Construction Contracting Basics – Unit Prices

By Sara M. Bour, Esq., Manager and Counsel, AIA Contract Documents

August 26, 2022

Construction contracting is complex, especially when prices, costs, and quantities are to be determined later in time. When you’re submitting a bid or negotiating a construction contract, one way to tackle these “unknowns” is through unit prices. Unit prices are often used where the exact quantity of items required for a contractor’s work has not been decided, or cannot be determined with precision, at the time a bid or proposal is submitted. But what exactly does “unit price” mean?

Unit prices are items, such as portions of work or certain materials, for which a contractor provides separate prices on a per-unit basis, typically based on an anticipated quantity stated in the contract documents. In practice, the specifications usually describe the mechanism by which the actual quantity of units will be measured.

Though unit prices are regularly quoted based on anticipated quantities, the contractor is to be compensated based upon the actual quantities used in the work in accordance with the owner-contractor agreement. For example, where a contractor’s bid is based on an estimate of 5 units of finish material, but the work actually requires 10 units, the contractor may be entitled to payment for those 10 units used and incorporated into the project. This scenario is addressed in Section 9.1.2 of the A201®-2017, General Conditions of the Contract for Construction, which states:

§ 9.1.2 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are materially changed so that application of such unit prices to the actual quantities causes substantial inequity to the Owner or Contractor, the applicable unit prices shall be equitably adjusted.

Thus, where the actual quantities of the unit price item vary from the estimated quantities, causing the owner or contractor substantial financial hardship, the unit price is subject to an equitable adjustment. To account for material price escalation, parties may agree to a specific percentage variation in the anticipated quantity in their agreement, to avoid disputes over what constitutes a “material change” under this section of the A201.

In all, unit prices allow owners to receive the benefit of competitive pricing, even when a fixed price cannot be initially determined. They allow contractors to submit a bid or proposal for a project even though significant “unknowns” about the work and associated costs exist. Unit prices are helpful for creating transparency between the contracting parties, as they can be easy to measure and record throughout the construction phase of the project.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.