what is the advantages and disadvantages of Lump Sum Contracts?
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May 18, 2020
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May 19, 2020
A lump sum contract is a fixed price contract. Useful if the labor and materials can be estimated accurately. A contract that charges on the basis of labor and materials is more fluid and adaptable. A lump sum contract can provide for change orders outside the scope of work.
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May 20, 2020
A lump sum amount for the entire project runs the risk that there can be unforeseen problems and developments and you may find that you have under bid the job. It's best to have a construction contract that makes allowances for these situations so that you don't suffer losses if any unanticipated problems occur that you would be on the hook for.
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May 20, 2020
A lump sum or fixed bid contract has the theoretical advantage of certainty for contractor and client. However, for this form of payment to work the contractor must bid the job carefully. If there are cost overruns, absent agreed written change orders during construction, the contractor is at risk.
Much also depends upon expected time of completion. The longer a project continues, in a fixed bid situation the contractor assumes the risk of increased costs of labor and materials. As always with any written construction contract the devil is in the details. It is important to anticipate to the fullest extent possible the variables that could interfere with timely project completion.