Chances and risks of combined pricing

Appropriate costing creates a plausible, reliable basis for determining the bid price. One of the key requirements that applicable laws, standards, and guidelines stipulate for (structural) specifications is that works should be specified clearly, completely and objectively so as to ensure bid comparability. Furthermore, cost estimates should be possible for the specified works (excluding non-quantifiable risks). The specifying party usually requires combined pricing because works related to various structural components, construction trades, subsoil types, rebar diameters etc. that necessitate a variety of types and combinations of production factors are merged into a single item. Combined pricing occurs whenever a unit price is to be derived from different cost estimates with respect to the utilization of production factors. This means that bidders intending to develop an activity-based costing model would have to know the type of work or service, the underlying conditions for performing the work, and the associated timeframe (i.e. project start, binding milestones, project end). This paper investigates if combined pricing items meet these requirements whilst putting a particular focus on the relevance of combined pricing to construction management and economics, including construction expert opinions on the chances and risks of this approach. For this purpose, this paper primarily deals with reinforcing works.