Helpful guidelines

What is the difference between a lump sum and a unit price contract?

What is the difference between a lump sum and a unit price contract?

A unit price contract, also known as a measurement or remeasurement contract, bases project costs on the number of units required by a project. Costs are accrued incrementally, as the project progresses. A lump sum contract, also known as a stipulated sum, reflects a total fixed fee for an entire project.

What does lump sum mean in a contract?

A lump or stipulated sum is simply a single amount of money for completing the entire scope of work outlined in a construction contract. This sum includes the cost of work, any general condition costs, and the contractor’s fee. Payment is tied directly to the percentage of work completed.

What type of contract is a lump sum contract?

construction contract
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 the difference between a lump sum and a cost-plus construction contract?

Cost-plus contracts are similar to lump sum contracts in that the owner agrees to pay the contractor’s costs, including labor, subcontractors, equipment and materials and an amount for the contractor’s profit and overhead. But instead of a lump sum to cover all the expenses, those costs are reimbursed individually.

What are the advantages and disadvantages 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.

What are the disadvantages of lump sum contracts?

Disadvantages include: It can give greater risk to the contractor than some other contract forms, as there are fewer mechanisms available for them to vary their price. As a result of the additional risks faced by the contractor, they may increase their tender price.

What are the advantages of a lump sum contract?

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.

What is disadvantage of lump sum contracts?

Disadvantages of a Lump Sum Construction Contract A lump sum agreement presents a higher risk to a contractor. Measuring the number of changes is difficult. Such contracts require paperwork and records of change orders from each phase, and this means further documentation is needed.

What is the disadvantages of lumpsum contract?

What are the advantages of a lump sum payment?

Lump-sum payments give you more control over your money, allowing you the flexibility of spending it or investing it when and how you see fit. Studies show that retirees with monthly pension income are more likely to maintain their spending levels than those who take lump-sum distributions.

What are the disadvantages of lump sum contract?

Disadvantages of Lump Sum Construction Contract

  • Lump sum contracts pose greater risk to contractor.
  • Quantifying changes is a big challenge.
  • Rejection of change order requested by the employer.
  • The building and construction design and plans have to be completed well before beginning the execution of activities.