Last edited 31 Dec 2020

Price certainty in the construction industry

Price is the amount paid for acquiring a product or a service. It is not the same as cost, which is the amount incurred in making something or providing a service. Price is therefore understood from the buyer’s perspective while cost is understood from the producer/supplier's perspective.

Price certainty can describe a state of affairs whereby before a project or part of a project starts, a contractor is be able to buy materials and components at a fixed, pre-agreed price which is both competitive (possibly below the market average) and advantageous. Certainty is provided by the supplier that the goods will be supplied at the agreed price and at the right time, possibly over a regular period. The basis of price certainty is forward planning and pre-agreement.

For example, a contractor or subcontractor may be able to order a pre-agreed volume of fuel every month at a fixed price for a specified future period. This provides a greater assurance of supply and helps budgeting as it removes the uncertainty of fluctuating fuel costs.

On the supply side, price certainty may contribute to cost certainty in that as a result of the pre-agreement, the supplier receives a fair price for the product or service which covers their production and/or supply costs and leaves them with a profit.

In the absence of agreement, their may be uncertainty about price.

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