The term ‘estimate’ is typically used in relation to the approximate costs associated with a construction project. The estimate is used to assess the entire viability of the project. The estimate must try and achieve as much accuracy as possible in terms of predicting the expenditures of a project, although the accuracy can only be measured once the project is completed and the actual costs have been accumulated.
A construction general contractor or subcontractor must normally prepare definitive cost estimates to prepare bids in the construction bidding process to compete for award of the contract. The pre-tender estimate (PTE) is the final estimate of the likely cost of the works that are described in completed tender documents prepared to seek tenders (offers) from prospective suppliers.
When trying to estimate costs, estimators often use benchmarking, which is a process by which other similar projects are used as comparisons. This can highlight areas of design that are not offering good value for money and can help in the assessment of tenders from suppliers and contractors.
When estimating, contingencies are typically included. These are downside risk estimates that make allowance for the unknown risks associated with a project. Typically, contingencies refer to costs, and are amounts that are held in reserve to deal with unforeseen circumstances. At the preliminary business plan stage, total cost estimates might include a 15% contingency.
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