Unit Price

This contracting method involves the payment on the basis of cost per unit of service. This method is preferable when a project requires the provision of large quantities of similar items, such as stone, concrete, or earth. It can also be used for projects requiring the same type of materials as well as labor throughout the job, such as the replacement of standard light fixtures throughout a facility. This allows a contract to be executed without requiring final drawings and SOW to be completed. It also allows flexibility in adding or subtracting SOW from the original plan, based on unit price adjustments. This may require establishment of some minimum fixed cost base, or adjustment factors that ensure that fixed costs can be recovered if the SOW is reduced. Conversely, a unit price reduction may be appropriate once a certain quantity is exceeded.

A disadvantage to this contracting method is the large quantity of bookkeeping required. It may also not be compatible with highly diversified work, where there are many types of activities, each with a moderate number of units. Also, as with the cost plus method, the owner will not know the project cost until the end of the construction period. Finally, construction limits should be carefully considered when using this approach. Items such as lighting fixture quantities can be clearly estimated and documented. However, complications arise with items such as cubic yards (or meters) of earth excavation for a trench. In such cases the contractor can lay the trench walls back or dig them tight. Both approaches may be acceptable to get the job done but there will be a large difference in the trench excavation quantity. To mitigate against excessive quantities and therefore costs, the contract can provide for a quantity limit for which the contractor will be paid, with quantities beyond that limit absorbed by the contractor. Provisions may also be added to promote value engineering with incentives for successfully accomplishing the work with quantities below an established floor.

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