Lump sum construction contracts

Under the standard ICE or FIDIC Conditions, the financial outcome of a project is not absolutely fixed, because the promoter has to pay for any extra work caused by conditions which an experienced contractor could not have foreseen.
This does not suit some promoters who wish to be certain what an
intended project will cost, so fixed price contracts came into use, often for a lump sum. Under them the construction contractor has to take all risks, such as meeting unexpected ground conditions. Such fixed price contracts can be satisfactory for both promoter and contractor for relatively simple, easily defined works involving little below-ground work.
Naturally a contractors price for undertaking a contract for a fixed sum is higher than for a bill-of-quantities contract for the same work under which he is paid by measure of the work he is required to do. But this can suit a promoter who prefers to be certain about his financial commitment and where the works he requires can be well defined in advance. However, if the possible risks on the contractor appear high due to many imponderables such as the works being large or complicated, or ground conditions being uncertain then the extra charge made by the contractor for shouldering the risks may be high. Should the promoter require amendments as construction proceeds, then these will also prove expensive.

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