The lump-sum contract
The contractor undertakes a defined scope for a fixed sum. Interim payments are measured by percentage of progress, not by actual quantities. The contractor carries the quantity risk: if an item needs more material than estimated, the difference is the contractor’s, and vice versa. It suits projects whose design and construction drawings are complete before contract, such as fit-out and small to medium buildings with an approved design.
The re-measured bill-of-quantities contract
The contractor submits unit rates against the items of a bill of quantities, and work is paid at the actual quantities executed multiplied by the unit rate. The owner carries the quantity risk and the contractor carries the rate risk. It suits projects whose quantities cannot be fixed before start, such as excavation, foundations, infrastructure and refurbishment, and most public-works tenders that are issued with a bill of quantities in the tender documents.
Who carries which risk?
Under a lump sum: quantity risk sits with the contractor, and design-change risk with the owner through variation orders. Under re-measurement: quantity risk sits with the owner, and labour productivity and material price risk with the contractor. In both, unforeseen site conditions and owner delays remain a matter for the contract conditions.
What does FIDIC say?
The Red Book (2017), for construction designed by the employer, is based on re-measurement against a bill of quantities, while the Yellow Book, for design and build, is based on a lump sum. The choice of book follows the pricing basis and who does the design, not the other way round.
How do you compare offers?
Under a lump sum, compare scope and exclusions before the figure, and ask for a breakdown of the sum for payment purposes. Under re-measurement, compare unit rates on identical quantities, and watch for offers that front-load the rates of items expected to grow while cutting the others.
What the contract must define in both cases
The pricing basis stated explicitly; the documents priced and their revision; the method of measurement and the certificate cycle; how variations are priced (contract rates, then derived rates, then cost plus a percentage); and the threshold beyond which a unit rate is renegotiated when a quantity changes substantially.
Working rule: a complete design and a fixed scope point to a lump sum; uncertain quantities and an evolving design point to re-measurement.
We prepare bills of quantities on either basis, and the pricing report states the assumptions, exclusions and method of measurement for every item.
