Fuel Surcharge

rino1494

Well, what we do is have a set hourly rate. We raise our prices every spring. If the fuel goes up, then we eat it. If the price of fuel goes down, then yay for us. As far as what was stated above about raising prices every 3 or 6 months. That is a good way to make sure you are earning profit, but I don't think that will do well with the builders/developers. These contractors are giving customers prices based from ours and if we are constantly changing them, it won't make for a good business relationship. It is basically a catch 22, but you gotta do what you gotta do.

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tgeb

Nick's post goes along the lines of something I have been thinking for sometime now. That is that "we" have not kept up with inflation and the cost of doing business. Everything is much more expensive than it was 20 years ago with the exception of excavating contractors, in real dollars we are the biggest bargain there is out there.


The table attached shows the historical consumer price index in real dollars.

Using Denick's example of $95/hour for an excavator in 1980 dollars, to be on equal ground he should be charging over $232 in today's dollars.

A reverse of the same example $130/hour today for the same/equal machine would equate to $53/hour in 1980 dollars. Would anyone of us worked that expensive machine in 1980 for $53/hour, that would have been crazy. But we do that today!

We have to find a way to get the money back into our industry.
There was a post on this forum recently that was a guy remembering how the guy with the nice new cars and the nicest house in the neighborhood was the owner of a contracting business.
Now it seems we are the guys with the old beat up trucks and lawns that need to be mowed.

Take a few minutes and study the info in the attached document and try to apply it to some of the other goods and services that we deal with and see who is keeping up and who is not.

Attached Files

cv2006.pdf (15.2 KB, 102 views)

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Tom

www.gebcon.com

denick

SL42,

What size outfit are you? What is your meat and potatoes size job? What kinds of equipment are you running?

Do you work for the kind of people who will build a varying scale into their cost of the project so that no one gets caught off guard. As an example we do have a clause about pricing only good for *** days on estimates. We have had clauses in contracts that dictate a time frame that cost will change if delays occur.

The few GC's we work for we will sit down with and teld them to write these types of things into their contracts to protect themselves and leave the door open for our contractual requirements

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Nick

"Every day I remind myself that my inner and outer life are based on the labors of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving" Albert Einstein

Tim Doyka

We are a general contractor bid mostly water line replacement. Working on a ten thousand feet job now with 180 services. Bidding a 3500 feet one in a couple weeks with five services. We bidd much the same way we know what we can get done in a day, if we can dig some test holes, but usually we have an idea of a price when we look at the job and that is what we go with. But this fuel surcharge If I bid a job next week at $3.25 a gallon get it and start it in July when diesel may be $4.50 I am screwed If I bid it at $4.50 and do not get it I am screwed.

jproffer

I didn't read the whole thread, so maybe someone already said this...and this is just my opinion so take it for what you think it's worth, but "surcharges" of any kind really PI$$ me off. Just add the cost into your pricing (which, may be your plan, as I said I didn't read the entire thread). Here is one (the most current, for me) reason that they upset me so much:

Cable/Satelite companys can, and do very prominantly, advertise a certain package for...I dunno...say $50 per month, then you get the bill and the "monthy service" line is indeed $50, but then at the bottom you have "taxes (which are a fact of life, no doubt) other fees and surcharges" another (almost) $50. They draw you in with the advertised package price. I learned very quickly to ask "what is my BILL going to be?" which is usually followed by "well the channel package is...", "NO...no no...I can read too, I see what it says..but what will my total BILL be?"

<end rant, thanks for listening>

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Jim P.

Leo G

I think the day of fuel surcharges should end. The fuel surcharge was implemented when there was hope that the price of fuel would drop back down to around $1.50/gal. It started in effect around $2.25/gal. Face it boys, it will never see $1.50/gal again. We are done with that. Adjust your prices accordingly.

As far as I am concerned the fuel surcharge is just a way to make your prices look lower than they actually are, almost to the point of fraud. Especially when you guys are tacking on a percentage for the fuel surcharge, just wrong in my book. Take that 5%,7% or whatever and add it into your pricing. Then just use it to your advantage by telling your clientèle that all your pricing is upfront with no hidden charges like your competitor.

If you want to charge for fuel then do it in an honest way. Quote you service as $***.xx/hr plus fuel. Plain and simple. You wouldn't be out of line. Just say because of the volitility of the prices in fuel we no longer include it in the price of the job. Then you could give an approximate fuel usage for the piece of equiment to give the client piece of mind. Sound fair to both parties. Of course you need to add to the fuel prices to make up for what it costs to get, store and handle the fuel.

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Tim Doyka

That is fine for some contractors but their is no line item for that in bids that i do for an authority or twp. we have things like mobilazation, silt fence, traffic protection, all at a lump sum then other items at a cost per lineal fots such as pipe, paving, grass restoration, some may be is square yds or feet but there is usally a pay limit spelled out, So I have no way to address the highs and lows of fuel surcharges if I bid too high to justify it I do not get the work, If I bid low and fuel goes thru the roof, I lose either way

Vinny

OK, I read the entire thread and I gotta jump in.

First, in reference to the thread subject itself, IMHO you should simply price the additional fuel cost into your hourly rate or consider it a form of overhead if that is easier(thus raising your hourly rate). But surcharges are irritable to clients regardless of industry, product or service.

Secondly, where the thread was headed, i never understood how anyone in any trade, especialy excavating, does well bidding( god I hate that word) in units hoping the entity will provide an adequit quantity of units to be done, just to find that the total job size gets cut by x units because its over budget. Now your stuck doing less units that may not cover your overhead at that low price.

A very succesful excavating contractor told me long ago, the only way to make money in that buisness is to always do it at contract price. (Nick will remeber Paul Cecio, cecio bros). This makes total sense to me. Running a single piece of iron, where you probably own several, and not recovering enough total operational overhead becuase you alot only a portion of that OH on that 1 piece is the problem I see.

In short this is the main reason a guy with 1 or 2 machine maximum or a large company with many machnes and many guys generaly do good. The medium size operation is stuck with the large dollar OH of the large company but cant break that OH down over alot of jobs and alot of guys because of thier significantly smaller size. And at the same time theres no way in heck to compete with a 1 or 2 machine 1 man operation.

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Coghlin

This is the same problem as the steel industry. Steel went sky high, doubled and tripled in a matter of months. We were losing money on jobs. One big customer I worked with we renegotiated the contract. We said that we could no longer afford to make their item. We agreed on a mutual supplier of steel for pircing and I made up a spreadsheet so that when they needed another item it automatically calculated allt he steel needed for the item based on dimensions and they inputted the current cost of steel and we had a fixed labour rate. This allowed them to issue us a P.O. a couple of units at a time. Now this is an ideal situation.

If you had a good relationship with a customer you could negotiate somthing similar. Charge a per hour rate for the machine including all costs and a per hour rate extra for fuel. SO the math would be say $105 for the machine and operator and $15 per hour for fuel. Then this would be fixed at the current cost of fuel say $3.50/gallon. At the end of each week when you send in a bill for work completed you just look on your fuel bill for the week and charge accordingly. SO if at the end of the week fuel was $3.75 then your hourly rate for the fuel would be $16.07. You could sell this in a bid. You just quote two prices. One covering your ass for increased fuel prices at say $130/hour or could try to sell the other price because you don't have to worry about fluctuating prices. Then the customer is given the option of taking the risk or not. This way is so much better than a flat rate surcharge bull**** that I personally hate and it really aggravates me when someone charges me that.

The one I personally hate is our Welding Company supplier. He charges an environmental fee for disposal or something no matter what I buy. I go in and buy a pair of safety glasses for $3 and I get hit with this $4 environmental fee. I now limit busines with this supplier for this reason.

dayexco

thank goodness most of my customers are repeat, and for the most part, know the others, and they know me. i'd much rather go into the project prepared financially in my bid to cover some fuel cost hikes, and if need be, negotiate an increase in fuel costs should the situation arise. but i'm lucky, my customers are understanding on a situation like this. i NEVER go begging for additional money on a project. there've been a few situations i left the project licking my wounds, but i refuse to go back and beg for more money when i told my customer it was going to cost "X" dollars. nothing i hate more is to have my equipment worked on. have the dealer invoice me for misc. shop material, shop rags, etc. etc. this etc. fee, that etc. fee...geesus, just tell me how much it's going to cost me! i made a tire dealer remove a set of tires once because of that. i asked him how much, he said they'll be 106.00 a piece. cool...they drop it from the hoist, and he's right at 130 a tire! disposal, sales tax, excise tax, city excise tax, mounting/balancing...he KNEW that when i pulled my truck in, that i wasn't going to mount the s.o.b.'s myself!!! then he wanted to negotiate. i said, "young man, you've left a sour taste in my mouth, put my old tires back on." he did, and i've never been back. just my 2 cents

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someday, i'll be as patient as Nick.

SL42

Sorry, I have been very busy at work and have not had time for this. I am going out tomorrow to start calculating our actual fuel cost per hour. We have hooked a meter up to one of our slip tanks and I am going to start with 1 of our 160's. I am going to take a reading at the end of each day after refueling for 5 days for each peice of iron and then again during the hot summer months to get average readings. I will post the per hour liter usuage for all machines I do this for. I would love it if others will post thier findings as well if they are going to meter their fuel.

I will post after the first 5 readings....I am sure the findings are going to be depressing....

Duff

SL42,
If your company could get hit with an "extra $100K" in fuel costs then from my humble perspective you are a big time fuel user. Your basic question is how does a company protect itself from fuel spikes on long term bids. I think the answer for you is Futures/Options contracts. They were developed just for this situation. One gas or diesel contract is for 42,000 gallons. What I believe a company of your size would do is buy one contract in the off season at a set future price for a fixed cost for the contract. You spread that cost of that contract in your rates. This allows you to now bid all your work at a specific price/gallon. If fuel spikes higher than this price (strike price) your contract is "in the money" and you cash it in and this offsets the increased fuel cost. If fuel doesn't spike you are out of the money and only out the cost of the contract (which you spread in your rates). This is the same way home heating oil/propane suppliers lock their rates for a year. These contracts get a bad imagine because most people we hear about are buying them on pure speculation. However, their real reason for existing is for people like you. I'd talk to a knowledgable broker who could help you get this right. The problem for us little guys is the contracts are too big to make it a realistic option.
Duff

SL42

that sounds like a neat idea. Do I need to store the fuel or can I take it when I need it?

Duff

You don't actually take possession of it. Confusing I know. Most stock brokers also handle options and futures and you should sit down with one of them to go through the details to see how this might work best for your company. If you bought an option contract in the winter for say $4,000 (which controls 42,000 gallons of diesel) it might have a strike price of 4.43 a gallon for a set time in the future (say June when prices are typically higher). That is the price per gallon you charge in all your estimates. If the price goes up over 4.43 you are losing money on your bids but you have gained on the option contract because it is in the money and that offsets your bid loss. If the price doesn't go above 4.43 then you didn't lose on your bids and the option contract pays out nothing (your out the initial cost $4,000 (which you have built into your rates). It is all paper, just like buying and selling a stock. Options are designated as Puts and Calls, one is hedging against the price going up the other going down. I always get them confused. Hope this turns out to be of some help.
Duff

SL42

ok here are some results

JD 160C LC 3000 + hours
average day temp: 4 celcius (up to 2 feet of frost in some areas)
average liters used :136.5
average hours:8.4
average idle hours:1.125

average liters per hour:16.25

Now we have start up and wait times for truck or MOB's so there is a certain amount of time the unit is just sitting. I do not believe that the idle time burns a large amount of fuel. One day we were working full speed with no break for 9 hours and the average liters per hour was 18.05. That day was spent stripping an area anywheres from 1-3 feet to bring it down to grade for a condo pad. there was 2 feet of frost in the earth and the operator says he worked the machine to 7/10 of it's capability. I believe that 18 L/hr will be the true fuel economy for the machine as there are many things that will push the machine harder.

SL42

Oh I forgot to mention that we were estimating the machine to use 15 liters per hour last year. At that rate plus the major rise in the cost of fuel we are right now costing about 67% too low on our fuel. If fuel rises to what they say it will we will be 93% too low on our allowance for the gas in our hourly rate. The difference is that we allow $13.50 per hour for the machine. We are actually spending around the $20 mark, and will be spending $26 per hour in the summer (forecasted).

SpecOne

I'm like most of the other posters here and don't like surcharges. Luckily, up to now I haven't had to worry about rising fuel cost because the turn around from estimating to award to start and finish of project has been pretty quick. But now that I'm beginning to get into longer term projects, I do worry about how I will bid. Especially since the state jobs that I'm goin after don't have line items for stuff like surcharges.

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Spec Construction
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