Your Bid Locked A Scrap Price The Market Never Honored
You priced the steel credit in February and crossed the scale in October. The market moved and the subcontract had no escalation language for it.
Demolition is the only trade that puts a negative cost line in its bid. A framer prices material going in, while you price material coming out, at a number set by a commodity market you won't sell into for months. Escalation clauses on a scrap credit are close to unheard of on a hard bid, so the entire price move belongs to you.
The size of it
An $80 per ton swing on 1,500 gross tons is $120,000 straight off a job bid at maybe a 12% margin. On mass demo that credit decides whether the job made money or became the reason the year didn't.
Treat the scrap credit as its own position with a tonnage, a price, and a date, and hold it that way from bid through haul-out. Most demolition estimates bury the credit inside one bid number, so when ferrous drops between award and the day the first load hits the scale, no record shows what changed or by how much. Ferrous recovery can run 70 to 95% of value on an industrial teardown, and two or three quarters usually pass between bid day and haul day. Futures exist, but the traded grades are shredded and factory bundles, not the HMS and P&S you sell, so a hedge covers the wrong position. What you can control is knowing the open tonnage and the assumed price on every live job before the market moves against you.
Three moves, in order
Step 04: Estimating system
The estimate maps one to one onto the job cost codes, so variance means something the day it appears.
What else costs demolition contractors money
The same mechanism in other trades
What demolition owners ask
How do I protect a scrap credit when steel prices drop after I bid the job?
You priced the steel credit in February and crossed the scale in October. The market moved and the subcontract had no escalation language for it.
What does it cost?
An $80 per ton swing on 1,500 gross tons is $120,000 straight off a job bid at maybe a 12% margin. On mass demo that credit decides whether the job made money or became the reason the year didn't.
What do I do first?
Pull every open job and write two numbers per job: assumed gross tons of ferrous and the price per ton you bid it at. Total the exposure across the backlog.
What are demolition contractors supposed to be making?
Demolition runs 20% gross margin, 16% overhead and 4% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 3 points below it. The CFOS target is 10%.
Which part of the system fixes it?
The step is number 04, estimating system. The estimate maps one to one onto the job cost codes, so variance means something the day it appears. It comes from chapter 4 of CONTROL: The Construction Financial Operating System.
Everything on this page is something you can install yourself, andCONTROL is the order to do it in. If you would rather buy the finished result, SPM The Construction CFO does this work for demolition contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.
Wrote CONTROL, the 8 step system behind these figures. More about the author.