Advantages for project owners
The predictability of lump sum contracts is the primary benefit to project owners. The owner can expect the project to be completed within budget and often more quickly so that the contractor can maximize resources and save on labor costs. Lump sum contracts also render little financial risk for owners as the contractor is responsible for any cost overruns. These factors make it easier for project owners to obtain financing since lenders prefer to fund defined projects with clearly delineated costs.
However, lump sum contracts have specific criteria that can be both a benefit and a hindrance to a construction project.
Constructability and Budget Control
Our preconstruction experts drive best practices and lessons learned knowledge to maximize design and construction efficiencies, as well as continuous value engineering to deliver best value for lowest cost without compromising your design vision.
The price of labor and materials can be fluid and subject to change throughout the project. Lump sum contracts generally do not account for these fluctuations, so contractors have to absorb the cost if prices rise. However, they can also realize savings if rates go down. These risks are arguably more pronounced in extended projects.
Contractors must factor in possible upward fluctuations and price the project accordingly when providing the estimate.