ADVANTAGES
 | Contractor adds lower than normal
percentage of all costs for his over head and profit. |
| Fixed or decreasing fee basis removes
contractors’ incentive to increase costs or cut quality. |
| Owner profits from cost reductions. |
| Construction time is reduced by concurrent
engineering completion. Low engineering costs due to short term engineering effort limited
to project needs only. |
| Owner retains control of cost and schedule. |
| Scope changes are handled expeditiously. |
| Owner caused schedule interruptions generally
result in crew reductions or reassignment with minimum cost impact. |
LUMP SUM
ADVANTAGES
| Competitive biding assures low cost option and
advance knowledge of costs. |
| Contractor assumes cost overrun risk. |
| Use of reliable contractor results in minimal
owner supervision. |
|
|
DISADVANTAGES
| Cost cannot be entirely
predetermined. This may be minimized by competitive bidding of subcontractors and material
suppliers. |
| Owner assumes cost and schedule risks. |
| Keeping costs low is dependent on integrity of
contractor. |
| Accounting of time sheets and material used is
required. |
LUMP SUM
DISADVANTAGES
| Engineering must be 100% complete for effective
bidding. |
| Contractor’s risk protection allowance adds
20-30% to estimated cost. |
| Contractor may attempt to cut quality to maximize
profits. |
| Cost reductions are not returned to owner. |
| Owner changes to scope may be overpriced. |
| Owner schedule interruptions may result in cost
escalation. |
|
