Stipulated Sum vs Cost-Plus vs GMP Contracts
The price model decides who absorbs a cost overrun. Lump sum, cost-plus, and GMP allocate that risk very differently.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Construction contracts price the work in one of three main ways: a stipulated (lump) sum, cost-plus a fee, or a guaranteed maximum price (GMP). Each puts the cost-overrun risk in a different place.
The right model depends on how well-defined the scope is and who should carry the risk — but each has specific terms a reviewer must check to make sure the model works as intended.
Topics to check
A fixed price for a defined scope. The contractor carries the risk of cost overruns and keeps savings; the owner gets price certainty but must define the scope tightly. Allowances and unit prices handle items that cannot be fully priced at signing.
For the owner, the key risks are vague scope and inflated allowances; for the contractor, the risk is an underestimated fixed price with no relief for added cost.
The owner reimburses actual costs plus a fee (fixed or percentage). The owner carries the overrun risk and needs strong cost-substantiation, audit rights, and definitions of reimbursable vs. non-reimbursable costs to avoid paying for inefficiency.
A pure cost-plus contract with no cap exposes the owner to open-ended cost. That is why cost-plus is often paired with a GMP.
A cost-plus contract with a ceiling: the owner reimburses cost plus fee up to the GMP, and the contractor absorbs costs above it. Check how the GMP was set, what is included, how savings are shared, the contingency, and how change orders adjust the GMP.
For the owner, confirm the GMP is real and the contingency is controlled; for the contractor, confirm the GMP includes adequate contingency and that owner-driven changes raise the ceiling.
Key takeaways
- Lump sum gives price certainty and puts overrun risk on the contractor.
- Cost-plus puts overrun risk on the owner and needs audit rights and cost definitions.
- GMP caps a cost-plus contract; check inclusions, contingency, and savings sharing.
- Vague scope and inflated allowances are the main lump-sum risks for owners.
- Confirm how change orders adjust a GMP ceiling.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Cost-reimbursement definitions, audit rights, and GMP savings/contingency mechanics should be tailored to the project.
- Have a construction attorney review the pricing exhibit and general conditions before signing.
- This guide is general information from the BizLeaseCheck Editorial Team, not legal advice.
Frequently asked questions
Which construction pricing model is best?
It depends on how well-defined the scope is and who should carry cost risk. Lump sum suits a tightly defined scope; cost-plus suits uncertain scope with owner cost control; GMP balances the two with a ceiling.
What is the main risk of a cost-plus contract?
Open-ended cost. Without a guaranteed maximum price, strong cost substantiation, and audit rights, the owner can pay for overruns and inefficiency. A GMP cap is the common protection.
Is this legal advice?
No. This is general information for issue-spotting. Construction-contract enforceability — pay-if-paid, no-damages-for-delay, indemnity, lien and lien-waiver rules, retainage limits, and prompt-payment rights — varies by state and by whether the project is public or private, so confirm high-stakes points with a construction attorney licensed in the project’s state.