Lump Sum Contract In Construction

A lump sum contract is also known as fixed price or stipulated sum contract which mean that the buyer or purchaser pays the seller or provider a fixed total amount for the product or work. This is a very common form of contract in construction field. These is contract are agreeing by both parties. The prices including cost of material, work performing and markup for overhead and profit. This kind of contract suitable for the project is well defined and the tender is very rare to make changes. This is because the contractor can pay the accurate price for the work that asking to carry out. Under a lump sum agreement, the contractor is responsible for completing the project within the duration that had been agree in contract before. If the contractor

The tenderer will prepare and predict the cost projections for building project and this will help client to get an accurate cost estimate that allow client to plan your budget before and after construction process. The next advantage of Bill of quantity is securing finance. After the client get the cost estimate, they can more easy to get a loan from bank because most of the bank managers will not give you a loan unless you have a detailed cost estimate from a professional quantity surveyor. So Bill of quantity procurement will easy the work of contractor and client. Besides that, the benefit of using bill of quantity is saving costs. Sometime people does not realize that hiring an estimator to estimate the construction cost will help them save more money. Client and contractor can save money through know all the detail list in Bill of Quantity, and try to cut the unwanted budget. Furthermore, a quantity surveyor is trained to handle claims and disputes arising during the course of the project and this will help to get the benefit of contractor and client. Disputes related to payments, valuations, measurements and Bills of Quantities and all these things suitable for the quantity surveyor to handle this to protect the benefit of both parties.

Disadvantage Bill of Quantities

The disadvantage of Bill of Quantity is contractor and consultant should hire the knowledgeable and experience estimator or quantity

Then, the owner also can get guaranteed reimbursement and bonus fees for the payment which they had been made before. Cost plus contract also have benefit to contractor. According to "The Daily Journal of Commerce", a contractor can take on an unfinished design using an cost plus contract because there is less risk that the agreed upon sum does not cover expenses and fails to make a profit This type of procurement may reduce the changes of project and over bidding because the contractor does not need to pad fixed expenses to avoid going over budget. So, in some cases, the final costs of this type of project will less because the contractor does not have to pay extra padding.

Disadvantage Cost Plus Fee

One of the disadvantage of using cost plus contract is people do not know how much the project will cost in advance and this will bring difficulty to client who want to estimate budget. This kind of procurement is more dangerous compare to another. Contractor will have less of reason to be efficient in their project process. If they are inefficient, they will still be paid with profit for their work because the profit usually based as a percentage of cost, an efficient working which reduces cost shall not accrue any benefit. Then, the contractor may intention incur higher prime cost in order to increase profit.

4. Quotation