One that wins the contract? One that maximizes profit?
Sometimes not.
A good estimate accurately predicts the direct costs of doing the work described
by the owner, architect, and general contractor, and the demands of working
under the peculiarities of that specific job.
Example
A simple example: A wallcovering installer working in high end residences bid a
bathroom at twice his normal (high) price. He said it was barely enough, because as soon as he went to work the lady pulled up a stool, sat down, and politely
asked “O, Mr. Wyatt, did you notice . . .” at every move he made. He had made a “Good Estimate.” He had correctly accounted for every factor involved in the project, especially the help of the homeowner.
An accurate and complete quantity survey is essential, and is the basis for a good
estimate, but that alone is not sufficient. Applying unit prices to accurate
quantities is not enough. To know the costs, you must accurately know the
gallons and hours it will take for the particular job being bid. That is, you must
adjust the gallons & hours to take into account the specifics of the job – to the
difficulties of that particular site, subs you will be working with, the scheduling
sequence you must fit into, the non-production requirements such as safety
concerns, the time of year the work will be done, and many more. To accomplish
this, a good estimator must perform the work and account for the interactions
with other trades, in his mind, in order to arrive at an accurate cost, and then
translate that to a document the rest of the company can understand.
Estimate vs Bid
Importantly, let’s acknowledge the difference between a good estimate and a
good bid: A “good estimate” provides an accurate prediction of the hours,
materials, equipment, and other costs to complete the job. A “good bid” is one
that wins the job with the desired benefit to the company.
Generally, we think of the desired benefit as one that maximizes profit, but at
times that may not be the goal.
Other Benefits
Examples of other benefits a job may provide:
• Win a high-rise core in hopes of getting, or at least being able to bid on the
build-outs that will fill it.
• Establish a relationship with a new customer.
• Do a high-profile job that will enhance our portfolio.
• Keep the workforce busy, so they won’t have to be laid off.
• When work is sparse, some companies take work at cost (direct costs plus
fixed overhead) at the beginning of their fiscal year until they have enough
work to pay the fixed overhead, then, when that point is reached, add
profit to the bids.
• We may not want the job, so we bid so high so we won’t get it but will have
satisfied the request for a price from a good customer; or as a favor to
make sure there are enough bids from reputable companies to satisfy the
required number of bids for a project.
So, a "Good Estimate" allows the company decision-maker to accurately know the
cost of doing the work, allowing him to make an informed decision as to the bid
price that will most benefit the company.