Unit Price Contract

Unit price contracts establish predetermined rates for specific work items with final payment based on actual installed quantities. This contracting method suits HVAC projects where exact quantities cannot be accurately determined before construction due to existing condition uncertainties, phased scope development, or field-verified measurements. Unit pricing transfers quantity risk from contractor to owner while maintaining competitive pricing through bid rate submission.

Overview

Unlike lump sum contracts where contractors assume quantity risk, unit price agreements pay for actual work performed at agreed rates. Contractors bid unit prices for defined work items—linear feet of piping, pounds of ductwork, number of diffusers—with final cost calculated by multiplying bid units by measured quantities. This structure accommodates quantity variations inherent in renovation projects, infrastructure work, or design-build arrangements where final quantities emerge during construction.

Unit price contracts require rigorous quantity measurement, verification procedures, and documentation protocols. Payment accuracy depends on proper field measurement, agreed calculation methods, and clear unit definitions. Disputes frequently arise over measurement techniques, inclusion/exclusion boundaries, and quantity change thresholds triggering renegotiation.

Measured Quantities

Quantity measurement methods must be defined explicitly in contract documents to prevent disputes. Common HVAC measurement approaches:

Linear Measurements: Piping, ductwork, and insulation measured in linear feet. Specifications must clarify whether measurements include fittings, valves, and accessories or cover straight runs only. Define measurement points—centerline of fittings versus end-to-end runs.

Area Measurements: Duct insulation, equipment painting, and cleaning measured in square feet. Establish whether irregular surfaces use developed area or projected area.

Weight Measurements: Sheet metal ductwork often priced per pound. Verify whether weights derive from theoretical calculations per SMACNA standards or actual field weighing.

Count Measurements: Terminal units, diffusers, dampers, and controls counted as individual items. Define whether accessories, mounting hardware, and connections are included in per-unit pricing.

Volume Measurements: Excavation, concrete, and grout measured in cubic yards or cubic feet.

Predetermined Unit Costs

Unit cost bidding requires contractors to analyze component costs and establish rates covering:

• Material costs including procurement, freight, and storage
• Labor installation costs based on productivity rates and wage scales
• Equipment rental and specialty tool costs allocated per unit
• Waste factors and material escalation
• Overhead and profit allocations
• Risk contingencies for quantity uncertainties

Bid unit prices remain fixed throughout contract performance except where quantity overruns or underruns exceed specified thresholds. This rate certainty allows owners to compare competitors objectively while contractors maintain pricing control.

Final Cost Based on Actual Quantities

Final contract payment equals the sum of bid unit prices multiplied by verified installed quantities:

$$\text{Final Cost} = \sum_{i=1}^{n} (\text{Unit Price}_i \times \text{Actual Quantity}_i)$$

Payment applications document quantities installed each period with supporting field measurements, drawings, and verification reports. Cumulative quantities track total installations against estimated bid quantities, highlighting variances requiring owner notification.

Owners verify quantity claims through independent measurement, progress photographs, or third-party inspection before approving payment. Disagreements over measured quantities may require dispute resolution through project engineers or mediators.

Bid Schedule Items

Unit price bid schedules itemize all work categories with estimated quantities and unit prices. Typical HVAC unit price schedules include:

Contractors enter unit prices for each item; the product of unit price times estimated quantity generates the total bid amount. The owner emphasizes that estimated quantities are approximate, with payment based on actual installations.

Quantity Overrun and Underrun

Quantity variations between estimated and actual amounts are inherent in unit price contracts. However, extreme variances may indicate estimating errors, changed conditions, or scope modifications justifying unit price renegotiation. Contract provisions typically address:

Minor Variations: Quantity changes within ±15-25% of estimated amounts do not trigger unit price adjustments. Contractors assumed this variation risk when bidding.

Major Overruns: Quantities exceeding estimated amounts by more than the threshold percentage may justify unit price reduction negotiations. Contractors achieve economies of scale and overhead spreading on larger quantities.

Major Underruns: Quantities falling substantially below estimates may warrant unit price increases. Contractors lose overhead absorption and economy of scale benefits on reduced volumes.

Renegotiation provisions protect both parties from drastic quantity changes unforeseen at bidding. Without such clauses, owners face inflated costs on massive overruns while contractors suffer losses on severe underruns.

Unit Price Adjustments

Unit price adjustment provisions establish procedures for renegotiating rates when quantity thresholds are exceeded:

• Notification requirements when projected quantities approach threshold percentages
• Documentation of cost impacts from quantity changes
• Negotiation processes and timeline requirements
• Dispute resolution if parties cannot agree on adjusted rates
• Application of adjusted rates to threshold-exceeding quantities only versus all quantities

Well-drafted adjustment clauses balance owner cost protection against contractor financial exposure while maintaining equitable risk allocation.

Engineering Considerations

Unit price contracts suit HVAC renovation and remodel projects where existing condition surveys cannot definitively establish quantities. Demolition and replacement scopes, asbestos abatement integration, and hidden infrastructure work contain inherent quantity uncertainties that unit pricing accommodates.

Design-build HVAC projects benefit from unit price structures when contractors develop designs and quantities during early construction phases. Unit pricing allows work to proceed while detailed designs solidify, avoiding delays that lump sum bidding after complete design would impose.

However, unit price contracts create payment uncertainties affecting project budgets and financing. Owners cannot definitively establish total costs until construction completes and final quantities are verified. Budget contingencies must account for quantity variations and potential overruns.

Unit pricing also introduces opportunities for quantity inflation through generous measurement interpretations or scope creep. Rigorous quantity verification and third-party inspection provide necessary oversight.

Best Practices

Define measurement methods explicitly in specifications including start/stop points, inclusion of fittings and accessories, rounding conventions, and calculation formulas. Ambiguous definitions generate disputes and payment delays.

Provide realistic estimated quantities based on thorough existing condition surveys, preliminary designs, or historical data. Grossly inaccurate estimates undermine competitive bidding and trigger unnecessary price renegotiations.

Establish clear quantity tracking procedures documenting measurements, photographs, and inspector verification. Contemporary documentation prevents after-the-fact disputes about installed quantities.

Include unbalanced bid detection in bid evaluation. Contractors may inflate unit prices on overrun-expected items while lowering prices on underrun-expected items, distorting competition and increasing owner costs.

Consider hybrid contract structures combining lump sum pricing for well-defined work with unit prices for uncertain scope. This balanced approach minimizes unit price scope and associated measurement overhead.

Maintain quantity tracking logs comparing installed quantities against estimates throughout construction. Early identification of major variations allows proactive renegotiation before overruns accumulate.