GRADING · CIVIL AND EARTHWORK · FIXED BY STEP 02

You Ordered The Dozer Before You Won The Job

You signed a five year loan on a machine waiting in a factory build slot, betting on backlog that had not been awarded yet. The job slid nine months and you rented the whole time.

WHY IT'S A GRADING PROBLEM

A trade whose long-lead item is material can stop ordering the day a bid goes away. You can't cancel a build slot, and the machine gets delivered regardless of what happened to the pipeline. Grading is the rare trade where the biggest single purchase decision is made against jobs that are still bids. Every other cost in the company can be sized down after an award slips.

WHAT IT COSTS

The size of it

A dozer with grade control at roughly $7,000 to $8,000 a month for 60 months bills you whether or not it moves. Two idle months a year across three machines is about $45,000 of ownership cost that never reaches a job and becomes overhead without anybody deciding it should.

OVERHEAD AT $1M–$5M

16%

CFOS target 15% for grading.

GROSS MARGIN AT $1M–$5M

18%

CFOS target 25% for grading.

NET PROFIT AT $1M–$5M

CFOS target 10% for grading.

Grading buys production capacity as iron, and iron gets ordered into a build slot months before anybody signs the work that justifies it. Factory-integrated grade control adds $25K to $75K per machine, plus $1,500 to $3,500 a year in RTK correction service, and both have to be specified at order or bought back later at a retrofit premium. The payment starts on delivery, not on notice to proceed, so a six month slip on the award doesn't move the payment date. While you wait, you rent to cover the work you did win, at rates that eat the margin the purchase was supposed to create. Ask what share of your monthly revenue is already promised to machines before a single track turns.

WHAT TO DO

Three moves, in order

STEP 01

Put every machine loan on one page with its monthly payment, then divide the total by your average monthly revenue so you know what share of every dollar is already committed to iron.

STEP 02

Set an owning-and-operating rate per machine that includes the payment, insurance, grade control, and the RTK subscription, then get it to whoever writes bids before the next one goes out.

STEP 03

Before you sign the next build slot, write down which two jobs in the pipeline cover the payment, along with what you do if both of them slip past the delivery date.

THE FIX

Step 02: Equipment cost basis

A correct internal rate per machine covering ownership, maintenance, fuel, and transport, charged to the projects that used it.

CFOS-02 · CHAPTER 2

What your equipment really costs per hour

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

BENCHMARKS

Grading 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

Your equipment is eating the margin

The machine is paid for, so the jobs use it at no charge. Then the transmission goes and the year is gone.

SAME TRADE

What else costs grading contractors money

GRADING · CFOS-06

A Density Tech's Calendar Runs Your Fill Schedule

The next lift doesn't go down until the lab comes out and shoots it, and that lab answers to the owner's geotech, not to you.

GRADING · CFOS-07

Earned In Month Two, Retention Paid In Month Twenty-Two

Mass grading is finished before the foundation is poured, and the retention on it stays out until somebody else's building reaches substantial completion.

GRADING · CFOS-01

Five Trips To Site, One Mobilization Line Item

Clearing, mass grade, trench backfill, subgrade, and final grade are five separate visits spread across the GC's whole schedule, and you bid them as one number.

GRADING · CFOS-08

When The Vertical Trades Slip, Your Silt Fence Pays

You installed the BMPs in week one and got paid for them once. The seven day inspection clock keeps running until the site stops being a construction site.

GRADING · CFOS-03

The Low Spot Appears Two Winters After Closeout

Fill settles and lots pond on a delay measured in seasons, so the call comes after the retention is collected and spent and the job file is closed.

SAME MECHANISM, OTHER TRADES

The same mechanism in other trades

CONCRETE

Eight Tons of Rebar Tagged to a Drawing That Changed

The EOR approved the placing drawings, the fab shop cut and bent to the bar list, and then somebody moved a footing. Now you own bundles tagged to grid lines that no longer exist.

DEMOLITION

Your Breaker Burns Tool Steel That Overhead Pays For

A hammer chews $9,000 of tool steel on one teardown and the job that ate it never sees a dollar of the cost. The margin looks fine and the bank account disagrees.

DRYWALL

Lead-lined board is eight weeks and non-returnable

The imaging room's board is eight weeks out, cut to the shielding drawings, and the deposit is gone the day you release the order.

QUESTIONS

What grading owners ask

How do I cover an equipment payment on a job I haven't won yet?

You signed a five year loan on a machine waiting in a factory build slot, betting on backlog that had not been awarded yet. The job slid nine months and you rented the whole time.

What does it cost?

What do I do first?

Put every machine loan on one page with its monthly payment, then divide the total by your average monthly revenue so you know what share of every dollar is already committed to iron.

What are grading contractors supposed to be making?

Grading runs 18% gross margin, 16% overhead and 2% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 5 points below it. The CFOS target is 10%.

Which part of the system fixes it?

The step is number 02, equipment cost basis. A correct internal rate per machine covering ownership, maintenance, fuel, and transport, charged to the projects that used it. It comes from chapter 2 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 grading contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.

What a fractional CFO does for grading contractors

AUTHOR

JOSH LUEBKER

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

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