Critical Thinking – Fixed Final Price

SCENARIO: You are estimating a reinforced concrete bridge job. For the “Superstructure Concrete” pay item, the owner provides a quantity of 1000 cubic yards, but in the fine print you read “This pay item will be paid as if it were a lump sum item; there will be no measurement of the cubic yards.”

You have already done the takeoff and measured 1200 cubic yards for the Superstructure Concrete and estimated the unit cost, but you know, based on the owner’s fine print, you will only get paid based on the 1000 cubic yards the owner specified, leaving 200 cubic yards on the table that you won’t get paid for.

If this were a unit price item, normally you would get paid based on your pay item price, by taking the unit cost from the CBS, adding overhead and profit, then multiplying that unit price by the quantity. But since this is being treated like a lump sum, you will only get paid based on the 1000 cubic yards instead of the 1200 you measured.

How can you still get paid based on the total cost you developed for this item in the CBS?

  1. Add more profit to the pay item to cover the loss in cost.

  2. Come up with the pay item’s total price, based on the total cost you determined from 1200 cubic yards, then divide it by the pay quantity (1000 cubic yards) to come up with the unit price.

  3. Come up with the pay item’s unit price, then multiply it by the forecast quantity (1200 cubic yards) to come up with the total price.

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Critical Thinking – Fixed Final Price

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How can you still get paid based on the total cost you developed for this item in the CBS?

  1. Add more profit to the pay item to cover the loss in cost.

    2. You could do this, but it would make less profit available for other items.

  2. Come up with the pay item’s total price, based on the total cost you determined from 1200 cubic yards, then divide it by the pay quantity (1000 cubic yards) to come up with the unit price.

    This is a great approach. This ensures you account for all the cost you came up with in the CBS. When you divide it by the pay quantity, you will have a higher unit price that covers the overruning quantity you measured.

  3. Come up with the pay item’s unit price, then multiply it by the forecast quantity (1200 cubic yards) to come up with the total price.

    This is exactly what would occur if this were a normal unit price item and the owner had agreed to pay you based on the measured quantity. Since the owner is treating this like a lump sun, you will only get paid based on 1000 cubic yards and miss out on 200 cubic yards' worth of cost.