Construction contracts sometimes call for payment on a unit price basis. For certain types of work, this makes a great deal of sense. Precise quantities of repetitive work items are unknown and the contractor will be paid only for the work actually performed. But unit price bid schedules can lead to disputes. Discrepancies between the pay items and the work description are a fertile source of claims. Bidders may attempt to unbalance bids to their advantage. Owners may respond by deleting overpriced line items of work.
Care should be taken to match the line item work description with the specifications. For instance, in one highway construction contract the specifications distinguished between “free-haul” and “overhaul.” The bid schedule called for a single unit price for “hauling.” Was the overhaul to be paid for at that price or was overhaul an extra? A schedule of unit priced line items invites unbalanced bidding. A bidder will be tempted to overprice items of work that will be performed early in the project or items where the bidder believes the quantity estimate is significantly understated. The bidder can keep its overall price competitive by under pricing other line items of work. Bid solicitations frequently caution that unbalanced bids may be rejected as nonresponsive. That seldom occurs, however, and the unbalanced pricing is discovered only after performance has commenced.
What if a project owner can accomplish its purpose without a particular line item of work? The owner can delete the overpriced item, leaving the contractor with underpriced items of work and a contract that is in a loss position. Generally speaking, the contractor assumed the risk of a deletion and is left without recourse.
I’d like input from both the contractor and owner perspective regarding strategies and defenses when it comes to the pricing of estimated units of work.
As always, I welcome all comments below.