What’s the difference between cost-plus and lump sum contracts?

by | Dec 18, 2020

lump sum contracts

When hiring a company for your home renovation, before starting you must ask your service provider and be clear about the terms and conditions of the service and contract because each company has its own contracting methodologies and options based on the client’s needs.

Before signing anything be sure you completely understand the type of service, what it includes, the final cost, and other details.


Know some differences between cost-plus and lump sum contracts


First, let´s see the definition of each one:

A lump-sum contract also called a stipulated sum contract is very commonly used in construction projects. Under this figure, both parties agree on a single lump sum price for all the work, before it even begins.

It’s frequently used because it allows the client to limit the total expenses of the project and gives the service provider a clear line to follow up, in this case, there is no space for improvisation.

On the other hand, a cost-plus contract is a contract where a contractor is paid for all of its allowed expenses, previously agreed with the client, plus an additional payment to allow for a profit.

This case requires a deeper analysis of the whole project to agree on the allowed expenses and then to define the profit the company expects to receive.

So, both are acceptable ways of working and it will depend on your specific needs and what you decide to negotiate with your hired team. Keep in mind your budget and check which option fits you better.

Mike Goubran

Mike Goubran

Mike Goubran, owner of Carolina Development and Properties, LLC, and its affiliate, Carolina Custom Homes and Renovations, LLC, has been building homes in the Charlotte area for over 20 years. Mike graduated with a degree in Construction Management from East Carolina University and went on to receive a Master of Business Administration from Queens University in Charlotte. He has been a Licensed General Contractor since 1999 and currently holds this designation in both North and South Carolina. Mike is also a Certified Green Professional and is a member of the National Association of Home Builders. Carolina Custom Homes and Renovations is also an Accredited Business with the Better Business Bureau.

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