Fixed price construction contract
Lump sum (or stipulated sum) contracts are sometimes referred to as ‘fixed price’ contracts, although strictly this is not correct.
On a lump sum contract, a single ‘lump sum’ price is agreed before the works begin. If the actual cost of the works exceeds the agreed price, then the contractor must bear the additional expense. If on the other hand the cost of the works is less than the agreed price, the contractor will benefit from the savings.
This is unlike a guaranteed maximum price contract, where the contractor bears any additional costs above the guaranteed maximum price, but if the cost is lower than the guaranteed maximum price, then savings may go to the client, to the contractor or are shared. An extension of this is the target cost contract, where there is a ‘pain / gain’ agreement allowing the client and contractor to share both additional costs and savings.
However, lump sum contracts tend not to be fixed, but allow the price to change under certain circumstances:
- Variations: These are changes in the nature of the works. Most contracts will contain provision for the architect or contract administrator to issue instructions to vary the design, quantities, quality, sequence or working conditions.
- Relevant events: A relevant event may be caused by the client (for example failure to supply goods or instructions), or may be a neutral event (such as exceptionally adverse weather) and may result in a claim for loss and expense by the contractor.
- Provisional sums: An allowance for a specific element of the works that is not defined in enough detail for tenderers to price.
- Fluctuations: A mechanism for dealing with inflation on projects that may last for several years where the contractor tenders based on current prices and then the contract makes provisions for the contractor to be reimbursed for price changes over the duration of the project.
- Payments to nominated sub-contractors or nominated suppliers.
- Statutory fees.
- Payments relating to opening-up and testing the works.
A truly 'fixed' price contract would not necessarily be in the interests of the client as it would require that the contractor price risks over which they may have no control, and which might not arise.
 Related articles on Designing Buildings Wiki
Featured articles and news
The origins, evolution and future of Level 3 BIM.
For new and returning Urban Design students, check out our article list divided up into the modules you'll be studying.
Report states that health of urban dwellers could be significantly improved by rethinking transport design.
The Kremlin, the centre of Russian power, includes some of the country's finest architecture.
Report launched outlining steps for a national infrastructure system that is efficient, sustainable, and delivers until 2050.
A review of Justin Bere's concise and well-presented introductory guide to Passive House.
This article describes in detail the tender process for a typical commercial construction contract.
What is energy storage, what are the different types and what is its future?
MAD Architects reveal their designs for a state-of-the-art concert hall in Beijing.
Take a look at BIG's designs for two twisting towers in New York City.
'The filing cabinet' which was labelled one of the best British buildings of the 21st century.