Should-Cost Estimate
An independent number to test whether a price is reasonable.
Quick Answer
A should-cost estimate is an independent, bottom-up calculation of what a scope of work ought to cost if performed efficiently, built from quantities, labor, materials, equipment, and reasonable markup. Buyers use it to test bids and proposals. Large gaps between the should-cost and a price point to scope misunderstandings, pricing errors, or room to negotiate.
The Full Picture
When bids arrive, the buyer needs a reference point that doesn't come from the bidders. A should-cost estimate provides it. In U.S. federal contracting, FAR 15.407-4 describes should-cost reviews as an evaluation of what a contract should cost assuming economical and efficient operations, and FAR 36.203 requires an independent government estimate of construction costs for contracts above the simplified acquisition threshold.
Mechanically, a should-cost estimate is built from first principles: measured quantities, crew compositions and productivity, material and equipment pricing, and reasonable overhead and profit. It differs from a budget estimate in intent. The goal isn't to predict what bidders will charge, but what the work reasonably requires, so the estimate can expose inflated pricing or misunderstood scope.
In practice, public owners prepare independent cost estimates before bid opening, and private owners often have their cost consultant do the same. General contractors use the same logic on trade packages: the precon team prepares its own number for each package and compares subcontractor bids against it. A bid well below the should-cost can signal missing scope as clearly as a high bid signals padding.
In preconstruction, should-cost estimates are most valuable on high-value or thinly bid packages, sole-source work, and negotiated contracts where there is no competitive benchmark. The weakness is effort: a credible should-cost requires detailed quantities and current pricing knowledge, which is why it's often reserved for the packages that matter most.
Real Examples
Common Misconceptions
People assume: A should-cost estimate predicts what the low bid will be.
Actually: It estimates what the work should reasonably cost. Market conditions, bidder workload, and competition can push real bids above or below it; the value is in understanding why.
People assume: Should-cost analysis is only about finding overpricing.
Actually: It is equally useful for catching underpriced bids that leave out scope. A bid far below a credible should-cost is often a risk, not a bargain.
Does MeltPlan Solve This?
Partially — adjacentPartially — MeltPlan handles subcontractor bid leveling, which is closely related to validating prices against a should-cost number. MeltPlan levels subcontractor proposals for every bid package in minutes and surfaces scope gaps, exclusions, and qualifications, so you can see whether an outlier bid is cheap or just missing scope. Building the should-cost estimate itself, including pricing and productivity, stays with your estimators.
Level subcontractor bids and spot missing scope →Frequently Asked Questions
What is a should-cost analysis?
A should-cost analysis evaluates what a scope of work ought to cost under efficient, economical performance, independent of the prices bidders submit. In federal contracting it is described in FAR 15.407-4; in construction it is used to test bids and negotiated prices.
What's the difference between a should-cost estimate and an independent cost estimate?
They overlap heavily. An independent cost estimate (ICE) is prepared by or for the owner before bids are opened. A should-cost estimate emphasizes what the work would cost if performed efficiently and is often used during negotiation. In practice many teams use the terms interchangeably.
When should a GC prepare a should-cost estimate?
On high-value trade packages, packages with few bidders, sole-source or negotiated work, and any package where bids spread widely or scope is complex enough that misunderstandings are likely.
How does should-cost relate to bid leveling?
Bid leveling normalizes subcontractor bids to identical scope so they can be compared. A should-cost estimate gives an independent benchmark to compare the leveled numbers against.