A fixed-price contract, also called a lump-sum contract, sets one total price for a clearly defined scope of work, regardless of the contractor’s actual costs.
Owners favor fixed-price contracts for budget certainty.
What Does a Fixed-Price Contract Require?
- A clearly defined scope of work
- Detailed drawings and specifications
- Accurate upfront estimating by the contractor
- A formal change-order process for scope changes
Why Are Fixed-Price Contracts Important?
A kitchen remodel with a well-defined scope is a good candidate for a fixed-price contract, since both parties know exactly what’s included before work starts. The tradeoff comes if the scope changes mid-project, since any addition typically requires a separate change order rather than being absorbed into the original price.
Fixed-Price Contract vs. Cost-Plus Contract
A fixed-price contract shifts cost overrun risk to the contractor, who commits to one total price. A cost-plus contract shifts that risk toward the owner in exchange for more flexibility to adjust scope along the way.