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Digest Everything There is to Know About Lump-sum & Cost-and-fee for Housing Development

Digest Everything There is to Know About Lump-sum & Cost-and-fee for Housing Development
18 February 2022    Education, Tips and Trick
Written by Adam Fonsecha S.S.

Have you decided on the right supervisor and conductor/contractor to help you build the dream house? If so, before the final partnership contract is signed, try and digest everything there is to know and the differences between The lump-sum & Cost-and-fee systems. You may have heard about these two methods, but do you know the definition? No worries, Emporio Architect will share another useful information that elaborates The lump-sum & Cost-and-fee systems, from the meaning, the plus and minus points of the two for house development. Do you have your coffee?

What is lump-sum?

lump sum

In literal, the lump-sum is a payment method submitted to a contractor service in a large amount of money upfront in accordance with the budget plan summary and proposal proposed during the tender. Once the payment is settled, it automatically indicates that the management of funds, the hiring of builders, work schedule, material purchasing, and others are fully managed by the contractor. You, as the future homeowner, will only receive the end product and have no say during the process.

Financial-wise, the lump-sum system generally costs more because the fees are set based on 3 components, which are real cost fees, overhead cost, and contractor’s profit. Real cost fees are the expenses fees from the contractor during the development. The contractor’s profit is simply a profit that the contractor earns based on the purchasing service. Overhead cost is unplanned expenses.

It needs to be noticed that contractors with the lump-sum system will not set the costs too close to the real cost to prevent unwanted risks. Therefore, contractors usually set 5-10% overhead fees from the real cost that will be used to pay additional job tasks or unplanned expenses. If there are no additional job tasks and unplanned expenses, the overhead cost goes into the contractors’ pockets.

lump sum

Not only that, another drawback of a the lump-sum system is the misappropriation of funds that affects the building quality. The development result is prone to be a disappointment and untidy because the builders often work half-heartedly and are rushing for a quicker finish so the wages can be disbursed. In a simpler sentence, the faster the builders finish, the quicker they’ll get paid.

Contractors with the lump-sum system indeed work faster, but the quality is always questionable. You can choose to use it if you’re looking for practical reasons and faster development without spending more money than what you’ve already paid for.

What is cost-and-fee?

cost and fee

A Cost-and-fee system is a contract payment system of a contractor service by paying a certain percentage from the total payment (generally 10% or more, based on the agreement you’ve made with the contractor), including material purchasing, workers service, and more.

Differ from the lump-sum system, the cost-and-fee system offers a more flexible option. Fund management by the contractor is fully transparent, where every week, you’ll be receiving a work progress report, worker’s presence list, work target, and material purchasing allocation with the receipts and the installation fee in real cost. Therefore, you can monitor the material type and quality purchased with the amount, fee, and every worker’s wage per work.

Moreover, you, as the owner, can also make your own purchase of material and manage your own expenses. Therefore, you can select the material type and quality that you desire. The cost-and-fee system is preferable if you choose quality above anything else and have time to fully manage the development of your house.

cost and fee

On a side note, the cost-and-fee system relieves contractors from all responsibilities of the increment of material price due to inflation or work schedule lateness due to weather reasons. On another side note, the cost-and-fee system offers a lot of advantages, including time flexibility, controllable work results and quality, cost efficiency, a working system, and fund management that fully circles on honesty and transparency.

Those are the main aspects that prove the cost-and-fee system to be more superior in comparison with the lump-sum system. If you want to release your creative and experimenting soul, the design of your house can now have more freedom with no boundaries. Furthermore, the total cost will be cheaper compared to the lump-sum system. The reason is the expenses will always be real costs using the cost-and-fee system compared to the lump-sum system that includes real cost, overhead cost, and contractor’s profit.

cost and fee

Here is how the lump-sum system differs in comparison with the cost-and-fee system.

cost and fee

cost and fee

cost and fee

Those are the definitions and differences between lumps sump and cost-and-fee system. Now that you’ve digested the comparisons, ups, and downs of both, you can now safely select the supervisor and contractor you want to work with using one of these contract systems. Therefore, the housing development can be started immediately.

Are you still looking to create the design of your future house? Easy peasy lemon squeezy, all you have to do is hire Emporio Architect. Emporio Architect also provides the solution if you can’t decide which supervisor service to hire. What are you waiting for? Grab a phone and say hello to Emporio Architect’s customer service, and book right away!

Fairus Rizki Nurrahmawati, S.Ars
AUTHOR
Adam Fonsecha S.S.
Born and raised in Bali, Indonesia, does not limit his passion for learning other languages and desire to reach multiple continents through his writing. Writing articles has been his journey since graduating as it connects him with many people locally and globally. Also, nothing beats the feeling of readers taking an interest in a product that has been literately created into a future promise.
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