Lump Sum or Unit Price in Federal Contracts

In federal contracts, the preference is for lump sum pricing. However, in certain instances, unit price contracts are appropriate. Those instances are described in the Federal Acquisition Regulations at Section 36.207, which states:

Lump sum pricing shall be used in preference to unit pricing except when:

1. Large quantities of work such as grading, paving, building outside utilities, or site preparation are involved
2. Quantities of work, such as excavation, cannot be estimated with sufficient confidence to permit a lump-sum offer without a substantial contingency
3. Estimated quantities of work required may change significantly during construction
4. Offerors would have to expend unusual effort to develop adequate estimates

(emphasis added)

Updated: July 24, 2018