A bid is a priced promise. Once accepted it becomes a contract, and every gap between what you assumed and what the drawings actually require is absorbed by you. The process below is designed to close those gaps before the number goes out, not after.
Step 1 — Qualify the job before you price it
Estimating costs real hours. Bidding work you will not win, or work you cannot profitably perform, spends those hours twice — once on the losing bid and once on the good bid you did not have time to sharpen.
- Scope fit — is this work you have done before, at this size?
- Schedule fit — can you crew it during the required window without cannibalising committed work?
- Who is buying — does the owner or GC pay on time? Ask other subs.
- Award basis — lowest price, or best value? A best-value award rewards a bid that is worth writing carefully.
- Bid list size — five bidders is a market; fifteen is a lottery.
Step 2 — Read the whole document set
Drawings tell you quantities; specifications tell you what those quantities have to be. The general conditions and division 01 sections are where the expensive surprises live — site access, working hours, cleanup, temporary facilities, submittal requirements, retainage and liquidated damages. Read the addenda last and carefully; a late addendum can change a quantity you have already priced.
Step 3 — Quantity takeoff
Measure what the job physically requires: linear feet, square feet, cubic yards, counts of each assembly. Work systematically through the drawings in a fixed order so nothing is skipped, and keep the takeoff auditable — when you review a lost bid or a job that went badly, the takeoff is the only place the answer will be.
- Take off by area or system in a consistent sequence, and mark up as you go so double-counting is visible.
- Add waste factors from your own history, not from a table — your crews and your material have a real number.
- Note every assumption in the same document as the quantity it affects.
- Have someone else check the totals on anything material.
Step 4 — Price labour, material, equipment and subs
Labour is where estimates go wrong, because the number that matters is not the wage. It is the fully burdened cost — wage plus payroll taxes, insurance, workers' compensation, benefits and non-productive time — multiplied by a production rate your crews actually achieve. Published production rates are a starting point; your own completed-job history is the real source.
| Cost component | What to use | Common error |
|---|---|---|
| Labour | Burdened hourly cost × your own production rates | Using the bare wage, or a rate from a book |
| Material | Current quotes with a stated validity date | Carrying last quarter's pricing forward |
| Equipment | Rental or ownership cost plus mobilisation | Forgetting mobilisation and standby entirely |
| Subcontractors | Written quotes with matching scope | Assuming their scope matches yours without checking |
Step 5 — Overhead and markup
Your direct costs pay for the job. They do not pay for the office, the truck insurance, the estimator's time on bids you lost, or your own salary. Those are overhead, and they have to be recovered across the work you win.
- 01Calculate annual overhead
Total every cost that exists whether or not any specific job does: rent, admin salaries, insurance, vehicles, software, marketing, unbilled estimating time.
- 02Divide across expected revenue
Overhead ÷ realistic annual revenue gives the percentage each job must carry before you have made a cent.
- 03Add target profit
Profit is separate from overhead recovery. Decide the margin you intend to earn and treat it as a requirement, not a residual.
- 04Convert margin to markup
This is the step that costs contractors money. To hit a target margin, markup = margin ÷ (1 − margin). A 20% margin requires a 25% markup, not 20%.
Step 6 — Write the inclusions and exclusions
This section protects your number. State plainly what is in your price and what is not — permits and fees, testing and inspection, temporary power and water, dumpsters and final cleanup, off-hours work, unsuitable soils, escalation on volatile materials. Ambiguity in a bid is resolved against the bidder, so anything you assumed belongs in writing.
- State the bid validity period explicitly — 30 days is common.
- List allowances separately, with the assumption behind each.
- Name unit rates for likely change work so variations are priced in advance, not negotiated under pressure.
- Reference the specific drawing revision and addenda you priced.
Step 7 — Submit, then follow up
Submit in the required format, before the deadline — late bids are routinely rejected regardless of merit, and on public work they must be. Then follow up: ask where you landed. A GC will often tell you the spread, and knowing whether you were 3% high or 40% high is the difference between a pricing adjustment and a scope misunderstanding.
Terms worth being precise about
- Markup
- Profit expressed as a percentage of cost. (Price − Cost) ÷ Cost.
- Margin
- Profit expressed as a percentage of price. (Price − Cost) ÷ Price. Always a smaller number than the equivalent markup.
- Allowance
- A placeholder sum for scope that is not yet defined. Reconciled against actual cost later, so state the assumption clearly.
- Bid bond
- A surety guaranteeing you will enter the contract at your bid price if awarded. Standard on public work.
- Retainage
- A percentage withheld from each payment until completion. It is your money, held — factor the cash-flow effect into your pricing.
- Liquidated damages
- A contractual per-day sum payable for late completion. Read the rate before bidding a tight schedule.