Unit pricing for estimating concrete projects
Estimating a project using the unit price method may not be the best way. Whatever pricing structure you might develop is going to be made up of at least four cost factors: labor cost, material cost, overhead cost and profit.
by Len Hijuelos
I ran across an article by management consultant Monroe Porter discussing what he called the fallacies of unit pricing. I mentally filed this with the intention of writing this response sometime down the road.
I happen to be an admirer of Mr. Porter, primarily because his teachings, so to speak, are so practical and usable for small contracting companies. He understands that the contractor working a small crew in a small operations environment basically faces the same problems on a smaller scale as the larger contractors. In many cases, small contractors face more problems in that they have to wear more hats — do their own estimating, their own supervision, and so on. I’ve found that for the most part, what Mr. Porter preaches is applicable to the industry as a whole, and just as importantly, is almost always immediately usable.
In this particular article, Mr. Porter suggested that pricing out a project using the unit price method is not necessarily the best way to go. I’m in total agreement.
Whatever pricing structure you might develop is going to be made up of at least four cost factors: labor cost, material cost, overhead cost and profit. Whether you use unit pricing or some other method, the final pricing will be based on those four components.
The biggest asset of unit pricing is that it is fast if you continually use the same prices. And that, in my mind, is one of the big downsides of unit pricing: it leads to a tendency to use the same prices over and over regardless of the nature of the job. Turning that around a bit, if you were developing individual unit prices for each job, unit pricing would not be so fast.
Another downside is that your completed pricing sheet really does not provide you with very much information. Basically, you have a price and that’s it. My preference is to spend a little more time in pricing a project and end up with a sheet that provides more information and lends itself to multiple uses — for example, when tracking labor and material costs by individual work processes, ordering materials, or adapting to changes in order proposals. A more detailed sheet enables the contractor to monitor his or her work on a more factual basis.
If you used a unit price sheet to provide this type of information, then you would have to disassemble each of the unit prices.
Probably, the single biggest reason for using unit prices, besides the practice being traditional in the trade, is the rationale that one just doesn’t have the time to do anything else. In my mind, that might indicate that one is bidding too many jobs, and one might be better off scaling back and developing better estimating techniques.