Course outline
Building the bid price: contingency, bond cost and profit
Build the price from direct cost: material, labor and job-specific costs, plus a contingency sized to the specific risks you've identified. Then price for a gross margin big enough to cover your overhead and your profit, by dividing that cost by (1 − margin). A common starting point is doubling direct cost — a 50% margin — which leaves about 25% profit when overhead is 25% of revenue. If the job needs a bond, add the bond rate to the divisor.
By Michael Reddy, IntelBid
After this lesson you can
- Build a price from direct cost, contingency and a gross margin
- Size contingency to identified risks instead of padding
- Include bond cost so the final price still hits your margin
How does the price come together?
- Direct materialProducts, setting materials, accessories, freight and tax — from material pricing.
- Direct laborQuantities × production rates × burdened crew cost — from production rates and burdened labor.
- Job-specific costsMobilizations, equipment, dumpsters, parking, protection — from site conditions.
- ContingencyAn amount for specific, identified risks you can't qualify away.
- Gross margin: overhead plus profitPrice for a margin equal to your overhead percentage plus your target profit — see overhead recovery. Doubling direct cost is a 50% margin.
- BondIf the job requires one, include the bond rate in the same divisor as your margin.
Contingency: for named risks, not padding
Contingency covers risks you've identified but can't fully price or exclude — tight phasing, an unfamiliar product, a GC known for slow approvals. List the risks, estimate what each could cost, and carry an amount for them. Don't use contingency to cover things you could exclude in writing, like unknown slab moisture: qualify those instead.
Adding bond cost correctly
Bond premiums are charged on the contract amount — which includes the premium itself and your margin. If you add the bond as a percentage of cost, you undercharge. Put the bond rate into the same divisor as your margin: price = direct cost ÷ (1 − margin − bond rate). Your surety sets the actual rate; get a quote before bid day.
- Direct material (tax and freight included)
- $33,715.50
- Direct labor (burdened)
- $10,100
- Job-specific costs
- $2,400
- Contingency for phasing risk
- $900
- Overhead (share of revenue)
- 25%
- Target profit
- 25%
- Bond rate (example — your surety sets it)
- 1.5% of contract
- Direct cost: $33,715.50 + $10,100 + $2,400 = $46,215.50; with contingency $47,115.50.
- Gross margin needed: 25% overhead + 25% profit = 50% — double the cost.
- Price: $47,115.50 ÷ (1 − 0.50 − 0.015) = $47,115.50 ÷ 0.485 = $97,145.36.
- Check: bond $1,457.18; gross profit $97,145.36 − $47,115.50 − $1,457.18 = $48,572.68 = 50.0%.
- Overhead at 25% of the price: $24,286.34 → profit $24,286.34 = 25%.
For a single scope, the calculator below runs a small version of the same math — burdened labor, material with waste, and your gross margin — down to a unit price. Contingency and bond still belong on the whole-job estimate.
Price one scope
Scope calculatorThe same calculator that's built into IntelBid's proposal and change order builders. Enter the crew days and your material cost — your crew, hours, rates and margin are remembered in this browser.
- Total cost
- $12,511
- Labor $2,560 · material $9,951
- Sell price
- $25,022
- $12,511 gross profit at 50% margin
- Unit price
- $8.34 / SF
- 750 SF per crew-day
In IntelBid this applies straight to a proposal line and remembers the numbers for that scope. Start your free trial
Show the layers on your estimate, one price on the proposal
GCs usually want one lump sum (plus any alternates and unit prices), not your cost and margin. Keep the full breakdown on your internal estimate so you can see exactly what you'd give up in a negotiation — which is the subject of checking your bid price.
What order do you add overhead and profit to a bid?
Add up direct material, labor, job-specific costs and any contingency, then price for a gross margin that covers both overhead and profit: cost ÷ (1 − margin). Overhead isn't added to the cost separately — it's paid out of the margin.
How much should a flooring subcontractor mark up a bid?
A common starting point is doubling direct cost, which is a 50% gross margin. When overhead runs about 25% of revenue, that leaves about 25% profit. The right margin is your own overhead percentage plus the profit you want.
How much contingency should a subcontractor include?
An amount sized to the specific risks you've identified on that job, rather than a fixed percentage. Risks you can exclude or qualify in writing shouldn't be covered by contingency.
How do you add bond cost to a bid?
Because the premium is charged on the contract amount, divide your cost by one minus both your target margin and the bond rate. That way the final price covers the bond and still earns your margin.
Key points
- Price from direct cost plus contingency — overhead comes out of the margin.
- Gross margin = overhead % + profit %; doubling direct cost is 50%.
- Price = cost ÷ (1 − margin − bond rate) keeps your true margin.
Line-level pricing that adds up
IntelBid rounds revenue line by line at your company's Money Precision setting and then totals the lines, so the proposal total always equals the sum of what's printed. Costs and rates stay to the cent. Proposal versions let you keep the price you sent while you re-price a new version.
Try it in IntelBidA 2-minute guided tour on a sample project — nothing touches real data. New to IntelBid? You'll start a free trial first.
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About the author. Michael Reddy builds IntelBid, bid management software for commercial flooring subcontractors. These lessons come from the bid desk: how the work is priced, won and paid for.