The Terms Estimate, Quote, Bid, and Proposal,
The Difference Explained
Estimate, quote, bid, and proposal are all terms used to describe the costs of a project. The differences between the terms are subtle and why the terms get used interchangeably.
How a Project Develops
- The general contractor is contacted by a homeowner, designer, or architect.
- During the initial conversation, the general contractor gathers information about the project and establishes a time and a meeting location to discuss the project further.
- The general contractor discovers if other general contractors will be competing for the project during initial meetings.
- After the first meeting, the general contractor may have enough information to assemble an estimate or quote.
- Large projects may require plan revisions before the presentation of the quote or estimate.
- When general contractors compete against each other to make a presentation, the general contractor is provided a bid package. The bid package is a set of documents with specifics defining the work scope, drawings, specifications, and general conditions.
- The general contractor calculates the time and materials anticipated for the project.
- They will request quotes from material providers and subcontractors on certain portions of the project.
- The general contractor may reach out to several subcontractors for the same portion of work, putting subcontractors into a bidding round. There are many reasons to make multiple bid requests. Often it is to get the best competitive price, but it could be because of the current subcontractor’s skill set, availability, or performance issues.
- After the general contractor has collected enough information about the project and made calculations, the contractor writes an estimate or quote to present to the homeowner.
- For a finished presentation, the contractor assembles the paperwork in a professional-looking package known as a proposal.
Types of Estimates
Estimating is the process of forecasting the cost to complete a project. Several estimating techniques may be used to calculate an estimate, such as looking back historically based on similar projects and finding quantities based on take-off measurements. General contractors may also use software estimating calculators to compare similar projects in specific geographic areas.
Estimates detail the scope of a project and may include a timeline, exclusions, and contingencies. It may consist of alternatives or upgrades as well. Several types of estimates may be provided to the homeowner, depending on the nature of the project.
The contractor may provide an initial ballpark figure to determine if the project will be feasible or to get a starting point for budgeting. The ballpark figure is often referred to as a “guestimate.” The number is a rough estimate. It’s a guess. The ballpark figure may be offered as a lower and an upper range, with very little time spent on calculations.
This starting point may be the basis to proceed with a feasibility study. Feasibility estimates are more common for commercial rather than residential projects. There may be many versions of estimates for a large project with plans.
The preliminary estimate begins as a roughly prepared document. It starts with a general scope of work and develops as information becomes available. A preliminary estimate is also a design estimate or budget estimate. The most common purposes of a preliminary estimate are creating a budget and financing.
There are two approaches to working with estimates: bottom-up and top-down.
A bottom-up estimate calculates each “stick” and is very accurate for each item in the project. Individual items within the project are added together to get a total cost. A takeoff is a process of making calculations from plans to find material quantities. An architect scale is a ruler with six measuring units. The ruler is used to measure linear and square footage taken from plans.
A top-down estimate starts with the budget and breaks major building components down into smaller ones. Top-down estimates can be instrumental at the beginning of a project. The top-down estimate can provide an overview of the cost and helps determine which areas of the project to adjust or eliminate to meet the budget.
As selections are made and specified, estimates are revised. Contractor grade pricing based on minimally accepted products may serve as a placeholder until final decisions are made. An amount, known as an allowance, is designated for items that are not specified, such as flooring, cabinets, and countertops. An allowance allows the homeowner to make selections according to the budget or pay the difference for an upgrade.
A substantive estimate is comprehensive and includes contingencies and profit margins based on almost finalized plans. Although some decisions may not be final, a substantive estimate can provide enough information to evaluate a budget and be used for bidding.
Once numbers and decisions are solidified and locked in, the final estimate is essentially a quote. A quote establishes a fixed price and is usually valid for a limited time. Once agreed upon, any change to the contract is out of scope. When changes to the project are requested, a change order is written and approved to authorize the changes. A change order is a formal agreement to additional work outside the original agreement. Change orders for the extra work are essentially an estimate or quote. Some contracts don’t allow change orders.
Quotes are written when the project’s specifics are known and are unlikely to change. Like an estimate, quotes break down anticipated costs of a project; however, a quote is either accepted or declined. While an estimate allows for flexibility, a quote is for a specific amount and unchangeable.
Bid indicates there is competition for a project. Since bids represent a final number, general contractors typically present them in person rather than through mail or email. This allows for discussion and clarification and enables the customer to ask questions.
A proposal is a written offer to perform specified work. A well-written proposal is thorough and detailed. Because this is your opportunity to make an impression, a proposal needs to be visually appealing with accurate spelling and correct grammar.
Components of a Proposal
- Names of Owners, Contact Information, Project Address
- Scope of the project
- Written total price
- Payment terms
- Visual aids – sketches, samples
The contract incorporates components of the proposal. A contract is a legally binding document based on the final version of the estimate or quote. Contracts for a simple project may be as short as one page. Large projects may have five or more pages but shouldn’t exceed over 20 pages. Consult an attorney to determine the language for the contract. Some states require contract-specific language.
Some elements to a contract:
- Scope of Work
- Plans, Specs
- Terms and Conditions
- Timeline, Start and End Date
- Quality Standards
- Warranty Information
- Lien Paperwork
- Dispute Resolution
- Contract Price
- Down Payment
For the presentation, a general contractor must put on their sales hat. There is only one opportunity to make a first impression. Arrive for the presentation on time and clean. Keep paperwork neat and in order. A 2-pocket folder comes in handy for this. Branding on the materials in the proposal package is a plus.
- Role play and practice the presentation
- Establish creditability by being professional and respectful
- Don’t talk about yourself
- Focus on what the customer wants
- Stay within the allotted time frame
- Follow-up after the presentation
How architects, contractors, and subcontractors use the terms estimate, quote, bid, and proposal depends on several factors. The term used depends on who uses the term and how the information is presented. The success of a project relies on the general contractor’s ability to communicate the costs to the homeowner and fulfill the contract on time and within budget.