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Contract Rates, Unit Cost or Lump Sum

The correct calculation of contract rates of the dredging project is crucial whether calculated as a unit cost or a lump sum price.
Contract rates must be calculated by the contractor taking into account the contract conditions and the work that is to be performed, including the evaluation of costs for: Read more
  • materials,
  • plant and equipment,
  • fuel,
  • labour and
  • any other expenses such as fees, royalties, taxes, and so on.

Bill of quantities

A bill of quantities (BOQ) is a document used in tendering in the construction industry in which materials, parts, and labour (and their costs) are itemised. The majority of tenders for dredging works incorporate a bill of quantities. These bills consist of lists that specify, often in great detail, descriptions of the various types of dredging and other activities that the contractor is required to perform under the contract to ultimately achieve the completion of the works.

Estimated quantities

In the majority of dredging tenders, a bill of quantities gives the estimated quantities for the materials listed. The tenderer is obliged to quote rates for each material per unit and consequently for the entire estimated quantity. This assumes that the estimated quantities are correct, which is not necessarily the case. In general the rule is that the rates in total represent any and all activities to be performed by the contractor and represent the contract price,

Deviations

A provision is made that deviations from the estimated quantities will cause a proportionate increase or decrease of the contract price.

Risks

The risk for the quantities is borne by the project owner. Nevertheless, the contractor may still face risks, particularly if the real quantities are less than those estimated.

A lump sum contract

A lump sum contract or “fixed fee contract” is a traditional means of procurement in which a single “lump sum” price for all of the works is agreed upon before the works starts. When a project is well defined, that is, the scope and schedule of the project is clear at the time of tendering and changes are unlikely, a lump sum or fixed fee can be acceptable. This means that the contractor is able to accurately price the risk they are being asked to accept. But in many cases risk assessment is difficult.

Unit rate contract

A unit rate contract is based on estimated quantities of materials for the project and their unit prices. The final price of the project will depend on the quantities needed to carry out the work. This means that prior to the work and the contract, the separate materials are known, but the quantities cannot be identified. In a unit rate contract the contractor offers a price for each material during the tender. Listing the unit rates per item can facilitate the calculation of possible modifications or variation orders and avoid risks. However, in reality, this may equate to a lump sum price. This is especially the case if the project owner requires the contractor to accept the risk for the correct evaluation of the quantities, rather than allowing the quantities to be re-evaluated in light of what is encountered during the work on site.

Unit price-lump sum combined

Sometimes a unit price contract for parts of the project will be combined with a lump sum contract or mixed with other types of contracts. A tenderer may be requested to quote lump sum prices only for certain well-defined items such as mobilisation and demobilisation of the dredging equipment.

Interim measurement and acceptance

On very large projects, where high siltation or erosion rates occur, developing a method of measurement and acceptance of completed sections is important. This will establish two things:
  • an equitable, clearly understood means by which to define completed areas and
  • the method used to pay for the maintenance of these areas.
This second item affirms that maintenance dredging may be included in the construction project. This enables the full project dimensions to be available upon completion of the project. This maintenance factor should be clearly delineated in the contract documents.