If initial bids don't cover all of the costs incurred on a project, people may feel obliged to work nights and weekends for free to complete the project without further overruns.
If the organization bids projects at a fixed fee, the incentive to make up the overrun is that doing so will avoid losing money. If the organization bids projects on a time-and-materials basis, the incentive is to avoid angering the client with unexpected costs.
A project estimate must take into account every step of the process -- both those done by the supplier, and those done by subcontractors who work for the supplier (i.e., the project team).
And project estimates must be based on the organization's productivity. This can be gauged by learning from past project experiences.
