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Pros and cons of lump-sum construction contracts

Construction contracts for Nevada projects can be more complex than they seem, especially when something goes wrong as part of the process. One of the most commonly-used types is the lump sum contract. They may include some kinds of contingencies or allowances, but they generally include a payment of one lump sum for one completed scope of work. While these contracts may seem simple at first glance, complications can develop later on.

One reason why many companies prefer this type of contract is because they are "closed book" deals, in that the contractor sets a price and then handles expenses. If the contractor is able to make additional savings while adhering to the contract's demands, it has the right to keep the difference. This varies from a cost-plus agreement, in which the contractor's books can be reviewed by the owner, and the contractor is entitled to a sum above the costs of completing the project. By completing this type of construction contract, the owner establishes a budget line and can be certain of the amount it will pay for the finished job.

However, issues can arise around lien waivers from subcontractors and vendors. General contractors may not want to disclose the sums they are paying, but owners may want to be assured that full payment has been made, especially to avoid future problems. In addition, an accurate bid process is essential. If an item is left out of a bid or a contract, the owner and contractor may face tough negotiations over a change order.

When companies are taking on a construction project, negotiating a complete, fair contract in advance can be important to avoid problems down the line. A contract attorney can help clients to negotiate advantageous terms and to protect their rights in case of a contract dispute.

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