Unit price contract

From CEOpedia | Management online

Unit price contract (also called UPC) has below characteristics[1][2]:

  • definied scope agreed before such as amount of work (10% is enough),
  • relatively fixed prices that are adjusted only within the agreed scope,
  • quantities (units) in the bill are integral part of the contract,
  • payments of contract are based on completed work so there are series of payments for various materials and labour assigned to each of them in detailed way when work is done,
  • despite contact is definied in details upfront, part of the contract might also include long-term repair deal if needed (for example it might be often beneficial solution for bridge building when repairs will be probably less expensive than than replacement of the whole construction).

Control of unit price contract

There is no need to make research before estimation of payments to the whole contract value, however it is important to compare plan with ready project as the contact might be used to artificially increase the profit. Therefore, the project should be controlled during work is ongoing to check status versus planned scope and value[3][4].

Examples where unit price contact is used

Unit price contract is used mainly for heavy construction projects for example by a government agency and engineers with exact quantities which will execute the project. This kind of contract seems to be optimal approach for infrastructure construction projects[5]. Examples where unit prices contract is used are below[6]:

  • Bridge construction,
  • Highway construction,
  • Transportation agencies,
  • Other construction projects, especially heavy ones.

Advantages of Unit price contract

A Unit Price Contract (UPC) is an agreement between a buyer and a seller, where the seller agrees to provide goods or services at a pre-determined rate for each unit of measure. It is a type of contract that allows for flexibility and can be beneficial to both parties. The following are some of the advantages of using a UPC:

  • Allows for accurate estimating of costs: A UPC provides an agreed upon price for each unit of measure, allowing both parties to accurately estimate the costs of the project. This can help to avoid cost overruns, which can be beneficial to both parties.
  • May be more cost-effective: In some cases, a UPC can be more cost-effective than other contract types. This is because the seller can save money by using bulk buying and other discounts that may not be available for other types of contracts.
  • Provides flexibility: A UPC allows for some flexibility in terms of the quantity of goods or services purchased, as well as the delivery schedule. This can be beneficial to both parties, as it allows for changes in the project scope without renegotiating the contract.
  • Encourages innovation: A UPC encourages innovation and creativity, as the seller is incentivized to find the most cost-effective solutions to the project. This can help to ensure that the project is completed in the most efficient manner possible.

Limitations of Unit price contract

A Unit Price Contract (UPC) is a type of construction contract where the contractor is paid based on the unit price of the work instead of a lump sum of money. This type of contract can be beneficial for both the contractor and the owner, however, there are some limitations that should be considered before entering into a UPC. These limitations include:

  • UPCs typically require more detailed estimates from the contractor, which can increase the cost of the project.
  • The cost of the project can vary based on the materials used, and this can be difficult to predict and manage.
  • The owner may be responsible for any cost overruns if the contractor’s estimates were inaccurate.
  • UPCs are more complex than other types of contracts, which can lead to increased costs and difficulty in understanding the contract.
  • UPCs can also be difficult to administer and manage, as they require more detailed record-keeping and monitoring to ensure that the contractor is being paid appropriately.

Other approaches related to Unit price contract

Unit price contracts (UPC) are a type of contract which allows contractors to bid on a project based on a unit price, rather than on a lump sum. Other approaches related to UPC include:

  • Cost-plus contracts: This type of contract is based on the cost of the project, plus an additional sum for a contractor's profit.
  • Time & material contracts: These contracts are based on the time and materials used to complete the project.
  • Design-build contracts: This type of contract combines the design and construction of a project into a single contract, allowing the contractor to assume design responsibility and complete the project in a timely manner.
  • Guaranteed maximum price contracts: This type of contract sets a maximum price for the project, allowing the contractor to assume some of the risk associated with completing the project.

In summary, UPCs are a type of contract which allows contractors to bid on a project based on a unit price, while other approaches related to UPC include cost-plus, time & material, design-build and guaranteed maximum price contracts.

Footnotes

  1. ↑ Zhanga Hao, Liu Chengbin, Gaoc Xiuqing (2016)
  2. ↑ Brewer Kenneth A., American Association of State Highway and Transportation Officials (2007), p.261
  3. ↑ Stewart Rodney D., Wyskida Richard M., Johannes James D., p. 356
  4. ↑ Brewer Kenneth A., American Association of State Highway and Transportation Officials (2007), p.261
  5. ↑ Mandella Svante and Nilssonb Jan-Eric (2010)
  6. ↑ Brewer Kenneth A., American Association of State Highway and Transportation Officials (2007), p.261


Unit price contract — recommended articles
Forms of contract — Provisional sum — Lump-sum contract — Bid documents — Firm fixed price contract — Cost reimbursement — Supplemental agreement — Labor and material — Task order

References

Author: Andżelika Stefańska

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