A lump sum contract is a widely accepted the contracting method in the construction industry because it makes the bidding and selection process relatively easy.
A lump-sum contract is the most basic type of contract out there. With a lump sum contract, there’s one price for the entire project. Because these contracts are so simple, lump-sum contracts are the most common agreements in the construction industry.
A key advantage for the construction purchaser is that the lump sum contract is easy to manage. Payments to the contractor are based on the percentage of completed work, which can be verified by the real estate project management team.
Additionally, because of the predictability of the lump-sum arrangement, the owner’s risk and liability during construction are somewhat limited. The contractor has agreed upon a sum and the owner is not liable for any of the contractor’s cost overruns.