What is a Lump Sum Contract?

According to the provisions of the Law on Bidding 2013, a Fixed-Price Contract is a contract with a fixed price throughout the entire period of implementation for the entire content of the work in the contract. Payment for fixed-price contracts can be made multiple times during execution or a lump sum upon contract completion. The total amount the contractor is paid until fulfilling the contractual obligations is exactly the price specified in the contract.

In practice, the implementation of fixed-price contracts often encounters many issues, causing confusion for both the investor and the contractor. Therefore, the parties need to note the following points:

- When applying a fixed-price contract, the bid price basis for bid approval must include costs for potential risk factors during contract performance and contingency costs for price escalation. The bid price must include all costs for risk factors and price escalation that may occur during the contract performance.- For construction packages, during negotiation and finalization of the contract, related parties need to review the quantity of work based on the approved design. If the contractor or the bid solicitor finds the work quantity table inaccurate compared to the design, the bid solicitor should report to the investor for consideration and decision on adjusting the work quantity to ensure it aligns with the design.- When applying a fixed-price contract, the investor for the project, the bid solicitor for regular procurement, the centralized procurement unit, or the procurement-requesting unit for centralized procurement, is responsible for the accuracy of the quantity and volume of work. If a consulting contractor is used to prepare the design dossier, bidding documents, or request documents, the contract between the investor, bid solicitor, centralized procurement unit, or procurement-requesting unit and the consulting contractor must include provisions on the responsibilities of the parties regarding handling and compensating for errors in calculating the quantity and volume of work.- Although considered fixed and comprehensive, in force majeure cases, the contract will need specific agreements. These are practical situations beyond the control and foresight of the investor and contractor, unrelated to the investor’s or contractor's faults or omissions, such as war, riots, strikes, fires, natural disasters, floods, epidemics, quarantines due to quarantine measures, embargoes, etc.

From the above regulations, we can see that a fixed-price contract related to construction works requires initial quantity calculations to be extremely careful and precise to every detail. Moreover, with the unpredictable fluctuation in the prices of raw materials and materials during the current period, applying the fixed-price contract form also poses a risk to both the contractor and the investor. Therefore, careful consideration is needed before approving the contract form in the investor's bidding plan for projects.

Related Documents:

Decree 63/2014/ND-CP guiding the Law on Bidding on selecting contractors

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