A lump sum contract ordinarily details the fixed total amount to be paid to the contractor and the timeline for payment. It must be noted that a bill of quantity can contain one or more of the following items in addition to the lump sum items: Provisional Sums. Items using Prime Cost Sums.

What is lump sum rate contract?

A lump sum contract or “fixed fee contract” is a traditional means of procurement in which a single “lump sum” price for all of the works is agreed upon before the works starts. This means that the contractor is able to accurately price the risk they are being asked to accept.

How are lump sum contracts paid?

With these contracts, payment usually occurs on an installment basis. This can be as project benchmarks are met or in regular increments (e.g., monthly). To modify a lump-sum contract, project owners must submit a change order document that the contractor must approve along with any price changes.

How does lump sum contract work?

A lump sum contract is a construction agreement in which the contractor agrees to complete the project for a predetermined, set price. Under a lump sum agreement, also known as a “stipulated sum,” the contractor submits a total project price instead of bidding on each individual item.

What is disadvantage of lump sum contracts?

Disadvantages of a Lump Sum Construction Contract A lump sum agreement presents a higher risk to a contractor. Measuring the number of changes is difficult. Such contracts require paperwork and records of change orders from each phase, and this means further documentation is needed.

What is the difference between fixed price and lump sum contract?

Under a lump sum contract, a single ‘lump sum’ price for all the works is agreed before the works begin. It is defined as a fixed price contract, where the contractors agree to execute the work for a stated total sum of money. The contract sum for measurement contracts is not finalised until the project is complete.

What are the advantages of a lump sum contract?

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.

What are the merits and demerits of lump sum contract?

Lump sum contracts offer comparatively easier assessment of soil conditions, bidding prices and pre- construction analysis which makes selection process less tedious. Accounting related to lump sum contracts are low-intensive that diminishes overhead expenses of the contractor and allow for stable cash flow.