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Lump-sum and unit-price contracts expose us to losses when our estimates of project costs are lower than actual costs.
Approximately 30%, 45% and 66% of our revenue for 2009, 2008 and 2007, respectively, was derived from lump-sum and unit-price contracts. Lump-sum and unit-price contracts require us to guarantee the price of the services we provide and thereby expose us to losses if our estimates of project costs are lower than the actual project costs we incur. Our profitability under these contracts is dependent upon our ability to accurately predict the costs associated with our services. The costs we actually incur may be affected by a variety of factors beyond our control. Factors that may contribute to actual costs exceeding estimated costs and which therefore affect profitability include, without limitation:
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site conditions differing from those assumed in the original bid;
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scope modifications during the execution of the project;
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the availability and cost of skilled workers;
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the availability and proximity of materials;
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unfavorable weather conditions hindering productivity;
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inability or failure of our customers to perform their contractual commitments;
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equipment availability and productivity and timing differences resulting from project construction not starting on time; and
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the general coordination of work inherent in all large projects we undertake.
When we are unable to accurately estimate the costs of lump-sum and unit-price contracts, or when we incur unrecoverable cost overruns, the related projects result in lower margins than anticipated or may incur losses, which could adversely impact our results of operations, financial condition and cash flow.
A lump sum contract is normally used in the construction industry to reduce design and administration cost. It is called a Lump Sum because the contractor is required to submit a total and global price instead of bidding on individual items. A lump sum contract is the most recognized agreement form on simple and small projects, for example, projects with a well-defined scope or construction projects where the risk of different site conditions is minimal. unit price contract is price agreement for every unit in the contract , there is no crucial difference between the the two types of contracts normally alum some contract give deviation of% of the total cost of the contract while the price unit contracts give deviation of% of the total cost of the contracts , they are all seven E.V contracts , from direct internet search you can get how are all the contracts are calculated
