What is a fixed lump sum contract?

What is a fixed 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 in the CIOB 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.

How does a lump sum contract work?

A lump sum contract, also known as a “stipulated 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, the contractor submits a total project price instead of bidding on each individual item.

What is an advantage of a fixed price contract?

The benefits of fixed-price contracts are that they come with a pricing guarantee. So long as the project doesn’t go beyond the defined scope of tasks and responsibilities, the price won’t change. These contracts typically provide a well-defined process complete with specific phases and deadlines.

Why are most buildings bid lump sum contracts?

A lump-sum contract is normally used in the construction industry to reduce design and contract administration costs. It is called a lump-sum because the contractor is required to submit a total and global price instead of bidding on individual items.

Why is lump sum contract good?

Advantages for contractors Under a lump sum agreement, project owners must provide contractors with finalized plans and thorough documentation, resulting in specific, linear project tasks. Lump sum contracts also require less paperwork, management and accounting, decreasing administrative costs.

What is a lump sum estimate?

In lump sum estimating, contractors deliver a single price for the project, rather than a unit price. The lump sum may be only one total amount for the entire project or it may be a price for each bid category.

What is lump sum items in construction?

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.

What is a fixed price building contract?

A fixed price contract is essentially a fixed lump sum that cannot be changed – it means that your payment amount does not depend on resources used or time expended. A fixed price contract will give you exact costing of the total build before the works begin.

What is a fixed price contract type?

A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.

What is the most commonly used fixed price contract?

A FFP is the most common type of fixed-price contract.

Does lump sum mean fixed price?

A lump sum refers to the single aggregate price a contractor offers to undertake the work and cover all risks accepted by the contractor under the contract. However, don’t assume that a lump sum price is a fixed price or that it will be the final price.