What’s REALLY Covered in your Estimate? Understanding the Estimating Process.

In estimating, it is really difficult to get the customer and contractor on the same page, even with a set of plans. Let me start first off by saying some contractors do a terrible job communicating in general and this can be further complicated with poor paperwork and customer ignorance.

This started as an internal memo to my estimating crew but ended up being something we hand out to all potential clients to help them understand the process.

One of the biggest mistakes people make in this process is that they focus too much on price without taking into consideration quality and value. Asking what a bathroom costs is a lot like asking what a car cost. Sure you can buy a car for $5k, but there are a lot of risk factors, and you may not be getting the best value for your $5k. The same is true in construction; price shopping is NOT the best way to ensure good value, especially at the beginning.

This is a common mistake in hiring contractors. We call this Pre-Scope Negotiating (PSN).
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In an effort to improve clarity in our estimates, we created a numbered system to show potential clients where they are on the scale, and how we can move along in the scale together. The scale is numbered 1-5 with 1 being very rough, and 5 being ready to bid and contract. This helps us improve communication with our clients in order to avoid some of the miscommunication pitfalls.

First, let’s define some terms:

Estimate:
This is where a contractor gives an estimate based on the information available. Some projects are much easier to estimate than others. The estimate may be signed and the work may begin, but the line items are not set in stone. Some things are unknown and may be firmed up as the project progresses. In the estimate, costs for some of these unforeseeable obstacles should be accounted for if they happen. In a Bid or Estimate changes can and often do occur. The myth that there is a not-to-exceed-no-change-order-contract that can be signed is prevalent, but legally it does not exist.

Bid:
There is a lot of confusion about bids. A bid can be made from a level 5 estimate, but not always. A bid is just that, the contractor offers a price to perform a project, as it pertains to the scope of work in the contract for a set price.
In order to have a bid, the scope must be clearly defined. For example, for a bid on painting the inside of a house – Does it include prep work? To what level is the prep work? Does it include filling holes, sanding wood, patching drywall, and priming wood? Does it include the base and trim? Does it include a prime coat, and a cover coat? What type of paint? What type of sheen? How many colors does it include? All of these questions would be answered clearly in a bid. Bids have A LOT of details; estimates do not.

Not-to-exceed-contracts:
Not to exceed contracts are a great way to make customers feel like they have some special contract that
will keep their costs from going up. Unfortunately, it is just a regular bid that sets a certain price for the work described in the contract. It may put the burden of fuel price fluctuations and materials cost increases on one party or another, but it does not mean the additional costs associated with when you find a T-Rex skeleton where your foundation is supposed to go, are squarely on the shoulders of the contractor.