Fixed-Price Contract
A construction contract where the contractor agrees to complete a defined scope of work for a set total price.
A fixed-price contract (also called a lump-sum contract) binds the contractor to complete the specified scope of work for a predetermined total cost. The homeowner knows exactly what they will pay at the outset, and the contractor bears the risk if costs exceed the agreed price—provided the scope does not change.
Fixed-price contracts work best when the scope is well defined, plans are complete, and site conditions are reasonably predictable. They incentivize the contractor to work efficiently and manage subcontractors tightly. From the homeowner's perspective, they provide budget certainty and reduce financial risk.
The limitation is that any work outside the defined scope requires a change order and additional cost. If the homeowner makes design changes or unforeseen site conditions arise, the contractor is entitled to additional compensation. A well-written fixed-price contract clearly defines what is included, what is excluded, how allowances work, and the change order process.
Real-World Example
The contractor signed a fixed-price contract for $48,000 to renovate both bathrooms, meaning the homeowner had cost certainty even though tile installation took longer than expected.