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Lump sum shares risks


I have read with interest the various comments on the subject of competitive tendering versus partnered work culminating with those of Adam Tuke and Gordon Morrison in NCE Debate 10 February.

As head of contracts of the highways and transportation department of a leading city council I would make the following observations.

The main aim of partnering seems to be to create better margins for contractors with benefits to the employer via quality and the saving of commercial staff fees by eliminating adversarial matters.

My view would be that close co-operation should always be exercised and it should not be necessary for a formal partnering agreement to be in force. I am also mindful of endless stories on the grapevine to the effect that the spirit of the agreement prevails through the workshop process and even on site but the same arguments develop when the final accounting process begins.

My particular authority currently gives tenderers the option of submitting a lump sum fixed price tender alongside a traditional admeasure tender and in this way tenderers are given the opportunity to use their commercial skills to quantify the risks involved and to price the tender accordingly.

The advantage of this system is that the construction risk is carried by the contractor and the design risk by the employer. A payment profile is agreed post tender and the contractor is assured of a regular cashflow and the employer is more certain of the outturn price. This system of tendering promotes efficient innovative management in that the contractor has to work within the lump sum fixed price and the only time this changes is if the engineer instructs additional works or finesses the specification.

To date 25 contracts have been let on this basis with minimal disagreement and significant savings both to the employer and the contractor in respect of staff time against, site measurement, final accounting and variation orders.

Contractors come back repeatedly to price this form of contract and there have been situations where contracts have been converted from admeasure to lump sum fixed price part way through the contract at the behest of the contractor.

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