Difference Between Bid and an Estimate in Construction?

Bid and Estimate ae two terms customers tend to use interchangeably, however, the two definitions correspond to different parts of the process of calculating a contractor’s internal costs and defining the final price to be charged to the customer. As a Contractor you must clarify what it is that the client wants when they ask for one of these documents because they may specify they want a proposal when in fact all they want is a simple estimate. If you fail to get a grasp of what your client expects, you run the risk of giving them the wrong information and stalling the process in back-and-forth. The two definitions correspond to different parts of the process of calculating a contractor’s internal costs and defining the final price to be charged to the customer.

Estimate

As the name suggests, an estimate is an approximation of what things will cost. For example, a building contractor will work with the client to understand their needs. They’ll then detail the services and materials needed to fulfill the project scope. At the outset, estimates may be made to help determine whether a project is affordable and to set a budget. Estimates Are About Costs, the customer wants to know the price of the job. As a contractor, you first need to know what expenses you will incur in doing the job—for example, your costs of materials and labor. The difference between the price you present to the customer (a price estimate) and your expenses (a costing estimate) will be your overall profit. A price estimate provides information to a customer but is not necessarily a commitment from either side to go ahead with a project. Estimates don’t only detail costs. They provide a high-level overview of:

  • The services you’ll provide so clients understand the work you will complete
  • Project scope, so clients understand broadly what each service entails
  • Timelines and completion dates to manage client expectations
  • Exclusions to avoid disputes later on
  • Other specific terms that the client should know if they want to do business with you

Stages of Estimates

  • Preliminary Estimate- Also known as a “ballpark estimate, early in the planning stages, both building owners and designers must agree on an anticipated cost of the project at bid award. Preliminary Estimates are employed in the early planning phases of a proposed project to match an owner’s needs, expressed as written programmatic requirements, with budget constraints in order to establish its overall scope (size) and quality expectations.
  • Intermediate Estimates- After proceeding with a preferred course of action, Intermediate Estimates are employed at various stages of project design development to maintain accountability for initial budget projections and as a means of evaluating competing alternative construction assemblies, systems, and materials.
  • Assembly Estimate- This refines figures and calculations by considering each separate component of a construction project. Foundations, flooring, roofing, windows, and sanitation, for example, may each require different levels of resources, compared to the general ‘one-size-fits-all’ approach of the square foot estimate above.
  • Final Estimates- As the design is completed a detailed pre-bid estimate can be prepared. At this stage the design contingency would typically be reduced to zero: however, in some instances, there will still be risk surrounding the project, which would make it advisable to still include a small bidding contingency. It may involve getting written commitments from partners and subcontractors. It can then form the basis of a firm or official commitment that you make to your customer

Bids

This is the process of submitting a proposal (tender) to undertake, or manage the undertaking of a construction project. The process starts with a cost estimate from blueprints and material take offs. In it, you commit to providing your customer with a specified construction at a given price and often by a given date too. If the customer approves the bid, you are then expected to honor your commitment and carry out the work, as described in the bid. You need the most accurate cost estimates available to put the right price into your bid and make a satisfactory profit on the job. The tenders should not only show the unit cost per material/work, but should also if possible, break it down to labour, plant and material costs. In this way the individual who is selecting the tender will be quite confident that the tender is feasible. Bids are not only chosen on cost alone. Bids are common in the construction industry and sub-contractors will often submit bids to a general contractor to complete a specific part of the project. Bids are not only chosen on cost alone. Sometimes contractors submit lower tenders to win the contract and win the work. Either the costs that the contractor incurs are greater than the price he is charging the client (as a consequence of a lower tender determining the contract sum), and thus is likely to go insolvent, or he will claim for “loss and/or expense” due to discrepancies in the contract documents (this can be done deliberately). The lowest tender is not always a feasible tender.

Methods of Bidding

  • Open Bidding– In this method, the client is advertising and inviting the tenders. Any contractor who wishes to quote can submit their offers based on the invitation.
  • Single-stage selective Bidding– Client is selecting few contractors and inviting them to quote. Contractors are mostly selected based on previous experience or pre-submitted qualifications.
  • Two-stage selective Bidding– Also called as negotiated bidding. in first stage client is asking pre-selected contractors to submit their pricing parameters, and after that the client will request them to create drawings based on these price levels.
  • Selective Bidding for design and builds– Client is Selecting one or few contractors and asking them to submit design and commercial proposal together.
  • Negotiation– Mostly used for the specialized works such as elevators. Client is regularly working with these type of contractors and they have preferable contractors for these kind of work. Here Contractor is submitting their costs and after that client is negotiating the prices before awarding.
  • Joint ventures- Joint ventures are mostly used for complex and large projects. A joint venture (JV) is when two or more parties agree to form a business arrangement with the purpose of pooling their resources. This can be done for a “one-off” project or a long term arrangement between the members. Either way, forming a joint venture can help companies bid on otherwise, unattainable contracts.

Customers must understand and be willing to comply with the fact that estimates and bids, especially for larger projects, may take significant amounts of time and effort. However, for smaller projects, decisions may be made more quickly. During every phase of a construction project, patience from both parties is key to the success of the structure.

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