Construction

A guide to estimating construction costs: Essentials that drive winning bids

Are you a construction estimator who typically has to take responsibility for predicting construction costs? Estimating construction costs accurately is key to keeping your project on track, avoiding unexpected expenses, and staying within budget.

One of the challenges of being a general contractor is that you have to craft a project bid that strikes the right balance between competitiveness and profitability.

In other words, you’re expected to deliver pricing that wins work but also holds true throughout the life of the job.

When done right, your estimate tells the story of how the job will unfold—and at what cost.

It instills confidence in your capabilities and helps you monitor how those costs track against actual field conditions.

But estimating isn’t a one-and-done exercise.

Changes to scope, site conditions, and schedules all affect costs—and your ability to respond quickly and intelligently is only as strong as the tools you use.

This guide explores how seasoned general contractors (GCs) can approach construction estimating with both precision and strategy—supporting stronger bids, tighter cost control, and ultimately, improved project outcomes.

Here’s what we’ll cover:

Why accurate estimating drives competitive bids

An accurate estimate gives your bid teeth.

It helps you assess whether a job is worth pursuing, shows owners that you understand the cost implications of their design, and allows you to identify where value engineering might give you the edge in staying competitive.

Once the job is awarded, your estimate becomes the cost control benchmark. It guides procurement, subcontractor negotiations, and project financial management.

It also gives you the ability to adjust in real-time, avoiding the types of surprises that eat away at profits.

Let’s look closer at the key aspects of a project that benefit from an accurate estimate:

• Risk assessment. Accurate cost estimating reduces financial uncertainty for all stakeholders—owners, lenders, and sureties. A reliable track record in estimating also strengthens your prequalification status and can lower insurance costs.
• Forecasting and cash flow. Your estimate doubles as the backbone of your cash flow planning. A solid bid helps reduce financing draw delays, improves decision-making, and tightens margins.
• Profit protection. Errors in your estimate will cut directly into profits. A well-performed estimate protects against events like labor overruns or cost escalation due to outdated unit prices and failure to account for commodity volatility.

Choosing the right estimating model

Experienced GCs know they will be constantly refining the estimate as project information evolves.

The American Society of Professional Estimators (ASPE) classifies estimates into five levels of detail, moving from a broad, conceptual pricing estimate to a fully detailed bid estimate.

The right model at each stage of the project depends on the information available and how you plan to position the bid.

Here’s the typical evolution of the estimate modelling process:

1. Preliminary estimate (Rough Order of Magnitude or ROM)

An early-stage number that is useful for assessing feasibility, but is not yet bid-ready. It could be based on historical data from similar past projects.

2. Schematic design estimate

This is where you apply unit cost models to square footage, structural systems, and basic assemblies.

A common technique at this stage is the assembly estimate, which covers estimates for whole systems or trades within the project (e.g., HVAC, electrical, framing, etc).

This simplifies bid pricing discussions with subs and clients.

3. Design development estimate

With more defined drawings and design intent, you can begin itemizing quantities and expected materials.

This level allows you to test different finish packages, make subcontractor selections, and apply value engineering.

The calculation is typically aided by digital takeoff software, such as eTakeoff, which can integrate with software like Sage Estimating to streamline quantity tracking and cost calculations.

4. Construction documents estimate

This is your internal financial blueprint based on final plans and specs.

It is considered the most realistic budget estimate, but still needs to be strategically refined as a profitable business offer to the client.

5. Bid estimate

This is the final, client-facing bid proposal.

It includes markup, overhead, contingency, and profit. Here, your estimating strategy has finally delivered a full outline of your business model.

Key steps in estimating construction costs

Of course, the core of estimating construction costs is number-crunching. But those numbers have their roots in your specialist knowledge. 

The process has to start with your review of the design documents, project scope, requirements—such as functionality, performance, and code compliance—and specifications—such as material types, installation methods, and quality standards. 

And you end it by quantifying, pricing, and ultimately forecasting the full cost of delivery.

Step 1: Analyze the bid package

Start with a thorough review of all proposal documents: specs, general conditions, drawings, and any owner requirements.

Identify opportunities, red flags, and scope gaps that could impact cost and execution.

• Confirm that all architectural drawings and specifications are included.
• Understand the overall project strategy.
• Assess structural, mechanical, electrical, and plumbing requirements.
• Identify any unique or non-standard materials needed.

These documents will guide you through the entire estimation process, helping you classify the project into packages for specialty contractors and ensure accurate cost projections.

Step 2: Visit the site (when applicable)

A site visit provides a firsthand look at conditions that could impact costs, such as:

• Accessibility issues for heavy equipment.
• Soil conditions requiring special foundation work.
• Existing structures that may need modification or removal.

While not necessary for all projects, a site visit helps you make sure estimates reflect real-world conditions rather than relying solely on drawings.

Step 3: Perform a material takeoff

Also known as a quantity takeoff, this step makes sure nothing is overlooked and helps you create accurate cost projections.

Best practices for a successful quantity takeoff include:

• Group similar materials to simplify ordering and pricing, using a repeatable, trade-by-trade method.
• Use the right tools, such as takeoff software, for efficiency.
• Use current drawings and specs.
• Ensure accurate scaling when working from drawings.
• Round up quantities to account for waste.

This is where a lot of GCs still rely on spreadsheets—but mistakes here lead to either uncompetitive bids or costly overruns.

Follow these best practices whether you’re using manual or digital tools.

Step 4: Request pricing from suppliers, subcontractors, and vendors

Once materials and equipment are identified, the next step is gathering cost estimates from your suppliers, subcontractors, and vendors.

You can also reference standardized cost databases or consult industry specialists.

This step makes sure you’re working with realistic pricing, rather than outdated or estimated figures, giving you better control over project finances.

Suppliers should also provide escalation clauses to account for materials with volatile pricing.

Subcontractors working in tight or remote sites may insist on mobilization or demobilization costs.

Other direct costs to consider at this stage are:

• Permits and fees—paperwork costs, regulatory compliance fees, and possible legal expenses. 
• Taxes—sales tax and other levies on materials and services.

Step 5: Insurance and surety bonding

Insurance and surety bonding might not be the most exciting part of a project, but they’re essential for protecting both contractors and clients.

And yes, they come with added costs—so it’s important to budget for them.

Make sure to account for:

• General liability insurance—covers accidents, damages, and unexpected issues.
• Workers’ compensation—protects your team in case of injuries on the job.
• Performance and payment bonds—guarantee that work gets completed and everyone gets paid.

Step 6: Calculate indirect costs

Indirect costs are expenses that aren’t tied to a specific project activity but still impact your bottom line.

These typically include overhead expenses such as office rent, utilities, administrative salaries, technology, software, and general business costs.

These costs allow everything behind the scenes of a construction project to run smoothly.

How project size affects the estimation process

As projects get larger, things get more complex, and cost estimation becomes even more critical.

If you’re working on a large-scale project, you might want to keep in mind the following factors:

Complexity

Larger projects naturally involve more components, stakeholders, and dependencies—this can add to the complexity, but not always.

A small, highly specialized build with unique materials or advanced systems can be just as challenging to estimate.

Likewise, a large project with repetitive structures and clear requirements might be easier to price.

Complexity depends more on design intricacy, scope variability, and coordination needs than square footage alone.

And the more complex the project, the more thorough your construction cost estimation needs to be.

Resource availability

In large-scale construction, even small miscalculations can lead to huge budget overruns or unexpected delays. That’s why it’s crucial to:

• Doublecheck your budgeting calculations to avoid financial surprises.
• Conduct detailed risk assessments to prepare for potential challenges.
• Perform thorough quantity takeoffs to ensure accurate material estimates.
• Plan for contingencies so unexpected issues don’t derail your project.

Achieving accurate cost estimates with construction software

Creating a construction cost estimate can be a complex process, but construction estimating software makes it much easier.

It helps you automate calculations, generate detailed cost breakdowns, and produce competitive bids—all while improving accuracy and efficiency.

These features are especially useful in the early planning and design phases, where you need to model different scenarios and refine estimates as your project evolves. 

One of the biggest advantages of using construction estimating software is integration with cost databases and other third-party sources.

These databases provide real-time pricing information on materials, labor, and equipment, helping you benchmark costs against industry standards.

With this data, you can ensure your budget projections are realistic, competitive, and aligned with current market trends—a crucial step during the feasibility and pre-construction phases.

Another key feature is historical data tracking. Construction management software allows you to pull estimates and actual costs from past projects, which can provide valuable insights—especially for similar projects or those in the same region.

By analyzing past trends, you can spot potential cost fluctuations, refine contingency plans, and compare estimates against industry benchmarks.

These benchmarks help keep your budget on track during the value engineering and budgeting phases, ensuring your project stays cost-effective and competitive.

You can see how construction management software, along with Sage Estimating, helped construction firm,  T.K. Rubke, stand out from the competition here.

Final thoughts

Having a strong understanding of estimating construction costs helps you see your project’s expenses from the very beginning.

By managing estimates effectively and allowing room for unexpected costs, you can keep your budget on track and reduce the risk of overruns throughout the entire process.

And don’t forget—construction estimating software can transform your bottom line.

It helps automate calculations, streamline workflows, and simplify cost estimation, making your job easier and your estimates more accurate.