The terms “estimate”, “quote”, and “bid” are often used interchangeably in everyday conversations. But in construction, these pricing models have distinct differences between them. 

While the precise definitions can vary, here are some general distinctions: 

Estimates 

An estimate is an approximate calculation of the potential costs associated with a project. It’s a quick and good starting point; It’s general and rough, based on the specifications presented and sometimes includes rough timelines and / or a competition date. An estimate is not a binding agreement and is subject to change as more detailed information becomes available.

Quote and Contract 

A quote is a more detailed, precise and formal document compared to an estimate. It provides specific details about the work to be performed, materials to be used, timelines, and a fixed price for the project. The suppliers quote their pricing for the Contractor, who then includes them in their quote, specifying each item and the validity period of 30, 60, 90 days (depending on the current market).

A quote is considered more binding than an estimate and typically requires the contractor (or other professional) to honor the stated price if accepted in writing by the client.

Bids

Bids are often sought for larger or public projects between Contractors and Developers, but are also used in insurance situations between homeowners and the insurance company, where multiple contractors compete for the work. 

A bid includes a detailed breakdown of the project scope, materials, labor costs, timelines, and the total proposed price. They are usually sealed and submitted to the project owner or their representative, and the contract is typically awarded to the lowest responsible bidder who meets the project requirements. 

Bids are a firm offer with no gray areas, and usually padded for unforeseen costs. Should the project come in under the estimated price, the contracting company gets to keep the remaining amount. But, if the project comes in over budget, the contracting company will have to pay that amount out of pocket. For insurance purposes, read the fine print whether the contracting company will pay out of pocket or if it is the responsibility of the homeowner. 

This is not recommended for your standard residential construction. For insurance purposes, you must weigh the pros and cons between taking the bid price or a buyout.

It's crucial to discuss pricing details with your contractor to prevent any confusion or future misunderstandings.