Unit Price Contract

A unit price contract pays the contractor a pre-agreed rate for each unit of work completed (cubic metres of concrete, metres of pipeline, square metres of paving), with the final payment calculated by multiplying those rates against quantities actually measured after construction.

What is a Unit Price Contract?

Unlike a lump-sum-contract, where one total price covers the whole scope, a unit price contract separates price from quantity. The bidding document provides a bill of quantities with estimated quantities; contractors price each line item. The buyer awards on the basis of the total evaluated price (estimated quantities multiplied by unit rates), but actual payment reflects the quantities measured in the field. This means the contractor's risk relates to productivity and unit costs, while the buyer carries the quantity risk: if more work is needed than estimated, the buyer pays more.

Unit price contracts are standard for civil engineering and infrastructure works where precise quantities are difficult to determine before excavation or where ground conditions can affect scope. They sit closely alongside the admeasurement-contract, which is essentially the same mechanism described in British and Commonwealth contract traditions. Development banks including the World Bank and ADB use unit price contracts in their Standard Bidding Documents for works procured under icb. The itb for a unit price contract typically includes a detailed bill of quantities that bidders price line by line.

Why Unit Price Contracts matter for bidders

Bidders must price each unit rate to cover direct cost, equipment, overheads, and margin, because the mix of quantities measured on site may differ from the bill of quantities estimates. A common trap is pricing high on items expected to increase and low on items expected to decrease, which can work when the strategy is sound but triggers scrutiny under abnormally low bid provisions. Accurate quantity take-off skills and site productivity data are the core competency needed to price unit rates profitably.

FAQ

Who carries quantity risk in a unit price contract?

The buyer carries quantity risk: if measured quantities exceed the bill of quantities estimate, the buyer pays more; if quantities are less, the buyer pays less.

How is the contract award price determined?

Award is based on the evaluated total, calculated by multiplying tendered unit rates by the estimated quantities. The final payment reflects actual measured quantities.

Can unit rates be renegotiated during the contract?

Generally no, unless there is a substantial variation in a specific item quantity beyond a threshold defined in the contract conditions, which some standard forms allow for rate adjustment.