Adjuster Estimates

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Last Post 01/02/2009 1:33 PM by  Ray Hall
Carrier "Forced" Pricing in Property Claims
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Joeblack
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12/30/2008 10:39 PM
Lots of good posts above. But to go back to the original subject of this thread, it appears to me that a general contractor was having subcontractors submit written bids that were 20% higher than the actual subcontractor's price. (As an example, the general contractor was paying $100 to a sub, but turning in that sub's bid as $120). So the general contractor was making the initial 20% markup on the sub bid, plus another 20% for O&P.
 
The question being, is that unethical, or just a way for the contractor to make the profit he needs to stay in business? Which raises the question, what is a fair profit percentage?
 
I once attended a claims meeting between adjusters and general contractors where the claims manager of a major insurance company stood in front of the group and stated that the last time he checked, a contractor needed 35% profit on their work in order to stay in business. Yet this same insurance company only paid 20% overhead and profit.
 
So how does a general contractor make 35%? Why don't insurance companies pay 35% O&P if that is what is needed?
 
If Xactimate says that a minimum roof repair is $305.00, but a general contractor can get it done all day long for only $100.00, is that unethical?
 
Any other thoughts or comments?
 
 
 
 
 
 
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BobH
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12/30/2008 11:06 PM
Posted By Joe Black on 30 Dec 2008 10:39 PM
...it appears to me that a general contractor was having subcontractors submit written bids that were 20% higher than the actual subcontractor's price. (As an example, the general contractor was paying $100 to a sub, but turning in that sub's bid as $120). So the general contractor was making the initial 20% markup on the sub bid, plus another 20% for O&P.
 
The question being, is that unethical, or just a way for the contractor to make the profit he needs to stay in business?
I have seen that happen on a number of claims I have worked.
Visualize that you are a consumer, calling a cabinet subcontractor out of the phone book.  Prior to the recent real estate & economy slump, people with a yellow page add would get random phone calls, and maybe sell 1 out of 10 inquiries.
 
Now imagine that the cabinet guy, or flooring vendor, painter, etc. gets work fairly often from a water-fire damage restoration General Contractor, or new home builder.  There is sort of a "wholesale" arrangement that goes along with volume of work and not getting jerked off by 1,000 questions from the consumer.
 
I remember a fire claim years ago where the General Contractor was saying his subcontractor bids were coming in so much higher (the GC and I were both using Xactimate). I asked to see the sub bids, and he almost turned white.  I knew the guy for many years, so he confided how this system worked.  And your right, they do need to make more than 20%.  But he, and many other people that are GC's have their own crew that does much of the work, even if it is just "pack out" and cleaning. Some of them worked up the trades as a framer, whatever, but they all sub out the flooring, counter tops, etc.  MOST of the GC's don't sub out 100% of the work and live only on the O&P marked up on the sub's work.  I have seen some operate that way, but you don't want to get tunnel-visioned into thinking that a GC works simply for O&P.  Sometimes they do.

In some ways, it doesn't matter that much to me how something is "gift wrapped" when I look at a contractor's price.  I have seen many, many estimates from a General Contractor with no mention of O&P, yet the bottom line price on their single page bid would come amazingly close to my 25 page granular detail estimate with 10 & 10 added for O&P at the end of my estimate for insurance purposes.  The contractor O&P is part of his bid but doesn't HAVE to be separated out.  It's one of the the things they take into account, along with materials and labor costs. 

I just look at the damage, and with some years of experience and the guidance of updated unit costs as somewhat of a guide, determine if the contractor's price is OK once all the details of the scope are allowed for (or cut back, if they are upgrading - remodeling - overkilling)

Bob H
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okclarryd
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12/31/2008 9:03 AM
Kinda goes back to "adjusting", doesn't it?
Larry D Hardin
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Tom Toll
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12/31/2008 11:16 AM
Posted By Larry Hardin on 31 Dec 2008 09:03 AM
Kinda goes back to "adjusting", doesn't it?
 
Why, yes it does.

Success is not final, failure is not fatal: it is the courage to continue that counts.
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dcmarlin
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01/01/2009 4:06 PM
Posted By Joe Black on 30 Dec 2008 10:39 PM
I once attended a claims meeting between adjusters and general contractors where the claims manager of a major insurance company stood in front of the group and stated that the last time he checked, a contractor needed 35% profit on their work in order to stay in business. Yet this same insurance company only paid 20% overhead and profit.
 
**
 
Most restoration contractors incur around 25-30% overhead and,with 10% profit, need to mark up a sub bid accordingly to reach the 35-40% gross profit required.  Most of the time, if they provide a sub bid and you only add 10 & 10, unless there is sufficient profit elsewhere in the project, they are not meeting their costs. It is for this very reason, I do not like getting sub bids from contractors and rarely request them.  
 
There are times when all the GC did was call a sub to get a bid,instructed him to complete repairs and call when finished.  In these cases, maybe just 10 & 10 is warranted.  But,if the GC does provide me a sub bid and their supervision and management is needed, I usually add these additional costs and then apply 10 & 10 so the GC can make his numbers. 
 
Also, if I understand the estimating systems correctly, the unit costs (of Xmate) should include sufficient profit so when 10 & 10 is added a GC will eventually make a gross profit of 30-40%.
 
**
 
In the case of the contractor in the newspaper article, it is possible the above reason is why there were two different sub bids.  I am not saying what they did is right, though.
 
 


Gimme a bottle of anything and a glazed donut ... to go! (DLR)
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ChuckDeaton
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01/01/2009 8:23 PM
All general contractors that do relatively small jobs have favored sub contractors and do all of the work related to unlicensed trades, and to stay in business everybody up and down the line has to at least cover all costs. Hopefully everybody will show a net profit after taxes. I would like to have a business, any business, that made a legitimate 35% profit net after taxes.

But think about a roofer in the spring of 2008, first of all the roofing business is largely feast or famine, a hail storm hits and the roofer has all he can do, but oil prices are at all time highs and look to be going higher, driving the price of roofing out thru the roof, diesel prices go up 45% in 30 days, short term credit is non existent and some of the roofs he is writing bids on are on risks that are being foreclosed. The roofer knows that he can't get to the work for 60 days. What does he do, he writes a high bid and tries to cover the uncertainty. Then the state accuses him of price gouging and fraud and files suit.

Some days you just can't win.
"Prattling on and on about being an ass with experience doesn't make someone experienced. It just makes you an ass." Rod Buvens, Pilot grunt
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Ray Hall
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01/02/2009 1:33 PM
This debate has been going on as long as I can remember and will be around forever. If the prices in the estimatiing programs were not adequate the contractors or the homeowners would not except them and adjusters would have to go back to getting bids on each loss.  A huge waste of time and money for all concerned.
 
How could many contractors and a small % of adjusters except "dinders fees" if this was not true. Why do insurance carriers prohibit any modification of the price list in the data base. This way; "the lid is kept on".
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