Construction Business Estimating Questions
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Construction Business Estimating Questions - 5/9/2004 4:18:42 AM
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ClmGui
Posts: 39
Joined: 4/19/2004
Status: offline
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Hello,
The term "Costs plus 10%" seems to be an economic investment estimating concept commonly used by various construction business owners around the U.S.A.
From my understanding, "Costs" refers to all estimated-anticipated dollars to have to invest / risk towards a given construction projects fulfillment, and "plus 10%" refers to a (pre-tax) 10% profit return for the investing construction business entrepreneur.
In looking over estimates generated by National Construction Estimator / 2004 National Renovation & Insurance Repair Estimator, IntegriClaim and Xactimate I have seen 2-3 itemized construction cost factor lines at the bottom of these programs semi-auto generated estimates.
Those estimated cost factor (mark-up) lines are termed "Overhead", "Contingency" and "Profit".
For clarity sake, what "Contractor" costs do insurers-adjusters recognize are being referred to at the contractor overhead, contingency and profit mark-up factor lines at the bottom of these [programs generated] estimates?
Is it the sub-trade contractor costs, or the primary-general contractor costs?
Thanks for the help.
< Message edited by ClmGui -- 5/9/2004 4:28:43 AM >
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RE: Construction Business Estimating Questions - 5/10/2004 2:36:26 PM
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ClmGui
Posts: 39
Joined: 4/19/2004
Status: offline
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Hello KileAnderson,
In regarding many months of consumer-indemnity protection economics research so far, the "rule of thumb" you mentioned and the rule of law, regarding indemnity protection values and fiduciary responsibility, seem to be at odds with each other.
What I mean is, a structure is commonly built or "placed" with "Cost plus 10%" construction business type economic values built into its worth, and the indemnity ready premium "knows" that fact, but the "rule of thumb", in effect, seems to contradict those values being recognized.
For reasoning sake, please consider the following; An individual has a builder-general contractor build them a "Costs plus 10%" house ("Costs" meaning ALL sub-trade and primary-general contractor business-overhead costs are covered, and "10%" meaning profit). The "Costs plus 10%" house is completed to the homebuyers satisfaction. Besides warranty promises, the consumer-contractor relationship has been "Costs plus 10%" "fulfilled".
Soon, the consumer-homebuyer purchases an RCV or ACV valued policy, and the indemnified consumer-insurer fiduciary trust relationship begins. The agent-insurer educated consumer has piece of mind knowing the "Cost plus 10%" replacement value of the structure is now being indemnified-financially protected.
5 weeks later a wind-hail event affects the roofing system alone. The homeowner calls the same primary-general contractor for the roofing system replacement. The contractor applies the exact same "Cost plus 10%" economics to their estimate, and this time anticipates construction material replacement processes and materials, labor, demolition, hauling, landfill and etc. costs. The contractor presents the estimate to the homeowner. The homeowner sees and understands that the estimate price is equally and economically structured as the original new construction cost estimate, with sub-trade work costs being accounted for again.
The insurer says the Contractors price is 20% "too high". The consumer and primary-general contractor point out the exact same "Cost plus 10%" values are again being used that were in place when the structure was built, with extra replacement work costs being accounted for. The Contractor estimate is actually valued correctly for equaling the primary contractor replacement value of the "Cost plus 10%" indemnity protected investment-home.
The insurer seems to be overlooking the fact that the roofing system, like ALL of the other pieces of the house, was installed by the primary-general contractor, not the roofing contractor, and was (actuarially) anticipated to be primary-general contractor reinstalled again. The "loss" should be "adjusted" according to those known, and indemnity covered, market values.
In short, the financial loss recovery of the structures damaged roofing system should be value "adjusted" as a primary-general contractor "Cost plus 10%" placed / replacement "loss", nothing more...nothing less. This allows the insurer-adjuster to pass onto the consumer-contractor insured construction business values the premium "anticipates" as being fair and reasonable indemnity coverage constants.
I believe these economic indemnity principle merits escape most homeowners notice.
I also believe reasonable and thinking people can easily understand that significant business coordination, and craft quality verification experience, is behind the monitoring of even single trade type work scope, and that construction project management challenges greatly increase with each additional single trade craft added to a given ["Cost plus 10%] construction project. New projects, or otherwise.
Also Mr. Anderson, I am not Reconman, and do not want to become a mark for inappropriate replies. I can be reach at claimguide@hotmail for additional comments or opinions.
I have carefully considered some comments that he and others contributed though. The TDI bulletin (B-0045-98) he repeatedly referred to was very helpful in explaining, in plain language, the logically rational and legally pre-determined values actually built into homeowner premiums. Other judicial rulings do appear to agree with the economic and fiduciary logic of that bulletin.
http://66.102.7.104/search?q=cache:Hn1Qd3kccucJ:www.hurwitzfine.com/insure/CP11-07-03.htm+%22%2Bwww.hurwitzfine.%2Bcom/insure/CP11-07-03-.htm%22&hl=en
(I'm hoping this link is active.) The summary can be considered at the bottom of this posting.
It appears the Texas Department of Insurance, and other official consumer-insurer indemnification mediators "rules" agree with what premium values actually cover, and are to be paid, when measured against financial values "lost" in damaged (Contractor placed) structures.
In fact, they were (repeatedly) quite adamant about insurers legally recognizing what premium replacement values actually are...and how they are to be actually, consistently, objectively and openly accounted for in the adjusting-to-consumer financial loss compensation process.
Interestingly, the "2-3+ trade" logic is not mentioned or even, apparently, hinted at as a factor to consider in determining how prepaid premium value, (to be repaid), is to be accounted for.
Those (TDI, etc.) economic / indemnity payment rules-math seem to clearly clash with certain other economic "rules of thumb".
10/30/03 MAZZOCKI v STATE FARM FIRE & CAS. CORP.
New York State Supreme Court, Appellate Division, Third Department
In State Farm Class Action, Court Determines Contractor’s Overhead and Profit Part of Replacement Cost
The court in a previous case reasoned that since the replacement cost utilized to determine actual cash value is an estimate of all costs that would likely and reasonably be incurred by the insured in repairing or replacing the damaged property, the expense of a general contractor cannot be deducted from such an estimate unless the services are not likely to be required. Applying the same logic, the court found that the term “replacement cost”—as opposed to “actual replacement cost”—can reasonably be interpreted to include profit and overhead whenever it is reasonably likely that a general contractor will be needed to repair or replace the damage. Court found no merit to argument that since such an expense may not actually be incurred, it is contingent and should not be included. It concluded instead that a replacement cost estimate is equally hypothetical or contingent as to all materials, labor and contractor services. In the court’s view, the policy language was equivocal. Accordingly, it construed the policies’ terms against defendant and held that it was obligated to include profit and overhead in replacement cost, and thereby in actual cash value, whenever a general contractor would likely be needed".
-End
Primary-general contractor business economics are placed in the structure, so, it appears that equivocal replacement economic constants are always, marketwise and legally, "likely to be needed" again towards a [single trade or otherwise] indemnified "loss", being that they are, proportionately, a part of the whole “Cost plus 10%” value that defines the primary-general-sub-contractor valued, and commensurately premium indemnified, structure.
Fair, reasonable and like kind and quality construction business values appear to be the actual “rule of thumb” measurement to adjust structural-replacement economic loss values with. Consumers should be made aware of these financial-indemnity protection issues.
It may help towards Hurricane Isabel claim settlement type (human suffering) scenarios to becoming a thing of the past.
< Message edited by ClmGui -- 5/10/2004 2:53:20 PM >
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RE: Construction Business Estimating Questions - 5/10/2004 3:15:40 PM
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JimF
Posts: 1305
Joined: 4/19/2004
Status: offline
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quote:
ORIGINAL: ClmGui
.....and the indemnity ready premium "knows" that fact.....
.....and was (actuarially) anticipated to be primary-general contractor reinstalled again.
.....values the premium "anticipates" as being fair and reasonable...
.....explaining, in plain language, the logically rational and legally pre-determined values actually built into homeowner premiums.....
.....In fact, they were (repeatedly) quite adamant about insurers legally recognizing what premium replacement values actually are.....
.....a factor to consider in determining how prepaid premium value, (to be repaid), is to be accounted for......
.....and commensurately premium indemnified, structure.....
If you would take the time to actually read an authoratative text on actuarial science and how premiums are arrived at and set by the various commissioners of insurance of the various states, you would realize how foolish your above posted statements truly are, and how illogical your faulty conclusions.
To assume what you are saying and then extend it logically by your logic, would allow a conclusion that the actuary and insurance carrier actually expect each and every policy to result in a total loss claim in each policy period for every insured risk.
Your theory works in your perfect world where everyone pays $250,000.00 per year each in annual homeowners premium or an annual premium commensurate with the RCV of the risk, and everyone gets a new house or commercial building each year.
But here in our more imperfect yet real world...
Premiums are set based on a much more complicated and complex formula which takes into account large numbers of losses over historical periods from various covered causes of loss with random, though predictable distributions of various loss amounts relative to the number of risks insured and claims made.
If one places any credence in your conclusions and their underlying assumptions, then they need to cling to a similar belief in Santa Claus, the Easter Bunny and the Tooth Fairy.
And say what you will, your message to the wrong audience here is precisely and exactly the same as another idiot heretofore referenced who so plagued this Forum with his unintelligable 5th grade grammar and bored us all nearly to death with his mindless wanderings.
If you think the foundations of insurance and the principles which have made it work for almost 200 years in this country are wrong, then may I suggest you visit your time and arguments with the various state insurance commissioners, the Insurance Service Office, and the National Association of Insurance Commissioners, who rather solely have the power to do something about it.
Quite simply we don't have any power to effectuate change, nor the time and we really don't share your interest wasted on irrelevant bull droppings.
< Message edited by JimF -- 5/10/2004 3:29:19 PM >
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RE: Construction Business Estimating Questions - 5/10/2004 6:28:23 PM
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Tom_Toll
Posts: 551
Joined: 4/19/2004
Home base: Austin, AR
Status: offline
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I am going to make a suggestion to all, and perhaps it should be put up as a poll. When we get serious questions from supposedly licensed General Contractors and/or Roofing contractors, how would you feel if we required them to post their GC or roofing licenses prior to our making any comments on their posts.
I fear that some of the remarks and questions are loaded and should not be discussed with laymen and those wishing to write books, somewhat based on commentary on this web sight.
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RE: Construction Business Estimating Questions - 5/10/2004 7:00:58 PM
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ClmGui
Posts: 39
Joined: 4/19/2004
Status: offline
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Hello JimF,
quote:
To assume what you are saying and then extend it logically by your logic, would allow a conclusion that the actuary and insurance carrier actually expect each and every policy to result in a total loss claim in each policy period for every insured risk.
I don't believe that the TDI and New York rulings imply that those mathematical improbabilities you are using are an actual and logical foundation to rest your opinions on.
quote:
Premiums are set based on a much more complicated and complex formula which takes into account large numbers of losses over historical periods from various covered causes of loss with random, though predictable distributions of various loss amounts relative to the number of risks insured and claims made.
That statement seems to follow the (historical) 10 year patterns and statistical events-probabilities I have researched so far.
It's the "risks insured" value that the two rulings seem to be addressing that has my "insurer-to-consumer-to-contractor-to-adjuster indemnity / fiduciary paradox" curiosity going.
And if anyone has room to learn, well...that would be me... But on the other hand, consumers (people) need to really know about how and where their hard earned dollars go, and why...
JimF...or anyone...What do you feel the TDI and the New York appellant court messages to indemnified consumers mean exactly?
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