Estimate, Bid, Cost-plus, or Change Order?

Common terms used in the construction industry are often used as if they are synonymous, yet they each have distinctive definitions in general business.

An estimate is a best-guess cost amount that a contractor (the lead company for the entire project) or subcontractor (the vendor company that provides a part of the project) gives to a customer for the services and materials requested. The actual amount billed to the customer later may be more or less than the original in the written or spoken estimate. The customer may put some perimeters on the actual amount by contracting for approval over any costs that are a certain percentage or amount above the original, such as 10% or a range no more than $500 above the estimate. To recognize an estimate, consider this statement, "You should be able to get that done for under $2000." Notice the generalizations and the "should." Estimates typically lack detail and specifications.

Bids are actual amounts that a contractor or subcontractor determines is an appropriate, competitive set amount that he or she is willing to receive in return for fulfilling the customer's requests for service and materials for completing a construction project. This cost to the customer includes actual operating costs and compensation for labor with a margin for profit. We at Outdoor Construction, Inc. use bids that are good for 30 days, so that everyone knows up front what to expect in the invoice and in the payment plan and customers have plenty of time to make their decision to accept or reject the offer. We prefer that our customers are treated fairly with no adverse surprises at payment time.

Cost-plus is used when the necessary labor and materials are partially unknown. Maybe a customer wants a room remodel, but the customer has not decided on which tiles to put on the floor or the builder is concerned about what condition the water-stained wallboard behind the paneling may be in. The contractor or subcontractor may propose a percentage above actual costs for final compensation. Costs may include fuel and transportation (some suppliers use fuel surcharges that are added to their invoices), as well as materials, and materials' costs can vary from the beginning of a project to the completion. Customers should be wary if no ceiling is put on the "plus" part of this method. This is why we at Outdoor Construction, Inc. use change orders with our bids.

Change orders are amendments or attachments to the original bid to accommodate changed minds and changing conditions. Once projects are started, new information, regulation, and adjustments may present themselves and may have to be accommodated. For example, perhaps the material the customer originally wanted in the construction project is no longer available and a more expensive material is the best alternative. Both parties sign the written agreement and expectation before work proceeds on the project. By doing this, we strive for clarity, quality, and integrity.

One caution for customers to keep in mind is that the cheapest estimate, bid, or cost-plus is not necessarily the best. We often find our customers from the legions who have received inferior products and services from amateurs posing as respectible contractors or subcontractors. Check for certificates of insurance, licenses if required in your county or city, FEIN company identification, field experience and expertise before hiring a company to complete your job. A company that provides these assurances and labor or product guarantees will have higher operating costs than individuals who lack this kind of integrity.

In the long run, it is easier, safer, and cheaper to get the job done well the first time rather than hiring a second company to fix the problems the first company left behind. Go to www.outdoorconstruction.com for more informaion or to contact us.