You might think that you’ve conceded to a lump sum agreement and that there’s now no opportunity to surprise you with additional costs. But in this article, I’ll explain why you could be wrong.
Summary
In Germany, there is a difference between a detailed lump sum and a global lump sum.
Detailed versus global
Below, let me explain the difference between a global lump sum (DE: Globalpauschalvertrag) and a detailed lump sum (DE: Detailpauschalvertrag).
With a global lump sum agreement, you’ll provide the contractor with a description of the works; this is often a small booklet describing what the building will look like. Quantities are not mentioned, but all the parts of the building are described.
The contractor is asked to create a price on this description.
With a detailed lump sum, the architect will create the detailed designs and bill of quantities. The bill of quantities is a comprehensive description of each product in the building, including the amounts. The architect will split the bill of quantities into different trades that get sent to the contractor to fill in their prices.
Why a detailed lump sum is not really a lump sum
With a detailed lump sum, the contractor has the right to ask for additional funds if the quantities described differ from the amounts needed for the construction by more than 10%.
In contrast, you don’t have this issue with a global lump sum as you did not describe the quantities (the contractor had to calculate those themselves).
So, what’s the downside of a global lump sum?
The potential for conflict is very high if the description is not done well. For example, the contractor can claim that certain products have not been accurately described. In addition, they are also free to pick the products they want to install if they are not outlined in the description. This means that contractors often try to install the cheapest possible products to ultimately increase their profit.
It can also be challenging to receive comparable quotes, as there is quite a lot of room for interpretation. This means that during the tendering phase, you may have difficulty deciding who the best partner for your construction project may be.
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