Most project losses do not start on site. They start on the estimator’s desk weeks before award: an optimistic output rate, a supplier quote that quietly excludes hoisting and scaffolding, or a profit percentage calculated the wrong way round. This guide walks through how a tender price is built from a priced BOQ — the unit rate build-up, site and head-office overheads, risk, quotes and the bid/no-bid call — and why the estimate itself has to become the project budget after award.
Key takeaways
- A unit rate is built from labour, plant, materials with wastage and subcontract quotes — each backed by an output or a quantity you can defend.
- Site overheads (preliminaries) and head-office overhead and profit are different things; lumping them together hides what the job really costs.
- A 15% markup on cost is only a 13.04% margin on price — on a SAR 10 million job the gap is over SAR 260,000.
- A quote cannot be compared with another until it has been levelled: same scope, same exclusions, same payment terms.
- An estimate that does not become the budget after award leaves every later cost report with nothing to compare against.
The estimate is a cost; the tender is a decision
Two words get used interchangeably and should not be. Estimating is engineering: what will it cost us to build this scope with the resources we have, at the outputs our crews actually achieve. The tender price is a commercial decision management takes on top of that estimate: how much to add for overhead and profit, how much risk to carry in the price, and whether we want this job at all.
Keeping the two steps apart is not bureaucracy. When an estimator nudges labour output upwards to reach a “competitive” number, management loses the knowledge that it has accepted a thinner margin; everyone believes the cost is low when what is low is the estimate. The cost is estimated honestly by the technical team, and any discount is a management decision, made openly, on its own line.
Unit rate build-up: a cubic metre of concrete
A unit rate build-up is the documented answer to “why is this item at this rate?”. The example below is a pumped ready-mix slab pour, excluding reinforcement and formwork, which are separate BOQ items. The figures are illustrative; the method is the point.
| Component | Basis | Cost per m³ |
|---|---|---|
| Ready-mix concrete | SAR 290/m³ × (1 + 4% wastage) | SAR 301.60 |
| Curing compound and sundries | Allowance per m³ | SAR 6.00 |
| Labour | Gang SAR 1,650/day ÷ 40 m³/day | SAR 41.25 |
| Plant | Pump and vibrators SAR 2,520/day ÷ 40 m³/day | SAR 63.00 |
| Total direct cost | — | SAR 411.85 |
Labour: a gang and an output, not a rate per m³
Start from the real gang: a foreman (SAR 350/day), six labourers (SAR 180 each) and a vibrator operator (SAR 220) — SAR 1,650 a day. Then divide by the daily output your own sites have achieved on similar work, not by what the pump brochure promises.
Plant: paid for whether it works or waits
The pump is hired by the day or the visit whether it places 40 m³ or 15. If the job is a string of small, scattered slabs, the realistic output is lower and the cost per m³ is far above the figure in the table.
Materials: price plus wastage
Wastage is not a random safety margin; it is a known ratio from your own records — truck residue, level tolerances, the over-order at the end of a pour. The 4% here might be 2% on regular foundations and 7% on small, broken-up work.
Subcontracts: the levelled quote, plus what it leaves you
If the item goes to a subcontractor, the rate is the levelled quote plus everything the quote excludes and leaves with you: hoisting, water, power, security, scaffolding.
Keep this build-up with the tender file. After award you will need it twice: when you monitor the item’s actual cost, and when you are pricing variations against contract rates and the consultant asks you to break down the rate you submitted.
Overheads and profit: markup is not margin
Above direct cost sit two quite different layers. The first is site overheads — the preliminaries: the project’s site staff, temporary offices, temporary power and water, insurances, security and transport, all of which scale with the duration of the job rather than its quantities. The second is head-office overhead and profit: the main office, senior management, procurement and accounts, and then the return the company wants on its capital and its risk.
The arithmetic almost everyone gets wrong
When the managing director says “we want 15%”, the question is: 15% of what? Markup is calculated on cost; margin is calculated on selling price. The relationship is fixed: margin = markup ÷ (1 + markup), and markup = margin ÷ (1 − margin).
| 15% markup on cost | 15% margin on price | |
|---|---|---|
| Cost | 10,000,000 | 10,000,000 |
| Profit | 1,500,000 | 1,764,706 |
| Tender price | 11,500,000 | 11,764,706 |
| Actual margin on price | 13.04% | 15.00% |
| Actual markup on cost | 15.00% | 17.65% |
The gap between the two columns is SAR 264,706 on a single job. If the business plan assumes a 15% margin on revenue and the estimator added 15% to cost, the shortfall exists on the day you submit — before anything goes wrong on site.
Provisional sums, risk and front-loading
Provisional sums are set by the employer in the tender documents for work not yet defined, and the contractor carries them at the stated amount. Do not confuse them with your own risk allowance: the first belongs to the employer and is adjusted to actual cost, the second is your decision to cover what the contract makes you carry. Whether you may add overhead and profit to provisional sums depends on the contract conditions — read them rather than assume.
| Line | Basis | Amount |
|---|---|---|
| Direct cost of measured items | Sum of unit rate build-ups | 8,400,000 |
| Site overheads (preliminaries) | Priced per month for the duration | 1,100,000 |
| Risk allowance | 2% of 9,500,000 | 190,000 |
| Head-office overhead and profit | 10% markup on 9,690,000 | 969,000 |
| Provisional sums | As stated in the tender documents | 500,000 |
| Tender price | — | 11,159,000 |
A risk allowance should not be a habitual percentage. List the risks and price each one: if you judge a 30% chance of hitting rock in the excavation with an impact of SAR 400,000, its expected value is SAR 120,000. Then decide: price it, qualify it in the tender, or raise a clarification before close. A qualification can make a bid non-compliant under some tender rules, so know the rules first.
Front-loading: a cash gain with a hidden price
Front-loading means inflating early items and depressing late ones while the total stays the same. Example: 5,000 m³ of excavation at a fair SAR 40 and 20,000 m² of painting at SAR 30 — SAR 800,000 in total. Price the excavation at SAR 64 and the painting becomes (800,000 − 320,000) ÷ 20,000 = SAR 24, and you collect an extra SAR 120,000 in the first months, which helps your cash flow and early payment applications.
Supplier and subcontractor quotes: level them before you compare
On most tenders a large share of the direct cost comes from outside prices: ready-mix, rebar, MEP, waterproofing, aluminium. Send one request for quotation with the same scope, the same quantities and the same specification to every supplier, and ask them to price against your BOQ items rather than as a lump sum.
| Quote | Headline | Excluded and left with you | Levelled |
|---|---|---|---|
| A | 1,180,000 | Scaffolding 45,000 + hoisting 30,000 | 1,255,000 |
| B | 1,240,000 | None | 1,240,000 |
| C | 1,150,000 | Scaffolding + hoisting + lintels 60,000 | 1,285,000 |
The cheapest headline is the most expensive levelled price. Levelling also covers quote validity (does it outlast the tender evaluation period?), payment terms, advance payment, whether VAT is included and the currency. It is the same discipline you will need again when comparing subcontract bids line by line before award.
- Never price a major item on a single quote; three comparable quotes is a sensible minimum.
- Record in the tender file which quote each item is priced on, so procurement can start from it after award.
- A quote that expires before the expected award date is an assumption, not a price — price the risk that it rises.
Bid or no bid: not every tender deserves pricing
Pricing a serious tender burns weeks of estimating and engineering time, plus quotes from suppliers you will want to ask again next time. So the bid/no-bid decision belongs before pricing, not after, and it rests on specific questions:
- Do we have proven experience of this type and size of project, or will we be pricing outputs we have never achieved?
- Do we have the site team and the cash for the expected construction period, alongside current jobs?
- Are the contract terms acceptable: delay damages, retention, payment periods, risk allocation?
- Who are the employer and the consultant, and what is their record on paying and approving variations?
- How many competitors are expected, and do we have a real edge — a nearby site, idle plant, a relationship with the employer?
- Are the tender documents complete enough to price, or will their gaps turn into contractor risk?
After award: the estimate becomes the budget
The most dangerous moment in an estimate’s life is the day of award, when the tender file is closed and the delivery team starts its own budget from scratch. From then on every cost report compares actuals against a number the job was never priced on, and nobody can tell whether a variance is a delivery problem or a pricing one.
Turn the build-ups into item budgets
Each item’s direct cost — not its sell rate — becomes its budget, split into labour, plant, materials and subcontract. That is what lets you compare actual cost per unit with the estimate, as in this concrete example of rate vs cost.
Preliminaries become a monthly budget
What was priced per month is monitored per month. An extra month on site shows up as a variance straight away, not as a surprise in the final account.
Keep the risk allowance on its own line
Do not spread it across the items. When a risk materialises, draw from the allowance with a recorded decision, so it is always clear how much is left.
Measure performance against it
A baseline taken from the estimate is what makes earned value and its performance indices meaningful: the cost performance index compares actual cost with the estimated cost of the work done, and any other budget turns it into a measure of something else.
In muqawil, the priced BOQ — unit rates and line totals that roll up — stays with the project after award: progress recorded against its lines drives earned value, while budget lines (set from your direct-cost estimate) and approved expenses carry the cost side. muqawil has no take-off or estimating module, so the build-ups themselves stay in your estimating file, but the number you priced on stays where it can be compared with what is actually being spent.
Frequently asked questions
What is the difference between markup and margin in construction?
Markup is calculated on cost; margin is calculated on selling price. A 15% markup on a SAR 10 million cost gives a SAR 11.5 million price and only a 13.04% margin, whereas a 15% margin needs a price of about SAR 11.76 million — a 17.65% markup on cost.
How do I set the wastage allowance in a unit rate build-up?
From your own project records: compare the quantity actually purchased with the approved installed quantity for each material. The ratio depends on the work; large regular pours waste less than small broken-up work, so do not use one figure for every item.
Should overhead and profit be added to provisional sums?
It depends on the contract conditions and the tender documents. Some ask for the provisional sum to be carried as stated with a separate line for overhead and profit on it; others do not. Read the conditions rather than assume, because the provisional sum is adjusted to actual cost during the works.
How many quotes do I need before pricing an item?
Three comparable quotes for the major items is a sensible minimum. More important than the count is levelling them: same scope, same exclusions, same payment terms and validity — otherwise you are comparing numbers that do not describe the same thing.
Why should the project budget be the tender estimate itself?
Because the purpose of cost control is to know whether the job is being built for what it was priced at. If the delivery team starts a fresh budget, you cannot tell whether a variance comes from site performance or from a pricing error, and you learn nothing for your next tender.
Control the job against the number you priced
In muqawil your priced BOQ stays with the project after award and measures progress against your budget lines, supplier quotes on an RFQ sit side by side and are awarded straight into a purchase order, and subcontract packages are tendered as bid packages — in Arabic and English.