Lump Sum vs. T+M


Change orders on a construction site are pretty common because nobody is perfect and something is always missed.  A change order is anything over and above a contractors’ base contract value.  Any problem that occurs on a site can always be fixed with one of three things: money, time, or sacrificed quality.  This is also known as the triple constraints triangle:

tripleconstraints

When a change order does occur, it’s usually fashioned in one of two ways: Lump Sum or Time and Material.  Majority of requests for pricing will be in the Lump Sum category since it allows for proper planning time and a definitive cost estimate to be tracked in a budget.


Lump Sum

 Lump sum is usually the cheaper safer bet because the party paying for the change will have a not to exceed value.  For example: if XYZ Contracting received a drawing updated from Joe Architect which contained 4 added walls, XYZ contracting would have to get a proposal from his drywall contractor to build the additional walls.  Schedule impacts may also occur in this form of lump sum work.


Time and Material

T&M work is a bit different and is usually a much faster way to get a project done.  when a general contractor instructs a subcontractor to perform change order work, the work should be tracked on ticket with labor time and material use clearly calculated.  Below is the workflow which illustrates this approval process:

Tm

T+M is usually a quicker way to proceed than lump sum, but there is no cap on the value of the task.  This type of change is helpful when you need to get something done fast after getting approval from the owner.


Conclusion

Whichever type of change occurs on your project, it’s important to remember to be fair about your requests.  Some people abuse the change order process and it’s in place because people make mistakes and change their mind.  Change orders will occur on every project site because nobody is perfect.  Leveraging technology and lean practices for project management help to minimize risk and reduce the chance of a change order.

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