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Estimating & Biddingaka: stipulated sumaka: fixed price

Lump Sum

In Plain English

A single fixed total price for completing the entire defined project scope.

Definition

A lump sum contract is a fixed-price agreement in which the contractor agrees to complete the entire defined scope of work for a single total price. The contractor bears all cost risk and retains any savings if costs come in below the bid. Lump sum contracts require well-defined scope to be effective and are the most common contract type for competitively bid projects.

Why It Matters in Bidding

Lump sum is the dominant contract type for competitively bid work, so it defines how most estimators package and submit a single all-in price. Because the contractor keeps the savings but also eats every overrun, scope definition and exclusions in the bid become critical; an ambiguous drawing can turn a profitable lump sum into a loss with no contractual path to recover the cost.

Example

The contractor submitted a lump sum bid of $1.2M for the entire building shell, listing clear exclusions for hazardous material abatement so unforeseen scope would not erode the fixed price.

Related Terms

Hard BidCost Plus ContractUnit Price ContractGuaranteed Maximum Price

Frequently Asked Questions

A lump sum fixes one total price for a fully defined scope, placing quantity risk on the contractor. A unit price contract pays a set rate per measured unit, so the final cost rises or falls with actual quantities. Unit pricing suits work with uncertain quantities, like earthwork, while lump sum needs well-defined scope.
The contractor does. Once the fixed price is set, overruns on labor, materials, or productivity come out of the contractor's profit, while savings below the bid are kept. The owner gains price certainty. This risk allocation is why contractors price contingency into lump sum bids and scrutinize the completeness of the documents.
Since the price is fixed, any ambiguity in the drawings or specifications becomes the contractor's gamble. Without clear scope, the contractor either pads the bid to cover the unknown, becoming less competitive, or bids tight and risks absorbing the cost of work it did not anticipate. Detailed exclusions and clarifications reduce that exposure.

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