A lump sum price may be called for, or a series of lump
sums. This is best suited to easily defined, relatively simple constructions,
involving little below-ground work. However, some quite large above-ground
constructions are paid for by lump sum. Sometimes a separate section of the
bill for pricing allows for the foundation work of a building to be paid for
‘on measure’.
In some kinds of civil engineering work the lump sum payment
method can pose serious risks upon a contractor, causing him to add a
substantial sum to his tender. This is particularly so for design-and-build or
‘turn-key’ projects where the contractor has to undertake detailed design as
well as construction. The employer has to pay these additional sums whether or
not any risks materialize.
A disadvantage is that an employer may have to pay a high
price for any alteration or addition he wants to the project, because the
contractor is only committed to undertaking a fixed amount of work for the
fixed payment. Payments under lump sum contracts are usually made in
instalments as set out in the contract according to stipulated stages of
completion, or linked to a programme or activity schedule.
