ABSTRACT
There are three major methods of payment for construction work, or any other type of services for that matter. First, each party can agree a price for the work before it starts and that price will be a set figure (known as a lump sum). Unless there are any variations, this is what the builder (contractor) will be paid, i.e. it is a fixed price. Clearly, in this case, the design should be sufficiently progressed for the tendering contractors to be able to accurately estimate the cost of the works, add their required profit margin and submit a fixed-price tender. Second, the design may not be sufficiently progressed, but the designers know what items are required and can ask the tendering contractors to submit rates for these items and they will be paid the actual amounts when work is completed at the rate for these items. This is known as a firm-price contract, as the rates are firm but the total contract value cannot yet be fixed. It is also known as a ‘remeasurement’ contract as the drawings are remeasured after completion of the works (although, paradoxically, they may not have been measured in the first place). Third, the design may be totally vague or the speed at which the work is carried out may be crucial and the client wishes to appoint the contractor early so will appoint them on a cost-reimbursable basis whereby all the contractor’s project costs are repaid together with a percentage addition to cover overheads and profit. Let us now look at these three variants in more detail.
