Lump-sum contract

The lump sum is the cleanest commercial promise in construction: this scope, this money. The owner gains price certainty and simple administration — payment against progress rather than audit of costs — and the contractor gains the upside of efficiency, keeping every unit of cost it beats out of the estimate.

The promise is exactly as good as the scope definition underneath it. A fixed price for a defined scope is a transfer of estimating risk; a fixed price for an undefined scope is a fiction that will be corrected through the change mechanism, one variation at a time, with the contractor holding the pricing pen. This is why lump-sum contracting concentrates so much energy on the tender documents — every ambiguity is priced by every bidder, differently — and why the change-order and variation machinery is where lump-sum contracts actually live or die.

The characteristic owner error is buying certainty that was never for sale: tendering lump-sum on incomplete definition because the board wants a fixed number. The number will be fixed. The project cost will not.