- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 17 Aug 2018
Fixed price construction contract
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.
- 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.
The Code of Estimating Practice, seventh edition, published by the Chartered Institute of Building (CIOB) in 2009 defines a fixed price contract as, ‘…a contract where the price is agreed and fixed before construction starts’.
It suggests that a firm price contract is, ‘…a contract where the prices is not subject to fluctuations during the construction period’, where fluctuations are, ‘…the increase or decrease in cost of labour, plant, materials and/or overheads costs that may occur during a contract.’
 Find out more
 Related articles on Designing Buildings Wiki
- Code of Estimating Practice.
- Fixed charge.
- Force account work.
- Guaranteed maximum price.
- Lump sum contract.
- Lump sum contract - pros and cons.
- Negotiated contract.
- Open-book accounting.
- Procurement route.
- Provisional sums.
- Relevant events.
- Target cost contract.
- Time and material contract (T&M).
- Traditional contract - pros and cons.
Featured articles and news
Driven piles are used to support buildings, walls and bridges, and can be the most cost-effective deep foundation solution.
Australian landmark celebrates achievement of carbon neutral status five years ahead of schedule.
Non-material amendments can sometimes be necessary after planning permission has been granted. Find out more here.
Six things civil engineers could do to ensure the success of projects.
Dublin housing crisis restricts employers' ability to recruit, according to new U+I research.
Intricate inlays and beautiful patterns can be created with waterjet cutting.
Two historic quarries in environmentally sensitive areas were reopened to repair Exeter Cathedral.
The phrase ‘time at large’ describes the situation where there is no date for completion, or it has become invalid.
The Maldives is under threat from climate change. Read this report from BRE on their potential involvement in the region.
MHCLG update states there are still 124 private high-rise buildings with unsafe cladding and no remediation plan.