Construction Methods And Project Management2D
Contracts and Specifications - Theory & Concepts
Understanding construction contracts, bidding procedures, and technical specifications.
Open the complete lessonContract Simulation
Visualize financial risk allocation between Owner and Contractor.
Lump Sum (Fixed Price)
UnderrunEstimateOverrun
Characteristics
Contractor bears maximum risk for cost overruns. Owner has price certainty.
Pros
- Price certainty for owner
- Easy to evaluate bids
Cons
- High risk for contractor
- Inflexible to changes
Inherent Risk Allocation
Owner Risk: 10%Contractor Risk: 90%
Financial Scenario Impact
Estimated Cost (Base)
$1,000,000
Actual Cost
$1,000,000
Final Owner Payment$1,100,000
Contractor Profit/Loss$100,000
-$200k (Loss)$0+$200k (Profit)