What is the primary objective of using a Lump-Sum Contract?

The primary objective of using a Lump-Sum Contract is to ensure cost certainty for the entire contract duration. In this type of contract, the contractor agrees to complete the project for a fixed price, regardless of the actual costs incurred during the project. This arrangement provides both the owner and the contractor with a clear understanding of the total financial commitment required for the project right from the start.

This certainty allows owners to budget effectively and reduces the risk of cost overruns, which can be particularly important in project planning and financing. Additionally, the contractor takes on the risk of any unforeseen circumstances that may affect the project costs, incentivizing them to manage resources efficiently to maintain profitability within the agreed lump sum. This makes Lump-Sum Contracts a popular choice for well-defined projects where the scope of work is clear, and stakeholders seek to limit financial exposure.

Other options focus on aspects such as cost minimization, pricing flexibility, and subcontractor arrangements, which are relevant to project management but do not capture the primary objective of guaranteeing a fixed total price over the course of the contract.