A lump sum turnkey contract (LSTK) is a type of contract commonly used in construction projects. It is a popular option for projects that require a complete solution to be provided by a contractor, from design and engineering to construction and commissioning. In this article, we`ll dive deeper into the meaning of an LSTK contract and understand why it is a preferred choice for many construction projects.
What is an LSTK Contract?
An LSTK contract, also known as a fixed price contract or a design-build contract, is an agreement between a client and a contractor where the contractor agrees to deliver a project on a fixed price basis. This means that the contractor is responsible for designing, constructing and commissioning the project, and the client pays a pre-agreed amount for the project`s completion.
Under an LSTK contract, the contractor bears the risk of cost overruns, delays, and other potential issues. The client, on the other hand, benefits from having a fixed price for the project, which allows for better financial planning and budgeting.
Why is an LSTK Contract Preferred?
An LSTK contract is preferred over other types of contracts for several reasons. First, it provides a clear and well-defined scope of work, which helps to minimize misunderstandings between the client and the contractor. This ensures that the project is completed as per the client`s requirements, and both parties are satisfied with the end result.
Second, an LSTK contract provides greater certainty regarding project costs. The fixed price nature of the contract helps the client to plan and budget their finances accordingly. It also incentivizes the contractor to complete the project within budget, as they bear the risk of any cost overruns.
Third, an LSTK contract requires the contractor to take full responsibility for the project, from design to commissioning. This allows the client to focus on their core business without worrying about the details of the project`s execution.
Finally, an LSTK contract incentivizes the contractor to complete the project on time. The fixed price nature of the contract means that the contractor has to complete the project within the agreed-upon timeframe, or they risk losing money due to penalties for delays.
Conclusion
LSTK contracts are an excellent option for clients who want a complete solution to their construction projects. The fixed price nature of the contract provides greater certainty regarding project costs, and the clear scope of work helps to minimize misunderstandings between the client and the contractor. Additionally, the contractor takes full responsibility for the project, which allows the client to focus on their core business. Overall, an LSTK contract is a perfect choice for any construction project that requires a turnkey solution.
