Is lump-sum contract suitable in real estate ?

Lump-sum Turnkey (LSTK) contracts are less prevalent in the real estate sector while it is more common in other sectors like infrastructure, industrial and oil & gas. In the Infrastructure sector in India also, there are many instances of EPC/Lump sum contracts. In the real estate sector, as per our experience, item rate contracts are used more often, but Lump Sum contracts are not unheard of.
In a lump sum contract, the contractor bids a single fixed price for all items of work covered in the project scope. The owner expects the contractor to do all that it takes to deliver the ‘project’ to the owner to the required scope and specifications. The contractor bears most of the technical and commercial risks associated with this contract and is responsible for estimating project costs from the drawings or specifications including his overheads and profit to determine the price of the project.

Let us see what the advantages and disadvantages of the Lump Sum contract from the perspective of the owner are.

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