How to Price a Commercial Construction Job

Pricing commercial construction work is fundamentally different to domestic. The stakes are higher, the procurement process is more formal, and the factors that determine your margin are more complex. Get it right and commercial work can be highly profitable. Get it wrong and you can lose significant money on a single contract.

This guide covers the key principles and process for pricing commercial construction jobs accurately.

Understand the Procurement Route First

Before you price anything, understand how this job is being procured:

Single-stage tender – you price once, against a bill of quantities or specification. Your price is evaluated against competitors. The lowest credible bid typically wins.

Two-stage tender – selected contractors price the preliminaries and a sample of works in stage one. The successful contractor then works collaboratively with the client to develop the full price. Less price competition, more relationship.

Negotiated contract – you’re invited to price based on an existing relationship or direct appointment. Typically the best margin opportunity.

Framework – you’ve been appointed to a framework agreement and are pricing individual call-off contracts within agreed rates.

Each route requires a different approach. Single-stage tenders require tight, competitive pricing. Negotiated work allows more margin.

The Components of a Commercial Construction Price

1. Direct Costs (Labour and Materials)
Price every trade, every material. Use current market rates – don’t rely on rates from jobs priced six months ago. Material prices change; labour rates change. A bill of quantities (provided by the client) structures this process. If there’s no BoQ, you’ll need to take off quantities from drawings.

2. Subcontractor Costs
For work you’ll subcontract, get firm quotes from subbies before submitting your price. Don’t estimate subcontractor costs on a hunch – call three companies per trade and use actual numbers.

3. Preliminaries
Prelims are the cost of running the site that aren’t attributable to specific work activities:
– Site management (your time, a site manager’s time)
– Temporary site establishment (hoarding, site cabins, welfare facilities)
– Plant (scaffold, tower crane, hoists)
– Health and safety (signage, barriers, PPE provision)
– Programme supervision
– Insurance, bonds and warranties
– Cleaning

Prelims are frequently underestimated – particularly by businesses new to commercial work. On a typical project they represent 10-20% of the total contract value.

4. Overheads and Profit
Add your business overhead percentage (the cost of running your head office, management not on site, etc.) and your required profit margin. Typical commercial construction margins:
– Subcontractors: 10-20% net margin
– Main contractors: 3-8% net margin (much tighter due to risk)

5. Contingency
Commercial contracts carry risk. Price an appropriate contingency – typically 2-5% on well-defined projects, higher on complex or less certain scope.

Pricing for Risk

Commercial construction involves specific risks that domestic work doesn’t. Price these explicitly:

Ground conditions – if you’re doing groundworks on a site with uncertain ground conditions, include a provisional sum or a specific risk allowance.

Existing structure – refurbishment of existing buildings always has unknowns. Build in contingency or use provisional sums for high-risk elements.

Programme risk – if your price includes a programme assumption (X weeks on site), price what happens if that changes due to client delays or third-party factors.

Retention – factor in the cost of 3-5% of your interim payments being held for 12+ months. This is a real cash cost.

Payment terms – commercial clients typically pay 30-60 days after certification. Your financing cost of working capital is real. Factor it in.

Building Your Pricing System

Professional commercial pricing uses:

Estimating software – tools like Causeway Estimating, Buildsoft or HBXL BuildingRegs handle quantity take-off, pricing databases and tender documents. Expensive for small businesses but increasingly justified as you win larger work.

Price books – BCIS (Building Cost Information Service) publishes UK construction cost data. Useful for benchmarking and sense-checking prices.

Your own cost data – the most valuable pricing resource is your own records of what jobs actually cost versus what you priced them at. Build this database with every job.

Frequently Asked Questions

What’s the difference between a bill of quantities and a specification?
A bill of quantities (BoQ) itemises every work element with quantities and units – you apply rates to the quantities to get a price. A specification describes the standard of work and materials but doesn’t quantify them – you must take off your own quantities from drawings.

How do I price a job if I don’t have a QS?
For smaller commercial jobs (under £100,000), experienced contractors can price from drawings without a QS. For larger work, consider using a freelance QS to price the tender – the cost is usually recoverable in better margin on the job.

What margin should I put on commercial work?
As a subcontractor, 15-20% on labour and materials plus overhead recovery is reasonable. As a main contractor, net margins are lower (3-8%) but the contract value is higher. Don’t price to win – price to make money.

How do I handle VAT on commercial construction?
Construction VAT is complex. New residential builds are zero-rated. Commercial work is usually standard rated at 20%. The domestic reverse charge applies to VAT-registered subcontractors working for VAT-registered contractors – the main contractor accounts for the VAT rather than the subcontractor charging it. Get specialist advice before pricing commercial work if you’re unsure.

CoreQuote helps construction businesses build professional quotes and track approvals. Try free for 6 months at kwowta.com

Related reading:

• How to Write a Quote That Wins the Job (With Free Template)
• How to Follow Up a Quote Without Being Pushy
• How to Ask for a Deposit Without Losing the Job
• How to Write Terms and Conditions for a Construction Quote

Want to quote faster? CoreQuote is a free quoting app built specifically for UK trades businesses — create professional quotes in seconds, get digital sign-off from customers, and convert to invoices with one tap.