CONCLUSION

Lump sum contract features one overall price, without consideration of the actual

costs, the contractor had better get that price right. The sum comes from

comprehensive plans, detailed construction specifications, and a little bit of trust.

Successfully using a lump sum contract means properly anticipating the project’s

schedule, all material, and labor costs, as well as knowing how much to build into the

price for a profit margin and overhead costs. What’s more, that contractor had better be

sure that the owner won’t be trying to call for changes throughout the life of the project.

If the project’s final costs are lower than the contactor’s estimate, then their profit

increases. If the estimate is too low, the contractor’s bottom line suffers. However, the

project owner’s finances are unaffected in either scenario.

For the best chance at a project going off without a hitch, a stipulated sum or

lump sum contract requires a crystal-clear scope of work. The project also needs to be

relatively simple, with as few variables as possible. In this scenario, a lump sum contract
works incredibly well for the contractor. On the other hand, a hazy or muddy scope of

work is a recipe for a payment issue under a lump sum contract.

If you’re sure you’ve done your homework, a lump sum contract could be very

equitable and beneficial for both you and the project owner.