Many of the terms thrown around in general contracting are misunderstood, and the gap between how a word is used and what it actually means can be costly for business owners.
When terms with specific, technical definitions are used interchangeably, it can negatively affect transparency and clarity. That can cause confusion and frustration when a client has expectations based on their exact understanding of what a word like “quote” or “estimate” means.
So, we’re here to set the record straight: What’s the difference between quotes, bids, estimates, and proposals for general contractors – and when do you use which one? We’ll be answering other common questions as well, so let’s dive in:
What are quotes, bids, estimates, and proposals for general contractors?
Using the right language to describe different parts of a contracting deal sets everyone up for success, and reduces the likelihood of a costly, headache-inducing misunderstanding. Of course, that’s often easier said than done – different industries will apply terms in their own way, and many clients will have their own understanding of what something like an “estimate” really means.
Defining terms and clarifying what they mean ahead of time can go a long way to solving problems before they become conflicts. Consider these questions before you start a bidding process:
- Where in the country or world is this discussion taking place?
- Is the project residential or commercial?
- Which stakeholder is talking about this topic – a contractor, supplier, or owner?
Defining important terms in general contracting
Estimates – Estimate processes vary by trade, but most include a mix of on-site measurement, assessments about the scope of needed repairs, or labor and material costs research. They’re commonly used to build an internal assessment of how much a project should cost, along with a reasonable timeline to set expectations.
Estimates are something like a job interview, where contractors determine if the prospective job is mutually beneficial – or worth taking at all.
Quotes and proposals – Quotes and proposals are commonly used interchangeably, though each describes its own specific deliverable and process. Quotes are usually a verbal or informal assessment of the project cost and timeline – effectively a customer-facing version of an estimate – whereas proposals are formal and written documents presented to a client.
While quotes tend to focus on simple price and timeline, a proposal should also include a description of the company and how the project will proceed, including services you’ll provide, and terms and conditions for the job. A proposal should also feature a breakdown of material costs based on current market conditions, which makes a proposal more time-sensitive than a general quote. Also, any proposal or document that is agreed upon and signed by both parties becomes binding.
A sloppy proposal can cause trouble for everyone involved in the job. For example, when a contractor submits a proposal without a valid-by date and material costs spike while the client thinks it through, the end result can be costly when the ink dries. For this reason, the difference between a quote and an estimate is very important to consider.
Bids – Bids are more formalized versions of a proposal that are submitted when two or more contractors compete for a project. They should be detailed to allow clients to compare costs, timelines, and other deciding factors that allow them to locate the best partner for their unique needs. The nuances in a bid vs quote can be costly when not fully understood.
When creating a bid for a project, being clear and concise about what’s in the scope is essential to winning business and completing it profitably. Unclear language, a lack of transparency, or loosely constructed timelines can lead to costly overages, missed deadlines – or just lost bids from the get go. If the client comes back asking for more, or there was an issue unforeseen in the estimating process, a well drafted bid allows you to safely let them know what is out of scope and provide a change order.
Invoice – Invoices are the bill that tells a client how much they owe, and provides information on how to pay it. They’re usually prepared after a job has been accepted, and submitted to the client after the job is completed or at certain milestones during the project (depending on the terms set in your contract). A long-term project may require a down payment and several invoice installments, filed for payment monthly until the completion of the project.
How to write a professional estimate
FAQ about estimates, quotes, bids, and proposals
What should be included in a proposal? A proposal should include information about scope, timeline, and costs for materials and labor, along with expectations regarding what you’ll produce or provide and terms and conditions of the deal.
What if the invoice doesn’t align with the proposal originally sent to the client? If your proposal underestimates the costs of the project, and no change order is submitted, you may not be able to invoice the full project cost – which often leads to the contractor eating the difference.
This kind of mistake can be detrimental for contractors, so it literally pays to avoid shortcuts in the estimating and proposal writing process. Using trustworthy software can help save you time and avoid introducing mistakes.
Does appearance matter for documents sent to clients? Contracting work involves a lot of trust and capital, and first impressions matter when it comes to submitting proposals and bids.
A business that seems to “have it together” is more likely to win business – often at a higher price point. Templates, branding, and consistent fonts and language help set your brand apart by adding a professional touch that clients appreciate.
Should you try to make bids/proposals as low as possible for Request for Proposals (RFPs)? Many contractors end up winning low-ball bids that they later regret. While you should strive to win bids, having the lowest price can put you in a bind when you realize the project is bigger than originally scoped.
Be honest with your bids so you can get jobs you’re aligned with while ensuring your team is paid fairly.
Make writing quotes, bids, estimates, or proposals easier with Estimate Rocket.
No matter what you’re writing, Estimate Rocket can make it easier to get accurate numbers every time with professional, customizable templates that fit your industry’s needs.
You can save time without skipping out on important steps or completely changing up your existing technology/software.
Check out our Job estimate best practices checklist!