GEM Engserv Pvt. Ltd is an ISO 9001:2015 certified organization, certified by TUV India in accreditation with National Accreditation Board for Certification Bodies (NABCB).
Lump-sum Turnkey (LSTK) contracts are less prevalent in the real estate sector while it is more common in other sectors like infrastructure, industrial and oil & gas. In the Infrastructure sector in India also, there are many instances of EPC/Lump sum contracts. In the real estate sector, as per our experience, item rate contracts are used more often, but Lump Sum contracts are not unheard of.
In a lump sum contract, the contractor bids a single fixed price for all items of work covered in the project scope. The owner expects the contractor to do all that it takes to deliver the ‘project’ to the owner to the required scope and specifications. The contractor bears most of the technical and commercial risks associated with this contract and is responsible for estimating project costs from the drawings or specifications including his overheads and profit to determine the price of the project.
Let us see what the advantages and disadvantages of the Lump Sum contract from the perspective of the owner are.
In the real estate business, change is one of the rare constants! Changes may be caused by changes in Development Control rules, value engineering, request from end-user or an improvement considered necessary by the owner. This coupled with the fact that complete design engineering is rarely completed at the time of awarding the contracts, the Lump Sum type of contract is not considered suitable. This is perhaps the reason why the Lump Sum contracts are not much in vogue in real estate.
We will be surprised if this type of contract becomes the norm in the near future!