What Is The Meaning Of Lump Sum Agreement

Among the mechanisms for changing the amount of the contract into a lump sum contract is: a lump sum contract in the construction sector is a kind of contract of work, sometimes called agreed sum, in which a single price is set for the whole project on the basis of plans and specifications and covers the whole project and the owner knows exactly how much the work will cost in advance. [1] This type of contract requires a complete and comprehensive set of plans and specifications and includes all indirect costs plus profit and the contractor receives monthly advance payments minus withholding. The flexibility of this contract is very minimal and changes in design or derogation from the original plans would require an amendment contract paid for by the owner. [2] In this contract, the payment is made based on the percentage of the work completed. [3] The lump sum payment contract is different from the maximum guaranteed price in the sense that the holder is responsible for the additional costs beyond the agreed price, but if the final price is less than the agreed price, the contractor will benefit from the savings. [4] As mentioned above, flat-rate contracts are not always sunny and rainbow. Here are some of the main drawbacks. It is less intense to have a flat-rate balance sheet, which reduces overhead costs for the contractor. These plans allow for a more stable cash flow. Lump-sum agreements have a higher level of cooperation between the following: If you have a detailed payment roadmap in front of you, it`s easier to budget and manage your cash flow. Lump sum contracts typically include percentages of payments at certain stages of the project, net of any deductions. Knowing the total cost of the project, they know how much they expect and when to expect it. This timing and percentage make receivables and cash flows much easier to eliminate.

As part of a contractor`s offer, the lump sum contract is usually divided into several packages, either on the basis of a quantity calculation or in the form of an analysis of the amount of the contracts. In both cases, one of these packages is a specific pre-tour. Preliminary work is an integral part of the tender file and includes a description of the project, allowing the contractor to assess the costs of starting the work. Specific preliminary work may include items such as site construction costs, social equipment and traffic management measures, as well as facilities and machinery. The lump sum contracts are suitable for small construction projects and may give rise to litigation and rights arising from contractual agreements.

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