If the contract has been obtained as one of the Erie Barge Canal contracts, the work will be let unclassified, as it is called. By this is meant that no discrimination in monthly estimates will be made between rock and earth removed; that the earth and rock removed will be measured in excavation, and the contractor will be paid for these two materials indiscriminately. Now, we shall assume that he can make a profit of 4 cents per yard on the earth, and 10 cents per yard on the rock, so that his total profit on the contract will be $9,000. According to the terms of his contract, he will be paid on the monthly estimates 46.66 cents per yard removed, less 10 per cent—or 42 cents, the 10 per cent being retained until the completion of the contract.
Suppose, now, that he starts in on the rock, and he excavates the 50,000 yards at a cost to him of $35,000.00 for which he will receive 42 cents per yard, or $21,000.00. He will then be out of pocket $14,000.00; but there will be coming to him as held by the State $2,333.33.
Before he can begin to "see daylight" on his contract, he must proceed to excavate earth until he has made up the $14,000.00. He gets 42 cents in cash, and it costs him 26 cents, so that he must excavate 87,500 yards of earth, for which he will get the $14,000.00, and he will have held up $4,083.33 additional. There will then be remaining 12,500 yards to be excavated on which he will get $5,250.00, with $583.33 held back. He will have been obliged to do 91⅔ per cent of his contract before he stops putting money into it; and the money that he has put into it he will not be able to draw interest on, because he will not be drawing interest on the 10 per cent retained. The amount of money that he had to put up to cover shortage on his contract will have been $14,000.00, on which he will have to pay interest to his bank. If, on the other hand, he commences the earthwork first, he does 100,000 yards of earthwork, costing him 26 cents, on which he gets back immediately 42 cents, and he has $16,000 for working capital, in addition to $4,666.66 held up. He then does the rock work, and the rock work never exhausts his capital, and he has no interest to pay except on his plant, which he can easily do out of his $16,000.
This is not only a practical problem in how to handle a contract without being wiped out financially, but it is an exceedingly important one as defining where the ultimate success in the operation lies. It can readily be seen that when a contract is taken on close figures, the entire success of the financial operation will depend upon the proper layout, as indicated above.
Unbalanced Bids. We shall assume again, for purposes of illustration, that a certain contractor desires to bid on some public work involving the removal of 100,000 cubic yards of earthwork and 50,000 cubic yards of rock work. He estimates that he can do the earthwork at a profit for 30 cents per cubic yard, or $30,000; and rock work for 80 cents per cubic yard, or $40,000. If the work in the above example were classified, and the contractor were paid so much money for each yard of rock and so much money for each yard of earth excavated, and his bid read 80 cents for rock and 30 cents for earth, it would be said to be a balanced bid. Other contractors, seeing his bid, would know that he considered that he could do the rock work at a profit at 80 cents, and earthwork at a profit at 30 cents. In order to prevent them from obtaining this information, the contractor can unbalance his bid, as it is termed; and in this event he would bid perhaps as follows—namely, 100,000 yards of earth at 40 cents, or $40,000; and 50,000 yards of rock at 60 cents, or $30,000. The total amount of this contract would be the same, and he would make the same profit; but his competitors would be deceived as to his basis of doing work.
The disadvantage of this from the contractor's point of view is that, in the event of an error having been made in an estimate of quantity, he might find himself doing less than 100,000 yards of earth and more than 50,000 yards of rock, in which event he would stand to lose money.
Material Supply. In concrete work particularly, it is all-important that material—cement, sand, and stone—be promptly shipped, and at the same time not too promptly shipped. If the shipments are not promptly made, there will be a failure of material to arrive, which will throw the men out of work, with all that this implies in high costs. If the material is shipped too rapidly, it will be necessary either to unload it into a stock pile, which will involve the re-handling of the material; or to pay demurrage charges to the railroad company, if the shipments are made by rail.
In such work, at a time when there is likely to be any freight congestion in the country, stock-pile facilities should be provided to care for a supply of material to carry the work for one to two weeks.
On a piece of work involving, say, two large concrete mixers capable of mixing 300 yards of material each per day, there will be used 900 yards of stone and sand per day, which, on a ten-day basis, will mean a very respectable stock pile. This 9,000 yards of material, costing perhaps one dollar per yard, means an investment of $9,000 in stock pile, on which interest must be paid at the rate of, say, 6 per cent, or $2.00 per working day, which means a trivial item compared with the advantages derived from having a constant supply of material. The total cost of this stock pile, in addition to interest, is the cost of one re-handling of material out of the stock pile, which at 5 cents per yard would be $450. This amount is very much less than the damage that would accrue from not having any stock pile at all. On most concrete jobs, there is usually provided a large storehouse for cement; and when the work has to go over from one working season to another, it is frequently the custom to leave the cement in storage. This is frequently a cause of loss of money, because the cement, being hygroscopic, absorbs moisture from the atmosphere, and is liable to spoil in consequence. This can be avoided by keeping the storehouse dry and warm through the winter, but this again is an expensive matter.
Old versus New Machinery. In planning construction work, the question always comes up as to whether to use old or new machinery. No hard and fast rule can be prescribed. A case occurred upon an important contract where there were needed some new boiler tubes for the boiler that ran the main supply pump. The purchasing agent of the contracting company, who happened also to be the President and Chief Engineer of the company, bought some second-hand boiler tubes, which were forthwith put into this boiler. The saving on the boiler tubes was probably $8 or $10. The loss caused by a breakdown of the same boiler was nearly $50. In purchasing second-hand material, if the material can be thoroughly and rigidly inspected, it is perhaps wise to purchase it, and sometimes money can be saved; but as a general proposition, no second-hand material should be purchased for a contract, unless it is done with the determination of putting this material in first-class condition before it is used. The best inspection, as a general thing, will not disclose the exact condition of old material. By this it is not meant to intimate that new material should be purchased for every new contract.