Coping with Uncertainty in Unit Price Contracting

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.