Pro and Cons
Lump Sum Pros:
Owner supervision is reduced when
compared to other forms of Contract: the management of
the project is solely responsibility of the contractor. The contractor makes submission of submittals
such as a specific schedule, the management reporting system or quality control
program to which the client does not need to be directly involved in but to be
reported to by the contractor on the progress of the project. It is the contractors’
responsibility to ensure the project is completed as scheduled and meets
quality standards set by the client.
‘Fixed’ construction cost: both parties before the commencement
of the project agree upon the total amount for the entire project. This helps
the client to know where they stand financially without the uncertainty of any
expected financial demands cropping up once the project commences. Thus
eliminating financial uncertainty for the client and providing comfort.
Potential Disagreements: since the
client provides a is
well-defined and construction drawings inclusive of fabrication, erection,
installation, location, sizing, material and dimensions at the tendering stage,
both the client and the contractor are abreast on the scope and scale of the project before it commencement. This eliminates
potential disputes on the scope and scale of the project.
Low risk to the owner: after the design stages (well-defined construction drawings), the implementation,
reporting and quality of the project lies in the hands of the contractor. The
client does not have any direct influence on the success or failure of the
project this point forth. The contract takes responsibility for the entire execution
of the project and charges an overhead fee for doing so.
Lump Sum Cons:
Complete project design before commencement: the client needs
to provision the contractor with the entire project drawings before the contractor
can price the project. The client has to
make sure the project is very well defined with no possibility of future changes
lurking as the contract does not provide the flexibility for changes to be
easily implemented after commencement of the project. It tends to take a longer
period for project under this contact to go into implementation taking into
consideration need for careful design making.
Likelihood of a sub-standard quality project: in a bid to maximize
profit, a contractor may resort to using inferior materials than specified in
the submittals. This is further heightened, as the client does not have direct management
and supervision of the project thus providing an enabling field for such act to
be carried out.
The Owner might reject change order request: request by a contactor to makes changes to the project
implementation has a very high likely hood of been reject by the client. This
is as of a result of the redesign process client needs to undertake in the design
documents, the financial commitment to be incurred and the halt in construction
as redesign is underway.
Unit Price Pros:
Faster to go into implementation phase: in this type of contract, the client and contractor does not have to
have a complete design of the project before commencing. The available design
is broken down into parts with contractor setting a fixed price for each unit
of work to be down. This makes takes the project into its implementation phase
much faster than other contract agreements does since whole scope or design is
not need before start.
Better Management and Quality Checks: since project is broken down into units and so is its execution, the
client has a wider scope on management and quality of work done for each unit.
This goes in turn to produce a better quality of work (project) as every unit
of work done can be supervised.
Lower risk for contractor: since management, supervision and quality
checks is carried out by the client, the risk percentage rate for the contractor
is reduced as contract works directly per clients directive and approval of
each unit of work done.
Money Saver for contractor: money is saved from not producing
large numbers of bill of quantities for the project by the contractor, as the
project is not total defined but starts from the most available design information
at hand from client.
Unit Price Cons:
Uncertainty of final cost: since the total
scope and scale of the project is not fully defined before the start of
project, the final (total) cost of the project remains unknown to the client.
This is further highlighted, as the contractor cannot also provide a price, as
he does not know the full scope to provide a value. This creates uncertainty of
final cost of the project.
Cost of Project can increase a great deal: since work to be done is broken down and priced per units, using a unit
of measurement such as hours for a project can increase the cost of the project
significantly. There should therefore be a cap on the number of units a
contractor can charge client and when the maximum of units is exceeded, the
unit of cost is reduced.