Project Management Institute

Partnering in a unit price environment

The traditional form of contract agreement for the construction of large, speculative commercial projects has been a lump sum fixed price contract. However, this traditional contracting methodology often results in great disparities between preliminary estimates and a projects final cost. This article describes an alternative contracting method with benefits to both project owners and contractors: the partnered unit price contract. In the partnered unit price contract, the owner benefits by knowing exactly what each element of in-place work will cost, and can therefore forecast construction costs more precisely. Contractors benefit from this arrangement because they are relieved of some contract financial risks, and are ensured continued work at a predetermined profit margin. Other benefits accrue to tenants, lenders, subcontractors and vendors.
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