REVIEW OF VARIANCE ANALYSIS IN UNIT PRICE OR LUMP-SUM BASIS CONTRACTS FOR A CONSTRUCTION PROJECT

Hasan Bozkurt Nazilli () and Nicolae Postavaru ()
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Hasan Bozkurt Nazilli: Technical University Of Civil Engineering Bucharest, Romania
Nicolae Postavaru: Technical University Of Civil Engineering Bucharest, Romania

Internal Auditing and Risk Management, 2012, vol. 2, issue 26, 103 - 115

Abstract: Project cost control became a critical issue for the construction projects under global recession. There are various methods for cost controlling according to types of contracts. Crucial difference in principal is between Lump-sum and Unit-Price basis contracts. According to my past construction projects experience, usually a project can be completed on time, with acceptable safety, security, health and environmental conditions and in acceptable quality. But cost variance has been always encountered in projects because of a lot heterogeneous construction conditions. Effects of two difference type of contract as unit price and lump-sum basis have been reviewed in this study. Planned profit had been defined according to the cost report in the beginning of the project that was carried out in Bucharest. But the contractor paid more money at the end of the project in spite of quantities of some items were increased under unit price basis contract. Because unit prices of the work items were defined mistakenly without making a comprehensive study. Furthermore, at the end of the project actual overhead costs increased because of additional fixed and time related costs those could not estimate by the contractor. In condition of lump-sum basis contract, as a result of some increased or new appeared job items have not been paid by the client because of the contract spirit, gross income has been changed to lose money. As is understood, the contractor could not evaluate comprehensively all the contract documents, especially structural drawings have not been reviewed and made calculation precisely.

Keywords: Cost Analysis; Earned Value Analysis; Lump-sum basis; Unit-price basis (search for similar items in EconPapers)
Date: 2012
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