Which form of contract is commonly used for large construction projects with a specific total price?

A lump sum contract is widely used for large construction projects because it establishes a specific total price for the entire project upfront. This type of contract provides clarity and predictability for both the client and the contractor, as the agreed-upon amount covers all aspects of the construction work, including labor, materials, and overhead, barring any changes or additional work that might arise.

Using a lump sum contract allows for easier budgeting and financial planning since the client knows the total cost from the outset. It also incentivizes the contractor to complete the project efficiently, as they will retain any savings realized by finishing under budget. This fixed-price arrangement contrasts with other contract types, which may introduce variances in final costs due to changing material prices or extended project timelines.

Understanding the nuances of these contracts helps builders and clients negotiate and execute their projects more effectively.