Tips on using this forum..

(1) Explain your problem, don't simply post "This isn't working". What were you doing when you faced the problem? What have you tried to resolve - did you look for a solution using "Search" ? Has it happened just once or several times?

(2) It's also good to get feedback when a solution is found, return to the original post to explain how it was resolved so that more people can also use the results.

Lump Sum Contract

12 replies [Last post]
jack smith
User offline. Last seen 13 years 8 weeks ago. Offline
Joined: 16 Mar 2006
Posts: 8
Groups: None
Hi guys ,

anybody have any comments on this ??

Does the owner have the right to ommit out portion of work in a lump sum contract ???

Replies

jorge pham
User offline. Last seen 13 years 3 weeks ago. Offline
Joined: 15 May 2006
Posts: 9
Groups: None
Another question on lump sum contract ....

is there any limitation or extend for the VO Sum compared to the original contract sum ???? how many % normaly VO can be go beyong the Contract sum ???
jorge pham
User offline. Last seen 13 years 3 weeks ago. Offline
Joined: 15 May 2006
Posts: 9
Groups: None
Thank Andrew for your detail interpretation...

Any comments on this ?

Under Firm lump sum save contract , there is a clause stated Engineer still remain the right to omit portion of the work under main contract and contractor are not allow to claim for any loss of profit & attendance.

Current scenario ( Example )
- 70% Contract sum under main contractor main scope of work ; 30% under provisional sum for NSC
- Scope of work majority follow as stated inside BQ description.
- Reality is those work describe in BQ is not applicable to the site condition or doesn’t exist in the site .
- The Engineer wirte a letter the intention to omit out those scope of work under main contrat.

- rough calculation show that after omission Contract sum under main contractor main scope of work being reduce to 55% thus increase the provisional sum to 45%


Question
Main contractor profit will be affected seem under provisional sum contractor only entitle for 2% - 3% profit and attendance.
This kind of contract seem not fair to the main contractor.
Original profit being reduced and cannot claim for loss of profit. Contractor might suffer losses ( 2% - 3% of profit from provisional sum doesn’t enough to cover all necessary charges for Company )
Andrew Ng
User offline. Last seen 1 year 39 weeks ago. Offline
Joined: 3 Jul 2004
Posts: 52
Groups: None
In the specific case of FIDIC Organge book design and construct contracts for M&E type Installations, the specifications can also be in the form of "Employer’s Requirement" or "Design Brief" in common parlance.

If weight or volume throughput, air filtration rates etc have been stated are parts of these performance critiria(eg. 2,000tph or 500,000m3 per annum, 98% availability etc int he case of some bulk material handling projects), they also mean that scope must include all means and measures(including control mechanisms i.e. SCADA) which are "reasonable" to be supplied and installed to ensure the attainment of such performance critiria. The interpretation of what constitute "reasonableness" can vary depending on the practise of the industry or the stage of development and legislation in the country the plant is located or to be operated.
Andrew Ng
User offline. Last seen 1 year 39 weeks ago. Offline
Joined: 3 Jul 2004
Posts: 52
Groups: None
There is no such thing as fix lumpsum, may be you meant Fixed Price Lumpsum, which simply means the lumpsum prices of the Main Contract and/or its subcomponents which are also lumpsum prices are not subject to price fluctuation on account of movement in materials or other prices. If there are no separate clauses on the adjustment for currency fluctuation, the lumpsum fixed prices would also not be affected by them.

It is also important to remember in the cases of lumpsum priced contracts that the drawings and the specification form the basis of the scope of work to be executed and completed. Any schedules of prices or quantities are only indicative and possibly used for the purpose of variation or interim progress payment.

In fact given that most of the drawings are not to the shop detail level at the time of contract award, it is often interpreted that all scope of work which may be inferred but not detailed in the drawings, nonetheless needed for the completion of the items described in the text of the drawings or the specifications shall be integral parts of the scope. Absence of details in the drawings or the schedules of prices or rates shal not not be grounds of not doing the work.
jorge pham
User offline. Last seen 13 years 3 weeks ago. Offline
Joined: 15 May 2006
Posts: 9
Groups: None
what is the different between

i) Fix Lump Sum

ii) Lump sum

interm of entitlement of the employer to make ommision of workscope to the contract ( thus to the contract sum ) ..
Norzul Ibrahim
User offline. Last seen 11 years 34 weeks ago. Offline
Joined: 17 Dec 2005
Posts: 165
Agree, by the way what’s your opinion on the issue of LAD that I’ve raised on another posting..
Shahzad Munawar
User offline. Last seen 4 years 6 weeks ago. Offline
Joined: 2 Jul 2003
Posts: 551
Groups: None
Norzul

In Lump Sum Contract, when the Main Contactor completely fails to pay its Subcontractors, then usually in light of said Clause, the Employer directly pays to the Subcontractor and deduct all these amounts from the Contractor’s account as it has been occurred in one of our Lump Sum Contract.
Andrew Flowerdew
User offline. Last seen 28 weeks 1 day ago. Offline
Joined: 14 Dec 2004
Posts: 959
Groups: None
Norzul,

Usually put in to cover the situation if the Main Contractor becomes insolvent - for the client to start doing this in any other case needs extreme caution - the question to think about is by doing so, what liability (if any) is the Employer possibly taking on in paying the sub contractor directly.
Norzul Ibrahim
User offline. Last seen 11 years 34 weeks ago. Offline
Joined: 17 Dec 2005
Posts: 165
In one of our lump sum contracts we do have this clause under terms of payment :

"In the event CONTRACTOR fails to properly pay any SUBCONTRACTOR, OWNER reserves the right to make such proper payment itself, directly to the SUBCONTRACTOR and to deduct such sum or sums as have been so paid from any
payment due to CONTRACTOR."

Any experience?
Stuart Ness
User offline. Last seen 7 years 22 weeks ago. Offline
Joined: 30 Jun 2004
Posts: 352
Groups: None
Jack,

A "Lump Sum" Contract is simply one in which a detailed breakdown of every cost comoponent may not be given. Most "Lump Sum" Contracts provide for a Change or Variation Order mechanism, whereby the workscope can be increased or reduced in size. The alteration to the workscope, either up or down, will have a resultant impact upon the Lump Sum Price.

If the Contract does not have a Change Order/Variation Order mechanism to alter the workscope, then the Lump Sum Price cannot be altered either.

So to answer your question,- yes, the Owner is allowed to omit parts of the workscope, provided however that the Contract has a Change Order/Variation Order mechanism.

In addition, Andrew is correct to note that the Owner cannot omit any part of the work from the Contractor’s workscope and give it to another Party, unless of course, the work is being taken away from the Contractor due to failed performance and he is in default.

Hope this helps,

Stuart

www.rosmartin.com
Norzul Ibrahim
User offline. Last seen 11 years 34 weeks ago. Offline
Joined: 17 Dec 2005
Posts: 165
It’s not quite normal to omit the agreed (base case) scope of work in a lump sum contract. Omiting the agreed scope may invalidate the project performance guarantees.

However, based on our experience, we do have a mechanism. Normally in a lump sum contract we have Base Case and Options. The options may have their own take-up or take-out date.
Andrew Flowerdew
User offline. Last seen 28 weeks 1 day ago. Offline
Joined: 14 Dec 2004
Posts: 959
Groups: None
Jack,

Probably, just depends what is written in the contract. What he usually doesn’t have the right to do is omit work to give to another contractor.