An Estimate is a best faith prediction of the effort that will be expended to perform a task. It has tolerance and distribution, and may depend on other factors beyond the estimators control. An Estimate is the opinion of a professional.
A Bid is a price submitted to perform a task. This is probably based on an estimate, but takes many other factors into account. It includes either profit or a market margin (which may be negative), and reflects the interest that the bidder has in the task. It also includes the risk the bidder wishes to take. A Bid is a fact. The difference between the estimate and the bid is the expected margin.
An estimators goal is to predict as exactly as possible the entire effort required to complete a task.
A bidders job is to be awarded a task for as as big a difference between the bid and the estimate (++margin) as possible.
Q&A:
I have seen some bids with negative margins. Why would a bid be submitted with a negative margin? Don't you need to at least break even?
Yes, in general, you cannot stay in business if the margin is negative too often. However, there are many reasons why a bidding margin can occasionally be negative. The bidder may wish to capitalize some of the expenditure as part of an improvement process, or there may be technology that will be developed that the bidder can then reapply. Or, it may be that it is less expensive to keep a capability alive during a down period with a negative margin, rather than shutting the process down and restarting it when work picks up.
Some bids I have submitted have had a margin of 100% or more. Why would a bid be submitted with a very high margin?
Opportunity cost, for one thing. For instance, I have a crack design team, that comes up with products that typically yield a 50% margin on their designs within two years. A customer approaches me and wants to have us design a custom product specifically for them to private label. I have to trade the risk of using the development team on a one shot deal vs the money that would be made if we stuck to designing standard products with a projected 50% return. I may choose a much higher margin than 50%, for this bid, to cover the lost opportunity cost. This would only affect the bid, not the estimate.
Or the customer may just be very risky and difficult. Or the bidder may have a legitimate technical or logistical advantage that makes them feel they can charge more.
Business Physics dictates that the sum of all the margins plus the estimates has to cover all costs of development and investment, or the business will eventually fail. Any one job may deviate, but at the macro level, the company has to bring in enough money to pay everyone. So if a bid has a negative margin, there has to be another offsetting effort with a much higher margin. Wining a bid with a very high margin will allow the pursuit of a riskier, low margin effort that has strategic value. The common term for an effort that enables other efforts to have negative margins is cash cow. The cash cow supports (hopefully temporary) losses incurred when pursuing new opportunities.