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What does lump sum fixed price mean?
Lump sum based on a bill of quantities Such a contract is a lump sum contract (sometimes called a fixed price contract) because a price is stated in the contract as payment for the work described in the bill. ‘ Under this arrangement the employer bears the quantities risk.
What does lump sum contract include?
A lump sum contract ordinarily details the fixed total amount to be paid to the contractor and the timeline for payment. It must be noted that a bill of quantity can contain one or more of the following items in addition to the lump sum items: Provisional Sums. Items using Prime Cost Sums.
What is the advantage of lump sum contracts?
The advantages of a lump sum contract include: Lump sum contracts can be seen to reduce client risk as the price is fixed (although in reality it is still likely to vary, but not by as much as some other forms of contracting). It is widely accepted and understood as a method of contracting.
Is lump sum contract the same as fixed price?
A lump sum contract is the most commonly-used pricing mechanism in a construction contract. Under this arrangement the contract price is based on a single lump sum price for all of the works being agreed between the client and contractor prior to award of contract. This is often referred to as a ‘fixed price lump sum’.
Who has the cost risk in a fixed price contract?
Fixed-price contracts In this type of contract, the seller bears the risk. An example of this is a purchase order: It will establish the price, quantity, and date for the deliverable. There are three main types of fixed-price contracts: Firm fixed-price.
What are the merits and demerits of lump sum contract?
Lump sum contracts offer comparatively easier assessment of soil conditions, bidding prices and pre- construction analysis which makes selection process less tedious. Accounting related to lump sum contracts are low-intensive that diminishes overhead expenses of the contractor and allow for stable cash flow.
Which is the best definition of a lump sum contract?
A Lump Sum Contract (known as a Fixed Price Contract) is a contract with a single lump sum price for all of the works, and the contractor is responsible for completing the project within the agreed fixed cost set forth in the contract. If the contractor completes the project under the fixed total cost, then…
Can a contractor change specs on a lump sum contract?
In lump-sum contracts, the contractor can’t change specs or design without proper approvals. But the contractor can propose design change as a value engineering option. Based on contractual terms, contractors may charge eligible percentage fees from saving offered from value engineering option.
What do you mean by fixed price contract?
The term firm fixed price or lump sum contract refers specifically to a type or variety of fixed price contract where the buyer or purchaser pays the seller or provider a fixed total amount for a very well-defined product, however there is the allowance within these for a variance in the event there are incentives attained through project …
How is overhead calculated in a lump sum contract?
The Lump Sum contract usually is developed by estimating labor costs, material costs, and adding a specific amount that will cover contractor’s overhead and profit margin. The amount of overhead calculated under a lump sum contract will vary from contractors, but it will be based on their risk assessment study and labor expertise.