Budgets, Estimates and Bids – know the difference, enjoy a less stressful project
We frequently receive inquiries from prospective clients, asking if we could, “take a look at their project…”, and then tell them what their project will cost? Many times, they go on to say, “We’re getting three prices and then we’ll decide who we want to work with”. Seems reasonable, right? Especially since almost every magazine article or TV show suggests getting three quotes. In reality, it is not always that simple, as the “three quotes” are often hard to compare, with very different levels of detail and a wide spectrum of pricing. Many people are not clear about what’s being promised, opt for the low bidder, and then get frustrated when their project costs far more than that original “quote”.
The scope of work, materials and details are all significant parts of the cost calculation for any construction project. The more specific and detailed the client is (with what they are asking for), the better the odds are that they will be able to get accurate pricing for their project. Scope, materials and details are an entire conversation in themselves, though, and there is another aspect of gathering price information; bids versus estimates versus budgets. Let’s take a look at the differences between these.
- Budgets (also known as Allowances) are simply an amount of money allotted for a specific item. For example, let’s say that you are trying to decide if you should remodel your kitchen, or just move to that new home a half-mile away. You don’t have a design for your kitchen remodel yet, and you haven’t decided on the materials, but you have decided that if your kitchen costs more than $70,000, you’re going to skip the project and just move instead. So, you have a budget for your kitchen remodel of $70,000. This does not mean, however, that when you do arrive at a design, select materials and get pricing, that your remodel project will actually cost $70,000. In another example, you are preparing to build a new home, and your builder has set up an allowance for carpeting. This allowance amount may have been determined by carefully pricing a specific material (and using that number as a reference point), or it may simply be a percentage of the total project cost, or it might not be based on anything at all.
- Estimates are – in a literal sense – just that; they are a guess at what an item might cost. Obviously, there can be a very wide spectrum of accuracy among estimates, with some being very good indicators of final cost and others being just a wild guess. It is important to understand what the estimate is based on. Is it from unit costs? Historical data? Similar projects? What are the variables? Is it subject to market fluctuation (such as lumber prices)? Is it subject to unknown conditions (such as a dry rot repair before the full extent of damage can be seen)? Having clear detailed specifications is very advantageous when gathering estimates.
- Bids are a stated price for a specific item or service. Just like Budgets and Estimates, it is still important to understand what the details of the bid are (what’s included? what are the terms? how long is the bid good for? Etc..). The big differentiator, though, is that a bid is an actual offer to provide a service or product for a specific sum – it’s not just a guess at what the final price might be.
From the contractor’s side, bids usually require more time to create, and once given, it can be very difficult to re-negotiate if something has been missed in the price calculation. For a large or complex project (such as an addition, new home, etc…), it is reasonable for a contractor to ‘qualify’ a prospective client, and in some instances, charge a fee for the time spent preparing the bid. This is particularly true when plans must be drawn before the project can be bid.
While a project can get underway with a bid, an estimate or even just a budget, there is almost always more certainty (and less stress) when a complete bid has been agreed to between the client and the contractor. This way, both parties know the expectations and the focus can be on the work, not the price.