Bidding, Estimating and Contract Negotiation
Building the number
An estimate is a structured buildup, not a guess. Start with a quantity takeoff from the documents, apply labor productivity rates, price material including freight and tax, add equipment, then layer in subcontractor quotes, general conditions, indirect costs, bonds and insurance, overhead, and profit. Know that direct cost, indirect cost, markup, and contingency are not interchangeable. Understand labor burden - payroll taxes, insurance, fringe and benefits loaded on top of the base wage - which commonly adds a substantial percentage to the wage; verify the figure locally rather than assuming one. Distinguish contract types and where quantity risk lands: lump sum, unit price, cost-plus, guaranteed maximum price with shared savings, and time and material.
Traps
The classic estimating trap is confusing markup with margin. Other frequent issues: an unacknowledged addendum (grounds for rejecting a bid as nonresponsive), a bid bond stated as a percentage of the bid price, unbalanced bids, scope gaps found during bid leveling, and escalation on projects bid months before construction. A missing signature on the bid form can disqualify the low bidder.
Worked example
A job costs 100,000. A 15 percent markup gives a price of 115,000 and a gross margin of 15,000 ÷ 115,000 = 13.0 percent - not 15 percent. To actually earn a 15 percent margin, divide cost by (1 − 0.15): 100,000 ÷ 0.85 = 117,647. Negotiation questions often turn on this same arithmetic when a contractor is asked to "hold 15 points."