In the unit price system of contract award, the owner and design engineers will typically provide a listing of the major activities, steps, or operations to be performed in the work. With each activity, the engineer provides an estimated approximate quantity of that material or work activity. The owner will require the contractor to enter a unit price, that is, dollars per unit of quantity, for which the contractor proposes to complete each activity or work item named on the proposal form in such a way as to satisfy the requirements of the contract documents. An example of a typical unit price proposal form is provided in Figure 16.7.
In preparing the estimate, the contractor will analyze each activity that the owner has named and will consult the drawings, specifications, and other contract documents for all of the requirements that pertain, and then will compute a price for performing that activity or work item in such a way as to comply with the requirements of the contract documents. This price will be the sum of the contractor’s anticipated costs for materials, labor, equipment, project overhead, and general overhead, as well as his markup. The contractor will then divide the total estimated cost for each activity by the owner’s estimated quantity (or perhaps by his own determination of estimated quantity) in order to calculate the unit price (dollars per unit of quantity) that will be entered on the proposal form. The contractor will use the same procedure for determining the unit price for each of the activities and work items listed on the proposal form.
The contractor will complete the estimate, prepare the proposal, and will submit the proposal, usually in a sealed envelope, on the designated date and at the designated time and place, in accord with the instructions to bidders in the bid documents that are received from the engineer. The engineer will receive all proposals from all of the contractors who are bidding the project at that time.
After all proposals have been received, each will be analyzed by the engineer and the owner to determine which of the contractors has submitted a valid proposal that will result in the lowest total cost to the owner. That contractor will usually be named the contract recipient.
When the agreement is signed, the unit prices on the contractor’s proposal will become the contract prices for the performance of the work in each named activity or work item. As the work on the project is performed, both the contractor and the engineer will tabulate quantities of each named activity or item of work that is actually performed in fulfilling the requirements of the contract documents.
Prior to each monthly application for payment by the contractor, the engineer and the contractor will review their records regarding actual quantities satisfactorily installed and will reconcile any differences. The engineer will then authorize the owner to make payment to the contractor for the actual quantity of each activity satisfactorily completed, multiplied by the unit price for that activity, less retainage.
This process is continued until the project is complete. It is important to note that the owner will provide, and the contractor will receive, payment for the actual quantity of each activity or work item installed or performed at the contracted-for unit price, without regard to whether this actual quantity is greater than, or is less than, the quantity originally estimated by the engineers during design.