---
title: "Item rate contract"
subject: "Construction Management"
chapter: 5
key: "semester_8/construction_management:item-rate-contract"
source: https://www.bctengineer.com/q/semester_8/construction_management/item-rate-contract
site: BCT Engineering
---

# Item rate contract

Construction Management · Chapter 5: Contract Management

- Asked in: 2075 Bhadra
- Video: [What is the Contract ? | Type of Construction Contracts | Lump Sum Contract / Item Rate Contract](https://www.youtube.com/watch?v=q_7yASzaZuU) — The Institute of Construction Managment 
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/item-rate-contract
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-5

## Question

Explain the item rate contract.

## Short answer

An item rate contract pays the contractor's quoted rate for each BOQ item multiplied by the actual measured quantity. The BOQ quantities are estimates, so the final price changes with measurement. It suits uncertain quantities and is common in Nepalese public works, but needs much measurement and risks unbalanced bidding.

## Answer

An **item rate contract** (unit price contract) is one in which the contractor quotes a rate for each item of work listed in the Bill of Quantities (BOQ), and payment is made on the actual measured quantity of each item multiplied by its rate. The BOQ quantity is an estimate; the total contract price is the sum of (estimated quantity x rate) and may change after the final measurement.

#### Features
- A detailed BOQ with the items, units and estimated quantities is given by the client; the bidder fills in the rates and amounts.
- Payment: running bills by measured work; the final bill by the final measurement.
- Variations in quantity are paid at the same rates (with limits, often +/- 15-25%, beyond which rates are adjusted).
- Bids are compared on the total of the quoted amounts.

#### Merits
Fair payment for the real quantity; suits works where quantities are uncertain (earthwork, roads, foundations); variations are easy; bids are easily compared; wide use in public works in Nepal.

#### Demerits
Final cost is not known at the start; it needs a lot of measurement and checking; risk of unbalanced bidding (very high rates for early items and very low for others); it requires a complete BOQ and good supervision.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. How is payment made in an item rate contract?
   A. A single fixed lump sum
   B. Actual cost plus a fee
   C. A percentage of the estimate
   D. Measured quantity of each item multiplied by its quoted rate
   Answer: D. The BOQ quantity is an estimate; payment follows final measurement. (Key point: Definition)

2. On what basis are bids compared?
   A. The total of quoted amounts (estimated quantity x rate)
   B. Only the lowest single rate
   C. The contractor's turnover
   D. The completion period only
   Answer: A. Total of quantity times rate is compared. (Key point: Bid comparison)

3. What happens if quantity variation exceeds the limit (often 15-25%)?
   A. The contract is cancelled
   B. Rates are adjusted
   C. The contractor is paid nothing for extra
   D. The work is re-tendered always
   Answer: B. Within limits the same rates apply; beyond them rates are adjusted. (Key point: Variation limit)

4. What is unbalanced bidding?
   A. Equal rates for all items
   B. Bidding below 85% of the estimate for all items
   C. Very high rates for early items and very low for others
   D. Submitting two bids
   Answer: C. It is a demerit of item rate contracts needing careful checking. (Key point: Unbalanced bidding)

## Related in other subjects

- [RECORD.txt item cost with VAT](https://www.bctengineer.com/question.md?key=semester_1%2Fcomputer_programming%3Afile-record-txt-invoice) — Computer Programming, chapter 10
- [Factors on which unit rate depends](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Afactors-unit-rate-depends) — Estimating and Costing, chapter 4