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« Texas A&M Professors to Help BIM Software Speak Common Language | Main | First Multi-Tenant Building Achieves LEED-Platinum Certification »

09/10/2009

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Unit price work is as wrong as most engineers who put the bid together. They should 1st have a line item of mobilization & demobilization. Next they should have a line item for bonds & general conditions so a contractor can appropriately have his overhead not be affected by any deductions of any unit prices for items. He could then give the owner a firm price for the work to be performed with out any risk of working for nothing. Then they should have a line item , presented by the contractor for total markup for any work requested over and above the amounts listed. Dennis Fleeher current litigant in line item bid .
If the owner asks the contractor to perform additional work ,its costs rise excessively due to reorders, rescheduling which altimately creates HAVOC for the contractor. Even at a fair markup
the contractor rarely makes any more money due to all the confusion created.

As a CM for building construction we use unit prices only for specific types of work where the quantities are not reliably known, such as for earthwork required to stabilize the building pad for support of the building. Since we do not know the quantity and it is not fair to anyone to make bidders guess on quantities and take foolish risks, we create "Unit Price Allowances". We identify a specific quantity that we reasonably expect to encounter and require the bidder to provide a unit price for the amount indicated. This allowance amount is large enough to affect the bidders quote if they should attempt to inflate the unit cost unreasonably. This unit price becomes the basis for any add or deduct from the quantity established. It works fairly well for both owner and contractor.

We did run into a problem on one bid where a unit price allowance was included in the bid form with a large quantity, but the work in the allowance was actually a part of work for another phase. Most of the bidders included a fair price for the unit, but one realized no quantity was required in the scope, so he low-balled the unit price. Since the work would not be a part of his project scope, he did not face risk that we would demand additional work at his low price. He was able to become low bidder even though the balance of the work he performed would not be the low cost. We discovered our error and threw out the bids, but we had a some egg on our faces and re-learned the basic lesson to double checking everything when writing scope.

Owner will want to plan the bid quantity accordingly, leaving the possiblity for either of a 25% +/- variance. If the variance exceedes the the 25% up or down, the owner will be required to renegotiate the remaining quantity.

This issue also effects the lump sum bid where a contractor submits his/her list of unit prices with the bid for use in adjusting the contract sum for added / deducted work.
The Fed procurement guidelines state that if the actual quantity of an item exceeds the estimated quantity by 20% then the item is subject to the VEQ clause, or "variation in extimated quantity". This same clause appears in our state's highway contracting specs.

So in a lump sum bid situation the architect will sometimes attempt to use the list of U.P. to make wholesale changes such as completely eliminating a work item. For example, a unit price of $2.50/SF cannot be used to eliminate all the suspended ceilings in a building. Even if the contract does not include a VEQ clause, the premise of the clause can be used to demosnstrate what is fair and what the UP is intended to be used for. For example, there may be many types of ceiling tile or many types of surfaces being painted, but only one price for ceiling or paint, etc.
We were involved in such a case where the Owner attempted to remove a major piece of work by using the UP schedule, and we prevailed in arbitration. For users of the AIA contracts, the front end defines how the owner must solicit a price for a change and what must happen if they don't agree: it must be based on cost. This protects both parties from the erroneous U.P. in a lump sum bid situation.

In NJ, there is case law on a fair credit deletion when an item is eliminated.

MJ Paquet v. NJDOT

Legal newsletter:

http://www.pecklaw.com/PDF_files/Summer_2002.pdf

Unit price contracts are a legitimate method for an owner to only pay for what was installed. If the estimated quantities are bogus, that's the owner's fault and a smart contractor will look for those items.

We generally use the VEQ clause in a spirit of equity or both parties will not have a method for Equitable Adjustment.

Having the whole bid process kicked due to one contractor gaming the system is the Owner's fault. Any unit price bid can be valued by using any estimated quantity the Owner wants even if it isn't the quantity used in the bidding process.

In addition to the problems already noted, here are two more that I find misused and often unfair to one or both of the parties.

Insisting that the same Unit price apply to both added OR deleted work. Often there are fixed costs applicable to an item that will be incurred regardless of the in place quantity of the work.
Example: Depth of a drilled pier. The reinforcing has been purchased and tied into a cage. The drill rig, crane,casings etc have been moved to the location of the next pier. If there is a significant reduction in the depth of the pier, the deduction will be excessive relative to actual cost. Knowledgeable writers of bid documents recognize this and provide for both add and deductive unit prices.

Another problem is the use of a unit price for an item whose cost is extremely varied within the project.

Example: Concrete. This may be O.K for a bridge if both foundation and deck prices are requested. But for a typical building project, concrete can vary from massive retaining walls to combination curb & gutter on a winding access drive. This cost can varies from $150 to $1000 per CY. And unless there is a provision that some significant and realistic quantity of the item must be included in the lump sum base price for the project, it is a moot point since it does not affect the contract award leaving the matter to be argued later if indeed it even becomes an issue.

I agree that unit pricing is sometimes misused by project owners. It should be used when a work item is fungible or consistent and the actual quantity cannot reasonably be determined.
Several commenters mentioned the Variation in Estimated Quantities clause found in the federal contract documents, with similar clauses found in state and local contracts. This is an equitable way to remove some of the uncertainty and gamesmanship from unit priced work.

I am dealing with a claim right now that revolves around whether the Owner can deduct the entire quantity from the contract using the unit rate. The issue stems from a solids removal quantity and a described method of removal that could only be used with the expressed permission of the Owner. The Owner chose not to use the method and therefore the quantity was "marooned" in the contract and therefore not payable.(Another unit rate method was used and the contractor compensated under that pay item for the work performed.)The contract permitts use of the unit rate from 80 to 120 % of the stipulated quantity but is silent as to what to do if the work is never undertaken. I have considered the problem from an equitable adjust standpoint as well as a pure deletion by unit rate standpoint but have yet made a judgement.

Regarding the solids removal quantity, I don't understand how the project owner is "using" the unit price rate. If the work was permissibly deleted under the contract, and performed using a different method at a different unit price, the contractor would simply not be paid for the unperformed work. Was this a fixed-price contract with unit prices stipulated within the contract?

I entered into a fixed price contract that contained "Unit Prices" with stated quantities of earth to be moved. The contract stated the basis for compensation was to be by "Unit Prices" for this work as well if the quantities was 10% more or less than that stated.

When the 300 tons of "hazardous materials" that was not suppose to exist turned into 6000 tons and the 3800cy of excess turned into 8,000cys the owner denied payment by "unit prices" and substituted T&M. The net result was the project extended from four months to ten months of work and my contract amount actually decreased from that originally bid.

The Architect negated the AIA provision to use "Unit Prices" where they were agreed to in the contract and instead use an alternative means of T&M compensation when the compensation was not agreed upon. Not the case here.

The net result was we absorbed six months of OH and lost profit while the Architect took four months to interpret the contract provisions before we could complete our work.

Does anyone have experience with the AIA general conditions provison regarding payment by "unit prices" when it is clearly stipulated in the contract?

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