Contract Pricing Types, Competitive Bidding, and Cash Flow
How you price a job decides who carries the risk — and how you bill it decides whether you stay solvent while you wait to get paid.
1. The four ways to price a job
| Type | How it's priced | Best when… | Who carries overrun risk |
|---|---|---|---|
| Lump sum (fixed price) | one set price for the whole defined scope | scope is well-defined | the contractor |
| Cost-plus | actual costs + a fee (fixed or %) | scope is uncertain | the owner |
| Time & materials (T&M) | labor at hourly rates + materials (often + markup) | small or undefined work | the owner (per hour) |
| Unit price | a price per unit (per foot, per fixture) × actual quantity | quantities uncertain, unit types known | shared |
- Lump sum puts the most cost-overrun risk on the contractor — if you underestimate, you eat the difference.
- Cost-plus is safest for the contractor when the scope is unknown, but the owner takes the cost risk.
- Unit-price math: $12/linear foot × 500 ft = $6,000.