What is a characteristic of the Lump Sum contract?

A Lump Sum contract is characterized by setting a fixed total price for a specified scope of work. This means that the contractor agrees to complete the project for a predetermined amount, regardless of the actual costs incurred during the project. This provides a clear financial framework for both the owner and the contractor, allowing for better budgeting and cost control.

In the context of project delivery, this type of contract is beneficial because it shifts the risk of cost overruns to the contractor. The contractor is incentivized to manage the project efficiently and effectively within the agreed-upon budget. If the costs exceed the fixed amount, the contractor absorbs those extra costs, while the owner is safeguarded against unexpected price increases.

This is distinct from other contract types such as cost-plus contracts or time and materials contracts, where the total costs can vary. In these latter scenarios, the owner might end up paying more if the project's costs rise, which is not the case with a Lump Sum contract.