- Explain contracts
- Report on the progress of the project to clients
- Collaborate with subcontractors
- Supervise personal and activities on a project
- Respond to work delays
- Hire laborers and sub-contractors
- Comply with legal requirements
Construction managers work closely with others on the project. They help ensure everything is running smoothly and done on time.
What is a payment bond in construction?
A payment bond is a surety bond that will ensure subcontractors and the material suppliers are paid according to the contract terms. These bonds are needed for jobs that are on public property where a security interest cannot be used. They are typically used in conjunction with performance bonds and often are even on the same bond form. Bonds are purchased by the contractor when negotiating a contract to reassure those working with them to be paid.
What is commercial management in construction?
Commercial management in construction ensures the planning, execution, and coordination of a construction project from the start to finish. These are often for specific projects such as building or renovation projects that are sold or leased. Examples are offices, retail shopping malls, and medical centers. Responsibilities of a construction management team include:
- Cost Management
- Time Management
- Quality Management
- Safety Management
In the construction business, the collaboration between the managers, contractor, sub-contractors is vital in a successful build.
What Is Lien Waiver In Construction?
A lien waiver, to simply put it, is a way of ensuring that service providers get paid. With construction sites, there is a chance that things can go under. When a lien is in place, it guarantees that the providers will get their money no matter what. In the construction world, there are 4 types of liens that can be filed:
- A Conditional Waiver and Release Upon Progress Payment
- A Conditional Waiver and Release Upon Final Payment
- An Unconditional Waiver and Release Upon Progress Payment
- An Unconditional Waiver and Release Upon Final Payment
What do construction managers do?
Construction managers or construction project managers provide oversight and leadership to the various contractors, laborers, vendors, etc..., and manage the construction process from start to finish. All construction projects, from houses to skyscrapers, have construction managers. Construction managers have a wide range of skills such as:
- Communicating With Stakeholders And Contractors At All Levels
- Compliance And Permitting
- Hiring And Management
They take responsibility for the overall construction project timeline and often have to make quick decisions dealing with unexpected delays or complications to maintain established deadlines and budgets.
Many construction managers work onsight throughout the entire project. While others may have a central office, these managers will make regular site visits to ensure progress and provide resources as needed to complete the project.
What does a construction project manager do?
Construction project managers are responsible for all construction process phases regarding deadlines and budget. To be successful, construction project managers will have skills in:
- Project Management Software
- Estimates and Budgeting
- Permits And Approvals
- Collaboration At All Levels
- Hiring Subcontractors and Vendors
- And Others More Specific To The Projects
Most construction project managers will work out of an office on the construction site since they are the point of contact for many of the skilled trades required. This also allows for accurate progress reports.
There are several training programs available through schools and skilled trades institutions for certifications and education on the complexities of working in this field today.