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How does lump sum contract work?

A lump sum contract (or stipulated sum contract) is the traditional means of procuring construction, and still the most common form of construction contract. Under a lump sum contract, a single 'lump sum' price for all the works is agreed before the works begin.

When would you use a lump sum contract?

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.

What does lump sum mean in a contract?

Under a lump sum contract, a single 'lump sum' price for all the works is agreed before the works begin. It is defined in the CIO Code of Estimating Practice as, 'a fixed price contract where contractors undertake to be responsible for executing the complete contract work for a stated total sum of money.

What are the advantages and disadvantages of lump sum contract?

Lump Sum Contract(Advantages) Low risk on the owner, Higher risk to the contractor Cost known at outset Contractor will assign the best personnel Contractor selection is easy. 9. Lump Sum Contract(Disadvantages) Changes is difficult and costly.

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

Lump sum (or stipulated sum) contracts are sometimes referred to as 'fixed price' contracts, although strictly this is not correct. On a lump sum contract, a single 'lump sum' price is agreed before the works begin.

What is a lump sum fee?

Lump Sum Fee. A lump sum agreement is the most common form of fee structure between architect and owner. Lump sum also called a 'fixed fee' agreement because the owner and architect have agreed to a set amount. The fee is 12% of the construction cost for Betsy's 1 million dollar home.

What is lump sum and schedule contract?

Lump sum and scheduled contract The owner provides required information and contractor charges certain amount. This contract is suitable when the number of items are limited or when it is possible to work out exact quantities of work to be executed.

What is a stipulated sum contract?

A lump sum contract, sometimes called stipulated sum, is the most basic form of agreement between a contractor and a customer. This type of contract is usually developed by estimating labor costs, material costs, and adding a specific amount that will cover contractor's overhead and profit margin.

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