A lump sum turnkey contract, also known as an LSTK contract, is a type of contract in the construction industry. It is a fixed-price agreement where the contractor is responsible for delivering a completed project to the client at a set price. This type of contract is often used for large-scale projects, such as infrastructure development or building construction.

The term “lump sum” refers to the fact that the contractor is paid a fixed price for the entire project, regardless of any cost overruns or unforeseen expenses. This puts the onus on the contractor to take necessary precautions and ensure that the project is completed within the agreed budget. The term “turnkey” refers to the fact that the client takes ownership of the completed project and does not have to worry about any further development or construction work.

Under an LSTK contract, the contractor is responsible for all aspects of the project, from design and construction to procurement and commissioning. They are expected to handle any issues that arise during the construction process and ensure that the project is delivered to the client on time and within budget.

One of the major advantages of an LSTK contract is that it provides greater certainty and predictability for both the client and the contractor. The fixed price nature of the contract means that the client knows exactly what they will be paying, and the contractor knows exactly how much they will be paid. This can help to reduce uncertainty and increase trust between the two parties.

However, there are also some potential disadvantages of an LSTK contract. The fixed-price nature of the contract means that the contractor takes on a greater degree of risk, as they are responsible for any cost overruns or unforeseen expenses. This can make it more difficult for the contractor to accurately estimate costs and may lead to them inflating their bid to cover potential risks.

In summary, a lump sum turnkey contract is a fixed-price agreement in the construction industry where the contractor is responsible for all aspects of the project, from design and construction to procurement and commissioning. While this type of contract can provide greater certainty and predictability, it also comes with potential risks and disadvantages. As with any type of contract, it is important for both parties to carefully consider the terms and conditions and ensure that they are comfortable with the risks involved.