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What is the difference between lump sum and unit price contracts?

Lump Sum

A lump sum contract, also called fixed priced contract, is used when the scope of work and schedule is clear, and has been reviewed and agreed upon.  In Projectmates, all new contracts default to this selection.  Lump Sum contract makes contract management simpler because you enter a single value for each item.  Risk is transferred to the contractor and it may include percentage of cost associated with carrying that risk.  Changes to the scope, whether add or deduct to money or time, is managed thru' change order.

Unit Price

Unit price contract is used for specific quantities.   Pricing is pre-determined for unitized items.  Unit price contracts allow owners to easily verify that fair price is charged for work to be performed.  For contractors, unit price can be adjusted up or down thru' change order making it easier to come to an agreement with the owner to adjust scope changes.

Helpful Hint: It is important to note that all line items will be either lump sum or unit price line items, depending on which is selected. Also, any invoices created against a contract will default to the same option selected for the contract.

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