Estimating Errors & Cost Overruns
How Contractors Estimate
Itemized Bid Worksheets
Step-by-Step Estimating Guide
Estimating FAQs View all PROJECT MANAGEMENT articles
Estimating is the lifeblood of any construction company, small or large. It is part art, part science, and is often the biggest challenge of companies starting out. If never mastered, it will result in a short-lived business.
Whether you are a contractor, an owner-builder, or a homeowner reviewing the estimates for your project, good estimating skills are essential. Estimating mistakes almost always result in underestimates. This often leads to losses for the contractor, surprise charges to the customer, or disputed costs at the end of the job – outcomes best to avoid if possible. Read more on Estimating Errors.
“The lifeblood of a contractor is detailed estimating. Without very detailed estimates, a contractor cannot compete, cannot complete a project, and cannot stay in business. ” – Associated General Contractors
The two biggest mistakes I see in estimating, whether by pros or homeowners, are omitting essential items from the estimate and being overly optimistic about productivity — especially in remodeling where many tasks take a lot longer than anticipated. A third budget buster on many projects is due to the homeowners making changes to the plan during construction. This is not really a problem with the estimate, but more a consequence of poor planning.
The best way to avoid omissions is to start with a comprehensive checklist like the one found in the sample estimating worksheet. The best way to temper your optimism is to get your labor estimates from an objective estimating guide and take to heart the guide’s adjustments for productivity. Then add another fudge factor for your lack of experience if you are doing the work yourself.
If you are getting all your bids from contractors and subcontractors, then you won’t have to worry too much about how long it takes them to get the job done (barring major job delays). But you will still need to make sure that everything that needs to be done to complete your project falls within someone’s estimate. Otherwise, you’ll be hit with the unpleasant surprises in the form of change orders and “extras.”
For example, I know of a recent job where the owner had to come up with an extra $20,000 for fill and grading that no one had mentioned, as well as several thousand dollars to blast through ledge when trenching to the town main. The best way to avoid costly surprises is to use an estimating checklist, learn as much as you can about the work to be done, and ask a lot of questions about what is covered in a bid (and what is not covered) before proceeding. Also ask specifically what extra charges are possible and probable over the course of the job.
Start with an open mind. It’s great to start your project with an open mind, an expansive wish list, and a lot of creative thinking, but at some point it’s necessary to think about costs. If you ignore costs altogether, you can waste a lot of time looking at land and designing houses (additions, kitchens, or whatever) that you could never afford. On the other hand, if you get overly focused on line-item costs early on, you can stifle your creativity and miss out on exploring design options.
Then a “guesstimate.” There are a number of approaches to estimating that lead to different levels of precision. For the early stages of design, you can start with a ballpark estimate or “guesstimate.” As you get further along with your plans, you will probably want a more precise number, which you can get using unit-cost estimates by the square foot or linear foot.
Precise estimates. If you will be acting as your own contractor, you will have to do a precise estimate using many of the same techniques professional contractor uses. In most cases, you will let the subcontractors do the precise estimates which they will use in their bids. In either case, it’s important to understand how estimates are done. This will help when negotiating over change orders, allowances, and other cost changes once your project is underway.
Understanding the estimating process will help you
• Design a project you can afford, rather than waste money on an unrealistic plan
• Evaluate an estimate or bid from a contractor or sub
• Identify errors and omissions in an estimate
• Create your own accurate estimate as an owner-builder
• Provide your bank with a realistic budget for a construction loan
thom Watson says
Paying for Estimates
Should I pay for a cost estimate? This is a remodel project of kitchen and three baths.
While it is not very common, some contractors do charge for estimates, as they often put in a lot of hours doing detailed estimates for jobs they don’t get. Some will only charge of estimates on jobs that require a lot of research on new materials and techniques, or if they are doing a lot of the design work (like doing a new layout for your kitchen) in order to come up with an estimate and detailed specifications. In that case, the charge may be billed for the design work rather than the estimate.
Some contractors may also charge for an estimate if they are asked to bid a job they feel they have very little chance of getting. If the owner walks away, the contractor may feel he has avoided wasting a lot of time.
Whatever the reason for charging, in most cases, the contractor will count the fee as payment toward the job if he does the work. In any event, the contractor should make his fee policies clear, and put them in writing, at the outset. If you have not signed anything agreeing to these terms, then you are not legally obligated to pay the estimating fee. The rule-of-thumb in construction contracts is that anything not in writing is not a binding agreement.
If you really like this contractor, then maybe it’s worth paying a modest fee for an estimate – especially if it will count toward the project – and you think this is the contractor you are most likely to choose. However, if there are other qualified contractors willing to provide free estimates, then that may be the wiser choice for you.
Comments from other readers are welcome.
Gerard J Babin says
Believe it or not, it is very common [to charge for an estimate]. Whether it’s up front or placed inside a contract as an Overhead expense, you pay for it. Legit contractors often charge a fee to recoup the costs of window shopping.
We have had past clients who chose to have three of four “free Estimates” and then try to do if themselves.
or hire the cheapest without following up with the estimators for detailed explanations. Most often, the cheapest bid will end up costing you more than the highest bidder.
Some bid extremely high to avoid getting selected. Some just don’t know how to estimate. Be sincere when calling for an estimate; the contractor’s time has a dollar value. And a reputable contractor always charges for his time.