A fixed amount that includes the cost of overhead and profit paid, in addition to all other direct and indirect costs of performing work, is called what?

A fixed amount that includes the cost of overhead and profit paid, in addition to all other direct and indirect costs of performing work, is called what?

• A. Unit Price
• B. Cost Plus Incentive Fee
• C. Lump Sum Fee
• D. Cost Plus Fixed Fee

Answer: (C)

In a fixed-price approach, a single, agreed-upon amount covers the entire defined scope of work, including overhead and contractor profit. This means the owner pays one lump sum, and the contractor bears the risk if actual costs run high—any overruns aren’t automatically passed back to the owner unless there are approved changes. Because overhead and profit are baked into that fixed price, the payment is not tied to actual costs incurred or to measured quantities. The other payment structures work differently: unit-price contracts pay based on quantities measured, cost-plus contracts reimburse actual costs plus a fee (fixed or incentive), and neither of these deliver a single fixed amount that includes all costs up front for the defined work.

In a fixed-price approach, a single, agreed-upon amount covers the entire defined scope of work, including overhead and contractor profit. This means the owner pays one lump sum, and the contractor bears the risk if actual costs run high—any overruns aren’t automatically passed back to the owner unless there are approved changes. Because overhead and profit are baked into that fixed price, the payment is not tied to actual costs incurred or to measured quantities.

The other payment structures work differently: unit-price contracts pay based on quantities measured, cost-plus contracts reimburse actual costs plus a fee (fixed or incentive), and neither of these deliver a single fixed amount that includes all costs up front for the defined work.