In engineering contracts, Lump Sum Contract became popular among other contract types. It normally chose in situations where owner knows a certain degree of requirements like scope of project, design and specifications, comparative terms etc.. Hence owner let Contractor to quote a fixed price. This type of contract are based on the fixed payments calculated by the contractor participating in the tender process. If the project or contract is smaller and not complicated in nature there will be requirement for only Request for Quotation (RFQ).
Features and Requirements of Lump Sum Contract
Owner has to carry out Preliminary Front End Engineering and Design (Pre-FEED) or basic design and engineering. This can be achieved either through in-house crew or outsourced to an engineering firm in order to arrive at the definition of requirements so as to enable the works without controversy while work in progress.
The contractor who won in the Tender or Quotation, he has to accomplish all the requirements detailed in the agreement without revision and variation claim. If required, item rate can be made from the quoted price for extended works sometimes, owner may ask during the contract life cycle. Generally item rates are made for manpower, materials (as per the list), equipment, work block and any work defined in the work breakdown structure.
Contractor has to perform their scope to a clearly defined contract agreement. Following items are to be considrered in the basic engineering and design: detailed scope, project designs, drawings, specifications and related all documentation including meeting agendas and minutes (MOM).