Lump Sum Contract Definition Wiki
Publicado el 26/10/2021
A lump sum contract is a type of contract that is often used in the construction industry. It is a contract in which the owner of a project pays a fixed price for a specified scope of work to be completed by the contractor.
In a lump sum contract, the contractor is responsible for the completion of the project within the agreed-upon budget. This means that the contractor bears all the financial risks associated with the completion of the project. This type of contract is also known as a fixed-price contract.
The lump sum contract is different from other types of contracts such as the cost-plus contract or time and material contract because it is a fixed-price contract. In a cost-plus contract, the owner pays the cost of the project plus a fee, while in a time and material contract, the owner pays the contractor for the time spent on the project plus the cost of the materials used.
The benefits of a lump sum contract for the owner of the project are that it provides a fixed cost, which can help with budget planning. It also provides clarity about the scope of work and the responsibilities of the contractor. For the contractor, a lump sum contract can provide a steady stream of income and greater control over the project.
However, a lump sum contract also comes with its own set of challenges. For the contractor, the fixed price can be a significant risk as unexpected costs can arise during the project, which can eat into their profit margins. For the owner, changes to the project scope can lead to additional costs, and the contractor may seek to renegotiate the price.
In conclusion, a lump sum contract is a fixed-price contract used in the construction industry. It provides a fixed cost for the owner of the project and greater control for the contractor. While it comes with its own set of challenges, it remains a popular contract type in the construction industry.
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