In a lump sum agreement, what does every dollar over budget equate to?

In a lump sum agreement, the contractor agrees to complete the project for a fixed price. This means that the entire budget is predetermined, and any costs incurred over this budget directly impact the financial outcome for the contractor. Therefore, every dollar spent over the agreed budget equates to additional cost that the contractor must absorb, unless the contract specifically allows for adjustments based on unforeseen conditions.

This key characteristic of lump sum agreements emphasizes the importance of accurate budgeting and cost control, as any over-expenditure results in a direct reduction of the contractor's profit margin. Understanding this relationship is critical for effective project management and financial planning within the context of construction contracts.