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ConstructionPro Week, Volume: 5 - Issue: 21 - 05/27/2016

Do Quantity Estimates Allow Bidders to Game Unit Pricing?

By Bruce Jervis

 

Unit-priced contracting offers advantages on certain types of construction projects. Where there is a significant, but uncertain, quantity of identical or repetitive work items, the project owner will pay only for the actual quantity of work performed.

 

In order to facilitate tight bidding and to compare bid prices, the project owner must provide bidders with an estimated quantity of each line item of unit-priced work. The use of quantity estimates in the contract documents creates an opportunity for mischief.

 

A contractor recently bid an estimated 200 units of work at a unit price that would have produced a loss on that volume. The contractor, however, had reason to believe the estimated quantity was greatly understated. The contractor performed more than 5,000 units of work without notifying the project owner of the estimating error or the anticipated quantity overrun. The contractor would have reaped a $433,000 profit on the work had a Florida court not ruled that the contractor breached the implied covenant of good faith and fair dealing.

 

There are, of course, contractual protections available to project owners. Owners can require written notice of anticipated quantity overruns at specific milestones in the work. It is also common for unit-price contracts to stipulate an equitable adjustment to the unit price if actual quantities exceed estimated quantities by a certain percentage. What has been your experience with unit priced contracting? Is there a tendency within the industry to game the pricing of these contracts? Your comments are welcomed.

 

COMMENTS

As a contractor interested in staying in business, every bidder looks for advantages and opportunities when it comes to both lump sum bids and unit price bids. Estimators check the engineer's estimated quantities by performing their own take off and looking at the risks involved with the work. In the case above, the contractor unbalanced the bid to take advantage of an opportunity in the quantity of work to be performed. In some states this is illegal.

I currently work as an owner's rep, but spent many years hard bidding work for the contractor. Now, when I see a unit price bid or just unit pricing as an add-on to a lump sum contract, I always advise the owner (public or private) to add contract language that will carefully defines the scope of work included in the unit price, and that protects the owner from overruns, or the contractor from under-runs.
Posted by: Rose Jesse - Friday, May 27, 2016 1:34 PM


Don't blame the contractor, the purpose of a Bid is for all parties to reveal the true scope and extent of the work required. A sloppy quantity estimate cant be put in the bid docs. But the Owner and Contractor could have negotiated a change order for the additional quantity, so both sides are protected. Plus, with a Unit Price bid, the Owner can always pull the item from the Contract. Then where does that leave the contractor who had costs for that item in his General Conditions and Schedule?
Posted by: Glenn Semanisin, PE - Friday, May 27, 2016 2:08 PM










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