As we’ve discussed in our Unit Rate build-up series, this isn’t simply a calculation exercise. The Unit rate build-up is the backbone of a contractor’s tendering procedure.
Each unit rate represents a carefully developed cost for a specific task or element of work.
They combine labour, materials, plant and, in some styles, overhead and profit – All into a single figure.
When these rates are attached to the quantities from the tender documents and treated with a careful appreciation of the preliminary and general considerations, they form the basis of the total tender price.
The objective of this process is to first determine the cost of building as closely as possible. It cannot be emphasised loudly enough – The cost is the item you estimate you or your company can execute the work that is described!
Catering for competition, abnormal profit, or the lack of it, is left to a last decision-making process. This process is commonly known as the management’s tender adjudication.
The tender adjudication is where your summation of costs is combined with the agreed markup or margin, along with any other amount, to accurately reflect (positively or negatively) the current competitive market conditions and the need to keep the workforce employed.
If a tender is built on accurate, realistic unit rates, it positions a contractor to survive and be both competitive and profitable. This ensures that the bid reflects the true cost of delivering the project while also effectively managing risk.
Why the Unit Rate Build-up matters in Tendering
They break down the costs of each measurable item, from concrete pours to roof topping off. They ensure that every part of the project has a clear, justifiable price and that the cost can be explained.
Accurate unit rates are critical for two key reasons:
1. Competitiveness: Want to secure the project? The tender must be competitive in the market. Overestimated unit rates can price the bid out, while underpriced rates may win the job but at the risk of financial loss.
2. Risk Management: Unit rates need to realistically cover not just direct costs but also potential project risks. This ensures that the contractor is adequately protected. Protected from variations, delays, or unexpected site challenges. As covered in our Risk Adjustments article
Key Considerations in Practice
When applying unit rates in tendering, several practical aspects must be carefully addressed:
Transparent Cost Breakdowns
A well-built unit rate separates costs into clear components: labour, materials, and plant. This transparency not only supports internal review and adjustment. It also builds trust with clients and consultants. Cost clarifications may be requested during tender evaluations and clear calculations are needed.
A clear identification of the overhead and profit calculation
Along with where this has been accounted for and how it’s valued. Whether it’s a percentage or a further sum added to any or all of the unit rates or separated in the preliminary and general section of the tender, which is especially important to consider when using those rates for the valuation of any variations.
Alignment with Scope and Client Requirements
Each unit rate must align precisely with the project’s scope, specifications, and measurement rules. Misalignment can result in underpricing or gaps in scope, leading to disputes or financial strain once the project begins.
Adjustments for Project-Specific Risks
Typically, unit rates do not account for specific project conditions. Things like difficult site access, tight programmes, or specialised materials. However, allowances for problematic site conditions should be reflected in the rate. For example, hard-to-reach or confined spaces or the inability to have a clear run at the work. Incorporating appropriate risk allowances or contingencies ensures that the tender reflects the realities of the project rather than relying on generic or idealised pricing.
Example: Applying Unit Rates in a Tender
Consider a contractor preparing a tender for a mid-sized commercial building. The tender documents specify 1,000 m² of concrete flooring.
The estimator builds the unit rate for the concrete work by combining:
- Labour: Based on historical productivity and current wage rates.
- Materials: Supplier prices plus delivery and wastage allowances.
- Plant and Equipment: Hourly hire rates, fuel, and maintenance.
- Overheads and Profit: Allocated company overheads and a profit margin suited to the project’s risk profile.
Once the unit rate (e.g., $150/m²) is finalised, it’s multiplied by the quantity (1,000 m²) to generate the line-item total ($150,000). Repeating this process across all measurable items produces a complete, detailed tender submission.
Summary: Why Accurate Unit Rates Drive Tender Success
Accurate unit rates do far more than just fill out a pricing sheet. They are the thread that ties together sound estimating, competitive tendering, and successful project delivery.
By carefully building up each rate, contractors create tenders that stand up to scrutiny and perform in practice. Properly calculated and transparent rates can then be used in pro-rata calculations for similar work. They also act as the basis for the valuation of any variations.
A well-prepared tender built on thoughtful unit rates not only improves the chance of winning work. It also lays the groundwork for profitability, smooth project management, and a strong reputation in the market.
In today’s competitive construction landscape, sharp, reliable unit rate build-ups are not just a technical exercise – They are a critical business advantage.
