What is a feature of a lump sum contract?

A lump sum contract is an agreement in which a contractor agrees to complete a project for a set, fixed price. One of the key features of this type of contract is that the contractor agrees to take on the risk for any unforeseen circumstances or additional costs that may arise during the project's execution. This means that if unexpected issues occur—such as unexpected site conditions or material price increases—the contractor cannot change the contract price or seek additional compensation; they must absorb those costs.

This arrangement incentivizes the contractor to carefully plan and budget for the project, as they bear the financial consequences of any miscalculations. In contrast, other options presented imply scenarios where the contractor would not be taking on such risks or would have the flexibility to adjust costs based on varying conditions, which does not align with the fundamental nature of a lump sum contract.