Lump sum vs. unit price vs. cost-plus: how contract type changes your bid
Two jobs with the same scope can deserve two different prices, depending on how the contract pays you. Before you finish a takeoff, find out which contract type you're bidding, because it decides who eats the cost if quantities grow, prices rise or productivity slips.
- Lump sum (fixed price): you carry the cost risk, so your contingency and markup need to cover it.
- Unit price: the owner carries most of the quantity risk; you carry the risk on your price per unit.
- Cost-plus: the owner reimburses allowable costs, but expect more paperwork and audits.
Lump sum / firm fixed price
The federal rules give a clear definition that also fits most private work. Under FAR 16.202-1, Firm-fixed-price contracts, a firm-fixed-price contract "provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience." It places on the contractor "maximum risk and full responsibility for all costs and resulting profit or loss," with the lowest administrative burden for both sides.
How to bid it: your takeoff has to be complete, waste factors realistic (see waste factors), and your contingency sized to the unknowns. Spell out what you excluded in your clarifications, because anything not excluded may be assumed to be in your price.
Unit price
On a unit-price job you bid a rate per measured unit (per square foot of drywall, per linear foot of track, per door frame) and get paid on actual installed quantities. If quantities grow, your revenue grows with them, so the owner carries most of the quantity risk.
How to bid it: spread your fixed costs (mobilization, supervision, general conditions) carefully. If you load them all into one line item and that item's quantity drops, you lose the overhead you were counting on. Check whether the contract allows a rate renegotiation when quantities change sharply.
Cost-plus (cost-reimbursement)
Under FAR 16.301-1, Cost-reimbursement contracts, cost-reimbursement contracts pay "allowable incurred costs, to the extent prescribed in the contract," and set an estimated total cost as a ceiling the contractor may not exceed (except at its own risk) without approval. Private cost-plus contracts usually add a fixed fee or a percentage, and often a guaranteed maximum price (GMP).
How to bid it: your fee and your labor burden rate matter more than the estimate itself. Clarify which costs are allowable (small tools? supervision? equipment you own?), how fee applies to change orders, and what records you'll have to keep.
A middle option: fixed price with escalation
For long jobs or volatile materials, some contracts allow a fixed price with economic price adjustment, which FAR 16.203-1, Fixed-price contracts with economic price adjustment describes as providing for "upward and downward revision of the stated contract price upon the occurrence of specified contingencies." See our guide to price escalation clauses.
Quick comparison
| Type | Who carries cost risk | Bid focus |
|---|---|---|
| Lump sum | Contractor | Complete takeoff, contingency, exclusions |
| Unit price | Shared (owner: quantity; contractor: rate) | Accurate unit rates, careful overhead spread |
| Cost-plus | Mostly owner | Fee, allowable costs, recordkeeping |
This is general information, not legal advice. Contract terms vary; have a construction attorney review anything you are unsure about before you sign.
Published October 28, 2026. We do not use affiliate links on this page; see our Affiliate Disclosure.