Fixed-Price Contract

What is a fixed-price contract?

A fixed-price contract (also called lump sum or stipulated sum) sets one total price for a defined scope of work. The client pays the agreed amount when deliverables are met, and the contractor absorbs most cost overrun risk unless a change order adjusts the price.

Fixed-price work is the default on many residential remodels and trade jobs because clients want budget certainty.

Fixed-price vs other contract types

Pick the structure that matches how well you can define the job before starting.

What belongs in a fixed-price contract

• Detailed scope, drawings, and specifications
• Allowances with selection deadlines
• Payment schedule and retainage if applicable
• Change order process before extra work starts
• Warranty and closeout terms

Vague scope is the fastest way to lose margin on lump sum jobs.

Pricing a fixed-price job

Build your estimate from:

• Direct labor and materials
• Overhead and equipment
• Contingency for unknowns
• Markup for profit

If unknowns are large, use allowances or switch contract type instead of guessing.

Common mistakes

Under-scoping the work. Every omitted line item comes out of your profit.

Skipping change orders. Free extra work erodes margin fast.

No contingency on old buildings. Hidden conditions are normal, not exceptional.

Fixed-price contracts win jobs because clients hate surprise bills. Your defense is tight scope, documented changes, and estimates that respect real field conditions.