What is a lump sum construction contract
The lump sum construction contract (also called fixed price) is one in which the contractor undertakes to execute all the work for a global, fixed and invariable price, regardless of how actual costs evolve during execution. The Civil Code enshrines this figure as the contract for work by adjustment or lump sum, and its defining trait is precisely the invariability of the agreed price.
Unlike a unit price contract, where you pay based on actual executed quantities and their unit price, in lump sum the total amount does not change even if the quantity of work executed varies from what was initially expected, unless a modification is expressly agreed.
Difference between lump sum and cost-plus contract
In the cost-plus contract, the owner pays the actual execution costs (materials, labor, machinery) plus a percentage or fixed amount for the contractor's profit, the risk that costs rise is primarily assumed by the owner. In lump sum the opposite occurs: the total price is fixed beforehand, so if actual costs rise above what was expected, it is the contractor who absorbs that difference.
This difference is not just economic, it changes each party's incentive: in lump sum the contractor has interest in controlling internal costs because the price can no longer rise; in cost-plus, that incentive is weaker because additional cost is directly passed on to the owner.
What risk the contractor assumes in lump sum
The lump sum contract transfers to the contractor the risk of price variation for materials and labor, and of any execution unforeseen that has not been expressly excluded in the contract. The law does not generally permit the contractor to claim a price increase simply because its costs have risen more than expected when calculating its offer.
For this reason, calculating the contingency margin well before signing a lump sum contract is more critical than in other modes: optimistic cost calculation can turn a seemingly profitable work into one that generates losses for the contractor.
What situations do allow modifying the lump sum price
Lump sum price does not mean the amount is immovable under any circumstance: substantial project modifications agreed by both parties, force majeure, or unforeseen circumstances that extraordinarily alter the economic balance of the contract may justify a review, as long as it is documented and accepted by both parties.
What is not possible is for the contractor to unilaterally claim a price adjustment for having underestimated its own costs when budgeting, that is precisely the nature of the risk it assumes when signing this type of contract.
How Bloqbase supports control of a lump sum contract
Bloqbase can help compare, during execution, the accumulated actual cost against the agreed lump sum price, to detect early if the anticipated margin is being reduced more than expected.
The software does not negotiate the contract or determine what circumstances justify a price modification: that decision continues to belong to the parties and, where appropriate, to the legal advice that reviews the specific contract.