General Characteristics Of The Turnkey Lump Sum Price

In construction works, in accordance with the site list about the application projects, the turnkey lump sum price contract is a type of contract that is signed for the total price of the whole work which is offered by the contractor.

In the lump sum price process, the total price is determined from the beginning for the completion of the construction which is the place of the contract, scope of the contract and time of the work is specifically determined. This amount cannot be changed during the time of the construction or after the completion. In other words, the lump sum price includes the material, labor, expenses and the profit of the contractor which means that the construction is made for a determined fixed price. In the Construction Management Literature there are some opinions about the application of this method which states that this method is better for the short term, well determined, small and small budgeted constructions, but for the long term and large scale projects it is not recommended. (Gilbreath, R. D., 1992, Managing construction contracts operational controls for commercial risks, second edition, John Wiley & Sons, INC, Canada – Sorguç D., 1975, Laws and Contracts in Construction, METU)

For the correct determination of the pricing and for a better determination of method and the strategy by the contractor, all specifications about the design must be done completely before the construction tender; since all risks about the cost increase is transferred to the contractor as a legal consequences of this contract type. Employer is only responsible for the alteration instructions of itself and additional works. (Gilbreath, R. D., 1992). However in practice, the works which causes the cost increase is a matter of debate whether it is an extra work or in the scope of the contract. The Construction project constitutes many uncertainties; completion of a project in as it is planned is difficult. Especially in a large scale project, contractor undertakes the risk of cost increase as a whole. Lump Sum Price is a method that the balance and relations between parties can easily be broken.

The fact that all the risks are undertaken by the contractor also may create risky situations for the employer. Situations can occur as change of work later which are not indicated in the contract or the amounts which are not determined properly can be less than the application amount which causes extra costs. The risk grows with the growth of the scale of the construction; in fact, this cost becomes not an alteration but a more work than an actual work which is stated in the offer (Gilbreath, R. D., 1992) A mistake in the plan affects the cost. Lump Sum Price is the hardest method for the alteration to be applied. (Hinze 1993, Construction Contracts, Irwin McGraw-Hill)