The issue of project construction costs

Analyze each specific issue individually. A lump-sum payment requires complete design drawings; the bidding process is lengthy and carries high risks, but the settlement is simple and costs are easy to control. Following the budget is fairer, results in smaller deviations and less risk, but the workload related to budgeting and settlement is heavy; especially when the construction drawings are incomplete, it is possible to sign a contract and start work first.

For large projects, settlement is usually adopted to ensure fairness and reasonableness; whereas for smaller projects, it’s possible to fix the cost in one go

As mentioned above, for small projects, since their scope is simple and clear and the associated risks are low, both the contractor and the client can agree to a fixed price for the entire project. Due to design constraints, it is impossible to determine the exact quantity of work at the project award stage for large-scale projects; even with a variable total price, the risks remain high. Unless it is a particularly aggressive construction contractor, it is unlikely to accept a lump-sum contract; a unit price contract is more appropriate.

　　Internationally, LS contracts, that is, lump-sum contracts with payments made at milestones (key points), are widely used. A unit price contract is used for projects that are complex or whose scope of work is unclear. 　　Adopting the pre-budgeting model requires the owner to hire many pre-budgeting staff, involves a large amount of work, takes a long time, has a lengthy approval process, and leads to numerous disputes between the two parties. 　　As for the issues on the second floor, such as the need for complete design drawings for a one-time fixed-price contract, the long bidding process, and the associated risks, CNPC and Sinopec currently use a \"budget reduction\" approach in large-scale projects like those at Maoming Ethylene, Dushanzi Ethylene, and Lanzhou Ethylene. In this approach, a general contracting bid is issued during the preliminary design stage (EPC, PC, EP); the two parties agree on a provisional contract price based on an estimated budget for the preliminary design (with a 10% margin of error), thereby identifying the general contractor as early as possible. The general contractor’s technical expertise is utilized to assist with project planning, long-term procurement, and project management. Once the detailed design budget is finalized, a third party is hired to review it, and the final fixed total price for the contract is determined. Through adequate cross-interconnection, the project timeline is ensured, costs are reduced, and risks are minimized.

If you are the construction party, then go with pre-budgeting, as it involves less risk. If you are the construction party, go for a lump-sum payment once to save money.

Due to their simple and straightforward nature, small projects carry low inherent risks, allowing both the contractor and the client to agree on a fixed price for the entire project. Due to design constraints, it is impossible to determine the exact quantity of work at the project award stage for large-scale projects; even with a variable total price, the risks remain high. Unless it is a particularly aggressive construction contractor, it is unlikely to accept a lump-sum contract; a unit price contract is more appropriate. The construction unit will then proceed with the preliminary settlement.

The formats you mentioned are all quite common: a lump-sum payment at the end: this was previously used mostly for small projects, but now many large projects also adopt this approach; however, the payments are made in accordance with prior agreements – usually either by making payments upon completion of each project milestone or by settling payments at fixed intervals based on the actual progress. Overall, the one-time Baosi approach poses significant risks for the contractor, but if the project is carried out properly, high profits can be achieved (a company in my country used the EPC turnkey contract model on a project in Africa, achieving profits of over 30%; this is a very high profit margin for EPC projects). Going with advance budgeting: this is also quite common, especially for processes that are highly mature. The disadvantage is that it is time-consuming, while the advantage is that the contractor bears less risk (though the profits are also lower).