In this episode, we discuss the method for reviewing, scoping, and estimating retrofit projects.
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Phil Zito 0:00
This is the smart buildings Academy podcast with Phil Zito episode 311. Hey folks, Phil Zito here and welcome to episode 311 of the smart buildings Academy podcast. In this episode, we are going to be talking about how to review scope and estimate retrofit projects. Now some of this may seem similar to how to review scope and estimate construction projects. But trust me, there's a lot of nuances here that really will make the difference between whether you end up you know, basically tanking a job or not winning a bid or just having a disaster. Alright, so let's dive in. Alright, imagine this. You are sitting here in 2008, right? And the economy's tanking all around you construction projects are being put on hold. Companies are losing funding, and you are a father of two sitting there looking at all this happening going, I work in service, what the heck am I going to do? People are canceling their service contracts. Life is not good. Well, that's when we look at Retrofit. Now you may be saying to yourself, what you just said, people are canceling projects, people are no longer doing service contracts. Yes, but one thing I've learned having been in the space for a long time, is that when construction is down, retrofits tend to be up. And what happens is, is
Phil Zito 1:40
that companies that have money, or maybe municipalities that have money and funds, they tend especially NIS pallies, and the school districts, they tend to make investments in their assets during this time. Because basically, they want to make sure that they still have work it that's what it seems like to me. I mean, I don't know, maybe. But uh, the reality is that that does happen. I've seen it happen time and time again, during a couple recessions now. Now, when you approach retrofit work, this is a little bit different, because quite often the first thing that changes is the contractual structure of a retrofit project. Now there is major retrofit projects that are run by general contractors and mechanicals. And, you know, they have architects and engineers, but I will say that the majority of the retrofit opportunities that you run into in the building automation space or actually owner direct retrofit market opportunities. So when we're looking at owner direct opportunities, we've really got to get dialed in on several things. The first thing is we have to truly understand the outcome. Why is this retrofit happening. And as I look at retrofits, they tend to happen for four different reasons. One, the company or the business, they have a extremely aged infrastructure of HVAC and controls that needs to be updated to there is an energy or sustainability, sometimes tied to energy conservation measures, sometimes tied to facility improvement measures that are going on. And these energy goals need to be met. Three, there is an aging or a inexperienced staff and they need to bring that staff to a more modern control system. That way they can go and actually maintain that control system. And then for the other outcome that I tend to see is where a controls contractor has basically been taking advantage of the customer. been charging them way too much for labor way too much for material. You really can't get away with that anymore. Because you know, simple google and you can find, you know, GSA book pricing for most OEMs. And you can get a pretty good idea knowing that most GSA pricing is like list plus 20. So you can start to get a pretty good idea of what actual material costs and labor costs are. And then you can be like, Okay, this is unfair pricing. So you can figure that out. It used to be you didn't have that data at your fingertips, but now you do. So understanding the y is going to be pretty critical because when you understand the Y, then you're going to understand what you need to do from a retrofit. Now before I do any retrofit, the first thing I do besides for understanding the outcome is To evaluate the current state, especially with owner direct work, it can be quite dangerous if it's a legacy unmaintained system, and you don't evaluate the current state, I know this takes time. And I know time is cost. So because the reality is the person who is most likely going to evaluate the current state is going to be like one of your service technicians. And that's going to be a sunk cost. Now, I in an ideal world, you would follow a service contract with a retrofit opportunity. So you would already know the current state. But, you know, if you take my strategy of a sales circle, right, you draw a circle around a Metroplex and you target customers who are outside of the typical range of OEMs as establishing a beachhead of customers, then you are typically going to be calling potentially on customers that you aren't currently servicing. And you thus you don't know the current state. So how do we evaluate current state? Well, there's a couple easy ways to do this. One is we can go into the control system, and we can run an offline report. So we can figure out what's online and what's offline, then we can run an exception report what is you know, within normal parameters now fortunately, nowadays, with most modern systems, there's an analytic solution, whether it's skyspark, whether it's an OEM provided analytic solution, that enables you this is a use case for analytics, by the way, that enables you to scan the system and do kind of a discrepancy report. And based on that discrepancy report, you know, kind of what the current state is, but then you have to actually go and evaluate the equipment as well. Kind of take a look as to what is going on with the equipment, understand what is going on with the equipment. And I'm just gonna take a look at it look like my audio blipped real quick, I'm just gonna, Nope, we're good. Okay, audio is good. So as I was saying, we take a look at the existing equipment, and we make sure that it is maintained, operational, not in bad disrepair, etc. Now, way to offset the cost of sales. So cost of sales is when you have a basically a sunk costs, very similar to opportunity cost, you have a sunk cost associated with going after a sales pursuit. This is why integration sales are so costly, because there's a high cost of sales of integration or energy saving company like ESCO work MSI Workmaster systems, integrator work that has high cost, high cost of sales, due to the high level of expertise required to execute that kind of work. And that's why it not only has long sales cycles, but it also has high cost of sales, not retrofit doesn't necessarily have to have as high a cost of sales as those, it usually has a higher cost of sales than construction. But it also has typically higher margins to offset that. One way to mitigate the cost of sales is to work on creating a project development agreement or a audit agreement, where you go and as part of this engagement, you're actually performing a retro analysis of the building. So you're saying, okay, these systems work, these systems don't, these are the systems you have this is the state they're in, this is their performance. And these are our recommendations. And what you'll do with a development agreement, is you'll say, Okay, we're going to present these results to you, if you choose to use us, we are going to roll the cost of this into your proposal, or we're gonna deduct the cost of this from your proposal. It just depends how you do that. And we'll count it as engineering effort. If you choose not to use us, then you're going to play XYZ dollars, and that is going to be basically covering your cost of sales. So that is a good strategy for evaluating current state of the building. Okay, so we've listed out our outcome, we understand our outcome, we understand our current state. Now we need to decide on the level of retrofit. So we haven't got to scoping or estimating yet we are still reviewing and we're slightly on the edge of scoping now. So now we need to decide a level of retrofit and level of retrofit, there's really three primary levels of retrofit right? You have to rip and replace, which is basically we take the control system out and we replace it or a dual integration level. So when I say dual integration level, there is a lower level integration, which is field level. So we're talking Field controllers and IO devices. And then there is a higher level integration. And that is typically supervisory device level and server level. So a field level integration, I'm going to tie into these levels of integration real quick, and then I'm gonna swing back to rip and replace. So field level integration, what you're doing here is you we've got controllers, that maybe it doesn't make sense to replace, they're humming along, they're great. They're integratable, either through a proprietary interface through a gateway, some way we can pull these field level controllers in. Now, when we're pulling them in, we are actually replacing the supervisory device in servers. So we are adding our own supervisory devices. And we are adding our own servers if necessary, we're keeping the field controllers, and we are keeping the IO devices. And typically what this will do is as those field controllers die, we will then run a separate trunk, a secondary trunk, and we will pick up by replacing them with new field controllers. So we see this integration quite often when there are a lot of field controllers. And it doesn't really make sense for us to replace all those, we want that cost avoidance. And really what the customers looking for key things they may say is we want to implement analytics, we want to go and implement mobile user interfaces. We want a reliable front end, we want better graphics, those are kind of key phrases. And in that case, despite what most people say, you can run analytics on most field level controllers. If you have the right point data, you just have to understand proper throttling. And understand like things like baud rates, like okay, and 9600 baud means that I can only push this many bits through the trunk at at a time. Thus, I can only run XYZ analytics, XYZ fault detection. Now, a thing to be aware of with this is that you are potentially going to lose the capability. Well, you never had it, but you are potentially going to lose the capability if you didn't have it to go and modify field controller programs. Because typically what's going to happen is these field controllers are still going to require the manufacturers programming software to modify them. Additionally, and this is notorious I remember I did a Native American hospital system and it was a lawn system and it was Honeywell XL series controllers. And I pulled off the tritium Chase, I was gonna put in a Johnson Controls na with a lawn trunk. I was new to lawn at the time. So I figured it was just like BACnet you know, hey, you just discovered these things, suck them in, you're good to go. In actuality, there's an LS database. There's all this stuff I didn't know at the time. And what happened is those LNS databases, they had bindings between controllers. These were software bindings, and as soon as I pulled that supervisory device off, and put my new one on and put a new LNS database in there, broke all the bindings, I could program the field controllers with a lawn plugin. But I did not have the lawn files and the programmable software that was needed for the freely programmable controllers. So I found myself in a world of hurt having overnight some lawn controllers. And costs were a little higher. Granted, we had priced it at high margins. So we still make profit on the project, but not as much as we could have made. So those are some of the dangers, as I mentioned, a field level integration. Now, supervisory level integration is where you keep the same supervisory device, you keep the same graphics, and you actually replace your field controllers. Now this is a less common form of integration. But it is one that I see happen, where folks will go and they have a XYZ system that runs the campus. And they want a bunch of new field controllers and a bunch of new i o potentially, in the buildings, but they want to go and have were Sorry, I keep forgetting to turn off slack right before I start these podcasts and that pops up into distracts me. I'm like a squirrel man. I like lose attention span so quickly. But as I was saying supervisory level integration. What goes on here is folks are wanting to rip out the controllers in a building but they want to keep the supervisory devices and The servers and the graphics and everything associated with it. So in that case, the supervisory level integration, we're actually going to be going and simply just replacing field controllers and potentially field buses. Once again, we need to be aware of any global logic things like field controllers that tie to central utility plants and give you like maybe a Truman response sequence, things like that. We need to be cognizant of all of this as we approach so those are kind of some of the risks with supervisory level integration. Now, river replace writes pretty straightforward, you just rip the stuff out, and you replace it. But the question often becomes what can be leveraged I did Chicago Public Schools A long time ago, they had a barber Coleman system. And barber Coleman used some unique inputs. And so I went there, I ripped it out, I was gonna put in some allergen vlccs. And the problem I discovered was, the inputs could not be used. They were some specialized inputs, so I couldn't use them. And I hadn't accounted for that, you know, now I know, if I'm going to rip out a legacy system, I'm going to pull the product spec sheet on the primary inputs. And my rule of thumb tends to be if there's more than 10 of the same type of an input, or an input cost, like more than 200 bucks, I'm going to go and research it. And once I research it, I'm gonna be looking for key things like is this a common input is like a one kg nickel or four to 20 milliamp, or is this some sort of communication bus or some sort of pulse signal? That cool, just caught a bad breath there. Let me take some water real quick.
Phil Zito 16:48
That I need to account for. That way I can go and properly integrate, well, integration, not even the work interface with these inputs. These are things I need to be cognizant of, right. So as I'm looking at this retrofit project, and I'm looking at, okay, what do I do? Like I said, understanding the outcome, evaluating the current state, deciding on the level of retrofit, and figuring out kind of what is my strategy, once I've done that, it all pretty much falls back into the scope, and estimate process. And now scoping, it's going to be quite simple. Once you understand the outcome, you understand the current state, and you understand the level of retrofit, you are going to do a couple things. One, you're gonna have something that while included in construction scope letters, is not typically filled with information. In a retrofits scope letter, you're gonna want to pay specific attention to the assumptions, and the exclusions section of your retrofit scope letter. So if you come upon a chiller, and it's not functioning, we come upon an air handler with a giant hole in it, or like I experienced when I went into the city of Louisville municipality building, and you see a literal hole in the side of the building, you might want to point that out and be like, Yeah, I don't know if we're going to be able to do pressure control for you, because you have a literal hole in the side of your building. So those are things that are going to go into the both exclusions and assumptions. So assumptions are going to be things that you assume to be true. And realize assumptions, hold less weight. If you are to get into a contract to speak. I'm not a lawyer, talk to a contractor, or contract lawyer for further clarification. But in my experience, assumptions are things like you're saying I assume this as a BACnet network, I assume that this sensors, functional assumptions are typically going to be things you're going to have to eat, if it comes out to be that you're wrong. exclusions, however, depending on and this is where things get a little wonky, right. If you're under a GC or mechanical, you are held liable to the general conditions of the contract. So just be cognizant of that. So even though you may exclude scope, it may be in the general T's and C's, and the general specifications that you can't exclude scopes. So your scope exclusions may actually hold in the water. When you're typically owner direct, though scope exclusions hold more weights. So being able to hold a scope exclusion and be like, Hey, I'm sitting here, and I've got, you know, I'm excluding this because it is a older system doesn't work. Whatever, I'm going to exclude it that typically can be enforced in an owner direct scenario. So understand that understanding those kind of things will help you build out a solid scope letter. Additionally, in scope letters, as well, as estimates, you want to understand what you're doing from an engineered services perspective, this is where things can get a little dangerous. And I'll be completely honest with you, I've
Phil Zito 20:22
been on the risky side. In this, I've went and created a new scope for a retrofit project that did not have any sequence of operations for several schools and several buildings. And I've been like, yeah, I understand how this stuff is gonna work. I'm gonna go find like control spec builders something or maybe get grab some ASHRAE Standard sequences, and I'm going to pull them in there. And we're going to put together a basic submittal set. No, I'm not a professional engineer. If something had happened in that case, probably could have been liable. I don't really even know the legal liabilities of that. Now, it's really something you shouldn't do to be completely honest. But at the same time, I mean, if you've been in this field for a little bit, I'm sure you're nodding your head that yeah, I've done this, too. So the reality is, can you get away with it with a commercial office building, where you're like, hey, it's a you know, packaged rooftop with a couple vav boxes and air cooled chiller. And it's kind of hard to mess that sequence up, you got to be like really boneheaded to mess it up. Yeah, you can get away with it. But if it's anything more complicated than that, it may behoove you to contract a professional engineer if you don't have one in house and work that into your scope. So you know, professional engineering is excluded is at the owners expense, or you can carry it in your scope letter. So just be cognizant of that. Another retrofit gotcha is testing balance and commissioning, which we're going to separate out. So testing balance, right? It's where you test the system, and you balance the system. So you know, if you've ever filled a cup with water, you know, you keep filling it the water overflows, right? Well, let's say you had a couple of valves in that cup, and you could open them up, and you could let the flow of water out. Well, that's basically test balance, right? You've got a finite amount of water air circulating through the building to achieve the appropriate heat absorption or heat transfer. And you basically have someone who's a professional who's going to balance that out, starting typically on the airside at the diffusers in the ceiling, working all the way back to the air handlers in their static pressure. And the same thing with the central utility plant, starting at the valves, and then working their way back to the pumps and the chillers in the boilers, etc. So including your test and balance or excluding test and balance is another thing we need to be cognizant of. In a retrofit scenario. It's another sip of water real quick. Man, this dry air in Arizona is just killing me. So as I was saying, test and balance is something you may need to exclude or you may need to include. I'll tell you, I've done testing balance and I'm not a certified tab person but grabbed a fume hood. Enough a testing her the calibration, balance diffusers, balanced vav boxes, balanced air handlers, Not to disparage testing balance at all. But at least the air side is not too terribly difficult until you get into like outdoor air flow balancing stuff like that. Definitely water hydronic balancing can be difficult. It's very math heavy. That being said, it's something you have to make a decision do we want to do it in house? Or do we want to not? An additional thing is commissioning understanding? Is this part of a lead retrofit? Is this part of a validated environment, etc? Where commissioning is required? And what do commissioning resources look like? What do you need? Is this just functional test? Or is this a fully validated commissioning experience with a commissioning test plan? These are things you need to address in your scope, especially if you're owner direct. Additionally, any permitting, any inspections anything of that nature that may have typically been handled by a GC, or by mechanical, you need to account for that as
Phil Zito 24:25
well as equipment startup equipment shut down. And finally, you need to account for potential off hours work. These are the little nuances that can bite you if you've been doing primarily construction work from a scoping perspective. And you haven't done it in a retrofit environment, especially an odor direct environment. Additionally, the big one I am really careful with with Retrofit opportunities, especially owner direct. You really start to appreciate the contract and tear when you're in an owner direct environment and you have a dispute over certificate of occupancy, or what is deemed an operational system. So you really want to get clear on what is deemed an operational system, what is going to take you from that POC 90 to POC 100%. So that you can get your retainer, you can get through the warranty period and get off the job. So you want to be very clear. And sometimes this is in the scope letter, sometimes this is an addendum where you're going to clarify out and say, This is how we are going to validate the system. This is how we are going to ensure and this is your response, or the responsibility, Mr. or Mrs. Owner on validating that this does indeed meet the design intent. So that could be an addendum that could be in the scope letter, etc. From an estimating perspective, it's all pretty much the same. Realize that there may be additional cost in engineering in a retrofit scenario, realize that you may have to put a little bit of a risk percentage on material, especially if it's very legacy, I like to say that for every five years, the system is old, I will add a half to 1% risk, just you know, so if you had a 30 year system, you would potentially have three to 6% risk, because just the Hey, I'm working with the sensor, it worked fine. But as soon as I unplugged it, I can't get it to turn back on. Or, you know, this actuator just crumbled in my hands as soon as I touched it. And those kinds of things happen, the older the systems get. So accounting for that. So like I said, rule of thumb, for me has always been half a percent 2% For every five years of age of the system. The last thing I will leave you with here is that don't forget to piggyback service solutions. On top of this, you've already got an owner direct relationship, you're already in a retrofit scenario. This could be a situation in which you could include a training service. This could be a situation in which you could include an analytic service, you can include a continuous commissioning service, there's a variety of add ons, you want to increase that share of wallet as much as possible, while providing a valuable service to your customers. So I know this one a little bit longer than normal. I hope this helps out. This gives you some strategies and some insights to performing retrofits sales, scoping, estimating and reviewing. And thanks so much for being here. As always, everything will be available at podcast smart buildings academy.com For slash 311. Please leave a comment, like the video that helps with the algorithms, like the podcast, leave a review that helps as well. And also I just like to know what questions you all have. You know, if you have questions, please ask. I love doing this. It's really a passion of mine to be able to serve all of you to be able to help all of you in your learning journey. I feel like there's a lot of fluff stuff out there a lot of stuff that's disguised as education, but it's really marketing. And that really ticks me off to be completely honest. I feel like your time is the most valuable resource and I feel like people are taking advantage of your time. So I hope you never feel that way. When you listen to our content. I hope you always feel like it was a valuable use of your time. If it wasn't let me know. We're always seeking to improve. And thank you so much for being here. And I look forward to seeing you Friday 8:30am Mountain Standard Time. Thanks a ton. And you all take care
