ELEVATOR · MECHANICAL AND LIFE SAFETY · FIXED BY STEP 04

You bid steel in March and buy it in September

The stainless cab and #4 entrances got priced on bid day and bought half a year later, and the lump sum contract has no escalation language in it.

WHY IT'S AN ELEVATOR PROBLEM

A trade buying commodity material every week reprices on the next job. You commit a metals-heavy number once, wait two quarters, then buy equipment that can't be value engineered after the layout is stamped. The months between bid day and release day are the entire risk, and that stretch is baked into how elevator work gets procured.

WHAT IT COSTS

The size of it

A double-digit move on the steel and stainless portion of a package that's majority material eats the job margin outright, and it doesn't turn up until buyout, long after the number was committed.

OVERHEAD AT $1M–$5M

18%

CFOS target 17% for elevator.

GROSS MARGIN AT $1M–$5M

27%

CFOS target 29.5% for elevator.

NET PROFIT AT $1M–$5M

CFOS target 12.5% for elevator.

Most of an elevator bid is metal: T-rails, brackets, hoistway steel, and car frame priced per foot of travel, stainless for cab walls, entrance frames and fixtures with nickel surcharges, and copper in the machine, traveling cable, and wiring. The number locks on bid day, but buyout can't happen until layouts are approved, often six months later. On public hard bids escalation language gets refused as policy, so that position stays unhedged the whole time. Exposure scales per foot of travel, which means the tallest building in your backlog holds the biggest bet. None of it appears in your numbers until the PO gets cut, one or two quarters after you committed the price.

WHAT TO DO

Three moves, in order

STEP 01

Split the estimate so steel, stainless, and copper-bearing items get their own subtotals per foot of travel, and watch the metals subtotal as its own line.

STEP 02

Get a written quote validity date from the OEM and the mills on every bid, and print the bid expiration on the proposal in the same size type as the price.

STEP 03

At buyout, post the metal cost you paid against the bid-day metal line by job and take the variance to your monthly meeting before year-end WIP finds it for you.

THE FIX

Step 04: Estimating system

The estimate maps one to one onto the job cost codes, so variance means something the day it appears.

CFOS-04 · CHAPTER 4

Make the estimate and the job cost report match

What this step changes, what it depends on, and how to tell it's installed.

BENCHMARKS

Elevator by revenue band

All 7 bands are published. The CFOS target is beside the figure up to $10M to $25M, and the 4 bands above that are labelled modeled.

ACROSS EVERY TRADE

The estimate and the actual never match

You can compare the estimate to the job cost report, but the two use different words, so the comparison means nothing.

SAME TRADE

What else costs elevator contractors money

ELEVATOR · CFOS-01

Five lead times run one car, and none of it is billable

The controller and machine are set, the entrances are eight weeks out, and there's nothing on the pay application because a car with four of five components doesn't run.

ELEVATOR · CFOS-06

Your elevator doesn't get built until layouts come back

Six weeks of architect and GC review stack on top of your lead time, not inside it, and the factory doesn't cut a rail until the stamped layout comes back.

ELEVATOR · CFOS-06

Acceptance testing waits on everyone else's scope

Your final billing hangs on an A17.1 acceptance test you can't schedule and can't pass alone, and a failure caused by the fire alarm contractor still costs you the re-inspection.

ELEVATOR · CFOS-01

Warranty year eats the margin you already billed

Cash leaves in month three for the factory deposit and comes back in month twenty-six, and then you owe twelve months of maintenance on a job that's already closed.

SAME MECHANISM, OTHER TRADES

The same mechanism in other trades

CIVIL

You bid cubic yards and pay by the ton

You bid 40,000 yards of import and every scale ticket comes back in tons. The biggest cost line on the job is measured in a unit your contract never defined.

CONCRETE

Your Ready-Mix Quote Expired Eleven Months Before the Pour

Concrete has about a 90-minute working life from batch to placement, so your supply market is a haul radius with two or three plants. They quoted a market that's gone.

DEMOLITION

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.

QUESTIONS

What elevator owners ask

Elevator bid steel and stainless price went up before buyout?

The stainless cab and #4 entrances got priced on bid day and bought half a year later, and the lump sum contract has no escalation language in it.

What does it cost?

A double-digit move on the steel and stainless portion of a package that's majority material eats the job margin outright, and it doesn't turn up until buyout, long after the number was committed.

What do I do first?

Split the estimate so steel, stainless, and copper-bearing items get their own subtotals per foot of travel, and watch the metals subtotal as its own line.

What are elevator contractors supposed to be making?

Elevator runs 27% gross margin, 18% overhead and 9% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 2 points above it. The CFOS target is 12.5%.

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.

OR HAVE IT HANDLED

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 elevator contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.

What a fractional CFO does for elevator contractors

AUTHOR

JOSH LUEBKER

MASTER ELECTRICIAN · 150+ PROJECTS · $2.1B+ MANAGED

Wrote CONTROL, the 8 step system behind these figures. More about the author.