Lump Sum Contract VS FIDIC 99 Contract
Lump Sum Typically used with Design-Bid-Build method of project procurement.
a. A lump sum contract, sometimes called stipulated sum, is the most basic form of agreement between a supplier of services and a customer. The supplier agrees to provide specified services for a specific price. The receiver agrees to pay the price upon completion of the work or according to a negotiated payment schedule. In developing a lump sum bid, the builder will estimate the costs of labor and materials and add to it a standard amount for overhead and the desired amount of profit.
b. Most builders will estimate profit and overhead to total about 12-16 percent of the project cost. This amount may be increased based on the builder’s assessment of risk. If the actual costs of labor and materials are higher than the builder’s estimate, the profit will be reduced. If the actual costs are lower, the builder gets more profit. Either way, the cost to the owner is the same. In practice, however, costs that exceed the estimates may lead to disputes over the scope of work or attempts to substitute less expensive materials for those specified.
c. The Stipulated Sum contract may contain a section that stipulates certain unit price items. Unit Price is often used for those items that have indefinite quantities, such as pier depth. A fixed price is established for each unit of work.
d. Contractor free to use any means and methods to complete work.
e. Contractor responsible for proper work performance.
f. Work must be very well defined at bid time.
g. Fully developed plans and specifications required.
h. Owner’s financial risk low and fixed at outset.
i. Contractor has greater ability for profit.
1) Good project definition.
2) Stable project conditions.
3) Effective competition essential when bidding.
4) Much longer time to bid and award this type of project,
5) Minimum scope changes due to higher mark-ups than occurred at bidding.
1) Low financial risk to Owner.
2) High financial risk to Contractor.
3) Know cost at outset.
4) Minimum Owner supervision related to quality and schedule.
5) Contractor should assign best personnel due to maximum financial motivation to achieve early completion and superior performance.
6) Contractor selection is relatively easy.
1) Changes difficult and costly.
2) Early project start not possible due to need to complete design prior to bidding.
3) Contractor free to choose lowest cost means, methods, and materials consistent with the specifications. Only minimum specifications will be provided.
4) Hard to build relationship. Each project is unique.
5) Bidding expensive and lengthy.
6) Contractor may include high contingency within each Schedule of Value item.
A lump sum contract is a type of construction contract in which a single, fixed price is agreed upon between the owner or client and the contractor for the completion of a specific project. This means that the contractor is responsible for completing the project within the agreed-upon budget and is not entitled to any additional payment for any extra work required, unless it has been agreed upon in advance and documented in the contract.
In a lump sum contract, the contractor bears the risk of any cost overruns, including unforeseen expenses or delays that may occur during the project. This means that the contractor must carefully estimate the cost of the project and take into account any potential risks and contingencies to ensure that the project is completed within the budget.
An example of a lump sum construction contract could be a homeowner hiring a contractor to build a new house. The homeowner and contractor would agree on a fixed price for the entire project, which would include all labor, materials, permits, and any other expenses necessary to complete the construction of the house. The contractor would be responsible for managing the project and ensuring that it is completed on time and within budget, and would not be entitled to any additional payment unless there is a change in the scope of work that has been agreed upon in writing.
Another example could be a government agency hiring a contractor to build a new bridge. The contract would specify the fixed price for the construction of the bridge, including all materials, labor, and any other expenses required to complete the project. The contractor would be responsible for managing the project, ensuring that it is completed on time and within budget, and would not be entitled to any additional payment unless there is a change in the scope of work that has been agreed upon in writing.
Overall, lump sum contracts provide a clear and predictable cost for construction projects, but they also require careful planning and risk management by both the owner/client and the contractor to ensure that the project is completed successfully.
Lump Sum VS FIDIC 99
A lump sum construction contract and a FIDIC 99 contract are two different types of contracts commonly used in the construction industry.
A lump sum construction contract, as previously mentioned, is a fixed price contract in which the contractor is responsible for completing the project within the agreed-upon budget. The contractor bears the risk of any cost overruns or delays that may occur during the project. This type of contract is commonly used for smaller or more straightforward projects, as it provides a clear and predictable cost for the owner/client.
On the other hand, a FIDIC 99 contract is a type of international construction contract that provides a framework for the relationship between the owner/client and the contractor. FIDIC stands for the International Federation of Consulting Engineers, which created the standard contract in 1999. The FIDIC contract is designed to allocate the risks between the owner and the contractor, and provides a standard set of terms and conditions for construction projects.
One of the main differences between a lump sum construction contract and a FIDIC 99 contract is that the FIDIC contract is more complex and provides more detailed guidance on project management and dispute resolution. The FIDIC contract also includes specific provisions for dealing with changes in the scope of work, delays, and claims.
Another difference is that a FIDIC 99 contract typically includes provisions for payment based on the actual work performed, rather than a fixed price. This means that the contractor is paid for the actual work performed, rather than a fixed amount, which can provide more flexibility for both parties.
In summary, a lump sum construction contract provides a clear and predictable cost for smaller or more straightforward projects, while a FIDIC 99 contract provides a more comprehensive framework for managing more complex construction projects. The choice between these two contracts will depend on the nature and complexity of the project, as well as the preferences of the owner/client and the contractor.