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Construction work is often having to be competed for on the basis of prices for projects as a whole. However, once awarded, these projects are usually administered on the basis of the prices for each of the many constituent items of work. It is the item prices that govern how much contractors are paid on an interim basis as they progress. These prices also determine how much contractors receive for variations to the contracts, which are inevitable. Item prices are therefore of fundamental significance to construction contracts yet they are not used as the basis of the competition by which work is won. This is because principally it would be far more difficult to accomplish than the far simpler comparison between contractors’ overall bids (Skitmore and Cattell, 2011). Therefore item prices are freed from the constraint of the economic forces of competition and provide contractors considerable scope by which to decide these prices to reap several significant benefits. An initial test (Cattell, 2012) showed an instance of a construction contractor more than doubling profits by way of mathematically optimizing item prices whilst keeping the overall bid price the same.
Cattell, David, "Component Unit Pricing Theory Applied to Construction Work" (2012). Research Week Posters. 18.