Poerio Inc. | Industry Basics | Cost Management
When you receive a construction estimate, it can feel like reading a foreign language. Line items, allowances, contingencies, general conditions, overhead and profit — it’s a lot to take in, especially if you haven’t been through the process before. Here’s a guide to understanding what you’re looking at and knowing which questions to ask.
The Basic Structure
A good construction estimate breaks the project down by trade or by area. You’ll typically see line items for site work, concrete and foundations, structural framing, roofing, exterior walls, interior finishes, mechanical (HVAC), plumbing, electrical, fire protection, and so on. Each line item should give you a clear picture of what’s included.
Allowances
An allowance is a placeholder dollar amount for work that hasn’t been fully defined yet. For example, if you haven’t selected your flooring material, the estimate might include a $5-per-square-foot allowance for flooring. The actual cost will be reconciled once you make your selection. Allowances aren’t a problem — they’re normal in early-stage estimates — but you should understand that those numbers will change as decisions are made.
Contingency
A contingency is a percentage added to the estimate to account for unknowns and unexpected conditions. On a new construction project, a 3–5% contingency is typical. On a renovation, where hidden conditions are more common, 5–10% or more may be appropriate. Don’t view contingency as padding — it’s risk management. A contractor who doesn’t include contingency is either underestimating the risk or planning to make it up through change orders.
General Conditions
General conditions cover the cost of managing the project — the project manager, superintendent, temporary facilities, dumpsters, project insurance, and similar items. These aren’t trade costs; they’re the infrastructure needed to run the job. On most commercial projects, general conditions run 6–10% of the project cost.
Overhead and Profit
This is the contractor’s fee for running the business and generating a return. It covers the home office, administrative staff, estimators, accounting, insurance, and the contractor’s profit margin. A typical range is 5–10% combined. Be cautious of estimates where this seems unusually low — contractors who don’t build in a fair fee often make it up elsewhere.
What to Watch Out For
Be wary of estimates that are dramatically lower than others. In construction, you generally get what you pay for. A low estimate may mean the contractor is excluding scope, underestimating quantities, or planning on change orders. Ask clarifying questions, and don’t be afraid to go line-by-line to compare bids.
At Poerio, we take pride in transparent, detailed estimates. We’d rather explain every dollar up front than surprise you later. If you’ve received an estimate and want a second opinion, we’re happy to review it with you.
————————————————————