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LUMP SUM CONTRACT; BRIEF NOTES

Brief notes on the differences and implications in using either a Lump Sum (LS) or Re-
measurement form of contract, the differences have an impact at both the tendering and
the construction stage.

The major difference is that the risk related to the quantities stated in the BOQ is shifted
from the Employer (when the contract is re-measurement) to the Contractor (when the
contract is LS). With LS contract, it can be said that the quantities are non contractual
and it is the responsibility of the Contractor to confirm the quantities and measured items
during the tendering stage.

A. Tendering Stage
1. Drawing and specification are very importance in a LS contract because the
Contractor must include in his tender price for all work shown on the drawings or
described in the specification irrespective of whether the work is itemized in the
BOQ. In a re-measurement contract, the contractor prices the BOQ items with
reference to the drawings and specification for additional information. In the LS
contract, the contractor would entitle additional payment for work not shown on the
drawings or described in the specification even if it is itemized in the BOQ. The
drawings and specifications must include all the work to be done in the contract.

2. The tender document used for a LS contract will not be substantially different to
those prepared for a traditional re-measurement contract. The BOQ shall still be fully
measured and the document is necessary for the tender evaluation, preparing
interim payment certificates, for assessing the value of any variations on the work
and in the preparation of the Final Account.

3. During the tender preparation stage, the contractor should be allowed additional time
to prepare the tender because he is required to confirm the quantities and items in
the BOQ because he must assume responsibility for the calculated price using the
quantities. In effect, the contractor must prepare his own BOQ from the information
provided in the drawing and specification. Depends on the requirement in the tender



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documents, sometimes the contractor is permitted to alter the quantities and add or
delete items in the BOQ.

4. Because the contractor is assuming more risk with respect to the quantities is likely
that the contractor will increase the tender price as hidden contingency in case of
mistaken in the quantities. This increase may be spread over many rates included in
some of the preliminary items so that the contractor is assured receiving the money.

5. The tender evaluation process is also affected by the change from re-measurement
to LS contract. It is almost inevitable that the different contractors will have made
changes and the changes may have been queried and confirmed by Notices to
Tenderers during the tender preparation. All such alterations should be clarified and
confirmed by the engineer because the different quantities and descriptions may
have significant effect to the tender price. Ultimately, the contractor is responsible but
if a substantial error has occurred then this could create problems during the
construction work either by the contractor gaining or loosing money as a result of
erroneous changes in the tender BOQ. The error could affect the order of the
tenders. The procedure for dealing with such errors must be clearly defined in the
Instructions to Tenderers.

B. Construction Stage
1. If the work does not change from what is described in the drawing or specification
then the total amount paid to the contractor will be the same as the tender price
irrespective of the quantity of work carried out.

2. Subsequent to the award of the contract, the quantities in the BOQ become almost
irrelevant under a LS contract. The document is likely to be termed a schedule of
rates (sor). The total for each item become the actual amount to be paid for that
particular item unless there is a variation from what is stated in the drawing or
specification.

3. For (very simple) example;


If the specification shows 6 elevators but the BOQ has only 5 then the contractor will
only receive the amount for 5 even if 6 are installed.



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Conversely, if the specification shows 6 but the BOQ has 7 then the contractor is
entitled to receive the value for 7 even if only 6 are installed.

4. Problem can occur in the assessment of variations.


In the above example, if it is decided to omit 3 elevators, it should calculate the value
of 3 elevators and deduct from the total value for that item.

If the contractor had included only 5 then he would be paid for 2 = (5-3); or 7 then he
would be paid for 4 = (7-3) even though he would actually be installed 3.

If it is decided to omit all 6 then the contractor could either loose or profit money to
the price of 1 elevator.

This clearly shows that the risk has been shifted from the employer to the contractor
in respect of the quantities in the BOQ.

5. Any items of work not described in the drawing and specification must be included as
a variation similar to any additional work instructed during the construction. The
contractor is entitled to extra amounts even if the BOQ description mentions that
specific work. The only advantage of this situation is that the price would already be
fixed for the missing items.

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