HVAC · MECHANICAL AND LIFE SAFETY · FIXED BY STEP 03

An unsigned model turns into shop burden that was never bid

The coil line isn't running, the plasma table is idle, the shop foreman is on payroll, and you're chasing the plumber and the sprinkler contractor for a signature.

WHY IT'S AN HVAC PROBLEM

A field crew that runs out of work goes to another job that afternoon. A sheet metal shop has nowhere to go, because its burden only gets absorbed through shop hours produced, and shop hours only exist when a model is signed. That makes your shop rate a function of other trades' modeling schedules, which is a dependency almost no other trade on the project has.

WHAT IT COSTS

The size of it

A shop bid at $38 an hour of burden runs at $60 for the quarter. The miss spreads across every job in the shop and never hits the one that stalled, so no job report shows you what happened.

OVERHEAD AT $1M–$5M

16%

CFOS target 15% for HVAC.

GROSS MARGIN AT $1M–$5M

24%

CFOS target 26.5% for HVAC.

NET PROFIT AT $1M–$5M

CFOS target 11.5% for HVAC.

The fab shop can't cut a pound of duct until the MEP coordination model is signed by every trade in the ceiling. Duct is the largest geometry up there, so you lead coordination and everybody routes around you, but the sign-off is collective and you don't own the pen. Shop hours are gated by that signature and by engineer submittal returns, not by field progress. Meanwhile the coil line, the plasma table, the shop lease, the foreman, and the crew are all running whether or not there's released work. When two jobs stall coordination in the same month, the shop produces a fraction of the hours you spread the burden over.

WHAT TO DO

Three moves, in order

STEP 01

Post released shop hours per week against available shop capacity, one line per week, and hang it where the shop foreman and the PM both see it.

STEP 02

Put every job's coordination sign-off date on one board with the model due date for each trade, and make the GC own the late signature in writing the day it slips.

STEP 03

Recalculate the shop burden rate monthly from actual hours produced, and get the number to estimating before the next bid goes out.

THE FIX

Step 03: Overhead calculation

What indirect cost really comes to at your size, and the rate your estimating template should be using.

CFOS-03 · CHAPTER 3

The overhead rate your bid sheet should cover

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

BENCHMARKS

HVAC 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

You're bidding below your own overhead

If the overhead percentage in your estimating template is lower than what you actually run, every job you win loses money before a single hour is worked.

SAME TRADE

What else costs HVAC contractors money

HVAC · CFOS-01

Your biggest PO gets paid months before it can be billed

You wired the deposit in April, paid the balance in July, and in September the unit is still in a leased warehouse with nothing on the pay app to show for it.

HVAC · CFOS-04

You bid a price the factory never agreed to hold

You bid it in March, released it in June, and it ships in February at whatever the factory is charging in February.

HVAC · CFOS-04

Bid pounds and bought pounds are two different numbers

You bid 42,000 pounds of duct and the mill invoices add up to 51,000, and there is nothing in the building that tells you where the other 9,000 pounds went.

HVAC · CFOS-06

Temp heat on your units is a change order

They dried the building in, fired your rooftops in November, pulled drywall dust through the coils until March, and now they want a clean warranty at turnover.

HVAC · CFOS-07

Retention rides on a report you didn't write

Field work wrapped in April, and your last five percent is still waiting on a heating verification somebody has to schedule for cold weather.

SAME MECHANISM, OTHER TRADES

The same mechanism in other trades

CIVIL

The grading permit clock isn't on your schedule

Third resubmittal on the grading permit, the power pole relocation is six months out, and your crew and iron cost money while no party in your contract chain is at fault.

CONCRETE

The 28-Day Break Decides a Pour You Already Billed

You poured in March on an approved mix, the cylinders came back low in April, and two floors have already gone up on the slab in question.

DEMOLITION

Four Clocks Own Your Start Date And You Own None

The machine is on the pad, the crew is standing around, and everyone is waiting on a letter from the gas company. None of the clocks that release your start belong to you.

QUESTIONS

What HVAC owners ask

How to cost sheet metal shop hours when coordination is late?

The coil line isn't running, the plasma table is idle, the shop foreman is on payroll, and you're chasing the plumber and the sprinkler contractor for a signature.

What does it cost?

A shop bid at $38 an hour of burden runs at $60 for the quarter. The miss spreads across every job in the shop and never hits the one that stalled, so no job report shows you what happened.

What do I do first?

Post released shop hours per week against available shop capacity, one line per week, and hang it where the shop foreman and the PM both see it.

What are HVAC contractors supposed to be making?

HVAC runs 24% gross margin, 16% overhead and 8% net profit before taxes at $1M–$5M. The all-trade average is 7%, so this trade is 1 point above it. The CFOS target is 11.5%.

Which part of the system fixes it?

The step is number 03, overhead calculation. What indirect cost really comes to at your size, and the rate your estimating template should be using. It comes from chapter 3 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 HVAC contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, run by the same author.

What a fractional CFO does for HVAC contractors

AUTHOR

JOSH LUEBKER

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

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