One of the first decisions in a contractor tender is the type of contract: a fixed price (lump sum) or payment by actual quantities. This decision sets who takes on the risk, so it affects the price, the variations and the disputes at the end of the project.
A BOQ-based contract
The contractor gives a unit rate for each line item, and payment is made according to the quantities carried out and measured.
Advantages: flexibility. If quantities change, payment updates accordingly. Suitable when the design is not fully closed. Risks: the final cost isn't known in advance. It requires careful measurement and valuation checking. Quantities that grow increase the total.
A lump-sum contract
The contractor commits to a total price for carrying out the work as defined in the drawings and specification.
Advantages: price certainty for the developer. Fewer measurements and fewer arguments about quantities. Risks: the contractor prices in the risk, so the price may be higher. Anything not defined in the drawings and specification becomes an argument about "included or not". Design changes after signing become variations.
When each one fits
- Lump sum fits when the design is detailed and closed, the scope is clear, and the developer wants certainty.
- BOQ fits when the design is still evolving, for work whose quantity is hard to estimate in advance, or when flexibility is needed.
- There are also hybrids: a lump-sum contract for most of the work, with certain items measured.
What must be in the tender documents, either way
- A detailed BOQ, even in a lump-sum contract. It lets you compare bids on a like-for-like basis and price variations later.
- A project specification defining materials, finish standards and requirements not covered by the general specification.
- A clear definition of what is included and what isn't: site set-up, protection, waste removal, coordination with other contractors, as-built drawings.
- A mechanism for pricing changes: by the contract unit rates, by an agreed price list, or by another method set in advance.
- Payment terms, retention and guarantees.
- Indexation: whether there is any, to which index, and what the base index is.
The bottom line
No type of contract is always right. The question is how closed the design is and how much certainty the developer needs. What matters more than the contract type is the quality of the tender documents: a lump-sum contract with partial drawings invites disputes, and a measured contract without measurement control invites overruns.
FAQ
Are there no variations in a lump-sum contract?
There are. Any change to the design or requirements after signing is a variation, so it is important that the contract defines how it is priced.
What is a lump-sum tender with a BOQ?
A tender in which the contractor prices a BOQ but commits to the total price. The BOQ is used for comparison and for pricing changes.
