Lump Sum Contract
A contract type where the contractor agrees to complete the defined scope of work for one fixed total price, regardless of the contractor's actual cost to perform it, the most common contract type when the scope is well-defined before pricing.
Why it matters
It gives the owner real price certainty, since the number doesn't change just because the contractor's actual costs run higher than expected. That certainty comes at a cost to the contractor: if their estimate was wrong, they absorb the difference, which is why an accurate [[concept-scope-of-work|scope of work]] matters so much under this contract type.
On a real project
A contractor agrees to build a warehouse for a fixed $4 million, regardless of whether their actual labor and material costs end up higher or lower than what they estimated.
Who this matters most to
An Estimator carries the most pressure on a lump sum bid, since the entire financial risk of an inaccurate estimate falls on the contractor, not the owner. A Project Manager manages the project tightly against that fixed number, since every dollar of actual cost above the lump sum comes straight out of the contractor's profit.
Where this goes wrong
A contractor bids a lump sum contract based on an estimate that missed a significant site condition. Once the true cost of the work becomes clear mid-project, the contractor has no way to recover that money from the owner (the price was fixed regardless of actual cost) and has to either absorb the loss or try to make it up by cutting corners elsewhere.