A lump sum contract in construction is one type of construction contract, sometimes referred to as stipulated-sum, where a single price is quoted for an entire project based on plans and specifications and covers the entire project and the owner knows exactly how much the work will cost in advance.[1] This type of contract requires a full and complete set of plans and specifications and includes all the indirect costs plus the profit and the contractor will receive progress payments each month minus retention. The flexibility of this contract is very minimal and changes in design or deviation from the original plans would require a change order paid by the owner. [2] In this contract the payment is made according to the percentage of work completed. [3] The lump sum contract is different from guaranteed maximum price in a sense that the contractor is responsible for additional costs beyond the agreed price, however, if the final price is less than the agreed price then the contractor will gain and benefit from the savings.[4]
There are some factors that make for a successful execution of a lump sum contract on a project such as experience and confidence, management skills, communication skills, having a clear work plan, proper list of deliverables, contingency, and dividing the responsibility among the project team. [5]
According to Associated General Contractors of America (AGC),
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 Contractor 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.[6]
With a lump sum contract or fixed-price contract, the contractor assesses the value of work as per the documents available, primarily the specifications and the drawings. At pre-tender stage the contractor evaluates the cost to execute the project (based on the above documents such as drawings, specifications, schedules, tender instruction and any clarification received in response to queries) and quotes a fixed inclusive price.[7]
^The project resource manual : CSI manual of practice. New York: McGraw-Hill; Construction Specifications Institute. 2005. ISBN 0071370048. OCLC 56191871.
^Halpin, Daniel W. (2006). Construction management (3rd ed.). Hoboken, NJ: Wiley. ISBN 0471661732. OCLC 61425134.
^"The Pros and Cons of Pricing Options in Construction Contracts". Bell Davis Pitt. 2017-06-20. Retrieved 2019-07-04.
^"Managing Design under Lump-Sum Contract | Journal of Management in Engineering | Vol 11, No 2". ascelibrary.org. doi:10.1061/(asce)0742-597x(1995)11:2(21). Retrieved 2019-07-04.
^"Associated General Contractors". www.agc.org. Retrieved 2019-07-04.
^"5 pros & cons of Lump sum Contracts/Fixed price Contracts (with video explain)". Quantitysurveyor.blog.
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lease-term, the tenant/buyer has the option to purchase the house. The lumpsum accrued from the initial deposit and the rent credit are only released...
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