Construction Cost Estimates: Why the First Number Is Never the Last
Updated: Sep 20
An owner asks what a project will cost. Someone gives a number. Six months later the number is different, and the conversation turns tense. Almost every time, the problem is not that anybody was wrong. It is that nobody explained what kind of number it was.
Construction cost estimates are not a single thing. They are a series of progressively more accurate answers to progressively better-defined questions, and their accuracy is a function of how much is actually known when they are produced.
What a construction cost estimate is actually made of
Every estimate has three components, and only one of them is really about prices.
The first is quantities: how much of everything there is. The second is unit rates: what those quantities cost to buy and install today, in this market, with these trades. The third is allowances and contingency: a placeholder for everything not yet designed or not yet knowable.
Early in a project, the quantities are assumptions, the rates are historical, and the third component is doing most of the work. Late in a project, the quantities are measured, the rates are quoted, and the third component shrinks. That is the whole story of why the number moves.
The five stages a number passes through
Order of magnitude
A cost per square foot, built from comparable projects. Useful for deciding whether to proceed at all. Realistically accurate to somewhere in the range of plus or minus thirty per cent, and anyone who tells you otherwise is selling something.
Concept estimate
Built from a schematic layout and stated performance requirements. Accuracy improves to roughly plus or minus twenty per cent. This is usually the first number an owner treats as real, and it is the one most often quoted back later as a promise.
Design development estimate
Systems are chosen, the envelope is defined, major equipment is identified. Plus or minus ten to fifteen per cent is achievable. This is the honest moment to test whether the project still works financially.
Pre-tender estimate
Drawings are nearly complete and quantities can be measured. Plus or minus five to ten per cent, and the gap between this and the tender result tells you a great deal about how hot the market is.
Tender or contract price
Actual prices from actual trades who intend to do the work. This is not an estimate. It is an offer, and it comes with exclusions that deserve as much attention as the number itself.
Why the number moves between stages
Four causes account for nearly all of it. Scope grows, because design resolves detail that was never priced at concept. The market moves, because labour availability, material pricing and trade appetite all change month to month. Requirements harden, because a performance target that was aspirational at concept becomes a specified system at tender. And existing conditions reveal themselves, because a building only tells you the truth once you open it.
None of those is dishonesty. All of them are predictable, which is why an experienced advisor prices them as risk rather than pretending they do not exist.
The questions to ask about any estimate you are handed
What stage of design is this based on? Concept, design development or tender-ready.
What accuracy range does the preparer stand behind? A number without a range is not an estimate, it is a guess wearing a suit.
What is excluded? Permits, development charges, furniture, technology, signage, consultant fees, financing, taxes.
What escalation is carried, and to what date? An estimate priced in today's dollars for a tender fifteen months away is understated by whatever the market does in between.
What allowances are in here, and how were they set? An allowance nobody can explain is a number somebody made up.
What contingency is included, and who controls it?
How to make your own number more reliable
Spend on investigation before you spend on design. Define performance requirements rather than products, so the team can value-engineer without gutting the outcome. Get a second opinion on the estimate at design development, when there is still time to act on it. Track the estimate as a living document with a version history rather than a series of unconnected PDFs. And build your funding approval around a range with a stated confidence level, not a single figure that will be quoted back at you for the next two years.
The honest summary
A construction cost estimate is a statement about how much is known, not a promise about what will be spent. The number moves because knowledge improves. The owners who stay in control are the ones who ask what stage the number represents, what it excludes, and what has to be true for it to hold, and who plan around a range rather than a point.
Common questions about construction cost estimates
How accurate is a construction cost estimate?
It depends entirely on the stage. A cost per square foot built from comparables is useful only for deciding whether to proceed. A schematic estimate lands around plus or minus twenty per cent, design development ten to fifteen, and a tender-ready estimate five to ten.
Why does the estimate keep changing?
Four causes account for nearly all of it: scope grows as design resolves detail nobody priced at concept, the market moves, escalation runs against the calendar, and unknowns get discovered. None of that is dishonesty, and all of it is predictable enough to price as risk.
What should I ask about any estimate I am handed?
What stage of design it is based on, what accuracy range the preparer stands behind, what is excluded, what escalation is carried and to what date, and how the allowances were set. A number without a range is not an estimate.
What is normally excluded from a construction estimate?
Permits, development charges, furniture, technology, signage, consultant fees, financing and taxes are all commonly outside the construction number, and all of them are real money.
If you have a number in front of you and you are not sure what it is really telling you, that is worth a second set of eyes. You can see how I work with owners and project partners on project solutions.
This article is general information about commercial construction practice in Canada, not legal or financial advice. Have your own advisors review your numbers.
Connect with Carolee on LinkedIn: linkedin.com/in/carolee-w-turner-2002417
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