What best defines unit price contracts?

Unit price contracts are characterized by the payment structure, where the contractor is compensated based on the established unit prices for specific quantities of work. This means that for each unit of a particular type of work completed, a predetermined price is paid. These contracts are particularly useful in construction because they allow for flexibility in the scope of work; if the quantity of work changes, the total contract price will adjust accordingly based on the unit price.

For example, in a unit price contract for excavation, if the contract stipulates a unit price of $10 per cubic yard of dirt excavated, and the actual amount excavated is 100 cubic yards, the contractor would receive $1,000. This method provides a clear understanding of costs for both the owner and the contractor and can facilitate smoother financial tracking as work progresses.

In contrast, the other options do not accurately describe unit price contracts. Payment based on hourly labor, settled percentages, or fixed costs do not reflect the unit pricing structure that defines these contracts specifically. Each of those options relates to different contracting methods that do not incorporate the flexibility and specificity of unit pricing.