There is a thread on one of the heavy equipment forums asking how you should charge for excavating. Hourly, by the foot, or a lump sum. That thread was started in 2004. Contractors are still arguing about it today.
Twenty-two years is not how long a hard question takes to answer. It is how long a question stays open when nobody answering it is accountable for the answer. Six strangers in a thread at nine at night, and not one of them has to live with your number. That is the real competition for every estimating course and every piece of takeoff software ever sold: a free argument that never resolves.
Jay Voisey has bid dirt work in Jefferson County, Missouri since 1998. What follows is how he decides, in the order he decides it.
The Ten Second Rule
If I can see the whole job before I start it, I price it. If I cannot see the bottom of it, I go time and material.
That is the entire rule. Everything else in this article is the detail underneath it.
Rock I cannot see. Water I cannot see. A tie-in somebody else was supposed to have done. An old system nobody has a drawing for. That is not a job you put a flat number on, and no program is going to tell you otherwise, because a program will return a confident figure whatever you feed it.
And if I am going to take on a job that is an extremely difficult job, then the only way I am willing to do that is on a time and material basis. We will fairly charge for that time and material. But it is the only way for me to mitigate my risk and to be fair with the customer.
Both halves of that sentence matter. Time and material protects the contractor from the unknown, and it protects the customer from paying for a cushion covering a risk that never showed up.
What Most Contractors Get Wrong About Lump Sum
Most contractors two to six years in believe lump sum is the grown-up way to price a job. It sounds confident. It sounds like you know what you are doing. And it is the number the customer likes hearing, because it is the only one he can put next to another man's number.
That is backwards. Lump sum is not confidence. Lump sum is you agreeing to eat whatever is down there.
Here is the part that surprises people. In a year, lump sum bids might only account for ten percent of Checkered Flag's business. Maybe twenty percent sometimes. The bulk of the business is time and material. Twenty-eight-years in, holding licences most excavators never pull, and most of the work is still priced by the hour.
That is not because the number is hard to figure. It is because after twenty-eight-years you know which jobs you can see the bottom of.
Lump sum is the right answer on a job you can genuinely see. A pad on open ground. A driveway on flat dirt. A pond where you have dug two others within a mile and you know what comes out of that ground. The minute there is something underneath you cannot see, a lump sum is a bet, and you are the only one at the table who loses if it goes wrong.
When Hourly Protects You, and What It Costs You
Hourly moves the unknown back onto the person who owns the dirt. On a job nobody can see the bottom of, that is exactly where it belongs.
What it costs you is the bid. A customer holding three numbers, one of which is open-ended, is going to pick one of the other two unless you have explained why yours is open. So explain it, plainly and in his driveway: I can give you a flat number today, and I will have to put a cushion in it that you will probably pay for and not need. Or we do it by the hour and you pay for the dirt that is actually there.
Most customers pick the honest one when it is put to them that way. The ones who do not were never going to be good customers.
There is one rule that keeps hourly honest, and it is the reason the method has a bad name in some markets. If you are doing a job by the hour on a time and material basis, it is not fair to the customer to pay for a guy to learn or a guy to make a mistake. You have got to charge fairly. Hourly is not a licence to be slow.
Unit Pricing, and Where It Actually Goes Wrong
Footers, trenching, pads, pipe. Repeatable work where the quantity is the only variable. That is unit work, and it is the cleanest way to bid it.
When a unit price loses money, it is almost never the unit. The unit was right. The count was wrong.
You priced three hundred feet because the plan said three hundred feet, and the site has three hundred and sixty because of a jog nobody drew. Or you priced by the foot and did not price the depth change, so the same foot is a different job for the back half of the run and you carry the difference the whole way.
The fix is not a better spreadsheet. Your unit has to say what it includes and what it does not, in writing, before anybody signs anything. Depth band. Spoil handling. Rock. Dewatering. Restoration. If it is not written, you have agreed to it.
The Driveway Question
The situation that actually happens is not a spreadsheet. It is a man standing in a driveway, and the customer wants a number today.
Here is what to say. You can have a number today, or you can have the right number. If it is open ground and I can see all of it, you will get a number today. If I cannot see the bottom of it, I am not going to make one up standing in your driveway, and the guy who does is going to find it in week three and come back to you for it as a change order.
That is not a hard thing to say out loud, and over twenty-eight-years it has won more work than it has lost. Customers are not stupid. They have all been through a change order.
Why a Falling Win Rate Is Not the Emergency
One more thing, because it is the piece nobody warns you about. When you start pricing the work properly, you start losing bids you used to win. That feels like failure and it is not.
There is a post that goes around the construction forums. One contractor bid a series of small, similar jobs. He won six of them before he completed the first one. He lost money on every one. He did not find out until the sixth was already dug.
Winning everything means you are the cheapest man in the room. Losing a bid costs you the hour you spent on the takeoff. Winning the wrong one costs you the month, and you do not find out for six weeks, when the fuel and the payment and the repair all land in the same week.
So when the win rate drops, work out which kind of dropping it is. Dropping because your number finally covers the work is the good kind. Dropping because you stopped bidding is the other kind, and you fix that by bidding more, not by bidding cheaper.
Frequently Asked Questions
Should I charge hourly or by the foot for excavation?
Ask one question first: can you see the whole job before you start it? If you can, price it, either as a unit price or a lump sum. If you cannot see the bottom of it, go time and material. Rock you cannot see, water you cannot see, a tie-in somebody else was supposed to have done, or an old system nobody has a drawing for are not jobs you put a flat number on.
What is a fair hourly rate for an excavator?
There is no national number, and anybody who gives you one is guessing. Build it: annual owning cost, plus annual operating cost, plus that machine's share of overhead, divided by the hours you honestly billed last year. That is your cost. Your rate is that number plus your margin.
Why do contractors lose money on lump sum bids?
Because lump sum gets used to sound confident rather than because the job is visible. A lump sum is an agreement to absorb whatever is underground in exchange for a number the customer can compare. On a job with unknowns, that is a bet where only one side can lose.
Two Ways to Use This
If you run your own machine, anywhere in the country, the free Bid Worksheet on this site is a blank one-page structure for pricing a dirt job, from scope to the final number. It is free, it takes one step to get, and there is no call to book and no sales page in the middle of it.
If you are a homeowner, a builder or a general contractor in Jefferson County or the greater St. Louis metro and you would rather somebody who has been doing this since 1998 worked the number out for you, that is the day job. Checkered Flag Excavation, De Soto and Festus, Missouri. Call 636-586-1794.
Jay Voisey owns Checkered Flag Excavation, Inc., founded 1998, with locations in De Soto and Festus, Missouri. He is a licensed septic installer and septic inspector, a St. Louis County licensed Master Drainlayer, an approved St. Louis County land disturbance special inspector,. Checkered Flag is WBE certified and holds a BuildZoom score of 92, the top third of 23,328 licensed Missouri contractors.