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Lump Sum vs Cost-Plus: What Is the Difference?

By Wyatt Cooper · Published · 3 min read

Key takeaways

  • Lump sum: one fixed price, so the contractor keeps savings and absorbs overruns on the defined work.
  • Cost-plus: actual cost plus a fee, so the owner pays what the work really costs and sees the books.
  • Federal rules ban the cost-plus-a-percentage-of-cost form outright; private contracts set the fee as the parties agree.

A lump-sum (stipulated-sum) contract pays the contractor one fixed price for the defined work, so the contractor keeps savings and absorbs overruns. A cost-plus contract reimburses the contractor's actual cost of the work plus a fee, so the owner pays what the work really costs. A cost-plus contract with a price ceiling is a GMP.

Who carries the risk

A firm fixed price "is not subject to any adjustment on the basis of the contractor's cost experience" and "places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss" (FAR 16.202-1). Cost-reimbursement contracts "provide for payment of allowable incurred costs, to the extent prescribed in the contract" (FAR 16.301-1). On federal work, "the cost-plus-a-percentage-of-cost system of contracting shall not be used" (FAR 16.102); private contracts often use a percentage fee anyway. AIA's agreements follow the split: A101 is the stipulated sum, A103 the cost of the work plus a fee without a GMP, A102 with one (AIA).

Example: the same job both ways

Owner's cost on a lump sum of $1,100,000 vs. cost-plus an 8% fee (fictional)
Actual cost of the workLump sum: owner paysLump sum: contractor's resultCost-plus 8%: owner pays
$950,000$1,100,000+$150,000$1,026,000
$1,050,000$1,100,000+$50,000$1,134,000
$1,200,000$1,100,000−$100,000$1,296,000

The lump sum costs the owner the same every time, but the price includes the contractor's allowance for risk. Cost-plus follows the real cost, both ways. A GMP caps cost-plus: above the ceiling, the overrun is the contractor's. A lump sum still changes by change order; for work priced by quantity instead, see what a unit price is.

Which delivery method usually pairs with which price is in design-bid-build vs. design-build vs. CM at risk, the contractor's markup inside a lump sum in overhead and profit, and the AIA families in AIA contract documents explained.

The bottom line

Lump sum buys price certainty on a defined scope; cost-plus buys transparency and flexibility, with the owner carrying the cost risk.

Choose by how complete the design is: finished documents suit a lump sum, an evolving design suits cost-plus or a GMP. Book a demo to see Conflo.

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Sources

  1. FAR 16.202-1, Firm-fixed-price contracts: description — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
  2. FAR 16.301-1, Cost-reimbursement contracts: description — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
  3. FAR 16.102, Policies — Acquisition.gov, U.S. General Services Administration. Read October 22, 2026.
  4. List of document synopses by family — AIA Contract Documents. Read October 22, 2026.

Questions

Is lump sum the same as fixed price or stipulated sum?

Yes. Lump sum, fixed price and stipulated sum all mean one agreed price for the defined work, changed only by change order.

Does cost-plus mean the owner pays anything the contractor spends?

No. The contract defines the reimbursable cost of the work, and costs outside that definition are the contractor's. Owners usually get audit rights as well.

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