When homeowners receive multiple quotes for a building project, the differences between them can be puzzling. One contractor may quote thirty percent less than another for what appears to be the same job. Understanding how building costs are estimated and what can legitimately cause variation between quotes helps you make a more informed decision about which to accept.
Building costs have three main components: labour, materials, and overheads and profit. Labour costs vary between contractors depending on the skill level, experience, and hourly rate of the tradespeople they employ or subcontract, and the number of people allocated to the project. Materials costs vary depending on the specification chosen, the quality of the products, and whether the contractor has negotiated trade discounts with their suppliers. Overheads and profit reflect the cost of running the business, including supervision, insurance, vehicles, equipment, and the contractor margin.
When a contractor prices a project, they typically start from a scope of works that lists every item of work required. For each item they estimate the labour time required and the material quantity, and then apply their rates to produce a cost. The total of all items plus overheads and profit gives the contract sum. The quality and detail of this process varies enormously between contractors.
A very low quote is often the result of one or more of the following: items have been omitted from the scope because the specification was unclear, the contractor is applying unrealistically low rates in order to win the job with the intention of making up margin through variations, the contractor is cutting corners on quality or compliance, or the contractor is desperate for work and pricing at a level that will not sustain a viable business through the project.
For a homeowner, the most useful way to compare quotes is to ensure all quotes are priced against the same detailed scope of works and specification. If you allow each contractor to produce their own scope, you will receive incomparable quotes and the lowest price will almost certainly reflect the least comprehensive scope rather than the best value.
RCB Design and Build produces detailed scope of works for every project before pricing, and we issue our estimates with a clear breakdown by section so clients can understand exactly what is included and compare accurately with other quotations.