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

Lump Sum

A lump-sum contract, also known as a fixed-price contract, is used when the scope of work and schedule are clearly defined, reviewed, and agreed upon. In Projectmates, all new contracts are set to this option by default. Lump-sum contracts simplify contract management since a single value is entered for each item. The contractor assumes the risk, which may include a percentage to cover that risk. Any changes to the scope—whether adding or deducting money or time—are handled through a change order.


Unit Price

A unit price contract is used for specific quantities, with predetermined pricing for each unitized item. These contracts allow owners to easily verify that a fair price is being charged for the work performed. For contractors, unit prices can be adjusted up or down through a change order, making it easier to reach an agreement with the owner when adjusting the scope of work.

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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