Plenty of disputes start with two words being used as if they mean the same thing. A client hears estimate and remembers it as a price. A builder gives a fixed price for work that was never properly defined and then loses money making it stick. Knowing the difference protects both sides.
This guide sets out what a fixed price and an estimate each commit you to, when each is appropriate, and how to keep the conversation clear so the final bill does not come as a shock.
What a fixed price means
A fixed price, sometimes called a firm price or a lump sum, is a binding offer to carry out a clearly defined scope of work for a stated amount. Once accepted, the contractor is committed to that figure regardless of whether the work ends up costing more or less.
Because the contractor carries the risk, a fixed price only works when the scope is properly defined. If the drawings are vague, a sensible builder either prices in contingency or declines to fix the price until the design is settled.
What an estimate means
An estimate is a forecast of likely cost based on the information available at the time. It is given in good faith and reflects a reasonable view of the work, but it is not a promise that the final bill will match it to the penny.
Estimates suit jobs where the scope is still moving, such as refurbishments where you cannot see what is behind the walls. As the work is opened up and decisions are made, the figure is refined. The key is that everyone understands it can change, and why.
Why estimates move
An estimate changes when the scope changes, when hidden conditions appear, or when the client upgrades a specification. None of these are the contractor moving the goalposts; they are the cost of the work being different from what was assumed.
Good practice is to record the assumptions behind the estimate so that any movement can be traced back to a clear cause rather than a vague feeling that the price has crept up.
When to use which
Use a fixed price when the design is complete and the scope can be measured with confidence, for example a new extension built to a finished set of drawings. The client gets cost certainty and the contractor can manage the risk.
Use an estimate when there are genuine unknowns that cannot be resolved before work starts. Be honest about the range and revisit it as the picture clears. Trying to force a fixed price onto uncertain work usually ends in padding or a dispute.
Keeping it clear and avoiding disputes
Whichever you give, put it in writing and state which it is. Spell out exactly what is included, what is excluded, and which items are provisional sums. That single step prevents most arguments about the final bill.
Make sure VAT is handled clearly, since all figures should be presented ex VAT and the VAT position confirmed separately, with HMRC rules determining the rate that applies. Treat all rates as indicative until the scope is locked down, and value any changes against agreed rates rather than reopening the whole price.