Unit Price Agreements

Unit Price Agreements: What They Are and How They Work

In construction projects, there are different types of contracts that can be used to govern the relationship between the owner and the contractor. One of these contracts is a unit price agreement. This type of contract is often used when the scope of work is not well defined or when there is uncertainty about the quantity or quality of the work to be done. In this article, we will discuss what unit price agreements are, how they work, and their advantages and disadvantages.

What Is a Unit Price Agreement?

A unit price agreement is a type of contract where the contractor agrees to perform the work at a specific unit price. The unit price is usually based on a specific quantity or measurement of work. For example, the unit price for a concrete foundation might be based on the number of cubic yards of concrete needed to complete the project.

In a unit price agreement, the contractor is paid based on the actual quantity of work completed, multiplied by the unit price. This means that the owner only pays for the actual work done, rather than a fixed price for the entire project. This can be advantageous in situations where the scope of work is uncertain or when changes to the project are likely.

How Does a Unit Price Agreement Work?

In a unit price agreement, the contract typically includes a detailed description of the work to be done and the unit prices for each item of work. The contract may also include a schedule of quantities that specifies a range of quantities for each item of work.

When the work begins, the contractor keeps track of the actual quantities of work performed and submits invoices to the owner based on those quantities and unit prices. The owner then pays the contractor based on the actual quantities of work completed.

Advantages and Disadvantages of Unit Price Agreements

There are several advantages to using a unit price agreement. One advantage is that it provides flexibility in situations where the scope of work is uncertain or when changes to the project are likely. Since the owner only pays for the actual work done, the risk of cost overruns is reduced.

Another advantage is that unit price agreements can be easier to administer than other types of contracts. Since the contractor is paid based on the actual work completed, there is less need for detailed progress tracking and accounting.

However, there are also some disadvantages to using unit price agreements. One disadvantage is that they can be more complex to negotiate and administer than other types of contracts. The unit prices and quantities must be carefully negotiated and documented in the contract, and the contractor must keep detailed records of the work performed and the quantities completed.

Another disadvantage is that unit price agreements may not be appropriate for all types of projects. In some cases, a fixed-price contract may be more appropriate, especially when the scope of work is well defined and there is little uncertainty about the quantity or quality of work to be done.

Conclusion

Unit price agreements can be a useful tool in construction projects where the scope of work is uncertain or when changes to the project are likely. They provide flexibility and reduce the risk of cost overruns, but they can also be more complex to negotiate and administer than other types of contracts. If you are considering a unit price agreement for your construction project, it is important to carefully consider the advantages and disadvantages before making a decision.