I would like to comment about fixed-price
contract and my understanding of the concept involved. I understand that fixed-price is the same as
lump-sum contract, which from my point of view is mainly related to the risk of
quantities and prices and not necessarily to the changes of scope of work;
therefore not intended to take all related risks about construction. For this latter scope I prefer to use the
turnkey contract type, which also includes design and a wider range of risks,
but at any case, also some could be dismissed.
Supporting my view, suppose A wants to build
a house, and has the place for construction and has a specific and detailed
design for it; A calls for a bid and uses fixed-price option. When C started the construction, C discovers
that the design for the foundations is not suitable for the construction since supporting
ground is not good enough, but C only gave a price for the construction of a
specific and existing design, so if C was wrong about quantities or cost at the
time of survey, it is C’s mistake; but if foundations need to be different due
to technical reasons, then mistake is not related to quantities or costs, but
design performed by A. In the same
circumstances, but A asking to bidders to verify soil conditions and propose a
suitable solution into their price; the situation changes, because in this case C
has to include into its price the ground risk.
On the other hand, if A has the construction place and requirements but
not a design, then A can call for a turn-key contract and in this case: design,
construction and related risk belong to C; C has to evaluate all circumstances
about design and construction, including ground condition.
About mutual mistake, my
understanding is that “per-se” a fixed-price contract not necessarily assigns
any sort of risks to contractor, and situation needs to be verified in
accordance with details of the scope of work.
In the case I mentioned, in the first scenario, if both parties had the
mistake of assuming that the design was suitable for construction but finally
it was not, due to soil conditions, then a mutual mistake could be considered;
but for the second (also fixed-price) or third (turnkey) scenarios, mutual
mistake is not applicable since risk is assigned to the contractor.
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