What characterizes a lump sum contract?

A lump sum contract is characterized by the contractor agreeing to complete a project for a predetermined price that has been established before the work begins. This arrangement assigns the risk of cost overruns or unforeseen expenses to the contractor. If costs exceed the given price, the contractor absorbs those additional costs, while any savings from the project's completion under budget benefit the contractor.

This structure is beneficial for project owners, as they have a clear understanding of the overall financial commitment from the start. The contractor's assumption of all risks encourages them to manage resources efficiently and complete the project within the agreed price.

The other answer choices describe elements that do not align with the nature of a lump sum contract. For instance, paying for materials upfront, project payments in installments, and price adjustments based on changes in scope indicate arrangements that may be more typical of different types of contracts, such as cost-plus, unit pricing, or time and materials contracts.