What is typically covered by a lump sum contract?

A lump sum contract is a common type of agreement in construction projects where a single fixed price is established for all work to be performed under the contract. This total price encompasses all aspects of the project, including labor, materials, overhead, and profit. By agreeing to a lump sum, both the contractor and the client benefit from a clear understanding of total costs upfront, which helps in budgeting and financial planning for the project.

In contrast to other types of contracts, such as those that involve negotiated rates or hourly wages, a lump sum contract provides a straightforward approach to project financing. Since it combines all costs into a single price, it allows for less ambiguity, making it easier to manage financial expectations and project scope. This simplifies project management for both parties, as additional costs or changes can be more expressly defined when adjustments to the contract might be necessary.