Legal Issues in Estimating

Numerous programs exist to aid contractors in estimating the cost of a project. These programs can be highly complex and walk you through detailed steps for establishing unit prices, time and material costs, profit and overhead. The end product is a number that you can charge the homeowner for the project. These programs, many times, pay little attention to the additional wording that should accompany every estimate.

The wording can be more important than the bid itself and often can actually change the bid number without you knowing it.

Reference the specific plans you are bidding

Often the plans presented to you are not as detailed as you would like, especially if you are called in while the design work is still taking place. Having proper disclaimers in place is important. When presenting an estimate, ALWAYS reference the plans you are bidding and, in particular, the date or version of the plans. Indicate that any changes or additions to the plans will cause modifications to your bid.

Check for plan changes before you prepare your contract

If there is a time lag between when you bid the project and when you are awarded the project, find out if there have been any modifications to the plans BEFORE you draft your construction contract. Often contractors will simply put together a contract and put their bid in as the contract price. If the plans have changed since you originally bid the project, you may be on the hook for a lot more work than you originally estimated. Your contract should also reference the plans and the date/version of them so that it is clear what the price includes.

State the assumptions you are making

If you are making any assumptions when bidding, it is essential you spell them out as part of the estimate. You can develop standard assumption language that can be incorporated into every bid you prepare. For example, you could state “if painting is included in the plans and specifications, the price includes one paint color per room for walls and one paint color for trim and a maximum of two coats for each.” Then if the owner wants to paint each wall a different color, you can charge extra. Without this wording, you will be paying for the time spent cleaning the brushes between each and every wall and the cost of the 10 coats of white paint necessary to cover the hot pink walls in the kid’s room.

Specify your exclusions

If you have excluded something from your estimate, it is critical you disclose that fact; otherwise, the owner will think it is included. If your estimate includes “rough electrical,” you may want to state “any wiring for television, telephone, computers or sound equipment is excluded.” Ambiguities are usually decided against the person preparing the document, namely you. Making it clear what is and is not included will also help the owner to compare bids.

Specify a time limit for acceptance

Ever met a homeowner that gets estimates for work, but doesn’t actually get around to doing the work for years? Make sure your estimate has an expiration date: “This price is valid for 30 days.” This limitation is especially critical if you pre-sent a contract along with your estimate as many contractors do. The last thing you want is the owner sending you the signed contract three years later after the cost of lumber has increased tenfold. If you are relying on a subcontractor’s bid as part of your overall estimate, make sure his/her bid is valid for the same duration.

Estimating is much more than simply providing the owner with a number. It is the start of your relationship with the owner, and that relationship should start on a clear, precise footing.