Lump sum contracts

A lump sum price may be called for, or a series of lumpsums. This is best suited to easily defined, relatively simple constructions,involving little below-ground work. However, some quite large above-groundconstructions are paid for by lump sum. Sometimes a separate section of thebill for pricing allows for the foundation work of a building to be paid for‘on measure’.
In some kinds of civil engineering work the lump sum paymentmethod can pose serious risks upon a contractor, causing him to add asubstantial sum to his tender. This is particularly so for design-and-build or‘turn-key’ projects where the contractor has to undertake detailed design aswell as construction. The employer has to pay these additional sums whether ornot any risks materialize.
A disadvantage is that an employer may have to pay a highprice for any alteration or addition he wants to the project, because thecontractor is only committed to undertaking a fixed amount of work for thefixed payment. Payments under lump sum contracts are usually made ininstalments as set out in the contract according to stipulated stages ofcompletion, or linked to a programme or activity schedule.

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