Lump Sum Contract | Advantages and Disadvantages

Lump sum contract

A lump sum contract is the traditional means of procuring construction, and still the most common form of construction contract. Under a lump sum contract, a single 'lump sum' price for all the works is agreed before the works begin.

The complete work as per plans and specification is carried out by contractor for a definite amount of money.

It is evident that this form of contract will be useful only when it will be possible to work out the exact quantities of the items to be executed and also, when the number of items is limited.

Advantages

1. The exact amount to be paid to the contract is known to the department, even before the execution of work so that necessary arrangement of finance is made in advanced

2. Detailed measurement is not required in this type of contract and saves the work load of engineer. Detailed estimate are required for addition and alteration if any.

3. Contract tries for maximum profit and control the execution with excellent planning and efficient management.

4. The progress of work is fast.

5. Lump sum contract is suitable for building work, road work, etc.

6. Appointment of staff for maintenance of account is not necessary.

Disadvantages

1. Lump sum contract is suitable for small work only

2. High tendering is possible in lump sum contract.

3. The addition and alteration in original work are difficult to incorporate i.e. no extra work is allowed. In case of extra item the contractor may demand higher rates.

4. Special care is to be taken for good quality of work to be done.

5. Lump sum contract is not suitable for the work, where addition and alteration are expected.