In my classes, I talk about how governmental agencies, and some general contractors, get contractors to bid on jobs for less than their actual cost. A reader recently sent in a note asking for my input on this statement that a government agency attached to a “bid package” for work they want done.
“. . . need to show all direct costs and then add 10% for overhead calculated off of the direct cost and then 10% for profit calculated off of the direct cost.”
This is a straight-forward declaration by the government agency that they will set your price. I would add that it’s an open statement that they could care less about you, your financial situation or your company. And to think that our tax dollars are paying the salaries of the idiots who write these rules and regulations. They will make more money on this job than you will.
Let’s review what they are saying. Assuming your direct job costs are $1,000 and we follow their directions:
Overhead – 10% of $1,000, or $100
Profit – 10% of $1,000, or $100
Total = $1,000 + $100 + $100 = $1,200.
Wow, that is a whopping 1.20 markup.
If you are doing any kind of remodeling work, there is no way you can survive with a markup of 1.20. In almost all cases, it has to be at least 1.50 or you are not going to survive. So how can you do a job with a 1.20 markup?
Walk away. Let someone else go out of business trying to do jobs like this. Why should you take money out of your pocket to pay your overhead so you can have the privilege of building their job?