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Hi. My name is Mike Fulton, and I’m the assistant vice president over pricing data
services here at Xactware. I’d like to take a few minutes to talk to
you about an important change coming in version 28 of Xactimate and the price lists provided
by my team. To help set the stage for this discussion,
it’s important first to understand that while using standardized cost information
in a highly variable market and across different jobs can have significant advantages, there
can also be a few challenges. One of the largest challenges is how to consistently
and appropriately estimate the cost for labor on small repairs.
To address this need, in 2002 Xactware introduced a concept in which drive-time and mobilization
fees were split out from the line item price into a separate charge per trade.
By separating this “Base Service Charge,” estimators could more appropriately manage
and adjust the portion of their estimates related to drive time.
While this concept could be highly accurate, practical application sometimes proved to
be a challenge for adjusters since they often didn’t have the needed information about
drive times. And in some cases was also a source of confusion
for the property owner who may not understand the additional cost being applied to the estimate.
To address this challenge, and in an effort to provide the most effective tools, Xactware
recently concluded a detailed study involving over 1,600 general contractors, trade contractors,
and service providers, as well as independent and staff adjusters, and other insurance industry
professionals. The results of the study indicated a strong
preference industry-wide for moving to an estimating platform that uses a Labor Minimums
concept, instead of service charges to address small jobs.
To support the industry’s preference, Xactware is making a major change to the Xactimate
software and its pricing database starting with the release of Xactimate version 28.
In the same way that prior releases of Xactimate allowed estimators to choose to have Base
Service Charges automatically applied, starting with Xactimate version 28, estimators can
choose instead to have Labor Minimums automatically applied.
It’s important to note that from an end user’s perspective, the switch to estimating
with Labor Minimums will be easy and intuitive. From a technical perspective, however, the
two concepts of Base Service Charges and Labor Minimums are different enough that they really
can’t be mixed. Because of that, Xactware understands that
this new version will need to provide tools for transitioning to the new concept.
This means that once Xactimate version 28 is installed, you’ll need to be able to
open and continue to work through estimates you’d already begun in prior versions using
the Base Service Charge model. Xactimate version 28 will recognize both your
estimates and the price lists from the prior version as using the Base Service Charge model
and allow you to continue to work on them as long as needed, just as you did in the
prior version. Any new estimate you create in version 28
and all new Xactware price lists which you download into version 28, however, will follow
the Labor Minimums concept. Estimators will still be able to manually
use service charges if they prefer, but there will be no option to automatically apply Base
Service Charges with new estimates you create in Xactimate version 28.
With that understanding, it is important to consider what the change to Labor Minimums
will mean for you and your estimates. Switching from one method to another can affect
the bottom line of your estimates so it is critical to understand Labor Minimums.
Understanding this concept will allow you to make informed decisions about how you estimate
with them. To help explain how Labor Minimums will work
starting with Xactimate version 28, let’s first take a look at the Base Service Charge
model and compare the two methods. When using Base Service Charges, the actual
repair work is entered as one or more separate line items.
The labor portion of each line item does not include time needed to mobilize or drive to
the site, however. Those costs are listed separately within the
Base Service Charge. Let’s say a contractor charges 96 cents
a square foot to replace drywall and has a separate service charge for drywall repair
of $260. If the contractor estimates a small job with
100 square feet of drywall, the estimate will include a line to replace 100 square feet
at 96 cents per square foot for a total of $96.
This estimate will also include the $260 Base Service Charge for mobilization, travel, and
so forth. So the total estimated charge for this 100-square-foot
drywall repair will be $356. Let’s look at a larger job with 6,000 square
feet of drywall. The estimate will include a line to replace
6,000 square feet of drywall at 96 cents per square foot for a total of $5,760.
This estimate will also include the $260 Base Service Charge for mobilization and travel.
So the total estimated charge for drywall repair on this larger job will be $6,020.
Of course, these simplified examples do not include sales tax, O&P, or other charges,
and they’re not necessarily actual prices in any given market.
The examples do show, however, how the service charge is separated from the charge for the
installation as well as how it’s applied on jobs of all sizes.
In practice, some estimators use Base Service Charges just as described, some use some part
of the model, and some turn them off altogether. Moving forward, and as shown earlier, a large
majority of the industry is choosing to use a Labor Minimums concept instead.
When using the Labor Minimum approach—assumptions for mobilization, drive time, and the time
needed to perform the repair are all included within the line item price.
There is no separate service charge. Instead the estimator determines the minimum
labor charge required by the tradesperson who will perform the repair and ensures that
the labor portion of their estimate at least meets that amount.
Let’s revisit our earlier examples using the Labor Minimums concept instead of Base
Service Charges. As we did before, we will use round numbers
when we can to make this calculation easier. Again, these numbers are for illustration
only and don’t necessarily reflect prices in any specific market.
Let’s say our unit price for drywall is $1 per square foot and that price includes
an assumed amount for mobilization and travel. Again, we’ll make it easy by saying the
$1 per square foot price of the drywall is split evenly at 50 cents for labor and 50
cents for material. We’ll say the billable labor rate for a
drywaller is $60 per hour and that the minimum number of hours which the drywaller needs
to perform a repair is five hours. So our minimum labor charge is, therefore,
$300. Now let’s estimate that same small job where
we will replace 100 square feet of drywall. We start with a line item that gives us 100
square feet at $1 per square foot for a total of $100.
Remember that 50 cents per square foot is labor, so the total estimated labor charge
for this drywall repair is $50. Our Labor Minimum is $300, so an additional
$250 is added to the $50 of labor already within the line item to reach that minimum
amount. The total estimated charge for this drywall
repair will, therefore, be $350.00. Finally, let’s take a look at the estimate
for 6,000 square feet of drywall. We start with a line item that gives us 6,000
square feet at $1.00 per square foot for a total of $6,000.
Again, 50 cents of each square foot is labor, so the total estimated labor charge for this
drywall repair is $3,000. As $3,000 far exceeds our needed minimum labor
charge of $300, no additional labor charge is added.
As such, the total estimated charge for this drywall repair will be $6,000.
Again, please note that we used round numbers in this comparison to show the differences
between the two methods and that we did not account for sales tax, O&P, and so forth.
Please note also that this comparison is not meant to show whether estimate values will
increase or decrease with the new method—that’ll depend on the actual prices charged and is
ultimately determined by each estimator. It does show, however, that estimators should
make a careful analysis of how Labor Minimums are being used in their estimates and appropriately
decide how they should be applied. Beginning with Xactimate version 28, Xactware
price lists will support the use of Labor Minimums and users can choose to automatically
apply them. Estimators will be able to view the Labor
Minimums used for each estimate, make changes to the dollar value, or even choose to turn
them off if appropriate. Estimators using versions of Xactimate released
prior to Xactimate version 28 can still manually estimate using minimum charges just as they
do today. If you would like to learn more about how
labor minimums may affect your estimates, please see our white paper on Labor Minimums
found on our eService center. In the end, I also strongly encourage you
to compile several test estimates to familiarize yourself with the concept, and understand
the bottom-line impact of Labor Minimums before you begin using them on live estimates.
Xactimate provides much flexibility, and many alternatives to Labor Minimums should you
decide they are not for you. Xactware is committed to providing repair
and remodeling estimators with the best possible tools that efficiently and effectively match
the way you work. If you have questions or comments about the
changes, please feel free to contact your sales representative.