2.4 Labor Production Rates, Bid Assembly & Job Costing

2.4 Labor Production Rates, Bid Assembly & Job Costing

Sections 2.1 through 2.3 answer how much material. This section answers how much money — and it is where roofing companies actually fail. A takeoff can be perfect while the bid is still ruinous, because labor, burden, overhead recovery and tax treatment were never computed. The Arizona exam's Estimating and Plan Reading area is only five questions, but pricing logic reaches into the Statutes and Rules material too, because underbidding is the root cause of the abandonment and non-payment complaints that generate ROC discipline under A.R.S. § 32-1154(A)(1) and (A)(10).

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1. Crew Production Rates

A production rate is the quantity of finished work one crew completes in one day under normal conditions. Rates are system-specific and complexity-sensitive; they are the bridge between squares and dollars.

Two disciplines make these numbers usable. First, derate for complexity using the same matrix that drives the waste factor: valleys, dormers, skylights, mansards, pitches above 8:12, two-story access and tight staging all cut production. Second, separate the operations. Tear-off, dry-in, load-out, field application and detail work each carry their own rate, and a bid that lumps them together hides the detail labor that actually consumes the day.

Worked Example: From Squares to Labor Dollars

A 30-square architectural shingle reroof with one layer of tear-off, moderate complexity:

• Tear-off: 30 squares ÷ 25 squares/day = 1.20 crew-days
• Dry-in and field shingles: 30 squares ÷ 14 squares/day = 2.14 crew-days
• Detail and cleanup allowance: 0.40 crew-days
• Total: 3.74 crew-days × 3 workers × 8 hours = 89.8 labor hours

At a $26.00 base wage, direct wages are $2,334.80. Wages alone are not the cost — burden comes next.

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2. Labor Burden: The Number That Sinks Roofing Bids

Labor burden is every employment cost above base wage. Roofing carries the heaviest burden in the building trades because of its injury rate.

Class code 5551 (Roofing — All Kinds) is consistently among the most expensive workers' compensation classifications written, which is exactly why the OSHA fall-protection discipline in Chapter 8 is a financial control and not merely a legal one: an experience modification rate driven up by claims raises the cost of every future bid.

Applying a 1.55 multiplier to the worked example: 89.8 hours × $26.00 × 1.55 = $3,618.94 of burdened labor.

[!IMPORTANT] Never bid from base wage. A contractor who prices 89.8 hours at $26.00 and adds "some overhead" has already given away roughly $1,284 of burden on a single small residential roof. Compute the burden multiplier once a year from actual payroll records and apply it to every estimate.

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3. Assembling the Bid

Roofing bids assemble in a fixed order, and each layer has a distinct purpose:

1. Direct costs — burdened labor, materials with waste, equipment and rental (kettle, hoist, dumpster, lift), and subcontracted work such as crane service, asbestos abatement or shop sheet-metal fabrication.
2. Jobsite overhead (general conditions) — supervision, permits, mobilization, portable sanitation, property protection, debris hauling, temporary power. These belong to the job but sit outside any unit price.
3. Company overhead — office rent, estimating, insurance not allocated to payroll, vehicles, licensing and bonding, software. Recovered as a percentage of revenue: overhead rate = annual overhead ÷ annual revenue.
4. Profit — the return on risk, computed after overhead and never confused with it.

Markup Versus Margin: The Costliest Arithmetic in the Trade

• Markup is applied to cost: Price = Cost × (1 + markup)
• Margin is measured against price: Price = Cost ÷ (1 − margin)

Take $10,000 of direct cost and a target of 35% gross margin:

$\text{Correct: } \frac{\$10{,}000}{1 - 0.35} = \$15{,}384.62$

$\text{Wrong (35\% markup): } \$10{,}000 \times 1.35 = \$13{,}500$

$\text{Margin actually achieved} = \frac{\$13{,}500 - \$10{,}000}{\$13{,}500} = 25.9\%$

The contractor who confuses the two gives away $1,884.62 on a single job and never sees it, because the invoice still looks profitable. The conversion table is worth memorizing:

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4. Arizona Transaction Privilege Tax: Prime Contracting Versus MRRA

Arizona does not levy a conventional sales tax; it levies transaction privilege tax (TPT) on the privilege of doing business. For contractors there are two mutually exclusive treatments, and choosing the wrong one either overcharges the customer or leaves the contractor holding an assessment.

Effective January 1, 2015, gross income from MRRA activities performed directly for the property owner is not subject to prime contracting TPT. Because the overwhelming majority of CR-42 work is reroofing and repair of existing buildings, most Arizona roofing contractors operate primarily in the MRRA lane: they buy shingles, tile and membrane tax-paid, and they must build that tax into the material line of the estimate rather than adding it to the invoice.

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5. Unit Prices, Allowances & Change Orders

Roofing bids are exposed to conditions nobody can see until tear-off is underway. The professional answer is a unit price schedule written into the contract, consistent with the stage-by-stage payment structure A.R.S. § 32-1158(A)(8) already requires:

• Decking replacement, per 4' × 8' sheet of a stated thickness — remembering the CR-42 scope limit of three sheets (96 square feet) before general-contractor scope is implicated
• Fascia or sub-fascia board, per linear foot
• Rafter tail or truss-end repair, per each, with the referral point at which a general contractor must take over
• Broken tile replacement, per tile, plus sourcing terms for discontinued profiles
• Additional layer of tear-off discovered beneath the first, per square

An allowance is a placeholder dollar amount for scope that cannot be defined at signing and must be reconciled against actual quantities. A change order should be executed in writing before the work proceeds, because departing from the contract documents without the owner's consent is itself a disciplinary ground under A.R.S. § 32-1154(A)(2).

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6. Job Costing: Closing the Loop

An estimate is a hypothesis; job costing is the experiment that tests it. For every completed job, capture actual labor hours, actual squares installed, actual material quantities and actual equipment days, then compute:

• Labor productivity variance = actual hours ÷ estimated hours
• Material variance = actual squares consumed ÷ squares ordered — this is the real waste factor, not the assumed one
• Gross margin realized = (contract revenue − actual direct cost) ÷ contract revenue

Feed the results into next quarter's production rates and waste factors. A contractor who job-costs discovers that tile loading really takes 1.5 days on two-story homes, or that a 10% waste factor on a hip-heavy roof should have been 15%. Without the loop, the same estimating error repeats on every bid until the company fails — which is the commercial reality behind Arizona's abandonment and non-payment disciplinary grounds.

Bid Review Checklist

• Takeoff converted to burdened labor hours using system-specific production rates
• Complexity derate applied for pitch, cut-up geometry, access and staging
• Burden multiplier taken from actual payroll, including class code 5551 workers' compensation
• Material priced with the correct waste factor and, for MRRA work, with retail TPT absorbed
• Equipment, dumpsters, permits and jobsite overhead listed separately
• Overhead recovered by rate, then profit applied by margin divisor — never by markup
• Unit prices for concealed conditions stated in the contract
• Contract elements verified against the nine items required by A.R.S. § 32-1158(A)