Which contract type features a single price regardless of actual cost?

Which contract type features a single price regardless of actual cost?

• A. Lump Sum
• B. Cost Plus
• C. GMP
• D. Time & Materials

Answer: (A)

A lump-sum contract amounts to a single fixed price for a clearly defined scope of work. The owner and contractor agree on that one price up front, and the contractor is paid that amount regardless of the actual costs they incur. This puts the cost risk on the contractor: if the job costs more than the fixed price, the contractor absorbs the overrun; if it costs less, the owner benefits from the savings. Any changes to scope or design require formal change orders that adjust the price, schedule, or both. This arrangement provides budget certainty and straightforward pricing, which is why it’s the best pick when the scope can be well defined from the start. The other contract types involve costs that are reimbursed (cost-plus, time and materials) or capped but not fixed for the entire scope (GMP), so they don’t guarantee a single price independent of actual costs.

A lump-sum contract amounts to a single fixed price for a clearly defined scope of work. The owner and contractor agree on that one price up front, and the contractor is paid that amount regardless of the actual costs they incur. This puts the cost risk on the contractor: if the job costs more than the fixed price, the contractor absorbs the overrun; if it costs less, the owner benefits from the savings. Any changes to scope or design require formal change orders that adjust the price, schedule, or both. This arrangement provides budget certainty and straightforward pricing, which is why it’s the best pick when the scope can be well defined from the start. The other contract types involve costs that are reimbursed (cost-plus, time and materials) or capped but not fixed for the entire scope (GMP), so they don’t guarantee a single price independent of actual costs.