In the design and construction industry, we tend to throw around many terms and acronyms that healthcare professionals may not understand but sometimes they don’t want to ask what they mean, so we are providing a phrase or acronym with each monthly posting that will provide our readers with a very straight-forward definition of the a term or acronym. If there is a term or acronym that you would like a definition for, please let us know and we’ll include it in a future post.
This month’s term is “Lump Sum Agreement.”
A lump sum agreement is an agreement between two parties where the agreed upon contract amount is a fixed amount that contains all costs. The lump sum amount would be paid upon completion and acceptance of the work, regardless if the cost of the work performed by a contractor is less or more than the lump sum amount agreed to. If there are approved change orders based on scope changes, then the amount of the change orders could potentially reduce or increase the lump sum amount.
An example would be if an owner and contractor agreed to a lump sum amount of $5.5 M, then the owner is committed to pay the contractor a lump sum amount of $5.5 M regardless if the actual cost of the work performed by the contractor ends up being greater or less than the lump sum amount. It is also important to understand that the majority of lump sum agreements cannot be audited for actual costs.
If you have any questions regarding this term, please feel free to address them to firstname.lastname@example.org.
We would like to provide credit to a good friend, Ms. Connie McFarland, FAIA, FACHA of McFarland Associates, Inc. for providing the idea of sharing definitions of acronyms and terms that we use in our industry.