GC Estimating: How to Bid Construction Projects and Manage Subcontractor Costs

A general contractor's profit lives or dies in the estimate. Industry data shows that the average GC's actual project costs exceed their original estimate by 10-15%. On a $500,000 project, that is $50,000-75,000 in profit erosion. The contractors who consistently hit their numbers are not lucky. They have systematic estimating processes: detailed takeoffs, disciplined sub-bid collection, proper overhead and profit calculations, and contingency budgets that reflect real-world risk. If you are still estimating by gut feel or copying numbers from your last similar project, you are gambling with every bid.

How to Estimate Construction Projects Accurately

GC estimating starts with the detailed takeoff. Every material, every labor hour, every piece of equipment needs quantification before you assign prices. Work from plans and specifications systematically.

The takeoff process follows CSI divisions or a custom work breakdown structure. Go division by division: sitework, concrete, framing, exterior finishes, roofing, plumbing, electrical, HVAC, interior finishes, specialties. For each division, quantify materials (board feet of lumber, cubic yards of concrete, square feet of drywall) and estimate labor hours using production rates.

Use estimating software (ProEst, Buildertrend, Clear Estimates, or even a well-built spreadsheet) rather than handwritten takeoffs. Software reduces math errors and creates a traceable record for change orders. A $200 per month subscription pays for itself on your first project.

Production rates are critical for labor estimation. An experienced framing crew installs 500-700 board feet of wall framing per day. A drywall crew hangs 1,500-2,000 sq ft of board per day and finishes 800-1,200 sq ft per day. A paint crew covers 1,500-2,500 sq ft per day (one coat). Build a database of your actual production rates from completed projects and update it continuously.

Subcontractor Bid Collection and Markup

On most commercial and residential projects over $100,000, GCs self-perform 20-40% of the work and subcontract the rest. Your sub-bid process directly affects your competitiveness and profitability.

Collect at least 3 bids for each major trade (plumbing, electrical, HVAC, roofing). Provide identical scopes of work to each sub so bids are comparable. Specify what is included and excluded. A plumbing bid that includes fixtures is not comparable to one that excludes them.

Markup on subcontractor costs typically runs 10-20%. A 10% markup is competitive for straightforward work with reliable subs. Use 15-20% for complex scopes, difficult site conditions, or subs you have not worked with before. On a $45,000 electrical sub-bid, a 15% markup adds $6,750 for your coordination, scheduling, quality oversight, and risk.

Verify sub-bid coverage. The most common GC estimating error is gaps between sub scopes. Your framing sub excludes hardware. Your drywall sub excludes backing for TV mounts. Your tile sub excludes waterproofing. List every exclusion from every sub-bid and make sure someone is covering each item, whether that is you, another sub, or the owner.

Materials, Labor, and Overhead: Building Your Estimate

General conditions cover your project-level overhead: project superintendent time, temporary facilities (portable toilets, dumpsters, temp power), project insurance, safety equipment, and project-specific administrative costs. Budget 8-12% of total project cost for general conditions. A $400,000 project should carry $32,000-48,000 in general conditions.

Break down general conditions by item:

Superintendent: $1,200-2,000 per week for project duration
Dumpsters: $500-800 per month
Portable toilet: $150-250 per month
Temporary power: $300-600 per month
Safety supplies and signage: $500-1,500 per project
Project insurance (builder's risk): 0.5-1.5% of project value
Permit fees: varies, typically 1-3% of project value

Company overhead is separate from general conditions. This includes your office rent, admin staff, vehicles, insurance (GL, umbrella, professional liability), marketing, accounting, legal, and technology. Calculate your annual overhead and divide by your annual revenue capacity to get your overhead rate. Most GCs run 8-15% company overhead.

Profit is what you earn for taking the risk and managing the project. Add profit as a percentage on top of all costs including general conditions and overhead. Target 8-15% profit on most projects. Competitive bid situations might force 5-8%. Negotiated contracts with established clients can support 12-18%.

Your total markup stack: direct costs + sub markup (10-20%) + general conditions (8-12%) + overhead (8-15%) + profit (8-15%) = your bid price.

What Markup and Margin Should You Use?

The total GC markup on a project (including general conditions, overhead, and profit) typically ranges from 25-45% above direct costs. Here is how that breaks down on a project with $300,000 in direct costs (labor, materials, subs):

General conditions: $30,000 (10%)
Company overhead: $33,000 (10% of running total)
Profit: $36,300 (10% of running total)
Total bid: $399,300 (33% total markup)

Your net profit margin after all costs should target 8-12% on completed projects. GCs who consistently net below 5% are one bad project away from insolvency. Those above 15% net are either highly specialized or working in a seller's market.

Writing Proposals That Win the Job

Bid format matters. For public and commercial work, follow the prescribed bid format exactly. Missing a form or failing to acknowledge an addendum gets you disqualified regardless of your price.

For private/residential work, structure your proposal with these sections:

Scope of work (detailed description of what is included)
Exclusions (what is NOT included, be thorough)
Allowances (specify dollar amounts for owner selections: fixtures, appliances, finishes)
Schedule (start date, milestones, substantial completion, final completion)
Payment terms
Contract terms (warranty, change order process, dispute resolution)

AIA contract format (A101, A201) is industry standard for larger projects. For residential remodeling, use a simpler fixed-price contract with clear change order language. Every change order should be priced and approved in writing before work begins. Verbal change orders are how GCs lose money.

Payment schedule for residential: 10% deposit, progress payments tied to milestones (foundation complete, framing complete, rough-ins complete, drywall complete, finish work complete), 10% retention held until final punch list completion. For commercial: monthly progress billing based on percentage complete, with 5-10% retention.

Common Estimating Mistakes (and How to Avoid Them)

Using old pricing. Material prices shift quarterly. Lumber that cost $5.50 per board foot six months ago might be $7.25 today. Get current pricing for every estimate. Call your suppliers or check current price sheets.

Inadequate contingency. Budget 5-10% contingency for new construction and 10-15% for remodeling. Remodeling always uncovers surprises behind walls, under floors, and above ceilings. A $200,000 remodel with zero contingency is a guaranteed money-loser.

Not pricing change order management. Change orders consume superintendent time, require re-estimating, disrupt schedules, and create coordination overhead. Price change orders at a higher markup (20-30%) than original scope work. This discourages frivolous changes and compensates you for the disruption.

Ignoring bonding costs. Performance and payment bonds typically cost 1-3% of contract value. If a project requires bonding, include this cost in your bid. A $1,000,000 project with a 2% bond premium adds $20,000 to your costs.

Bidding too many projects. Every bid costs you $2,000-10,000 in estimating time and resources. If your hit rate is below 15%, you are wasting money on bids. Focus on projects where you have a competitive advantage, an established relationship, or inside knowledge of the client's priorities.

When to Walk Away from a Bid

Walk away when the owner has unrealistic budget expectations that no amount of value engineering can meet. Walk away when the plans are incomplete or the specifications are vague and the owner will not pay for proper design. Walk away when the payment terms are unfavorable (net-90, heavy retention, no progress payments). Walk away when you are the fifth GC bidding and you have no relationship with the owner. That project is being shopped purely on price, and the winner will probably wish they had not won. Finally, walk away when the project requires bonding or licensing you do not have and the timeline does not allow you to obtain it.

Frequently Asked Questions

What percentage should a general contractor charge?

Total GC markup typically ranges from 25-45% above direct costs. This includes general conditions (8-12%), company overhead (8-15%), and profit (8-15%). The exact percentage depends on project type, complexity, market conditions, and your competitive position.

How do I handle subcontractor price increases after I have bid?

Lock in sub-pricing with a defined expiration date (typically 30-60 days). Include escalation clauses in your prime contract for projects with long lead times. If a sub raises their price after your bid, you either absorb the increase, negotiate with the sub, or issue a change order to the owner if your contract includes an escalation provision.

Should GCs charge for estimates?

For projects under $50,000, free estimates are standard. For projects $50,000-200,000, a $500-1,500 pre-construction fee is reasonable and filters serious clients. For projects over $200,000, charge a pre-construction fee of 0.5-1% of estimated project cost, credited if you are awarded the contract. This covers your real estimating costs and signals the client's commitment.

What is the difference between markup and margin?

Markup is the percentage added to cost. Margin is the percentage of the selling price that is profit. A 20% markup on $100,000 in costs yields a $120,000 price. But the margin is only 16.7% ($20,000 / $120,000). Always know which metric you are discussing. Most GCs think in markup but should track margin for financial health.

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