In managing construction, there are many terminologies and jargon that one must be familiar with— whether you are a project manager, a site engineer, or an owner. Understanding the primary language of the industry is a must for every individual, as they are most likely to deal with buildings at some point in their lives.
Now in the day-to-day life on-site, quite a few construction terms are being passed around— some of which are used interchangeably. But at the end of the day, estimates, proposals, contracts, quotes, and bids are very different. Knowing the differences is crucial since you use these terms to communicate to your team and all the project stakeholders.
Below, we will define these documents for smoother collaboration, efficient communication, and a smarter construction team— the ingredient to a successful project.
Common Construction Terminologies: In a Nutshell
- An estimate is a guess. Usually, it’s an educated guess. The bottom line it’s still just a guess.
- A proposal is an offer. Sometimes called “quote” or “bid,” a proposal slightly differs from the two but essentially serves the same purpose. The three all provide for a particular scope of work for a specific price, usually in a defined construction scheduling.
- A contract is a commitment. Both the contractor and the project owner have agreed to the terms of the approved proposal. The former has promised to provide an agreed scope of services and goods, and the latter has promised to pay a certain amount of money in return.
- A quote and bid are an expected cost. Both focus heavily on the supply of materials and labor around a particular aspect of the project. On the other hand, proposals may generally look at the whole project.
Confusions can occur when these standard construction terms are used or interpreted differently. This can create contrasting expectations between the project stakeholders, which can escalate to disagreements, payment disputes, or even worse, legal issues. Knowing this, it is critical to get the terms right from the beginning and ensure that you and your clients are on the same page.
What is a Construction Quote?
A construction quote is a document that provides a detailed breakdown of the following:
- Labor cost
- Material cost
- Unit Price
- Unit Price with mark-up
Usually, quotes are only considered valid for a certain period— usually about a month. This is because the costs of materials and labor demands can either rise or fall over time, especially in the unpredictable construction industry. Quotes expire since the materials involved in construction projects are commodities, and their given prices fluctuate based on supply and demand.
For instance, materials like wood don’t have a quick turnaround time. Wood availability in certain areas is a concern since they may need to be shipped from a location far from the jobsite. Generally, it can take time for any supplier to catch up to the unanticipated demand, so quotes have to be thought out with a fixed validity date. Quotes are discussed before any work begins.
What is a Construction Estimate?
An estimate is a document that provides a general idea about how much a construction project might cost to complete. General contractors look at the approved specifications of a project and determine how raw materials and manpower they will need to get the job done. After which, the general contractors gather up the quotation of materials from the subcontractor and suppliers and give a final estimate for a job. For this, they request a document called Request for Proposal (RFP).
What is a Request for Proposal (RFP)?
General contractors use a request for proposal (RFP) to gather information from potential suppliers or vendors about their price and their project task management. The general contractor specifies its requests and invites suppliers to suggest solutions based on their offerings. An RFP typically follows a Request for Information (RFI) since it’s more specific and tailored to the individual project. When submitting an RFP, make sure that you have precise needs listed out and are willing to share private information with the supplier.
An estimate may also contain other facets of the work, such as taxes associated with a project, subcontracts, overhead, or equipment costs. More than anything, it is highly encouraged for contractors to draft an initial estimate before submitting a final proposal or bid.
3 Items to NOT Include in an Estimate
When preparing an estimate for a project owner, be sure to leave out the following details:
- Specific number or quantity of materials and manpower
- Timeframe for the completion of the work
- Expiration date as it implies that the cost is tied to the current market conditions and can be negotiated to constitute a proposal (same as Construction Quote)
What is a Construction Bid?
After accomplishing a quote for your materials and labor, then your projected estimate for the overall project, you are now ready to prepare a bid. A construction bid is a document that shows the cost for performing a specific job scope at a particular time frame. A bid may also consist of project plans to reference the list of items covered and for clients to visualize the cost computation.
On big and complex construction projects, general contractors might request bids from multiple contractors to be in charge of a specific trade or spearhead a particular project section. For instance, a general contractor might call for cabinet contractors to supply, install or do both for the whole project. They would refer to the bids submitted by all the cabinet contractors and pick the one with the most reasonable costing and timeline.
What is a Construction Proposal?
A proposal is a detailed construction document submitted as part of a competitive procedure to win business. Some proposals also include a section for the project owner to sign to reflect their acceptance of the proposal. General contractors may also refer to a construction proposal as a “contract.”
Ultimately, a proposal brings together all of our previous construction documents above into a consolidated file that gets submitted to the project owner. A construction proposal includes the following:
- Quotes received from all supplies for the raw materials needed into completing the project
- An estimate of the costs associated with the project, such as labor cost, taxes, and other overhead items
- An overall cost or bid to complete the scope of work, based on the final quotes and estimates
- The type of material (specification) that will be used for the project, such as concrete, wood, or windows.
- Project scheduling and payment breakdown for the entire duration of the project.
- 6. Other estimates for other direct and indirect costs.
What is a Construction Contract?
A construction contract is a legal document reflecting an accepted offer. As the general contractor, it means you promise to do the scope of work specified and that the project owner promises to pay you the agreed-upon sum.
While an estimate is just a breakdown of information, and a proposal can be edited or withdrawn at any time, a contract is legally binding. You are bound by law to honor its terms, which can only be revised by mutual consent, usually for mutual benefit.
Terms are locked, and conditions are fixed. Now, you’re counting on your final proposal to be as detailed as possible since you can’t just go back to your client to ask for more money if that stone cladding was harder to install than you thought it would be. This is also fair because they can’t come to you and request a discount if the money is harder to earn than they expected.
In a nutshell, the purpose of a construction contract is to fix the limits of the job scope, the time, and the total cost. Lastly, those terms can only be revised under certain circumstances; otherwise, an unfortunate breach can occur.
3 Reasons Why a Change of Contract Might Take Place
- Existing conditions as stated in the contract are not as expected in actual
- Project owner added a change order or revised the scope of work
- Changes to local ordinances or codes that were unforeseeable during the contract signing phase
Construction projects are overburdened with paperwork from day one up to the handover to the owner. Well, there’s a digital solution available! General contractors and subcontractors can rely on construction scheduling software with a built-in document management feature, such as Pro Crew Schedule. Imagine having all of your project documents and work-in-process data all in one place, accessible online from any location.
With all these construction documents easily collected from users’ mobile devices on the jobsite and appropriately labeled as needed, real-time becomes the current reality for both the office and jobsite teams. Enhancing operational efficiency and overall productivity hits a new level for the entire company from this point on and beyond.