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Is it reasonable to expect to charge the entire Lump Sum contract even if the project is finished earlier?

TexasPayment Disputes

We are a contracting company (not construction, more field data acquisition and technical services, but the situation still applies) that generally charge Lump Sum. Our clients almost always also want a "daily rate" stated as well even though we are biding as Lump Sum. On longer jobs (over a week or two) it sometimes becomes apparent that we can complete the work in a shorter amount of time, maybe a day or two earlier, usually due to favourable conditions. We are then faced with a client that is expecting us to charge less because we finished early. This forces us into an unfair situation where we are either expected to make less money for doing our job more efficiently or make sure we use up the whole time we anticipated. In these situations, we generally opt to acquire slower so that we will take the entire anticipated time in the end. Is this a reasonable thing to do? How can we change our contracts to protect our interests if we might end up finishing early? Thanks!

2 replies

Feb 24, 2021
Lump sum is lump sum. You are not penalized by being efficient. The one change that could be helpful is to clarify in the contract language that the lump sum controls payment regardless of when completed. Of course, while the other party may feel that you should pay less if you finish sooner, that same party would probably not willingly pay you more just because you take a longer period of time. After all , you are being paid for what you do regardless of the time it takes to do it. Please bear in mind that many exceptions apply. For example, if you take a longer time to complete you could be entitled to be paid in excess of the lump sum if the delay is caused by the other party.
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Feb 24, 2021
You should consider revising your daily rate so that it reflects extended time to accomplish the mission (for causes beyond your control), and not a shorter time. As Attorney Santire stated, lump sum is lump sum. Advise the client that you are assuming the risk of completing within the projected time. Consider retaining a construction attorney to review and help to revise your contract and proposals. Good luck.
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