Reasonable cost estimate is a key to success of project. Estimate, which considers all the costsrnthat are required to deliver a project, not only insures the completion of project successfully butrnalso ensures the long-term profitability of the company. Assessment on practice and challengesrnof project cost estimate in selected grade one building contractors was made to identify the majorrnchallenges of preparing reasonable cost estimate and understand the impact of unreasonable costrnestimate in the companyâ€Ÿs overall performance. Cost estimate is prepared by using well-knownrncost estimate approaches to calculate the overall cost of a project. There are many challengesrnwhile preparing a good or reasonable cost estimate. To identify the major practices andrnchallenges of cost estimate, the research design used is descriptive design. Forty-five grade onernbuilding construction companies were selected to understand the practice and challenges of costrnestimation. Of the one hundred eight sample size, ninety six respondents working in forty onernGrade one construction companies were involved in responding to the questionnaire andrninterview questions. The collected data was analyzed by using SPSS and results suggest thatrnmost local building construction companies do not use specific cost estimation approach andrnmost of them use traditional ways of estimating the cost of the project. Major costs like overheadrncost, depreciation cost, risk and opportunity costs are not well considered as they are justrncalculated as some percentage of the direct cost. This is a major challenge in creating an accuraterncost estimate as each and every cost related to the project are not identified and their impact isrnnot well managed. This project work proposes adopting a suitable cost estimation approach,rnconsidering overhead, risk and opportunity costs, clients having their own cost estimators thatrnevaluate companyâ€Ÿs estimation and companies training cost estimators.