By using The Balance Small Business, you accept our. In pre-tender stage Contractor evaluates the cost to execute the project (based on the above documents such as drawings, specifications, schedules, tender instruction and the clarification received for the raised queries). If the owner produces or receives a change order proposal from the contractor, the price quotation could be possibly disputed. 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. Juan Rodriguez is a former writer with The Balance who covered large-scale construction. It is called a lump-sum because the contractor is required to submit a total and global price instead of bidding on individual items. A lump-sum contract is normally used in the construction industry to reduce design and contract administration costs. 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 contractor will maximize its production and performance. 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], In lump sum Contracts or fixed-price contracts, the contractor is evaluating the value of work as per the documents available. Change orders could be rejected by the owner. The Owner might reject change order requests. 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. The most common arguing factors are: Some projects might require producing an application for payment using unit quantities and unit prices. The time to award this type of contract is also longer; however, it will minimize change orders during construction. [11], Associated General Contractors of America, "The Pros and Cons of Pricing Options in Construction Contracts", "Fixed price construction contract - Designing Buildings Wiki", "Managing Design under Lump-Sum Contract | Journal of Management in Engineering | Vol 11, No 2", "5 pros & cons of Lump sum Contracts/Fixed price Contracts (with video explain)", "Lump Sum Construction Contract - Advantages and Disadvantages", "Lump sum contract - pros and cons - Designing Buildings Wiki", "Lump Sum Contract Advantages and Disadvantages in Construction", "Methods of Valuing Construction Variation in Lump Sum Contract from the Public Client's Perspective", https://en.wikipedia.org/w/index.php?title=Lump_sum_contract&oldid=988945490, Creative Commons Attribution-ShareAlike License. The contractor has a freedom to choose its own methods. Many contractors will produce an unbalanced bid by rising unit prices on items to be completed early in the project, such as mobilization, insurances, and general conditions, and lowering unit prices on items needed in later stages. The contractor selection usually takes longer. It create an improved communication and relationship between the design team, contractor, and the owner. The construction progress could take longer than other contracting alternatives. A lump sum contract is an agreement between parties that binds the contractor to offer a single price to execute all the work stated in the contract. A lump sum building contract states that the contractor is responsible for his own actions but not the actions of the employer. [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 that the agreed price then the contractor will gain and benefit from the savings.