Construction Budgets: Market-Sourced vs. Unit Pricing - Building Solutions
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Construction Budgets: Market-Sourced vs. Unit Pricing

Pricing for line items in a typical construction budget can be realized in one of two ways. Either you meet on-site with your contractor and procure a market quote directly from them, which is market source pricing, or you calculate the number of square feet off the plans and apply a “per-square-foot” price to that number, which is unit pricing.

Which Is Better?

The one advantage of unit pricing: It’s fast and inexpensive to produce compared to the alternative. However, there is an important and distinct disadvantage: It’s not only inaccurate, but inadequate for the task of breaking down the contractor’s quote into options.

Let’s take a roofing bid, for example. These options might include an upgrade to copper flashings instead of steel, a new two-piece reglet flashing at all roof-to-wall locations instead of reusing the existing step shingles, an allowance to cut out the original chimney flashings and re-point new flashings at the masonry chimney, and reflash the skylights instead of using the old flashing.

Overall, market-sourced is the better option. There is more to accurately pricing a roof that will last decades than a simple “per-square-foot” cost. In addition to using market-sourced pricing as the very first step in quality control (for example, the requirement to use new flashings instead of reusing the old), this type of pricing is the only way to avoid change orders during construction.

Address Options Early

As you can see, the best time to address these requirements and upgrade options is during the costing (or Value Engineering) process before construction begins, not during construction as a change order. This lack of planning never produces a good client experience. While Unit Pricing may have a place at the beginning of a Value Engineering Process while you are still in the Project Viability stage, Market-Sourced pricing creates a finer granularity of options and quality control requirements to maintain your project funding goals.