Cost Estimate

A cost estimate is a prediction of what an investment, program, initiative, activity or contract will cost in the future, built from the information available at a particular time. The Treasury Board of Canada Secretariat defines it as a prediction about the future cost of an investment based on the data and information available at a given point in time.

Federal departments use cost estimates to plan projects, compare options, make affordability decisions, support budget requests, negotiate prices and decide how to allocate risk. For suppliers, the estimate is the number the buyer holds in mind before any bid arrives. It also shapes what a buyer asks consultants and contractors to produce.

How the Treasury Board and the GAO define a cost estimate

The Treasury Board definition appears in Government of Canada guidance published in 2023. It stresses that an estimate reflects a moment in time. As data and information change, the estimate changes with them.

The U.S. Government Accountability Office (GAO) offers a more detailed defence-costing definition. In its cost-estimating glossary, a cost estimate is the summation of individual cost elements, using established methods and valid data, to estimate a program's future costs based on what is known at the time.

Several related terms appear in the same sources:

• Life-cycle cost estimate: a structured estimate of the resources and costs needed to develop, produce, deploy and sustain a program.
• Independent Government Cost Estimate (IGCE): in U.S. defence contracting guidance, an estimate of the resources and projected costs a contractor will incur in performing a contract.
• Cost-estimating system: a contractor's policies, procedures and practices for generating the cost estimates and other data included in contract-price proposals.

Costing process and estimate ranges

The Treasury Board's costing guidance describes a process that includes a cost-breakdown structure, gathering data and evidence, and determining uncertainty, risk and cost. It identifies contracting and procurement decisions as a common use of costing information. These include assessing cost uncertainty and risk, informing price negotiations and considering risk-sharing arrangements.

A deterministic estimate is a single value representing the expected cost within a range of possible outcomes. The Secretariat's cost-estimating guide also states that an estimate can be expressed as a range covering worst-case and best-case scenarios.

PSPC Class A, B, C and D estimates for construction

Public Services and Procurement Canada (PSPC) sets detailed requirements for construction cost estimates in its Documentation and Deliverables Manual for Architectural and Engineering Services. Estimates must follow specified formats and include, among other items:

• the basis of the estimate;
• the information used and the dates it was received;
• notable inclusions and exclusions;
• significant risks;
• a summary and an itemized breakdown;
• allowances and their calculation basis, where applicable.

The manual classifies estimates as Class A, B, C or D. For projects submitted to Treasury Board, an indicative estimate must be at least Class D, and a substantive estimate must be at least Class B.

The classes appear in live tenders. A CanadaBuys notice for architectural services requires the consultant to present a Class D cost estimate for the preferred option at the 100% schematic-design stage.

Estimates before non-competitive pricing requests

The Office of the Procurement Ombudsman has addressed when an estimate should exist. Its 2021 follow-up report states that departments should establish and document an estimate for an acquisition of goods or services before contacting a prospective supplier and requesting proposed pricing through a non-competitive process. The report identifies this practice as relevant to the Privy Council Office, Global Affairs Canada, the Canada School of Public Service and the Public Health Agency of Canada.

What a cost estimate means for a supplier

If you bid on Canadian public contracts, the buyer's estimate frames how your price is read. Departments use estimates to assess cost uncertainty, inform price negotiations and consider risk-sharing, so a well-supported price is easier to defend.

If you work in architecture, engineering or construction, expect to be asked for estimates in a defined class and format. Document the basis of your estimate, the information and dates you relied on, your inclusions and exclusions, and your key risks. If a department asks you for pricing on a non-competitive basis, it should already have its own documented estimate to compare against yours.