If you’ve ever put a project out to bid and gotten numbers back that are surprisingly far apart, your first instinct is probably that somebody’s padding it. Sometimes true. But more often the spread comes from something less dramatic: the bids were built on completely different cost structures, and one of them may not really be a bid at all — just a guess with a letterhead.
An estimate is only as good as its skeleton
Before a single price goes on paper, an estimating system has to be configured: what units things are measured in, how costs are categorized, and how profit gets applied. In our system, every cost item has a defined unit — square feet, linear feet, cubic yards, hours — and belongs to a cost type — labor, materials, subcontractor, equipment rentals — with its own rules. Every line carries a cost code that maps directly to our accounting system.
That structure is what makes a bid checkable. When everything is one lump sum, there’s nothing to check — and nothing to hold anyone to later.
The margin-versus-markup trap
Here’s a quiet one that skews a lot of bids: margin and markup are not the same number, and plenty of contractors mix them up. A 30% margin — 30% of the selling price — is the same money as a 42.86% markup on cost. A contractor who thinks he’s applying “30%” but applies it as markup when he meant margin is underpricing his own overhead without knowing it. That bid looks great on day one and turns into corner-cutting or change-order pressure by month three. The lowest number on bid day is not automatically the cheapest building.
Where the spread actually comes from
When bids on identical drawings land far apart, the difference usually lives in one of these:
- Unit-level takeoffs versus lump-sum guesses. Measured quantities from the plans, or square-footage rules of thumb.
- What’s excluded. A low bid with thin exclusions language often just moved scope into future change orders.
- How profit is applied. Consistent, deliberate margin by cost type — or a number that “felt right.”
- Whether the estimate connects to anything. Our estimates flow directly into the job budget we manage against and the cost codes our accounting reconciles to. The bid and the build are the same set of numbers.
What to ask when you’re comparing bids
You don’t need to audit anyone’s spreadsheet. Three questions tell you most of what you need to know: Can you show me this broken out by line item with units and quantities? What specifically is excluded? And does this estimate become the budget you actually manage the job against? A contractor with a real system answers all three without flinching. We do — and we teach other contractors to build that same discipline.
Originally shared on Tread Connection — our community for contractors who run their business on JobTread.