Lump John Van Der Puil and Weele,

Lump Sum When work is executed
based on a lump sum contract, the client orders the contractor to perform the
required activities at a fixed price, and to have the work completed by a
pre-determined date. The advantages of this pricing method are that the client
knows exactly where he stands financially. John Van Der Puil and Weele, A.V. (2013) Moreover,
after completion of the work, there is no need for settlements because the
contractor carries all risks. A final advantage is that the employer has
certainty about the completion date. As the price is fixed, it is in the
contractor’s interest to execute the work as efficiently as possible. The fixed
price is an incentive to complete the work, or deliver the goods, as quickly as
possible within the agreed terms. John Van Der Puil and Weele, A.V.
(2013) In this case,  the risk
involved in the undertaking of the project is transferred to the contractor as
he/she makes submission of submittals such as a specific schedule, the
management reporting system or a quality control program. This is good where
the project to be undertaken is well defined at tendering stage with significant
changes unlikely. This is the traditional means of procuring and construction
contract.

Unit Price Contract: the Architect/Engineer does the estimated
quantity. The contractor determines the cost per
activity for repetitive or standardized and routine work. John Van Der Puil and
Weele, A.V. (2013). The contract is based on estimated quantities of
items included in the project and unit prices. Each unit price includes all
labour, material, equipment, overhead, and profit attributable to that scope of
work. It is useful on projects where the nature of the work
is well defined, but the quantities of work cannot be accurately determined in
advance of construction. Payment is made based on units of work actually done
and measured in the field multiplied by the unit prices. This gives the client
the opportunity to verify if he/she is been overcharged or undercharged for the
said undertaken. Adjustments (up/down) on the price of each unit can be done as
it inculcates the flexibility during the review of the project thus
facilitating high agreement rate during change orders. The risk of estimation uncertainty
is removed from the contractor. However, “unbalanced bids” may be submitted on
the discovery of large discrepancies between estimates and owner’s estimate (client)
of quantities.

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Selection Assessment Criteria

Lump Sum

 

Financial Funds: Does
the client require a contractor that can pre finance the project?

This
deals with the contractor’s financial standing in as financial stability,
turnover, profit obligations, amounts due and owned financial funds. The client
may wish for the contractor to fund the entire project and be paid at the
completion of the project.

 

Cost Certainty: Is a
firm Price needed before any commitment to construction given?

Some
client would wish to ascertain the cost of the project to ensure it is within
their estimated budget or financial capacity before committing to it. Price may
include design fees, construction cost, financing costs and management fees. Love, P.E.D. et al. (2008)

 

Certainty of completion
time: Is
Project Completion of importance?

This
assessment criterion is of crucial need to clients particularly for those
involved in large or prestigious projects scheduled for a particular function
or event. Ng, T., Luu, D. and Chen, S. (2012) in
that, they need to be sure the project can be completed before the said
function or event. The success of the project is highly dependent on the
completion time.

 

Risk allocation/avoidance: Is
the transfer of the risk of cost and time spillage from the client important?

This
highlights the degree to which the client is willing to bear risk involved in the
project. On the other hand, a client who does not have any experience or
knowledge in construction might think is necessary to transfer up to 90% of
risk to the contractor in order to feel comfortable. Love, P.E.D. et al. (2008)