A new approach to construction item pricing
Date of this Version
A new approach is now being suggested that overcomes the flaws prevalent in the prior models. This study suggests a basis for a scientific method of maximising utility, taking account of both the pursuit of profits and the risk that these might not be realised.
The competition for work between contractors is largely determined by lump sum prices for whole projects. However, most project contracts are instead governed by the unit prices for each of the project components. These item prices are more difficult for clients to assess. Translated, this means that contractors have considerable scope within which to decide their prices without effecting their competitiveness and without being noticeable by clients.
Research on mathematically optimising these prices started 50 years ago but this has so-far failed to address the risks involved, despite widespread acknowledgement that these risks are considerable. A new component unit pricing (CUP) theory has now been developed that has identified and assessed these risks. This gives contractors prospect by which to decide prices that are in accord with the market – by which they can not only earn more profits but avoid risks as well.