Lump Sum Contracts

Contractors who have excellent estimating and project management practices may have higher profits with lump sum contracts compared to other contract types. Because the entire project budget is set ahead of time, contractors can use efficient construction practices to come in under budget and increase their profit margin. General contractors can also negotiate bids with specialty contractors to generate additional profits on the project through the buyout process.Lump sum contracts may require less documentation and accounting than other types of contracts. For example, cost-plus contracts likely require a much more robust documentation of costs, whereas lump sum contracts assign a fee for the entire project. As a result, contractors using lump sum contracts may have lower overhead costs, making it easier to submit a competitive bid.