How Lump Sum Contracts Affect Budgeting
Lump sum contracts are beneficial for clients because they establish a fixed project cost, eliminating the risk of unexpected expenses. However, the contractor assumes the risk of any cost overruns or miscalculations in the initial estimate. Therefore, accurate cost estimation is crucial to avoid financial losses.Best Practices for Managing Lump Sum Contracts
Contractors should conduct thorough cost estimation, accounting for all potential expenses, including materials, labour, overhead, and unforeseen costs. A detailed scope of work should be outlined to avoid misunderstandings that could lead to disputes over additional costs. Contractors should also maintain close oversight of the project to avoid overruns.Related Terms: Subcontract, Contingency Budget