A lump sum contract is one in which a single price for all of the works is agreed before work begins. It is the traditional means of procuring construction and remains one of the most common forms of construction contract.
The contractor takes the risk of carrying out the defined work for the agreed price, while the client gains greater cost certainty at the outset. The price is adjusted only for matters the contract allows, such as variations and provisional sums. Lump sum contracts work best when the design is well developed at tender stage; if it is not, the client may face extensive variations. Examples include the JCT Standard Building Contract and the JCT Design and Build Contract, while NEC4 Option A (priced contract with activity schedule) is the closest NEC equivalent.
Where a bill of quantities forms part of the contract, errors in it are usually corrected and valued as a variation.
Related terms: Contract Sum, Remeasurement Contract, Cost Reimbursable Contract, Fixed Price.
