How to include subcontractor costs in a fixed price quote

Subcontractor costs in a fixed price quote: where to start#

To include subcontractor costs in a fixed price quote, compare the same work before adding your own delivery costs and target margin. A supplier total is only one part of your price.

Two electrical quotes can cover different jobs. One includes testing but excludes access equipment. Another includes access but leaves testing to you. Adding the same percentage to each total does not make them comparable.

If the client's requirements remain unclear, use the guide to quoting a job with an incomplete brief first. This method starts after you have defined the work you intend to price.

Identify who supplies each part of that work before you calculate the costs you must cover in your own role as the main contractor.

What must each supplier quote cover?#

Give each supplier the same drawing revision and scope schedule. Record the work quantity beside the required finish or performance. Ask for explicit inclusions and exclusions. Silence is not confirmation.

Check the planned installation dates against the supplier's availability. Record the quote reference, issue date and validity date. If a price expires before your decision, ask the supplier to confirm it again rather than assume it still applies.

Keep a short record for each package:

• What the supplier confirms it will provide, including testing and handover documents.
• What the supplier excludes, with a named party to provide each missing item.
• What you will provide, such as access equipment or waste removal.
• Which scope details or prices still need an answer, with a review date.

Use the same VAT treatment throughout the comparison. The invented example below excludes VAT from every amount. It demonstrates pricing arithmetic, not VAT treatment for your business. Get appropriate tax advice for your circumstances.

RICS describes adjustments for omissions and qualifications in tender comparisons, including rates inserted for comparison purposes. See section 3.3.2 of its construction commercial management guidance. This guidance has an Australian context; the example below uses its comparison principle, not its local contract rules.

Compare the missing work before choosing a supplier#

Consider an electrical package within a small commercial fit-out. All project details and figures in this worked example are invented. They are not benchmarks.

Both suppliers confirm installation to the same drawings. Supplier A quotes £18,000 and excludes access equipment and testing. Supplier B quotes £19,000, includes access equipment, but excludes the final test visit.

Your estimator adds missing-scope amounts for comparison. These are internal estimates, not extra prices offered by either supplier.

Comparison item, excluding VAT	Supplier A	Supplier B
Supplier's confirmed quote for its stated scope	£18,000	£19,000
Internal estimate for excluded access equipment	£1,200	£0: included
Internal estimate for excluded testing work	£800	£400
Comparable package cost for internal review	£20,000	£19,400

The adjustments differ because the omissions differ. Supplier A leaves all testing outside its quote. Supplier B includes the installation checks but excludes a separate final visit. The estimator prices those different tasks separately.

Supplier B now has the lower comparable cost. Its confirmed quote remains £19,000, while the £400 is your estimate for a known task that someone else must supply. It is not a supplier commitment.

Before choosing B, check that its included access equipment suits the site. Confirm that someone can perform the final visit within the planned installation period. If the visit's price remains unconfirmed, label the £400 accordingly and assign someone to obtain it.

Do not turn the comparison total into a purchase instruction. Keep the original supplier quote beside the internal comparison. Replace an internal estimate when a confirmed price arrives, rather than adding both.

Separate known missing work from uncertain risk#

Known missing work belongs in the base cost. The final test visit will be needed, so its estimated £400 is not contingency. An uncertain price does not make the task optional.

Contingency covers an uncertain event or cost beyond that base estimate. Name the event and explain the amount. If testing may require a repeat visit after another trade causes damage, assess that separately from the planned visit.

For this invented job, allow £1,000 for possible extra installation time around concealed obstructions. Allow £500 for possible additional supervision if access hours change. Neither event is included in the base costs below.

Check for risk already priced by the supplier. Do not add your own reserve for the same cost unless you retain a separate exposure. Likewise, do not put routine coordination into contingency merely because it is hard to estimate.

The US Government Accountability Office includes assumptions, risk analysis and estimate updates in its Cost Estimating and Assessment Guide. Its focus is government programmes, not small contractor quotations. The useful discipline here is to document the estimate's basis and revise it when evidence changes.

Build one cost-to-selling-price calculation#

Use Supplier B as the planning choice. Carry its £19,000 quote and the separate £400 testing estimate into one calculation. Add the other work you must deliver.

Internal coordination is real work. Estimate the time needed to review drawings and arrange trade interfaces. Here, 30 hours at a £40 cost rate gives £1,200. That rate excludes company overhead recovery.

Project overhead means costs specific to this job, such as site facilities and shared waste removal. Company overhead recovery contributes to central business costs, such as office rent. Keep those categories separate.

Cost-to-selling-price calculation, excluding VAT	Amount	Basis
Supplier B's confirmed electrical quote	£19,000	Its stated scope only
Known excluded final test visit	£400	Internal estimate, price unconfirmed
Other direct work	£4,600	Own labour and materials
Internal coordination	£1,200	30 hours × £40 cost rate
Project overhead	£1,800	Site facilities and shared waste removal
Company overhead recovery	£1,500	Allocation from the business budget
Contingency for retained risks	£1,500	£1,000 obstructions + £500 supervision
Total pricing cost base	£30,000	Sum of the rows above
Planned profit at the target margin	£7,500	Selling price less cost base
Selling price	£37,500	£30,000 ÷ 0.80

This table counts each item once. Access equipment sits inside B's quote, so there is no separate access charge. Routine coordination appears outside project overhead. The contingency covers only the two named uncertain events.

The £1,500 company overhead allocation is an invented business decision, not an industry rate, so check your own cost rates before you apply it. If they already recover office costs, remove the duplicate allocation or separate it from those rates.

How does margin differ from markup?#

Margin expresses profit as a share of selling price. Markup expresses profit as a share of cost. They are different calculations.

In this example, the target margin is 20% after the listed cost base. Divide £30,000 by one minus 0.20. The result is £37,500, leaving £7,500 planned profit. That is also a 25% markup on £30,000.

Adding a 20% markup instead gives a £36,000 selling price. The £6,000 difference above cost is only a 16.7% margin, rounded. Neither rate is a recommendation.

State your margin basis beside the calculation so a reviewer can check that it follows company overhead recovery and the contingency provision. It is a planning measure, not a prediction of final accounting profit.

For related methods, the estimating topic hub covers how to build estimates from evidence rather than an unexplained uplift.

Keep the comparison available after the quote#

Before you issue your client price, review the remaining unconfirmed amounts. Refresh expired supplier prices. State the scope inclusions and exclusions clearly in your own quote. Get specialist advice on contract terms; this is a costing method, not legal advice.

Keep the supplier quote and internal adjustments separate during delivery. If actual costs differ, the original comparison helps you find the cause of a job cost variance. A missed task needs a different correction from a changed supplier price.

Korrel supports deliverable estimates with labour and fixed-cost components, with separate cost and sell rates. That does not mean supplier quote import or procurement management. Keep supplier confirmations in your own records.

To build your next deliverable estimate with separate cost and sell rates, start with Korrel.