Lump sum construction agreements are the most basic of the different design-bid-build options: the contractor agrees to complete the entire scope of work for a fixed price, and assumes most of the quantity and cost risks. If the contractor’s actual costs exceed its estimates, the contractor absorbs the loss. Adding a clause into the construction agreement that allows unit quantities to increase or decrease based on actual job quantities creates a mechanism that can reduce the risk of estimating, but it is a clause that should be carefully drafted and closely guarded.

There are times when it makes sense for parties to deviate from their lump sum agreement and allow for greater flexibility: when there are uncertainties in site conditions or scope, and/or to reduce disputes over changed conditions. The parties can introduce elements of unit-price contracts into the lump sum framework, either choosing to shift the risk entirely to one party or the other, or sharing the risk, e.g., by including an equitable adjustment clause that allows for a price adjustment if the variation exceeds a certain threshold. Even with that balance, incorporating opportunities for adjustments can favor more than just the contractor: it creates a disincentive for the contractor to inflate unit prices to hedge against quantity risks.