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Estimates: Don't Forget Prevailing Wage Rates!

Estimates: Don't Forget Prevailing Wage Rates!
Pat Dickson - Fri Jun 01, 2012 @ 06:21AM
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If you are a subcontractor, and you are bidding or estimating any project, don't forget to double check whether there are any legally required labor rates. Always ask the contractor to put any legally required labor rates in writing. If you don't, you could end up losing a lot of money on a project. Many projects, public and private, legally require you pay your employees much more than usual. 

Examples of projects requiring you to pay your employees more than their standard rates, as a matter of law, include, but are not limited to those subject to: Davis Bacon, state or local prevailing wage laws, union labor agreements, PLAs or Project Labor Agreements.


The nightmare scenario is where you submit bid documents to a contractor. You believe the project involves private work in which you can pay your employees their standard rates. Fixed into your pricing is the assumption you will be paying your laborers $10 per hour. After you provide your contractor the required bid documents, and sign the subcontract, you discover you are legally required to pay your laborers $50 per hour. Can you see how devastating such a mistake could be to your margins?

Assume you have made this terrible estimating mistake on a $120,000 all-labor subcontract. Fixed into your pricing is a $2 markup on your mistakenly assumed cost of $10 per labor hour. This means you were originally going to make $20,000 in profit, if you properly estimated the number of hours the project was going to take. When you discover you have to pay your employees $50 per hour, as a matter of law, you realize you've just put yourself in a really deep hole. The subcontract is going to cost you $500,000 to perform, and you are only going to be paid $120,000. You are going to lose $380,000.

Once again, never assume you can pay your standard labor rates on any project subcontract. Legally required labor rates can be four to five times higher than the standard labor rates you commonly pay your employees. If you estimate or bid using the wrong rates, there may be nothing you can do but take a huge loss on the project. You agreed to perform on the subcontract at one labor price, but the law says you have to pay another.


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