Most homeowners get a contractor bid, glance at the bottom line, and evaluate the rest of it by feel. That's understandable — the formatting varies wildly, the terminology is inconsistent, and most bids aren't designed to be read by someone who doesn't already know the vocabulary.

But the line items matter, and understanding them is the only way to compare bids accurately. Here's what the common ones actually mean — and what to look for in each.

The key terms, decoded

Allowance
A placeholder dollar amount for a material or finish that hasn't been selected yet. The contractor is saying: "We've budgeted $X for this item. If you pick something that costs more, you pay the difference. Less, and you save the difference."
Watch for: Allowances that are unrealistically low. A $500 allowance for tile in a large bathroom, for example, won't buy much. Ask what that allowance would realistically get you — if the answer is "builder-grade only," budget to go over.
Contingency
A percentage (usually 5–15%) added to account for unknowns — things that aren't visible until demolition starts. Older homes almost always have surprises: outdated wiring, plumbing that doesn't meet current code, hidden water damage.
Watch for: A bid with no contingency at all. This isn't good news — it often means the contractor will present change orders for anything unexpected rather than building a buffer in upfront.
Change Order
A written amendment to the original contract when the scope changes — either because something unexpected was found, or because you requested something different. A good change order specifies what changed, the new cost, and the impact on the timeline before any work is done.
Watch for: Verbal change orders ("yeah we can add that, no problem"). Everything that changes the scope or price should be in writing before the work happens, not after.
Labor + Materials (itemized vs. lump sum)
Some bids break out labor and materials separately for each task. Others give you a single number per line item. Itemized bids are easier to compare but not always offered. Lump sum bids aren't necessarily hiding anything, but they give you less room to negotiate individual components.
Watch for: A bid that only shows a grand total with no line items at all. You have no basis for comparing it to anything, and you'll have no recourse if something is missing from the scope.
Exclusions
Things specifically not included in the bid, often listed at the bottom. "Permit fees not included" is common. So is "painting by others" or "appliances by owner." These aren't red flags — they're clarifications. Read them carefully so you know what you're responsible for.
Watch for: Vague exclusions ("site conditions not included") that could let a contractor exclude large portions of work after the fact. Ask for specifics on anything that isn't clear.
Unit Price vs. Fixed Price
Some line items are priced per unit ("$14/linear foot for baseboard installation"). Others are fixed regardless of quantity. Unit pricing is flexible for variable-scope items but means your total can change based on actual measurements.
Watch for: Unit prices on large-scope items without an estimated total. Ask the contractor what they expect the total quantity to be so you can estimate your exposure.
A bid that's easy to understand usually reflects a contractor who communicates well on the job. A bid that's impossible to follow is a preview of what managing the project will feel like.

How to compare bids that use different formats

The trickiest part of evaluating multiple bids is that contractors rarely format them the same way. One might break out every task; another might lump a whole phase together. To compare them fairly:

  1. List every component of your project scope in writing
  2. For each bid, confirm whether that component is included, excluded, or listed as an allowance
  3. Add up the included items for each bid separately from allowances, so you're comparing actual committed costs
  4. Then add realistic estimates for any allowances, using the contractor's own guidance on what those allowances will realistically buy

This often reveals that a seemingly lower bid is actually comparable — or more expensive — once you account for allowances set far below realistic selections.

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What a well-written bid looks like

A bid worth signing should include: a written scope of work, materials specified by product and grade (not just "tile"), itemized labor by phase, realistic allowances with guidance on what they'll buy, payment terms tied to milestones (not just a deposit), and a timeline with start and completion dates. If any of these are missing, ask for them in writing before you sign.

A note from David: I look at a lot of contractor bids as part of how we vet contractors for our network. The ones from contractors I trust almost always have one thing in common: they're written so a homeowner can actually read them. If a bid is confusing by design, that's useful information about what the job will be like.