In Canada, parts of Europe, and on most road construction projects in the United States, the estimated quantities of materials required on the project are determined by a professional quantity surveyor or engineer and provided to the interested bidders on the project.
This is often referred to as a unit price bid. In this method of bidding, the contractors are all bidding based on the same quantities, and the estimator spends time developing the unit prices. For example, the bid may be $47.32 per cubic yard (cy) of concrete.
Because all of the contractors are bidding on the same quantities, they will work on keeping the cost of purchasing and installing the materials as low as possible.
As the project is built, the actual number of units required is checked against the original number of units on which the estimates were made. For example, the original quantity survey called for 715 linear feet (lf) of concrete curbing.
If 722 lf were actually installed, then the contractor would be paid for the additional 7 lf. If 706 lf were used, then the owner would pay only for the 706 lf installed and not the 715 lf in the original quantity survey.
This type of adjustment is quite common. When errors do occur and there is a large difference between the original quantity survey and the actual number of units, an adjustment to the unit price is made. Small adjustments are usually made at the same unit rate as the contractor bid.
Large errors may require that the unit price be renegotiated. If the contractor is aware of potential discrepancies between the estimated quantities and those that will be required, the contractor may price his or her bid to take advantage of this situation.
With a belief that the estimated quantities are low, the contractor may reduce his or her unit price to be the low bidder. If the assumption is true, the contractor has the potential to make the same profit by distributing the project overhead over a greater number of units.
Labels: Cost Estimates
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