The Unit Rate That Did Not Add Up
You are pricing a 12-month fit-out. Your estimate totals £2.4m. During the tender you discover that the excavation rate you used (£28/m³) was based on a schedule that assumed 1,200 m³, but the drawings imply 1,800 m³ because of a deeper formation level. Your subcontractor's quote is fixed at the lower quantity and will not be revised. The client's budget is £2.5m and your margin is 6%. You have 48 hours before submission.
1. Quantify the effect of the quantity error and decide how to treat it in the tender.
Read the worked answer
Extra quantity: 600 m³ at £28/m³ = £16,800 additional direct cost. At a 6% margin basis the tender figure should rise by roughly £16,800 / 0.94 ≈ £17,870 to preserve margin, or you absorb £16,800 and lose most of it.
Treatment options:
- Price the higher quantity using your own rate and note the assumption. Safest commercially.
- Price the lower quantity and rely on a remeasurement clause. Only safe if the contract remeasures and the rate survives.
- Qualify the tender with a stated assumption on formation depth. Acceptable if the client permits qualifications.
Given a 48-hour window and a fixed subcontractor quote, the defensible move is to price the realistic quantity (1,800 m³) at your rate and state the basis, rather than submit a figure you know is understated.
2. The client says the budget is fixed at £2.5m. What is the risk of trimming elsewhere to hit the number?
Read the worked answer
Trimming other items to hide a known understatement transfers risk to you at delivery. If you cut preliminaries or contingency to stay under £2.5m, you remove the buffer that would absorb the excavation overrun.
Risks:
- The 6% margin (about £144k) is thinner than the £16.8k error once other variations land.
- A fixed subcontractor quote at the wrong quantity means the extra 600 m³ comes out of your pocket at delivery.
- Under-priced preliminaries cause programme pressure and safety shortcuts later.
Better approach: present the £2.4m base plus the £16.8k correction transparently, explain the drawing discrepancy, and let the client decide whether to reduce scope. Do not silently reallocate contingency to cover a known error.