# Unit prices or lump sum: what changes and who carries which risk > The difference between unit prices and lump sum is not a matter of format: it decides who carries the quantity risk. Pros, cons and when each one fits. - Author: Carlos Pérez (Comandos) — CEO of Paladio - Published: 2026-09-05 - Original: https://usepaladio.com/en/blog/precios-unitarios-vs-suma-global/ - Costs --- The contracting system defines how what gets paid for a project is determined. Under unit prices a price is agreed per unit of each item and the quantity actually executed is what gets paid. Under a lump sum —also called a global sum or a fixed price— a total amount is agreed for a defined scope, and that amount does not move with the real quantities. The difference looks administrative and it is not. **It defines who carries the risk that the real quantities do not match the ones in the design.** ## Who carries what | Risk | Unit prices | Lump sum | |---|---|---| | Quantity different from the one planned | Client | Contractor | | Price of inputs | Shared, per the adjustment clause | Contractor, unless there is a clause | | Output and productivity | Contractor | Contractor | | Errors in the design | Client, via variations | Arguable, and that is the problem | | Badly defined scope | Settled by measuring | Settled by fighting | The last row is where most lump sum disputes live. If the scope was not perfectly defined, every doubtful piece of work turns into an argument about whether it was included. Under unit prices that argument does not exist: what was executed is measured and paid. ## Unit prices **How it works.** A schedule of items with their unit, estimated quantity and unit price. What is executed is measured and the real quantity is paid. **In favour** - The quantity risk sits with the client, who defined the design - It allows a start with the design not fully complete - Variations have a clear mechanism - Inflation adjustment is easier to structure, because there are identifiable components - It is transparent: every peso has an item and a quantity behind it **Against** - It demands measuring everything, all the time. The administrative load is real and continuous - The final amount is uncertain until close-out - It generates permanent friction over quantities and measurement criteria - A badly built schedule —ambiguous items, poorly chosen units— poisons the whole project **The critical point:** under unit prices, **the quality of the schedule of items and of the measurement criteria determines how much arguing you will do over twelve months.** Vague items and criteria that were never agreed are a factory of observations. ## Lump sum **How it works.** A total amount for a defined scope. Payment is usually tied to milestones or to percentages of progress, not to unit measurement. **In favour** - The client knows the amount from the start - Far less administrative load: there is no measuring in order to bill - The contractor captures the benefit of being more efficient than planned - Close-out is simpler **Against** - The quantity risk sits with the contractor, errors in the design included - It demands a complete, well-defined design at tender time - Every change becomes a negotiation, with no clear mechanism - It creates an incentive to economise on what cannot be seen - If the scope is ambiguous, the ambiguity is settled by fighting **The critical point:** under a lump sum, **the margin is decided at tender stage.** An optimistic quantity take-off in the estimate is paid for across the whole project with no chance to correct it. ## When each one fits | Situation | System | |---|---| | Complete and verified detailed design | Lump sum | | Incomplete design, or still in development | Unit prices | | High uncertainty underground or in the existing structure | Unit prices | | Repetitive, well-known work | Lump sum | | Refurbishment or work on an existing structure | Unit prices, almost always | | Contractor with little capacity to absorb risk | Unit prices | | Client who needs certainty of amount | Lump sum | | Long programme with meaningful inflation | Unit prices, easier to adjust | The refurbishment row deserves emphasis: **a lump sum over an existing structure is one of the decisions that has bankrupted the most contractors.** Nobody knows what is behind the wall until it is opened, and under a lump sum that surprise is yours. ## The mixed system It exists, it is little used, and it is often the best answer. What is well defined is contracted as a lump sum —structure, finishes on a completed design— and what is uncertain goes to unit prices: deep foundations, demolition, earthworks, work on an existing structure. It takes more work to put the contract together and it places each risk where the party that handles it best sits. If you are negotiating and you are offered a lump sum over something genuinely uncertain, proposing a mixed system is more productive than arguing about the price. ## What does not change between systems It is worth saying because the misunderstanding is common: **on a lump sum you still have to measure.** Not in order to bill, but in order to know whether you are winning or losing. Under a unit price contract, measurement is compulsory and that is why it gets done. Under a lump sum nobody demands it of you, and that is why so many lump sum projects discover the loss at the end. It is the worst of both worlds: the system that punishes a deviation in quantities hardest is also the one where least is measured. The same goes for output, days lost and material consumption. **Physical indicators do not depend on the contracting system.** What changes is who obliges you to keep them. ## Frequently asked questions **On a lump sum contract, can I bill additional quantities?** Only if they correspond to a change of scope, not to the real quantities turning out larger. That is exactly the distinction that gets argued, and it is settled by how well the scope was defined in the contract. **What happens if I execute less quantity than planned under unit prices?** You bill what you executed. Under a lump sum you bill the agreed amount. It is the same mechanism working in your favour. **Which is more common in public works?** It depends on the country and the type of project. Several regulations across the region contemplate both systems, along with mixed and cost-reimbursable schemes, leaving the choice to the tender file. **How do I protect a lump sum contract?** With a precisely defined scope, an explicit list of exclusions, a clear mechanism for changes and an adjustment clause if the programme is long. The list of exclusions is the least done and the one that prevents the most argument. **Can I switch systems halfway through?** It is a substantial contractual amendment and in public works it usually carries significant restrictions. It is far easier to choose well at the start than to correct later.