Pricing structures in construction contracts

The following Construction practice note provides comprehensive and up to date legal information covering:

  • Pricing structures in construction contracts
  • Lump sum
  • Remeasurement
  • Prime cost
  • Target cost

Pricing structures in construction contracts

This Practice Note compares the pricing structures most commonly used in construction contracts. It considers lump sum, remeasurement, prime cost and target cost contracts.

Lump sum

Also known as:Fixed price
In a nutshell:The contract sum is agreed before the works start.
Features:The employer and contractor agree the total contract sum payable to the contractor at the outset of the project, before commencement of the works. The lump sum is not subject to remeasurement during the course of the project.
It is therefore important that the contractor is given sufficient information at tender stage in order to price the works accurately. Where the contractor is not designing the works, it will normally price the works on the basis of drawings and:
  1. a ‘bill of quantities’ drawn up by a quantity surveyor according to a published standard method of measurement. This lists out the items of work, labour and materials required to complete the works. During the tender process, the contractor prepares rates for each item within the bills of quantities, and the sum of each of the quantities multiplied by the relevant rates forms the contract sum for the project (see, for example, the JCT Standard Building Contract With Quantities), or

  2. a specification or activity schedule. Under this arrangement, the contractor is expected to measure and price the works

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