Advantages And Disadvantages Of Lump Sum Contract In Construction

The following short case will give you a good idea of how risks surface in business and project planning and what companies do about it. Consider that you are the Risk Manager as you look at this case, as it will be a good exercise for the time when you will be that Risk Manager!

© Crown copyright 1994 Applications for reproduction should be made to HMSO First published 1994

Contractor #2 is more expensive, however, problems have arisen in the past with contractors recommended by government officials

v. This is applicable to our case because the negotiation and contract signing payments can be considered arrangement considerations because the payments are fixed and therefore, should be allocated over the three

A contract is formed when an offer by one party is accepted by the other party. Consideration is the price paid for the promise of the other party. The price must be something of value, although it need not be money. Consideration may be some right, interest or benefit going to one party or some, losses or responsibility given, suffered or undertaken by the other party.

The workers then have to redo the project. This takes up a lot of time. Now the workers are behind and might not finish in time. New workers also slow down the process. The contractors have to take the time to train the new workers. They also have a tendency to make more mistakes. Since the new workers have little experience, they are slower and usually are the ones to make most of the mistakes. This is why contractors prefer people with experience over new workers. The only problem is that people with experience want to get paid more. Good communication is always important to have for better productivity. It is very important so that the workers know what they are doing and how they are going to do it. Planning everything out before will create fewer problems, and the work will be more productive.

Fixed-price contracts use a fixed total price for the defined product, service, or result to be provided. The seller has the most risk in this contract type because they are obligated to complete the contracts and they will have to pay financial damages if they do not complete it. In the cost-reimbursable contracts, cost reimbursements are involved with additional fee that represents seller profit. This contract type is flexible especially when the project scope changes. Buyers have the most risk in this contract because it is possible that sellers increase prices and fees in the process. The time and material contracts is a hybrid of the fixed-price contracts and cost-reimbursable contracts. Buyers have the most risk in this contract type because the contracts can be open-ended allowing the sellers to increase the price of materials or services.

It impacts the timeline, milestones, and schedule of the project. That in turn will also impacts the budget of the project.

Question 4. 4. (TCO D) What are the three types of procurement statements of work? When is each the appropriate for a given contract? (Points :

A Fixed Price contract provides for a price which normally is not subject to any adjustment unless certain provisions are included in the agreement, such as contract change, economic pricing, or defective pricing. These contracts are negotiated usually where reasonably definite specifications are available, and costs can be estimated with reasonable accuracy. A

Two basic types of competitively bid construction contracts are lump-sum and the unit-price contract. The lump-sum contract is when the contractor agrees to complete all work for a pre-determined price including profit and the contract. The unit-price contract is when the contractor quotes work on units separately instead of entire project. Price is based on units of work performed, and cost varies depending on the quantities of units. Building the piers to support a large suspension bridge will

A Bill of Quantity is basically a listing by trade of certain construction components that make up the total project. The project may be a building. The Bill of Quantity documents quantities for each element of the building type such as cubic meters of concrete foundations or square meters of roofing material. Bill of Quantity is used frequently to assist in developing tenders or bids for projects. The Bill of Quantity will be provided by the quantity surveyor. Once the quantity of concrete footing is known a unit price to cover for material, labor and equipment is applied to develop the cost of each line item or component. The total project is basically include of all the individual line items.

In construction projects, mostly the firms (in this case the firms become client) do not have the skills or develop skills inside the firms to undertake the projects due to amount of the projects should be conducted or the complexity of the projects (Reve and Levitt, 1984). Therefore, the economic decision to conduct the projects is to procure them to third parties. However, more commonly the client agonize the final quality of the projects will meet standard requirements. Thus, impacts to involvement of complex contracts of construction procurement.

Cost of risk is a concept many construction companies have never thought about despite the fact that it is one of the

Within a project, the project’s success and budget belong to and are the responsibility of the customer. The Customer should have the final say in regards to what is acceptable and unacceptable in regards to risk and the quantification of risk. It is however, the contractor’s responsibility to be the primary source of expertise on a project or what they are being contracted to do. The contractor should offer their opinion and recommendations, and the customer should take their contractors opinions and recommendations seriously due to their expertise in the area. Overall, collaboration between the customer and the contractor should be the ultimate way to resolve a matter of dispute. Members from both the customer and contractor side should meet discuss historical events, modeling and simulation to arrive at the appropriate answer. Also, with quantifying risk, the customer and the contractor should be able to go back and look at the data. With risk quantification, there should be very little room for opinion and judgment which should make it easy to base a decision or a resolution based on hard core data. If a solution or an answer is not able to be decided upon, a third party consultation