What is a common outcome for contractors under a lump sum contract?

Under a lump sum contract, contractors receive a fixed price for the entire project, which creates a financial incentive to manage costs effectively. This arrangement can sometimes lead contractors to prioritize their own interests, especially if they can increase their profit margin by minimizing expenses. The fixed nature of the contract means that any cost overruns must be absorbed by the contractor, which might result in them making decisions that benefit their bottom line rather than fully aligning with the owner's interests.

This approach can influence their work practices, potentially leading to a focus on cost-saving measures, which can sometimes mean less investment in quality or thoroughness of service if they feel it is necessary to maintain profitability. While contractors are expected to fulfill their contractual obligations and deliver quality work, the structure of a lump sum contract inherently supports decisions that may not always be in the owner’s best interest if not managed carefully.