A contracting strategy that involves the client agreeing a fixed price with a contractor for completion of a defined scope of work. Payment may be made as a lump sum, or a series of progress payments against defined milestones, which is often the case in construction contracts. Clients prefer lump sum pricing as the financial cost of the project is defined in advance, providing the scope of work does not change. If the client changes the scope, this may give rise to variations, but otherwise the risk of costs exceeding the tendered price lie with the contractor, not the client. For this reason, lump sum contracts are most appropriate when the scope of work can be defined with some certainty. If a contractor is asked to provide a lump sum price for a project with high uncertainty or many unknowns, it is likely that the bidders will include contingencies in their offers to cover the risk. See also Contracts and Schedule of Rates.« Back to Glossary Index
Discover the world’s largest Glossary of Procurement terms
With over 800 Procurement specific terms (and growing) you will find everything you need to know or thought you knew about the Procurement function. Our aim is to provide you with a comprehensive list collated from the Comprara Groups hub of training and consulting source materials.The Procurement Glossary has been compiled by industry expert Paul Rogers.