Coping with Uncertainty in Unit Price Contracting

by James E. Diekmann, (M.ASCE), Asst. Prof. of Civ. Engrg.; Univ. of Colorado, Boulder, Colo.,
Robert H. Mayer, Jr., Asst. Prof. of Civ. Engrg.; Univ. of Colorado, Boulder, Colo.,
Robert M. Stark, (M.ASCE), Prof. of Civ. Engrg.; Univ. of Delaware, Newark, Del.,


Serial Information: Journal of the Construction Division, 1982, Vol. 108, Issue 3, Pg. 379-389


Document Type: Journal Paper

Abstract: Unbalancing of Unit Price Proposals is widely used to improve cash flows and the competitiveness of a tender. Such practices can alter a contractor's risk favorably or otherwise. This paper is concerned with selecting unit prices which achieve a balance between maximizing the present worth of profit and minimizing potential contractor loss due to quantity misestimates. A quadratic programming model is devised to determine optimal unit prices and an example illustrates features of implementation.

Subject Headings: Pricing | Contractors and subcontractors | Risk management | Profits | Computer programming | Uncertainty principles

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