Handling Risks of Quantity Variations

in Unit-Price Contracts
Khaled Hesham Hyari 1; Nasim Shatarat 2; and Ahmed Khalafallah, A.M.ASCE 3
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Abstract: Unit-price contracts are awarded based on estimated quantities while payment to the contractor is based on actual quantities of
work. In many cases, estimated and actual quantities never perfectly match each other for several reasons. This divergence has direct impact
on the contractor’s profitability and poses additional risks to owners and contractors alike. This paper presents a price adjustment model for
quantity variations in measurement contracts. The model adjusts unit rates for items based on the deviation from estimated quantities in order
to allow the contractor to recover his indirect costs when quantities of work underrun. At the same time, it does not allow the contractor to
obtain a windfall when quantities overrun. This balances the interests of both the contractor and the owner. The model is expected (1) to
reduce submitted bid prices as contractors will not need to increase their submitted prices to account for risks caused by quantity fluctuations;
(2) to reduce the motive for unbalanced pricing of line items to take advantage of perceived errors in estimated quantities; (3) to reduce the
disputes arising around the interpretations of changed quantity clauses in contracts; and (4) to reduce the need for renegotiating unit prices
when variations exceed the allowable range in the contract. DOI: 10.1061/(ASCE)CO.1943-7862.0001393. © 2017 American Society of
Civil Engineers.
Author keywords: Unit price; Measurement contracts; Contract changes; Price adjustment; Estimated quantities; Quantity overrun;
Contracting.

Introduction
Unit-price contracts are widely used in public construction procure-
ment (Shrestha et al. 2012; Mandell and Nystrom 2011; Renes
2011; Ewerhart and Fieseler 2003), and are commonly called
remeasurement contracts because payments to contractors are
based on actual quantities performed rather than the estimated
quantities in the bill of quantities. The deviation of actual quantities
of work from the estimated quantities is quite common and repre-
sents a risk to both owners and contractors. This deviation has
direct impact on contractor’s profitability and owner’s cost. For ex-
ample, suppose 1,000 square meters of painting is listed as a line
item in a project and the contractor estimated the direct cost for this
item (i.e., labor, materials, and equipment costs) at $10 per square
meter. Indirect costs are fixed costs and are generally estimated as
summation of cost elements and then added as a percentage to
all line items. If the summation of all estimated direct costs in
the project is $1,000,000 and indirect costs are projected to be
$250,000, the contractor typically adds 25% to the unit direct cost
of all line items. In the painting example, the estimated unit cost for
this item will be $12.5. For an intended profit margin of 10%, the
contractor’s unit price for this item will be $13.75. If the estimated
costs are accurate and actual quantities perfectly match estimated
1
Associate Professor, Dept. of Civil Engineering, Hashemite Univ.,
P.O. Box 330127, Zarqa 13133, Jordan (corresponding author). E-mail:
hyari@hu.edu.jo
2
Associate Professor, Dept. of Civil Engineering, Univ. of Jordan,
Amman 11942, Jordan. E-mail: n.shatarat@ju.edu.jo
3
Assistant Professor, Dept. of Civil Engineering, Kuwait Univ.,
P.O. Box 5969, Safat 13060, Kuwait; presently, on leave, Cairo Univ.,
Cairo 12613, Egypt. E-mail: Ahmed.Khalafallah@ku.edu.kw
Note. This manuscript was submitted on November 20, 2016; approved
on May 12, 2017; published online on August 12, 2017. Discussion period
open until January 12, 2018; separate discussions must be submitted
for individual papers. This paper is part of the Journal of Construction
Engineering and Management, © ASCE, ISSN 0733-9364.
ones, the contractor will earn the intended profit and recover the
allocated indirect costs. As shown in Table 1, if actual quantities are
less than estimated quantities by 25%, the contractor will not re-
cover $625 from his fixed costs (indirect costs) in addition to the
foregone profit from the reduced quantities (the contractor will lose
an amount of $312.5 from the intended profit). As such, the profit
margin on this item will be reduced from 10 to 3.1%. Conversely, if
actual quantities were greater than estimated ones by 25%, the con-
tractor will earn an additional profit of $625, in addition to a profit
of 10% on the increased quantities, raising the profit margin for this
item from 10 to 14.6%. Analyzing the same example assuming
50% change in quantities would result in a profit of 17.9% in case
of quantity overrun and a loss of 8.3% in case of quantity underrun.
Despite the direct impact of accuracy of estimated quantities on
contractor’s profitability and subsequently on owner’s cost, stan-
dard specifications of several state departments of transportation
(DOTs) indicate clearly that quantities provided in the bill of quan-
tities during the bidding stage are estimates only and are intended
solely for comparison purposes to evaluate submitted bid offers.
The actual payment will be based on accepted actual quantities per-
formed (MnDOT 2014; NDDOT 2014; DDOT 2013). Although the
estimated quantities and the actual quantities typically do not per-
fectly match, and although payment to contractors will be based on
actual quantities, the contractor is still required to bid based on the
estimated quantities of work regardless of their accuracy. More-
over, bidders are expected to price their bids so that the unit rate
of every item carries its fair share of overhead costs and profit.
Standard specifications of several state DOTs clearly indicate
that contractors are expected to price their bids so that the price
of each line item reflects the estimated cost of performing that item.
Unbalanced bids are discouraged and are susceptible to rejection in
the bid evaluation stage on the basis of unresponsiveness to bidding
regulations (Hyari 2015).
Another dimension that adds to the risks assumed by the con-
tractor is the deliberate inflation of quantities on the bill of quan-
tities by public owners. Gransberg and Riemer (2009) pointed out

© ASCE 04017079-1 J. Constr. Eng. Manage.

J. Constr. Eng. Manage., 2017, 143(10): 04017079

 Table 1. Fluctuations in Quantities of Painting Line Item
As estimated
Quantity (m2 ) 1,000
Contractor’s payment ($) 13,750
Direct cost ($) 10,000
Allocated indirect cost ($) 2,500
Recovered indirect cost ($) 2,500
Intended profit amount ($) 1,250
Obtained profit amount ($) 1,250
Profitability (%) 10.0
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two reasons for this inflation: (1) to enable awarding contracts
because the lowest bidder is required not to exceed a certain per-
centage above the engineer’s estimate; and (2) to increase the con-
tingency fund that is usually limited to a certain percentage of
estimated project cost. Contractors respond to these risks by either
inflating unit prices to account for possible losses from such risks
or by manipulating unit prices and unbalancing their bids, which
exposes both owners and contractors to unwarranted risks. Several
scholars indicated that the discrepancy between estimated and
actual quantities is one of the primary motivators for unbalanced
bidding (Hyari et al. 2016; Mandell and Nystrom 2011; Renes
2011; Missbauer and Hauber 2006; Gransberg and Riemer 2009;
Hoogenboom et al. 2006; Ewerhart and Fieseler 2003; Roberts
1994; Bell 1989).
Construction contracts typically include a variation in the esti-
mated quantities clause that aims to provide an equitable assign-
ment of risks between parties. Such clauses specify the criteria
for adjusting unit rates due to variations in quantities. The criteria
adopted by many state DOTs is to allow renegotiating the unit rate
once the deviation from estimated quantities exceeds 25% if the
item is a major cost item (TDOT 2015; MnDOT 2014; NDDOT
2014; CDOT 2011). Other items are considered minor and are
not usually subject to unit rate adjustments. The definitions of a
major item varies between state DOTs and ranges from 5 to 15%
of the contract amount (TDOT 2015; NDDOT 2014; CDOT 2011).
The allowable range for variations before adjustment is signifi-
cantly wide and limiting the adjustment to only major items ex-
poses both the owner and the contractor to considerable risks.
These risks often trigger price manipulations in order to transfer
the risk to the owner and seize opportunities to increase profits.
Even if changes satisfy the criteria for unit rate adjustment under
the applicable changed quantity clause, the process of adjusting the
unit rates requires costly negotiations to agree on the new rates and
oftentimes become a construction dispute that entails additional re-
sources for resolving the dispute. Renes (2011) considered price
adjustment clauses to be useful in reducing the negative impacts
of skewed bidding on the owner. However, the benefit is limited
because it requires negotiations with the contractor to agree on
new unit rates. Long (2016) indicated that although changed quan-
tity clauses in construction contracts are intended to prevent dis-
putes about variations in quantities, construction disputes exist
around the interpretation of these clauses.
There is a need for models that alleviate risks on both owners
and contractors and contribute to an equitable risk sharing among
the contracting parties. The objective of this paper is to propose a
price adjustment model for quantity variations in unit-price con-
tracts. The proposed model is designed to systematically adjust unit
rates according to deviations of actual quantities from estimated
quantities. To the best of the authors’ knowledge, this is the first
model to address price adjustment for quantity variations in meas-
urement contracts. The model preserves the interests of the owner
© ASCE
J. Constr. Eng. Manage., 2017, 143(10): 04017079
Quantity underrun Quantity overrun
750 500 1,250 1,500
10,312.5 6,875 17,187.5 20,625
7,500 5,000 12,500 15,000
2,500 2,500 2,500 2,500
1,875 1,250 3,125 3,750
1,250 1,250 1,250 1,250
937.5 625 1,562.5 1,875
3.1 −8.3 14.6 17.9
as well as the contractor by adjusting unit prices upward and down-
ward. The contractor will recover their allocated indirect costs in
the case of quantity underrun, and at the same time the owner will
be protected from unjustifiably paying higher prices in the case of
quantity overrun because fixed costs are already recovered in the
payment for originally estimated quantities. The model is expected
to contribute to the submission of lower unit prices by contractors
as it eliminates the need to add higher contingencies to account for
risks associated with uncertainties in quantities of work. The model
is also expected to reduce the efforts needed by contract managers
for price renegotiations and dispute resolution when quantity varia-
tion exceeds the threshold indicated in contracts.
Literature Review
Price adjustment clauses were investigated by many scholars in
the literature. However, previous work has focused on adjustment
clauses related to material prices (Ilbeigi et al. 2015; Ashuri et al.
2014; Kosmopoulouy and Zhou 2014; Newcomb et al. 2013;
Skolnik 2011; Zhou and Damnjanovic 2011; Weidman 2010;
Touran and Lopez 2006). Few studies if any have been conducted
to address price adjustments for quantity variations. The objective
of including price adjustment clauses in both cases is the same,
which is to reduce risks in bidding on the premise that it would
lead to lower bid prices because contractors normally incorporate
perceived risks in their submitted bid prices.
Despite the lack of studies on how to adjust unit prices for quan-
tity variations, many scholars highlighted the risks associated with
the inconsistency between estimated and actual quantities (Hyari
et al. 2016; Luo and Takahashi 2016; Bajari et al. 2014; Afshar
and Amiri 2010; Gransberg and Riemer 2009; Hoogenboom
et al. 2006). Many of them presented models to optimize the
allocation of project indirect costs and profit to attain higher profits
(Cattell et al. 2008; Yizhe and Youjie 1992; Teicholz and Ashley
1978; Stark 1974; Aharoni 1971). Luo and Takahashi (2016) inves-
tigated the difference between lump sum and unit-price contracts
for infrastructure projects by Florida Department of Transportation
(FDOT) and indicated that unit-price contracts are selected for
complex projects or projects with higher uncertainty in construc-
tion plans (i.e., uncertainty in estimating quantities of work).
Luo and Takahashi (2016, p. 2) stated that “changes in a plan is
a rule rather than exception in procurement of construction
projects, which are typically procured through auctions, and the
final pay to the contractor could differ significantly from the con-
tracted price.”
Bajari et al. (2014) considered procurement contracts for infra-
structure projects as incomplete contracts because of the frequent
changes during construction that entail adaptation costs or adjust-
ments to the submitted bid price to account for expected deviation
between estimated and actual quantities of work. They indicated
04017079-2 J. Constr. Eng. Manage.
 that changes to quantities of work during construction are prevalent
and lead to significant differences between contract amount and
final payment. In addition, they indicated that changes result from
incomplete contract documents, unsatisfactory design, or external
factors such as environmental conditions. Mandell and Brunes
(2014) analyzed the issue of quantity variation in unit-price con-
tracts from a different perspective, focusing on the owner’s selec-
tion of quantities in the bill of quantities when quantities are
uncertain. The focus of many strategic bidding behavior studies
was on the contractors’ behavior, whereas Mandell and Brunes
(2014) focused on the owner’s behavior. They highlighted the
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trade-offs involved in specifying quantities, considering cost of re-
negotiations, cost of estimating quantities, and cost overrun risks.
They indicated that in some cases owners announce higher than
estimated quantities in the bidding documents while in other cases
they announce lower than estimated quantities for varying reasons.
Gransberg and Riemer (2009) investigated the accuracy of es-
timating quantities of work for highway projects in Oklahoma and
concluded that owners should put every possible effort to ensure
accurate estimate of quantities to reduce the extent of imbalance
in submitted bids. They stated that “inaccurate bid quantities lead
to unbalancing unit prices to recover all the costs associated with
the project and to protect the contractor’s target profit on the bid.”
Hoogenboom et al. (2006, p. 1138) indicated that a decrease in
quantities of work expose the contractor to the risk of not recov-
ering all indirect costs allocated to cost items. Although contracts
often include changed quantity clause that allow reconsidering
unit prices if quantity changes beyond a specified range upward
and downward, the contractor is still exposed to risks within the
allowable change of quantity fluctuations. Hoogenboom et al.
(2006) considered discrepancy between estimated and actual quan-
tities of work as the major motive for submitting unbalanced bids.
Ewerhart and Fieseler (2003) indicated that unit-price contracts are
usually criticized for the gap between bid price and contractor’s
payment because, of these two, the former is based on estimated
quantities while the latter is based on actual quantities. This gap
opens the door for unit-price manipulations in bids. Ewerhart
and Fieseler (2003) considered the competitiveness of contractors
in unit-price contracts to be determined by two factors: (1) the ef-
ficiency of contractor’s operations, which allows the contractor to
enjoy lower total costs relative to other bidders; and (2) the ability
of the bidder to increase the divergence between the submitted bid
price and earned total payment.
Burnett and Wampler (1998) stated that unit-price contracts,
compared to other contract types, are particularly challenging con-
tracts for the contractor to bid successfully and win the bid while at
the same time earn the intended profit. They indicated that contrac-
tors bidding on unit-price contracts must predict changes in quan-
tities of work and reflect these expectations on their unit prices
to reduce risks associated with quantity variations. Roberts (1994)
indicated that discrepancy between estimated and actual quantities
of work is the primary reason for skewed bidding. Roberts (1994)
also recommended that owners should prepare reliable estimates
for work quantities and should include a clause for price adjustment
for quantity variations to reduce the motive for unit-price manip-
ulations in measurement contracts. Roberts (1994, p. GVT.4.3)
stated “if the owner desires a reasonably balanced bid, then all ef-
fort must be made to provide the following: an equitable mobili-
zation pay item in the bid, realistic bid quantities; and a changed
quantity clause in the specifications.”
Aharoni (1971) formulated a linear programming model that
illustrates how contractors can take advantage of perceived inaccur-
acies in estimated quantities. This work was among the earliest for-
mulations of unbalanced bidding models for unit-price contracts.
© ASCE 04017079-3
J. Constr. Eng. Manage., 2017, 143(10): 04017079
Aharoni (1971) indicated that manipulating unit rates can be used
to achieve higher profit or increase the competitiveness of the con-
tractor. Stark (1974) indicate that in unit-price contracts, prices can
be unbalanced or manipulated so that lowest bid need not mean
lowest price. Stark (1974) indicated that exploiting misestimates
can help the contractor to improve his competitiveness by under-
pricing overestimated quantities or items that might not be needed
during construction. Stark (1974) urged contractors to perform in-
dependent assessments of the owner-provided quantities in order to
unbalance the bid to improve profitability because construction is
characterized by low profit margins.
Long (2016) analyzed construction disputes related to variations
in quantities of work and indicated that even if the contract does not
include a changed quantity clause and includes a statement that es-
timated quantities are only approximate, contractors can still claim
for damages incurred on the basis of owner’s misrepresentation be-
cause provided quantities were not approximate. Long (2016) in-
dicated that the changed quantity clause will not apply if estimated
quantities were not accurate because of inexcusable error or neg-
ligence from the owner. Long (2016) also listed court decisions that
ruled that contractors have a right to rely on owner’s estimated
quantities, and therefore contractors were entitled to claim even
though the percentage deviation from estimated quantities was
within the allowable range. The court decision considered the
changed quantity clause that limits adjustment to variations beyond
25% as exculpatory contract language that does not deprive the
contractor from entitlement to claim for damages resulted from
reduced quantities of work.
Variations between estimated and actual quantities in construc-
tion contracts are one of the sources of disputes between owners
and contractors in construction projects (Willmore 2000). Willmore
(2000) cited an early contract dispute around variations in esti-
mated quantity in 1871. Contractors typically submit claims for
unrecovered indirect costs and profit when the actual quantities
are significantly lower than estimated quantities (Long 2016).
Willmore (2000) studied the legal principles governing the resolu-
tion of construction disputes that arise from variations in estimated
quantities and indicated that understanding these principles can
avoid costly litigation and promote resolution at the construction site
level. Willmore (2000) noted that contractors ability to claim for
price adjustment is not limited to the existence of a changed quantity
clause in the contract. Contractors can claim for adjustment based
on the differing site conditions clause or contract misrepresentation.
Model Development
As discussed previously, quantity variation is an inescapable truth
in measurement contracts and poses financial risks to owners and
contractors alike. While quantity underruns deprive contractors
from recovering the whole fixed costs, quantity overruns encumber
owners with extra costs resulting from the reduced share of fixed
cost in item pricing. In order to reduce the risks associated with
quantity fluctuations for both the owner and the contractor, this pa-
per proposes a price adjustment model that is designed to account
for both scenarios of quantity variation simultaneously. The pro-
posed model is illustrated by Fig. 1, and the calculations involved
in its operation are summarized in the following steps:
1. For each line item (m ¼ 1 to M), calculate the variable cost com-
ponent (VCm ) in the unit price, as shown in Eq. (1). The unit
cost of each line item includes direct cost (i.e., variable cost),
indirect cost (i.e., overhead), and profit. Overhead costs should
be uniformly allocated, as fixed percentage of direct cost, to
various line items to avoid risks associated with unbalanced
J. Constr. Eng. Manage.
 Start

m=1

1) Calculate the variable cost component (VCm) in the unit price of line item m.

2) Calculate the fixed cost component (FCm) in the unit price of line item m

3) Calculate the adjusted fixed cost component (FCam ) in the unit price of line
item m
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4) Calculate the adjusted unit rate for line item m

Select next bid No

Last bid item (m=M)?
item: m = m+1
Yes

5) Calculate the amount of overhead costs allocated to all line items

6) Calculate the amount of overhead costs recovered from all line items after
adjusting unit rates.

7) Compare the total recovered overhead from all line items with the allocated
overhead cost to ensure full recovery of fixed costs

8) Calculate profit percentage earned by the contractor based on actual

quantities of work before and after adjusting unit rates

End

Fig. 1. Price adjustment model

bidding. Although the owner does not know the exact amount 4. Calculate the adjusted unit rate for line item m
of overhead component in each line item and the intended profit,
both of them can be estimated depending on type of work in- U am ¼ ð1 þ pÞ × ðVCm þ FCam Þ ð4Þ
volved and market conditions. In fact, overhead costs and profit
are usually estimated in construction projects to quantify con- where U am = adjusted unit rate for line item m.
struction claims and negotiate claim settlements 5. Calculate the amount of overhead costs allocated to all line
items
VCm¼ Um ð1Þ X
M
ð1þOVÞ×ð1þPÞ
TOVau ¼ FCm × Qem ð5Þ
m¼1
where VCm = variable cost component in the unit price of line
item m; U m = unit price of line item m in the original contract; where TOVau = total overhead cost allocated to all line items.
OV = percentage of overhead cost in the unit price of items; and 6. Calculate the amount of overhead costs recovered from all line
P = typical profit margin in this type of projects. items after adjusting unit rates
2. For each line item (m ¼ 1 to M), calculate the fixed cost com-
ponent (FCm ) in the unit price, as shown in Eq. (2) X
M
TOVru ¼ FCam × Qam ð6Þ
m¼1
FCm ¼ OV × VCm ð2Þ
where TOVru = total overhead cost recovered from all line items.
3. Calculate the adjusted fixed cost component (FCam ) in the unit 7. Compare the total recovered overhead from all line items with
price of line item m the allocated overhead cost to ensure full recovery of fixed costs
regardless of quantity fluctuations
Qem TOVau ¼ TOVru ð7Þ
FCam ¼ FCm × ð3Þ
Qam
8. Calculate profit percentage earned by the contractor based on
where Qem = estimated quantities for line item m in the bill of actual quantities of work before and after adjusting unit rates
quantities (the estimated quantities for each of the lump sum PM
items will be 1); and Qam = actual quantities of work performed ½ðU − VCm Þ × Qam − ðFCm × Qem Þ
EP ¼ m¼1 PM m a e ð8Þ
in line item m. m¼1 ðVCm × Qm þ FCm × Qm Þ

© ASCE 04017079-4 J. Constr. Eng. Manage.

J. Constr. Eng. Manage., 2017, 143(10): 04017079

 PM
½ðU a − VCm − FCam Þ × Qam 
EPa ¼ PM m
m¼1
a a
m¼1 ½ðVCm þ FCm Þ × Qm 
where EP = earned profit before adjusting unit rates; and EPa =
earned profit after adjusting unit rates.
The proposed model contributes to equitable assignment of risks
between the contracting parties. Contractors are protected from the
risks of not recovering the overhead costs in the case of quantity
underruns, and at the same time owners are protected from the extra
costs associated with overbilling for overhead costs in the case of
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on the contractor and may lead to higher bid prices because con-
ð9Þ
tractors add surcharges to account for perceived risks. Examples of
contract provisions that reduce risk to contractors include escala-
tion clauses, exchange rate variation clauses, changed quantity
clauses, differing site conditions clauses, and changes in legisla-
tions clauses. The first three provide mechanisms for adjusting con-
tract price while the remaining two compensate the contractor for
unforeseen events that affect their costs. The aforementioned pro-
visions can be applied separately or collectively once the specified
precondition for their application is met. All those provisions serve
the same purpose, to reduce risks on the contractor in fixed price

quantity overruns. Applying the proposed model should reduce the

motive for unit-price manipulations and unbalanced pricing, which
pose substantial risks to owners and contractors alike. As the model
reduces contractor’s risk associated with quantity variations, it is
expected to lead to lower bid prices submitted by contractors. Risks
are always priced in bidding and lower risks lead to lower bid
prices. In order to illustrate how the proposed model works, an ap-
plication example is illustrated after the discussion.
Discussion
Construction contracts that allocate risks fairly between the con-
tracting parties are mutually beneficial to both owners and contrac-
tors. Unit-price contracts are classified as fixed cost contracts
similar to lump-sum contracts because payment to contractors is
based on the stipulated unit rates regardless of actual costs incurred
during construction. This type of contract imposes financial risks
contracts on the premise that such allocation of risks will result in
reasonable bid prices and reduction in conflicts during construc-
tion, which contributes to successful delivery of construction proj-
ects. Bajari et al. (2014) indicated that bidding regulations that
reduce the incompleteness or risks of the contract can reduce
the cost of public procurement because contractors respond to
incomplete contracts by incorporating adaptation costs to the
bid price.
The present model provides an alternative to typical changed
quantity clauses, and provides a systematic approach to protect
the contracting parties from risks related to quantity variations
in unit-price contracts. Changed quantity clauses are limited to ma-
jor contract items and are typically applicable to deviations that
exceed the allowable limit for variations, which is typically 25%
of original quantities. The present model is applicable to all line
items (i.e., both major and minor items), and also to all deviations
from estimated quantities (i.e., no need to set an allowable range for

Table 2. Contract Line Items for Erosion Control Project

Item Item description Unit of measure Estimated quantity Unit price ($) Item amount ($)
1 Removal of curb LF 50 25.00 1,250.00
2 Removal of asphalt mat SY 90 50.00 4,500.00
3 Unclassified excavation CY 800 23.97 19,176.00
4 Structure backfill (flow-fill) CY 800 190.03 152,024.00
5 Erosion log Type 1 (12 in.) LF 200 12.00 2,400.00
6 Aggregate bag LF 50 25.00 1,250.00
7 Concrete washout structure EA 10 250.00 2,500.00
8 Replace concrete pavement SY 6,397 167.72 1,072,904.84
9 Seeding (native) Acre 0.10 10,000.00 1,000.00
10 Mulching (weed free hay) Acre 0.10 5,000.00 500.00
11 Mulch tackifier LB 20 25.00 500.00
12 Aggregate base course (Class 6) Ton 300 43.52 13,056.00
13 Hot mix asphalt (patching) Ton 30 300.00 9,000.00
14 Curb (median) Type 4 (Section B) LF 100 80.00 8,000.00
15 Field laboratory (Class 2) EA 1 10,000.00 10,000.00
16 Sanitary facility EA 1 2,000.00 2,000.00
17 Mobilization LS 1 264,800.00 264,800.00
18 Public information services (Tier III) LS 1 5,000.00 5,000.00
19 Pavement marking paint GAL 26 100.00 2,600.00
20 Modified epoxy pavement marking GAL 26 200.00 5,200.00
21 Preformed plastic pavement marking II SF 473 5.00 2,365.00
22 Flagging Hour 1,840 25.00 46,000.00
23 Traffic control management Day 180 900.00 162,000.00
24 Barricade (Type 3 M-B) (temporary) EA 4 250.00 1,000.00
25 Construction traffic sign (panel size A) EA 20 20.00 400.00
26 Construction traffic sign (panel size B) EA 90 40.00 3,600.00
27 Portable message sign panel EA 4 4,000.00 16,000.00
28 Drum channelizing device EA 200 30.00 6,000.00
29 Traffic cone EA 100 20.00 2,000.00
30 Portable rumble strips (temporary) EA 24 300.00 7,200.00
31 Mobile pavement marking zone Day 4 2,500.00 10,000.00
32 Traffic signal (temporary) EA 2 15,000.00 30,000.00
Total amount 1,864,225.84

© ASCE 04017079-5 J. Constr. Eng. Manage.

J. Constr. Eng. Manage., 2017, 143(10): 04017079

 quantity fluctuations). Furthermore, the present model eliminates
the need to renegotiate unit rates as stipulated in changed quantity
clauses and therefore reduces the efforts needed and the possibility
of conflicts arising from these negotiations.
The present model is applicable only to unit-price contracts
whereas the previously mentioned clauses are applicable to both
unit-price contracts and lump-sum contracts. This limitation stems
from the differences between the applicability of the two types of
contracts. Lump-sum contracts are used when scope is well defined
and therefore accurate quantities of work can be estimated. Con-
versely, unit-price contracts are used when quantities of work
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by the contractor. The contractor can still use this practice even
though the sought financial benefit will be significantly degraded,
which protects the interest of the owner.
Unit-price contracts may include items of work that are not sub-
jected to price modification according to the present model. Exam-
ples of such items include: (1) lump sum items; (2) fixed rate items;
and (3) day work items. Any item that is marked in the bidding
documents under any of the aforementioned designations will
not be included in the price adjustment process. The three labels
indicate an agreed on condition between the contracting parties that
such items will not be included in the price adjustment. This limi-

cannot be estimated accurately. Risks associated with quantity var-
iations are often listed as a major shortcoming for unit-price con-
tracts (Hyari 2015; Gransberg and Riemer 2009), and therefore the
present model is designed to address this drawback.
The present model can reduce the motive for manipulating unit
rates (i.e., unbalanced bidding). However, the present model is not
expected to completely eliminate unbalanced bidding. Contractors
use unbalanced bidding for several reasons such as minimizing
financial costs of the projects (i.e., front end loading) or increasing
profit through exploiting errors in estimating quantities of work
(i.e., underpricing overestimated items while overpricing underes-
timated items). The present model reduces only the benefits
pursued from the second type of unbalanced bidding because
underestimated quantities will be subject to a reduction in unit
rates. This is expected to reduce the extent of unbalanced bidding,
but it is not expected to put an end for this practice because the basis
for price adjustment in the present model is the submitted unit rates
tation is already implemented in practice because existing changed
quantity clauses exclude such items. The applicability of the model
is similar to the applicability of the existing changed quantity
clauses. Owners need only to replace such clauses with the present
model in the bidding documents. Prospective contractors will be
informed that unit rates will be adjusted upward or downward de-
pending on the extent of deviation of quantities from contract
quantities.
The present model is designed to address one of the frequently
encountered risks in unit-price contracts, which is the recovery of
fixed costs once actual quantities deviate from estimated quantities
of work. Indirect costs and targeted profit are supposed to be allo-
cated evenly to all line items in order to comply with bidding reg-
ulations and to protect the owner as well as the contractor from the
consequences of skewed bidding. However, even if the contractor
opts to unbalance the allocation of profit or indirect cost, the
present model will reduce the negative impact on the owner if

Table 3. Contract Price Adjustment for Quantity Overrun Case (Scenario 1)

Adjustment Adjustment Adjustment
Item Unit price ($) Actual quantity Item payment ($) VC ($) FC ($) FC ($) unit price ($) item payment ($)
1 25 50 1,250 18.18 4.55 4.55 25 1,250
2 50 90 4,500 36.36 9.09 9.09 50 4,500
3 23.97 1,000 23,970 17.43 4.36 3.49 23.01 23,011
4 190.03 1,000 190,030 138.20 34.55 27.64 182.43 182,429
5 12 200 2,400 8.73 2.18 2.18 12 2,400
6 25 50 1,250 18.18 4.55 4.55 25 1,250
7 250 10 2,500 181.82 45.45 45.45 250 2,500
8 167.72 7,996 1,341,131 121.98 30.49 24.40 161.01 1,287,486
9 10,000 0.10 1,000 7,272.73 1,818.18 1,818.18 10,000 1,000
10 5,000 0.10 500 3,636.36 909.09 909.09 5,000 500
11 25 20 500 18.18 4.55 4.55 25 500
12 43.52 375 16,320 31.65 7.91 6.33 41.78 15,667
13 300 30 9,000 218.18 54.55 54.55 300 9,000
14 80 100 8,000 58.18 14.55 14.55 80 8,000
15 10,000 1 10,000 7,272.73 1,818.18 1,818.18 10,000 10,000
16 2,000 1 2,000 1,454.55 363.64 363.64 2,000 2,000
17 264,800 1 264,800 192,581.82 48,145.45 48,145.45 264,800 264,800
18 5,000 1 5,000 3,636.36 909.09 909.09 5,000 5,000
19 100 26 2,600 72.73 18.18 18.18 100 2,600
20 200 26 5,200 145.45 36.36 36.36 200 5,200
21 5 473 2,365 3.64 0.91 0.91 5 2,365
22 25 2,300 57,500 18.18 4.55 3.64 24 55,200
23 900 225 202,500 654.55 163.64 130.91 864 194,400
24 250 4 1,000 181.82 45.45 45.45 250 1,000
25 20 20 400 14.55 3.64 3.64 20 400
26 40 90 3,600 29.09 7.27 7.27 40 3,600
27 4,000 5 20,000 2,909.09 727.27 581.82 3,840 19,200
28 30 200 6,000 21.82 5.45 5.45 30 6,000
29 20 100 2,000 14.55 3.64 3.64 20 2,000.00
30 300 24 7,200 218.18 54.55 54.55 300 7,200
31 2,500 5 12,500 1,818.18 454.55 363.64 2,400 12,000
32 15,000 2 30,000 10,909.09 2,727.27 2,727.27 15,000 30,000
Total 2,237,016 2,162,458

© ASCE 04017079-6 J. Constr. Eng. Manage.

J. Constr. Eng. Manage., 2017, 143(10): 04017079

 the quantities of an overly-priced item increased. At the same time,
the model reduces the impact on the contractor if the quantities
of a lower-priced item decreased.
The applicability of the present model is not affected by
contingency allocation practices. Some contractors allocate contin-
gency as a fixed amount that will be distributed evenly (i.e., unified
percentage) across all line items to cover unforeseen costs. Other
contractors may choose to allocate varying amounts to some of the
line items according to the perceived risks in such items and the
contractor’s confidence in the estimated costs of those items. Both
approaches do not affect the use of the present model. Cost con-
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an effort toward this sought risk sharing between the owner and the
contractor.
The share of the indirect cost in the unit price of items is project-
specific and depends on the extent of lump sum items in the bill of
quantities. Yet, this percentage can be decided by several methods.
The owner can set this percentage in the bidding documents de-
pending on the engineer’s estimate of costs. Alternatively, the bid-
ders can be requested to state this percentage in their submitted
bids. Bidding documents can specify the mechanism for adopting
a percentage in the adjustment model. The adopted percentage can
be the average/median of the submitted percentages or alternatively

tingencies are not part of the project fixed costs, and the present
model is limited to the allocation and recovery of indirect costs
of the project. Contingencies are added to account for the uncer-
tainty in cost estimating and the perceived risks in the project.
Unused contingency will turn to an additional profit to the contrac-
tor, and inadequate contingency will lead to reduced profit because
additional unanticipated costs were not included in the original cost
estimating.
Recovery of indirect costs when quantities change represents
a risk to either the owner or the contractor depending on the type
of changes (i.e., overrun or underrun). The owner can reduce the
extent of indirect costs by listing some of the major elements in the
indirect costs as paid lump sum items such as mobilization costs,
traffic control, and maintaining site offices. However, this alternate
approach can invite other risks such as front end loading. There-
fore, these risks cannot be eliminated, but can be managed and al-
located fairly between the contracting parties. The present model is
the average of the engineer’s percentage and the bidders’ submitted
percentages.
Application Example
The example analyzed in this section is taken from a contract
awarded by the Colorado Department of Transportation (CDOT)
in 2016 for an erosion control project. The contract amount was
$1,864,225.84 and the project includes 32 line items. Two of them
are lump sum items and the rest are unit-price items. Table 2 illus-
trates the contract line items, estimated quantities, and the unit price
for each line item. Two scenarios for quantity variations were an-
alyzed. In the first scenario, the quantities of six line items (Items 3,
4, 8, 12, 22, and 23) were overrun by 25% as shown in Table 3. In
the second scenario, the quantities of the same line items were
underrun by 25% as shown in Table 4. In both cases the variations

Table 4. Contract Price Adjustment for Quantity Underrun Case (Scenario 2)

Adjustment Adjustment Adjustment
Item Unit price ($) Actual quantity Item payment ($) VC ($) FC ($) FC ($) unit price ($) item payment ($)
1 25 50 1,250 18.18 4.55 4.55 25.00 1,250.00
2 50 90 4,500 36.36 9.09 9.09 50.00 4,500.00
3 23.97 600.00 14,382 17.43 4.36 5.81 25.57 15,340.80
4 190.03 600.00 114,018 138.20 34.55 46.07 202.70 121,619.20
5 12 200 2,400 8.73 2.18 2.18 12.00 2,400.00
6 25 50 1,250 18.18 4.55 4.55 25.00 1,250.00
7 250 10 2,500 181.82 45.45 45.45 250.00 2,500.00
8 167.72 4,797.75 804,679 121.98 30.49 40.66 178.90 858,323.87
9 10,000 0.10 1,000 7,272.73 1,818.18 1,818.18 10,000.00 1,000.00
10 5,000 0.10 500 3,636.36 909.09 909.09 5,000.00 500.00
11 25 20 500 18.18 4.55 4.55 25.00 500.00
12 43.52 225 9,792 31.65 7.91 10.55 46.42 10,444.80
13 300 30 9,000 218.18 54.55 54.55 300.00 9,000.00
14 80 100 8,000 58.18 14.55 14.55 80.00 8,000.00
15 10,000 1 10,000 7,272.73 1,818.18 1,818.18 10,000.00 10,000.00
16 2,000 1 2,000 1,454.55 363.64 363.64 2,000.00 2,000.00
17 264,800 1 264,800 192,581.82 48,145.45 48,145.45 264,800.00 264,800.00
18 5,000 1 5,000 3,636.36 909.09 909.09 5,000.00 5,000.00
19 100 26 2,600 72.73 18.18 18.18 100.00 2,600.00
20 200 26 5,200 145.45 36.36 36.36 200.00 5,200.00
21 5 473 2,365 3.64 0.91 0.91 5.00 2,365.00
22 25 1,380 34,500 18.18 4.55 6.06 26.67 36,800.00
23 900 135 121,500 654.55 163.64 218.18 960.00 129,600.00
24 250 4 1,000 181.82 45.45 45.45 250.00 1,000.00
25 20 20 400 14.55 3.64 3.64 20.00 400.00
26 40 90 3,600 29.09 7.27 7.27 40.00 3,600.00
27 4,000 3.00 12,000 2,909.09 727.27 969.70 4,266.67 12,800.00
28 30 200 6,000 21.82 5.45 5.45 30.00 6,000.00
29 20 100 2,000 14.55 3.64 3.64 20.00 2,000.00
30 300 24 7,200 218.18 54.55 54.55 300.00 7,200.00
31 2,500 3 7,500 1,818.18 454.55 606.06 2,666.67 8,000.00
32 15,000 2 30,000 10,909.09 2,727.27 2,727.27 15,000.00 30,000.00
Total 1,491,436 1,565,994

© ASCE 04017079-7 J. Constr. Eng. Manage.

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 Table 5. Recovered Overhead and Earned Profit for Quantity Overrun Case (Scenario 1)
Allocated Overhead recovered Item profit
Item Overhead Before adjustment After adjustment Item cost Before adjustment After adjustment
1 227.3 227.3 227.3 1,136.4 113.6 113.6
2 818.2 818.2 818.2 4,090.9 409.1 409.1
3 3,486.5 4,358.2 3,486.5 20,919.3 3,050.7 2,091.9
4 27,640.7 34,550.9 27,640.7 165,844.4 24,185.6 16,584.4
5 436.4 436.4 436.4 2,181.8 218.2 218.2
6 227.3 227.3 227.3 1,136.4 113.6 113.6
7 454.5 454.5 454.5 2,272.7 227.3 227.3
8 195,073.6 2,43,842.0 1,95,073.6 1,170,441.6 170,689.4 117,044.2
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9 181.8 181.8 181.8 909.1 90.9 90.9

10 90.9 90.9 90.9 454.5 45.5 45.5
11 90.9 90.9 90.9 454.5 45.5 45.5
12 2,373.8 2,967.3 2,373.8 14.242.9 2,077.1 1,424.3
13 1,636.4 1,636.4 1,636.4 8.181.8 818.2 818.2
14 1,454.5 1,454.5 1,454.5 7,272.7 727.3 727.3
15 1,818.2 1,818.2 1,818.2 9,090.9 909.1 909.1
16 363.6 363.6 363.6 1,818.2 181.8 181.8
17 48,145.5 48,145.5 48,145.5 240,727.3 24,072.7 24,072.7
18 909.1 909.1 909.1 4,545.5 454.5 454.5
19 472.7 472.7 472.7 2,363.6 236.4 236.4
20 945.5 945.5 945.5 4,727.3 472.7 472.7
21 430.0 430.0 430.0 2,150.0 215.0 215.0
22 8,363.6 10,454.5 8,363.6 50,181.8 7,318.2 5,018.2
23 29,454.5 36,818.2 29,454.5 176,727.3 25,772.7 17,672.7
24 181.8 181.8 181.8 909.1 90.9 90.9
25 72.7 72.7 72.7 363.6 36.4 36.4
26 654.5 654.5 654.5 3,272.7 327.3 327.3
27 2,909.1 3,636.4 2,909.1 17,454.5 2,545.5 1,745.5
28 1,090.9 1,090.9 1,090.9 5,454.5 545.5 545.5
29 363.6 363.6 363.6 1,818.2 181.8 181.8
30 1,309.1 1,309.1 1,309.1 6,545.5 654.5 654.5
31 1,818.2 2,272.7 1,818.2 10,909.1 1,590.9 1,090.9
32 5,454.5 5,454.5 5,454.5 27,272.7 2,727.3 2,727.3
Total 338,950.2 406,730.2 338,950.2 1,965,870.9 271,145.1 196,587.1
Percentage 13.7 10.0

in quantities are not eligible to any price adjustment because
percentages of variations are within the allowable range and there-
fore do not satisfy the criteria for price adjustment according to the
standard specifications of the state department of transportation.
Considering a typical profit margin of 10% and estimating the indi-
rect costs for this type of projects at 25% of the direct costs, the
proposed model was used to adjust the unit rates of line items ac-
cording to the variation in quantities. Table 3 illustrates the adjusted
unit rates and the total payment to the contractor before and after
applying the model in Scenario 1 (overrun in quantities). The con-
tractor’s total payment will be $2,162,458 instead of $2,237,016.
The owner will be protected from unduly paying $74,558 to the
contractor because all fixed costs were already recovered from
performing the original quantities of work. Table 4 illustrates
the adjusted unit rates and the total payment to the contractor
before and after applying the model in Scenario 2 (underrun in
quantities). The contractor’s total payment will be $1,565,994 in-
stead of $1,491,436. The contractor will be protected from losing
$74,558 due to unrecovered fixed costs because actual quantities
performed were less than estimated quantities in the bill of quan-
tities. Table 5 illustrates the allocated overhead and the differences
between recovered overhead before and after applying the model
when actual quantities exceed estimated ones. Adjusting unit rates
ensures that contractors will recover only the intended overhead,
and that the contractor will not obtain a windfall profit if quantities
overrun while still maintaining the intended profitability of the
project. As shown in Table 5, the profit margin before applying
the model would rise to 13.79% whereas the profit is 10% after
applying the model, which is consistent with the intended profit.
Similarly, Table 6 illustrates the recovered overhead before and
after applying the present model in the quantity underrun case.
It is shown that the contractor incurs a loss of $74,558 due to unre-
covered overhead before applying the model whereas the recovered
overhead matches the intended one after applying the model. The
impact on profitability is obvious because profit would drop to
4.8% without the model application whereas the consistency
between the intended profit and the earned profit is ensured with
the model application. The analyzed example illustrates the bal-
anced perspective of the model as it adjusts unit rates upward
and downward as per quantity variations.
Conclusion
In unit-price contracts, the discrepancy between the actual and es-
timated quantities of work poses risks to owners as well as contrac-
tors. This paper presented the development of a price adjustment
model for quantity variations in unit-price contracts. The model ad-
justs the unit price for line items when a deviation exists between
estimated and actual quantities of work. The price will be increased
if actual quantities are less than estimated quantities. Similarly, unit
rates will be lowered if actual quantities surpass estimated ones.

© ASCE 04017079-8 J. Constr. Eng. Manage.

J. Constr. Eng. Manage., 2017, 143(10): 04017079

 Table 6. Recovered Overhead and Earned Profit for Quantity Underrun (Scenario 2)
Allocated Overhead recovered Item profit
Item Overhead Before adjustment After adjustment Item cost Before adjustment After adjustment
1 227.3 227.3 227.3 1,136.4 113.6 113.6
2 818.2 818.2 818.2 4,090.9 409.1 409.1
3 3,486.5 2,614.9 3,486.5 13,946.2 435.8 1,394.6
4 27,640.7 20,730.5 27,640.7 110,562.9 3,455.1 11,056.3
5 436.4 436.4 436.4 2,181.8 218.2 218.2
6 227.3 227.3 227.3 1,136.4 113.6 113.6
7 454.5 454.5 454.5 2,272.7 227.3 227.3
8 195,073.6 146,305.2 195,073.6 780,294.4 24,384.2 78,029.4
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9 181.8 181.8 181.8 909.1 90.9 90.9

10 90.9 90.9 90.9 454.5 45.5 45.5
11 90.9 90.9 90.9 454.5 45.5 45.5
12 2,373.8 1,780.4 2,373.8 9,495.3 296.7 949.5
13 1,636.4 1,636.4 1,636.4 8,181.8 818.2 818.2
14 1,454.5 1,454.5 1,454.5 7,272.7 727.3 727.3
15 1,818.2 1,818.2 1,818.2 9,090.9 909.1 909.1
16 363.6 363.6 363.6 1,818.2 181.8 181.8
17 48,145.5 48,145.5 48,145.5 240,727.3 24,072.7 24,072.7
18 909.1 909.1 909.1 4,545.5 454.5 454.5
19 472.7 472.7 472.7 2,363.6 236.4 236.4
20 945.5 945.5 945.5 4,727.3 472.7 472.7
21 430.0 430.0 430.0 2,150.0 215.0 215.0
22 8,363.6 6,272.7 8,363.6 33,454.5 1,045.5 3,345.5
23 29,454.5 22,090.9 29,454.5 117,818.2 3,681.8 11,781.8
24 181.8 181.8 181.8 909.1 90.9 90.9
25 72.7 72.7 72.7 363.6 36.4 36.4
26 654.5 654.5 654.5 3,272.7 327.3 327.3
27 2,909.1 2,181.8 2,909.1 11,636.4 363.6 1,163.6
28 1,090.9 1,090.9 1,090.9 5,454.5 545.5 545.5
29 363.6 363.6 363.6 1,818.2 181.8 181.8
30 1,309.1 1,309.1 1,309.1 6,545.5 654.5 654.5
31 1,818.2 1,363.6 1,818.2 7,272.7 227.3 727.3
32 5,454.5 5,454.5 5,454.5 27,272.7 2,727.3 2,727.3
Total 338,950.2 271,170.1 338,950.2 1,423,630.6 67,805.0 142,363.1
Percentage 4.8 10.0

The present model tackled the inherent inconsistency in bidding
regulations for unit-price contracts. Standard specifications of
many state departments of transportation indicate that estimated
quantities are approximate ones and are presented only for the sake
of comparison of bid proposals. But at the same time, these spec-
ifications require contractors to allocate their indirect costs fairly
over the bid line items using these approximate quantities. The
proposed model offers several advantages over the currently
used changed quantity clauses in unit-price contracts including:
(1) eliminating the need for setting limits for allowable variations
as all variations are subject to adjustment in the present model;
(2) removing the need for identifying major and minor items be-
cause all line items are eligible for price adjustments; and (3) elimi-
nating the need for negotiating price adjustments because the model
provides a systematic way for adjusting the unit rates according to
the deviations from the estimated quantities. The model balances
the interests of the contracting parties as it ensures the recovery
of indirect costs when quantities underrun, and at the same time
it prevents overbilling for indirect costs when quantities overrun.
Adoption of the proposed model is expected to lead to (1) lowering
bid prices because contractors will not need to account for
quantity variation risks in their bids; and (2) minimizing claims
and disputes related to changed quantities that can contribute to
reducing project litigation and delay. Future research could inves-
tigate the possibility of extending the present model to other
contract types such as lump sum and job order contracts. Future
research also could study the possibility of integrating time adjust-
ment with price adjustment for quantity variations in unit-price
contracts. Deviations from estimated quantities not only affect unit
cost, but also affect delivery time of the construction activity.
Data Availability Statement
All data generated or analyzed during the study are included in
the published paper. Information about the Journal’s data sharing
policy can be found here: http://ascelibrary.org/doi/10.1061/%28
ASCE%29CO.1943-7862.0001263.
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