Fixed-price (lump-sum) contract
A fixed-price contract sets one total price for the defined scope; the contractor keeps the upside if costs come in low and eats overruns if they don't.
Fixed-price puts cost risk on the contractor, which makes accurate estimating and tight job costing essential — your margin is whatever's left after actual costs. Change orders are how added scope gets priced beyond the fixed amount.
Related terms
- Cost-plus contract — A cost-plus contract bills the client for actual job costs plus an agreed fee or percentage, rather than a fixed price.
- Time and materials (T&M) — A time-and-materials contract bills for actual labor hours at set rates plus materials, often with a markup, rather than a fixed price.
- Change order — A change order is a written modification to the original contract scope or price — added work, a selection upgrade, or a condition discovered on site.