The lump sum contract is a basic agreement between an owner and contractor were a single lump sum price is agreed upon after the contractor reviews the plans and the specifications before work begins. Lump Sum contracts come with disadvantages and advantageous but our Tallahassee construction lawyers will focus on the advantageous as they relate to contractors. Although a lump sum contract increases a contractor’s risk, there are some benefits to this widely used contract. In this article, we will focus on advantages of lump sum contracts. Head over to part two to learn about the best types of projects for lump sum contracts.
A lump sum contract is a closed-book arrangement. This means that a contractor does not have to give the owner a report of the cost of labor and materials. With a lump sum agreement, contractors have the potential to earn more profit as long as they complete the project under the fixed, agreed upon cost. The owner is not entitled to these savings.
Steady Cash Flow
A steady flow of cash is accomplished due to less intense reporting, accounting, and back office work which leads to fewer overhead costs. Contractors are encouraged to estimate and project costs with precision to see increased profit margins.
Easy to Manage
The lump sum contract is the simplest and easiest manage since the scope of work is well-defined and the total cost is already known. This can help promote better interaction between owners and contractors. As explained before, less accounting and reporting is required which lessens the amount of paperwork contractors have to deal with.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.