A lump sum contract is an agreement where a contractor performs work for a fixed total price, regardless of actual costs incurred. The contractor estimates all costs upfront and quotes a single amount covering materials, labour, equipment, and profit. If actual costs exceed estimates, the contractor absorbs losses; if costs are lower, they keep the difference. Lump sum contracts transfer cost risk from the municipality to the contractor, providing budget certainty for public projects. However, they require clearly defined project scope since changes typically require negotiated amendments. Municipalities use lump sum contracts when project requirements are well understood and unlikely to change significantly.