This post is the second installment in a series of estimating basics. Designed for the new construction employee (engineer, estimator, and field personnel), we will take a high-level look at how the construction industry works, from the estimating point of view.

Proposals – no not THAT kind of proposal – (also known as “tenders” in Canada and other parts of the world…hmmm, maybe romance DOES have something to do with it) come in a variety of vehicles, and at the end of the day the best lookin’ proposal usually wins.

Let’s take a look at four of the most commonly used proposal types: Unit Price, Lump Sum, Cost Plus Fixed Fee, and A Plus B.

Unit Price

In this proposal type, the owner provides what are called Bid, Tender, or Bill of Quantity (BOQ) items. Any number of items may be included – from a few to hundreds or thousands.  Each item will have a description, quantity, and unit of measure.  The objective is to provide a unit price for each item.  The unit price is multiplied with the quantity, resulting in the item’s total price.  All of the items’ total prices are then added up for the total proposal price.  The lowest proposal price typically wins the project.

Lump Sum

A very simple proposal – all that is required is a total amount.  There are no separate bid items with quantities.  Therefore, it is crucial for the contractor to have an accurate takeoff to cover all his/her quantity costs for the proposal.

Cost Plus Fixed Fee

All costs are documented daily, including labor, equipment and materials, etc., for approval by the owner.  There are agreed-upon rates for labor and equipment; material type invoices are supplied.  The contractor provides a “fee” either as a lump sum or percentage of the costs.  This fee protects the owner in controlling the costs, and protects the contractor in that he is guaranteed profit.

A Plus B

‘A Plus B’ is the same as a Unit Price proposal with an additional condition: time. The unit of measure for time is “days.”  The owner knows the unit prices; the contractor provides the number of days he/she agrees to complete the project.  Ergo, the total proposal is determined upon the total of the items prices plus the amount of the day’s total.  A contractor may have a low items total, but a higher amount for the days – which may not make him the low bidder (or the other way around).  There is usually an incentive to finish sooner with a dollar amount per day that is less than what was entered for the proposal.  Conversely, if the contractor exceeds his/hersss allotted “days,” a pre-determined amount is deducted per day.

Now you know how to “court” your prospect with the proper type of proposal. And you can win that bid – even without the father’s permission.