Lump Sum and Unit Price Construction Contracts for a Contractor and an Owner: Profit and Cost Lotteries, Cost Uncertainty, and Utility-Based Risk Evaluation with Subcontracting and New Technology

Key Points

• The aim is to evaluate lump sum and unit price construction contracts in terms of profit potential and cost uncertainties.
• Comparison of lump sum and unit price contracting methods
• Analysis of cost uncertainty and its impact on profits
• Evaluation of utility-based risk assessments considering subcontracting and technology
• Lump sum contracts generally result in higher profit potential under stable cost conditions
• Unit price contracts may provide better financial protection in uncertain cost scenarios
• Utility-based evaluations highlight different risk preferences for contractors and owners