Lump sum Contracts in construction
A lump sum contract in construction is a type of contract where the contractor is paid a fixed price for the completion of the entire project. The contractor assumes full responsibility for all costs associated with the project, including labor, materials, and equipment, and must complete the work within the agreed upon timeframe. The advantage of a lump sum contract is that it provides clarity and stability for both the contractor and the owner, as the price and scope of work are agreed upon in advance. However, it also puts more risk on the contractor, as they must accurately estimate the costs of the project and cannot change the price, even if unexpected expenses arise.
Lump sum Contract forms
Examples of lump sum contract forms in construction include:
- Fixed Price Contract: This is the most common type of lump sum contract, where the contractor agrees to complete the work for a predetermined, fixed price.
- Unit Price Contract: In this type of contract, the contractor provides a price for each unit of work to be performed, such as a price per square foot or per linear foot.
- Cost Plus Fixed Fee Contract: In this type of contract, the contractor is reimbursed for all direct costs, plus a fixed fee for their services.
- Guaranteed Maximum Price Contract: In this type of contract, the contractor agrees to complete the work for a guaranteed maximum price, but is allowed to keep any savings that are realized through more efficient work methods.
- Turnkey Contract: A turnkey contract is a type of lump sum contract where the contractor is responsible for designing, building, and delivering the completed project to the owner, ready for use.
These are just a few examples of the various forms of lump sum contracts used in construction. The specific form of contract used will depend on the unique needs and requirements of the project.