What type of contract requires the contractor to complete a project for a fixed price?

A lump-sum contract is an agreement in which the contractor agrees to complete a project for a set, predetermined price. This type of contract provides clarity and certainty for both the owner and the contractor, as the total project cost is agreed upon before the work begins. The contractor takes on the risk of cost overruns since they must deliver the project for the fixed amount. This can motivate the contractor to be efficient and keep expenses down, since any costs incurred beyond the agreed price typically do not affect their compensation.

In contrast, a cost-plus contract involves payment for all project costs plus an additional fee for profit, which does not establish a fixed price up front. A time and materials contract charges for the actual time spent on the project plus the cost of materials used, and also lacks a fixed price structure. Lastly, a unit price contract would define costs based on specific quantities of work completed, rather than a total fixed price for the entirety of the project. Thus, the distinct characteristic of a lump-sum contract is its requirement for the contractor to complete the project for a predetermined, fixed price.