Question

What is a unit price contract? When might you use one?

Answer 1

In a unit price contract, the total contract price is based upon the price of all the individual “chunks”/units of the work. Under a unit price contract, the contractor provides the owner with a specific price for one or more tasks or a partial “segment” or a “block” of the overall work that’s required on the project. The owner then agrees to pay the contractor for the units that the contractor expends to complete the project.

So, rather than taking a look at the project as a whole and setting a price based on that finished product, a unit price contract will determine the price based on the “units” that will be required to make up that job. Often, the number of units needed won’t really be specified at the start of work.

A unit price contract makes a lot of sense when work can easily be divided into identifiable chunks (units). So, where projects are repetitive or the price is heavily dependent on materials, and where the ultimate quantity of work might not be obvious from the get-go, using a unit price contract makes a lot of sense.

On the other hand, complex projects that involve blending activities between different trades or materials may not be ideal to use with unit price contracts. While a unit price contract may not be ideal for an entire project, it may still be a great tool for both contractors and owners to use for those portions of a project which can be easily quantified.

Unit price contracts are most commonly used for public construction projects. However, it could make a lot of sense for certain trades to utilize unit price contracts on private jobs, too.