The Lump Sum is Never Really a Fixed Fee

What? You're now asking yourself; Fixed Fee, Fixed Price, Lump Sum, they all mean the same thing. Yes, that is true, they are all terms for a project where all of the labor, material, insurance, overhead, profit, are contracted at a specific price with no contingency within the contract. However very few projects come in exactly on budget with no changes along the way. Especially due to the fact there are always some unknown conditions.

Take for instance finding out that the building you are underpinning is new renovation built on an old brick building built on an even older stone foundation from buildings past like the adjacent image.

Abandoned oil tanks long forgotten, boulders or water not found during geotech report, these are just many items that can pop up.

Most large scale contracts have at least a few allowances which will alter the final price. Okay you say but allowance items shouldn't alter the the fee or the overhead and profit. Sure, but how many projects get completed without a single change order? I have worked in the industry for over 20 years. I have performed under design build contracts, fixed fee contracts, gross maximum price contracts, no matter what type of contract there have always been change orders, which have added somewhere between 4 to 12 percent to the construction costs. With every change order that changes the scope there is always a change in the fee.

Don't rely on your project being perfect, expect the unknown. Realize that final lump sum will probably be little bigger in the end. Always give yourself some cushion, a development contingency of at least ten percent on the construction costs will save you a lot of headaches with the bank later on.