Price in the construction industry
Price is the term used to describe the amount of compensation, usually in the form of monetary payment, that is exchanged between one party and another for the provision of goods and/or services. It represents the value that will purchase a certain amount of those goods and services.
Price forms the basis of all commercial transactions and is usually expressed in units of currency.
Price can be fixed by a contract, determined later by an agreed-upon formula, or negotiated. The ‘asking price’, ‘selling price’, 'quote' or 'tender' is requested by the seller of goods or services. This may be different from the ‘transaction price’, or ‘traded price’, which is the amount that is actually exchanged. The ‘bid price’ is the amount of payment offered by a buyer of goods or services and can be accepted or rejected by the seller.
The general factors that determine price are:
- The amount the buyer is willing to pay.
- The amount the seller is willing to accept.
- The amount the market is paying/accepting.
In terms of land and property, price is the capital value of those assets and is generally related to the income it produces or could produce. For example, the buyer of a revenue-producing property investment, such as a commercial office block, is effectively paying a capital sum today in return for the right to receive a stream of income in the future.
In construction contracts, the price offered by a supplier might be described as a 'tender' and the agreed price might be described as the 'contract sum'. However, prices are rarely 'fixed' even if they are described as being a 'fixed price'. Instead, the price is generally allowed to change under certain circumstances:
- Variations: Most contracts will contain provision for the architect or contract administrator to issue instructions to vary the design, quantities, quality, sequence or working conditions.
- Relevant events: A relevant event may be caused by the client (for example failure to supply goods or instructions), or may be a neutral event (such as exceptionally adverse weather) and may result in a claim for loss and expense by the contractor.
- Provisional sums: An allowance for a specific element of the works that is not defined in enough detail for tenderers to price.
- Fluctuations: A mechanism for dealing with inflation on projects where the contractor tenders based on current prices and then the contract makes provisions for the contractor to be reimbursed for price changes over the duration of the project.
- Payments to nominated sub-contractors or nominated suppliers.
- Statutory fees.
- Payments relating to opening-up and testing the works.
A truly 'fixed' price contract would not necessarily be in the interests of the client as it would require that the contractor prices risks over which they may have no control, and which might not arise.
Other forms of price include; guaranteed maximum price, negotiated price, open book accounting, lump sum, and so on. See Fixed price construction contract for more information.
The manipulation of prices in collusion with other suppliers is illegal.
[edit] Related articles on Designing Buildings
- Capital cost.
- Construction price and cost indices.
- Contract sum.
- Cost.
- Cost consultant.
- Cost vs price.
- Fixed price construction contract.
- Guaranteed maximum price.
- Guaranteed maximum price with target cost.
- Linear pricing.
- Market price.
- Offer price.
- Payment by results.
- Price certainty.
- Procurement.
- Provisional sums.
- Real price.
- Shadow price.
- Spon's Price Book.
- Spot price.
- Types of price.
- Unit price.
- Volume-based payment.
Featured articles and news
Deputy editor of AT, Tim Fraser, discusses the newly formed society with its current chair, Chris Halligan MCIAT.
Barratt Lo-E passivhaus standard homes planned enmasse
With an initial 728 Lo-E homes across two sites and many more planned for the future.
Government urged to uphold Warm Homes commitment
ECA and industry bodies write to Government concerning its 13.2 billion Warm Homes manifesto commitment.
Places of Worship in Britain and Ireland, 1929-1990. Book review.
The emancipation of women in art.
CIOB Construction Manager of the Year 2025
Just one of the winners at the CIOB Awards 2025.
Call for independent National Grenfell oversight mechanism
MHCLG share findings of Building Safety Inquiry in letter to Secretary of State and Minister for Building Safety.
The Architectural Technology Awards
AT Awards now open for this the sixth decade of CIAT.
50th Golden anniversary ECA Edmundson awards
Deadline for submissions Friday 30 May 2025.
The benefits of precast, off-site foundation systems
Top ten benefits of this notable innovation.
Encouraging individuals to take action saving water at home, work, and in their communities.
Takes a community to support mental health and wellbeing
The why of becoming a Mental Health Instructor explained.
Mental health awareness week 13-18 May
The theme is communities, they can provide a sense of belonging, safety, support in hard times, and a sense purpose.
Mental health support on the rise but workers still struggling
CIOB Understanding Mental Health in the Built Environment 2025 shows.
Design and construction material libraries
Material, sample, product or detail libraries a key component of any architectural design practice.
Construction Products Reform Green Paper and Consultation
Still time to respond as consultation closes on 21 May 2025.
Resilient façade systems for smog reduction in Shanghai
A technical approach using computer simulation and analysis of solar radiation, wind patterns, and ventilation.