Understanding Construction Unit Prices: How They Impact Contracts and Payments

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

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August 26, 2022

What Are Unit Prices in Construction Contracts? 

Construction contracts often present unique challenges, especially when prices, costs, and quantities are uncertain or not fully known at the time of bidding. One common method to manage these “unknowns” is through unit prices. So, what exactly does the term “unit price” mean in the context of construction? 

Unit prices refer to the costs assigned to specific items of work or materials, which a contractor provides on a per-unit basis. These prices are typically based on an anticipated quantity that is outlined in the contract documents. The specifications in the contract will usually describe how the actual quantities will be measured during the course of the project. 

 

Why Use Unit Prices in Construction Bids? 

Unit prices are particularly useful when the exact quantity of materials or work needed can’t be precisely determined before the project begins. This approach offers flexibility for both the owner and contractor, ensuring that both parties are treated fairly even if the project scope changes during the construction process. 

For example, a contractor might estimate 5 units of finish material in their bid, but the final project requires 10 units. In this case, the contractor would be compensated for the actual 10 units used, not the estimated 5. This concept is addressed in the AIA A201-2017, General Conditions of the Contract for Construction, Section 9.1.2, which states: 

“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.” 

 

How Unit Prices Are Measured and Adjusted 

While unit prices are generally based on estimated quantities, payments are made based on the actual quantities used. This means that adjustments may need to be made if the quantities differ from the initial estimate. If the actual quantities significantly change, causing either party undue financial hardship, the unit price may be subject to equitable adjustment. 

To avoid disputes over what constitutes a “material change,” contract parties often agree to a certain percentage variation from the anticipated quantity. This ensures a fair approach when quantities or market conditions fluctuate, such as with price escalation of materials. 

 

Equitable Adjustments in Unit Price Contracts 

An essential element of unit price contracts is ensuring fairness when quantities differ from initial expectations. If the actual quantities are significantly different from the anticipated amount, adjustments to the unit price can be made to avoid undue financial strain on either party. This concept is designed to address price fluctuations, unforeseen challenges, and changes in scope, allowing both contractors and owners to maintain financial balance as the project progresses. 

For example, if there is an unexpected rise in material costs or additional quantities needed, both parties can mutually agree to adjust the unit price accordingly. This helps prevent conflicts and ensures that the project continues without disruption. 

 

Benefits of Using Unit Prices for Contractors and Owners 

Unit prices offer a range of benefits for both contractors and owners throughout the construction process: 

  • Competitive Pricing: Unit prices help contractors submit bids even when certain quantities or costs are uncertain. This competitive edge benefits both parties by ensuring pricing remains fair and transparent throughout the project’s lifecycle. 
  • Flexibility in Uncertain Conditions: Contractors can bid on projects without needing to predict every detail, while owners receive the benefit of accurate pricing based on actual usage, preventing unexpected cost increases. 
  • Transparency and Accountability: Unit prices provide clear metrics for how costs are calculated, reducing confusion and helping both parties track expenses as the project progresses. 

 

The Role of Unit Prices in Construction Transparency 

Unit prices help create transparency in construction contracts, especially in projects with uncertain or evolving requirements. By establishing clear, measurable costs per unit, unit prices enable contractors to adjust based on actual quantities, ensuring that payments align with work completed. For example, if the contractor estimates 5 units but completes 10, the owner only pays for the actual 10 units used. This openness makes the process smoother for both sides, minimizing potential disputes over costs. 

Additionally, unit prices allow project stakeholders to anticipate costs and track financial performance effectively throughout the construction phase. This contributes to smoother project execution and more predictable financial outcomes. 

 

Unit prices are an essential component of construction contracts, offering both contractors and owners a fair and efficient way to handle pricing in the face of uncertainty. By offering a flexible, equitable approach to pricing and adjustments, unit prices help ensure that projects proceed smoothly, even when the full scope or costs are not initially known. For construction professionals, understanding and applying unit prices is key to successfully navigating complex contracting scenarios and ensuring fair compensation for all parties involved. 

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.