Lump Sum vs. Cost-Plus Contracts: Why We Prefer Cost-Plus

There are two common ways to price a residential construction project: lump sum or cost-plus. At Vector Mountain Construction, we primarily use cost-plus contracts because they are the most fair and efficient structure for everyone involved.

Bathroom as part of 1000 square foot basement remodel.

Why Cost-Plus Works

A cost-plus contract means the client pays the actual cost of construction, plus a fixed fee or percentage for overhead and profit. It’s straightforward and transparent.

• Clients only pay for what they actually get.

• The contractor gets compensated for the work they perform—no more, no less.

• Any unused contingency goes back to the client.

We typically include a contingency of 5% to 10% to handle the unexpected. If that contingency is not needed, it stays with the client. There’s no guesswork or inflated numbers. Everyone stays on the same page.

The Problem with Lump Sum

Lump sum contracts offer a fixed price for the project. On paper, that might sound simpler, but it often works against one side or the other.

• The contingency needs to be higher—often 15% to 20%—to protect against unknowns.

• If the project goes smoothly, the unused contingency becomes additional profit for the contractor.

• If problems arise, the contractor absorbs the cost or finds ways to reduce expenses mid-project.

That imbalance can create tension. Either the client overpays, or the contractor is forced to find savings that may affect scope or schedule. In most cases, one party loses.

Our Approach

The choice between cost-plus vs lump sum contracts shapes how costs, risks, and responsibilities are shared throughout the project. We prefer to use cost-plus because it’s clear, fair, and built around shared goals. Clients know exactly what they’re paying for, and we stay focused on delivering quality work without compromising.

If you’re ready to start your project and want it managed with professionalism and efficiency, contact us to take the next step.