In Plain English
Quick Answer
The total agreed price the owner will pay the contractor to complete the project.
Definition
Definition
The contract sum is the total amount agreed upon in a construction contract that the owner will pay the contractor for completing the work. It may be a fixed lump sum, guaranteed maximum price, or a cost-plus arrangement. The contract sum is adjusted by approved change orders throughout the project.
Context
Why It Matters in Bidding
The contract sum is the number the estimator's entire takeoff, subcontractor pricing, and markup roll up into, and it becomes the baseline against which every change order and payment application is measured. Setting it too low to win the award squeezes cash flow and profit for the project's duration, while inflating it risks losing competitive bids, so accuracy and a defensible buildup are essential.
Example
Example
After leveling three drywall sub quotes and adding general conditions, overhead, and a 6 percent fee, the estimator carries a $4.2 million contract sum into the bid form and locks the supporting cost buildup for negotiation.
See Also
Related Terms
FAQ
Questions Contractors Ask
How is the contract sum different from a guaranteed maximum price?
A lump-sum contract sum is a single fixed price regardless of the contractor's actual costs, so savings or overruns belong to the contractor. A guaranteed maximum price caps the owner's exposure but reimburses documented costs up to that cap, often sharing savings below it. The pricing structure changes how risk and cash flow are allocated.
Does the contract sum include the contractor's profit and overhead?
Yes. In a lump-sum agreement the contract sum bundles direct costs, general conditions, overhead, and fee into one figure the owner sees as a single price. In cost-plus arrangements, fee and overhead may be stated separately as a percentage or fixed amount, giving the owner more visibility into the markup applied.
How does a change order affect the contract sum?
An executed change order formally adjusts the contract sum up or down, and the new total becomes the revised contract sum carried on the next payment application. Until both parties sign, disputed extra work is tracked separately as pending; performing it without an approved adjustment leaves the contractor at risk of nonpayment.
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