This article was published in the January 2010 Edition (No. 82) of Perimeter Systems – The UK Fencing Industry’s Premier Publication.
By Anna-Liisa Walden
Whilst it is not uncommon to come across the words “quote” or “quotation” and “estimate” being used interchangeably in the construction industry (sometimes even in the same pricing documents) there are significant differences between these.
Back to Basics
Whilst there is nothing wrong with initial discussions, an “offer” (be that an estimate or quotation) should always be set out in writing. For a contract to come into existence, there also needs to be “acceptance”, ideally in writing (for instance, by signing and returning the estimate or quotation).
Finally, there needs to be “consideration” (e.g. works will be undertaken and payment will be made).
A quotation is a fixed price offer to undertake works for a fixed amount. A quotation should specify the scope of the works and what it covers precisely to avoid having to carry out more work than anticipated at the time the quote was provided, at no extra charge. By clearly defining the scope of the quotation variations outside the quotation will be subject to additional charges (which in turn should be pre-agreed, quoted for and recorded in writing). If using quotations make sure these clearly state what is and what is not covered. Otherwise you may end up doing a lot more work but for no more money.
An estimate on the other hand is no more than an educated guess as to the price that the works may cost. In other words it is a rough estimate of the cost of the works. Unlike a quotation it is not a fixed price contract but rather a budget estimate of cost. The figure stated within the estimate is not binding and may be increased due to unforeseen developments. However, my advice, when using estimates, is that if changes arise and the cost of the estimate increases, get these pre-agreed, with further estimates as to the additional costs and recorded in writing.
In both instances, remember to include time limits for their acceptance.
On larger projects, ask yourself whether a quotation or an estimate is sufficient to include the necessary contract terms setting out the basis for the works and the agreement of the parties – at the outset. Sometimes standard forms of contract, whilst not perfect, provide better protection by containing more of the minimum provisions necessary to avoid disputes later down the line.
Whilst it is established law that there is a difference between estimate and quotations, recent cases highlight their long misunderstood and important distinction.
Be ahead of the game – know the difference – and get the right contract document out.