When purchasing construction, it’s important to figure out the best way to set-up the contract between the owner and the general contractor. As real estate project managers, we help our clients determine this for nearly every project. We have explored the competitive bidding process, as well as the GMP construction contract. Today, we are breaking down the use case for the unit price construction contract.
Each type of construction contract is appropriate for different clients, projects, levels of risk, etc. The unit price construction contract is more common on public works, especially infrastructure projects like road building, etc. This type of contract allows the contractor to provide the owner with a specific price for a particular task or scope of work, even though the actual quantity or number of units may be unknown. The owner then must agree to pay the contractor only for the actual units that the contractor provides, installs or constructs on the project.
The unit price construction contract is suitable for repetitive projects, or easily quantifiable tasks such as removal or placement of soil, rock or concrete. However, for complex projects that involve the coordination of multiple trades, the unit price construction contract is not ideal because it is not easy to predict the quantities that will be needed for each unit. Unit pricing may be incorporated in the pricing for alternates, or for specific portions of the project. For example, a lump sum contract may be put in place with a unit price stipulated for additional linear feet of a certain wall type, added door openings, etc.
Unit pricing benefits the owner, because it is relatively easy to verify if the price being charged for goods or services is reasonable. It is beneficial for the contractor because, for the most part, the risk of inaccurate estimation of uncertain quantities for some key tasks has been removed from the contractor.