Difference between lump sum and measurement contracts
Lump sum and measurement are both types construction contracts.
Under a lump sum contract, a single ‘lump sum’ price is agreed before the works begin. This is a type of 'fixed price' contract, where the contractors agree to execute the works described in the contract for a total sum of money (the contract sum). Lump sum contracts are generally appropriate where the project is well defined when tenders are sought and significant changes to requirements are unlikely. This means that the contractor is able to accurately price the works they are being asked to carry out.
For more information see: Lump sum contract.
NB it should be noted that whilst lump sum contracts are often referred to as 'fixed price', there are generally mechanisms within the contract to allow the contract sum to be changed, for example if variations are made, or if there are provisions to account for inflation. For more information see: Fixed price contracts.
Measurement contracts (sometimes called ‘re-measurement’ or ‘measure and value’ contracts) are generally used in situations where the design (or type of work required) can be described in reasonable detail, but the amount required cannot. For example, excavation works where the quantity of excavation required is difficult to assess until after the works have begun. The contract sum for measurement contracts is not finalised until the project is complete. At this point it is assessed on based on re-measurement of the actual amount of work carried out.
Measurement contracts can allow an early start on site, before design is complete, and they can allow changes to be made to the works relatively easily. However, there is inevitably some risk for the client as the cost of the works is not known. In effect, the client is taking the risk for any ‘unknowns’, and whilst this can result in competitive prices from contractors, the level of uncertainty for the client means that measurement contracts are rare other than on civil engineering projects.
For more information see: Measurement contract.
[edit] Related articles on Designing Buildings
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- Fixed price contract.
- Lump sum contract.
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