Scribd
Upload
115 views3 pages

Learn About Lump Sum Construction Contracts: Lump Sum Contract Is Used When Scope Is Clear and Terms Are Defined

The document discusses lump sum construction contracts. It provides the following key points: 1. A lump sum contract requires the contractor to submit a total fixed price for the project rather than bidding on individual items. This type of contract is best for projects with a well-defined scope and minimal risk of differing site conditions. 2. Under a lump sum contract, the contractor takes on most of the risk and is responsible for proper job execution and determining their own means and methods. The contract price is estimated based on labor, material, and overhead/profit costs. 3. Lump sum contracts work well when the project scope is clearly defined with complete drawings. They reduce owner risk and give contractors control over profits.

Uploaded by

sarwarrosun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
115 views3 pages

Learn About Lump Sum Construction Contracts: Lump Sum Contract Is Used When Scope Is Clear and Terms Are Defined

The document discusses lump sum construction contracts. It provides the following key points: 1. A lump sum contract requires the contractor to submit a total fixed price for the project rather than bidding on individual items. This type of contract is best for projects with a well-defined scope and minimal risk of differing site conditions. 2. Under a lump sum contract, the contractor takes on most of the risk and is responsible for proper job execution and determining their own means and methods. The contract price is estimated based on labor, material, and overhead/profit costs. 3. Lump sum contracts work well when the project scope is clearly defined with complete drawings. They reduce owner risk and give contractors control over profits.

Uploaded by

sarwarrosun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

on

Learn About Lump Sum Construction


Contracts
Lump Sum Contract Is Used When Scope Is Clear and
Terms Are Defined

A lump sum contract is normally used in the construction industry to reduce design and
contract administration costs. It is called a lump sum because the contractor is required to submit
a total and global price instead of bidding on individual items. A lump sum contract is the most
recognized agreement form on simple and small projects and projects with a well-defined scope
or construction projects where the risk of different site conditions is minimal.

Lump Sum Contract Basics

A lump sum contract or a stipulated sum contract will require that the supplier agrees to provide
specified services for a stipulated or fixed price. In a lump sum contract, the owner has
essentially assigned all the risk to the contractor, who in turn can be expected to ask for a higher
markup in order to take care of unforeseen contingencies. A supplier being contracted under a
lump sum agreement will be responsible for the proper job execution and will provide its own
means and methods to complete the work. This type of contract usually is developed by
estimating labor costs, material costs, and adding a specific amount that will cover contractors
overhead and profit margin.

The amount of overhead calculated under a lump sum contract will vary from builder to builder,
but it will be based on their risk assessment study and labor expertise. However, estimating a
very large overhead cost can lead the contractor to present higher construction costs to the
project owner.
The expertise of the contractor will determine how their estimated profit will actually be;
furthermore, a poor executed and long-delayed job will raise your construction costs and
eventually diminish the contractor's profit.

When to Use This Type of Contract

A lump sum contract is a great contract agreement to be used if the requested work is well-
defined and construction drawings are completed.

The lump sum agreement will reduce owner risk, and the contractor has greater control over
profit expectations. It is also a preferred choice when stable soil conditions, complete pre-
construction studies, and assessments are completed and the contractor has analyzed those
documents. The stipulated sum contract might contain, when agreed-upon parties, certain unit
prices for items with indefinite quantities and allowance to cover any unexpected condition. The
time to award this type of contract is also longer; however, it will minimize change orders during
construction.

Lump Sum Contract Advantages

A lump sum contract offers the following advantages:

Low risk to the owner.


'Fixed' construction cost.
Minimize change orders.
Owner supervision is reduced when compared to Time and Material Contract.
The contractor will try to complete the project faster.
Accepted widely as a contracting method.
Bidding analysis and selection process is relatively easily.
The contractor will maximize its production and performance.

Lump Sum Contract Disadvantages

Although lump sum contracts are the standard and preferred option for all contractors, it might
also have some limitations:
It presents the highest risk to the contractor.

Changes are difficult to quantify.


The Owner might reject change order requests.
The project needs to be designed completely before the commencement of activities.
The construction progress could take longer than other contracting alternatives.
The contractor will select its own means and methods.
Higher contract prices that could cover unforeseen conditions.

Lump Sum Critical Items

Lump sum contracts are a great tool for smaller jobs and quite simple projects. However, lump
sum contracts could eventually produce large dispute and claims that will arise from contract
documents. The most common arguing factors are:

Unbalanced Bids: Some projects might require producing an application for payment
using unit quantities and unit prices. Many contractors will produce an unbalanced bid by
rising unit prices on items to be completed early in the project, such as mobilization,
insurances, and general conditions, and lowering unit prices on items needed in later
stages.

Change Orders: If the owner produces or receives a change order proposal from the
contractor, the price quotation could be possibly disputed. The Owner might appeal that
the requested change was already covered under contract provisions. It is important to
prepare specific contract clauses specifying how change orders are going to be managed
and to what extent the contractor could claim delay damages.
Scope and Design Changes: A contractor may suggest design changes based on their
experience. Contract provisions should be clear on how those changes will be addressed
and how those costs will be divided or who will be responsible for the economic impact
of the proposed changes.
Early Completion: Lump sum contracts might include an early completion compensation
for the contractor. Early completion might produce higher savings for the project owner;
however, those clauses might be explicit in the construction contract.

https://www.thebalance.com/builders-guide-to-performance-bonds-844795

wastewater engineering

https://www.youtube.com/watch?v=qTbD64kXA9U&list=PLSNhedsleX13Ax3JQQImPhraGhbSQl1Lj

illusion

https://www.youtube.com/watch?v=LPb3lG2-cZk

http://en.booksee.org/ for ebook

You might also like