A fixed-price contract (also called lump sum) obligates the contractor to complete a defined scope of work for a stated price. The contractor carries overrun risk: if actual cost exceeds the contract price, the contractor absorbs the difference. If actual cost comes in under, the contractor keeps the savings.
Fixed-price is the most common commercial contract type and works well when scope is fully defined and the contractor can price it reliably. It is less suited to high-uncertainty projects (custom homes with evolving design, complex renovations, unknown-condition work) where forced contingency loads make the bid uncompetitive. Change orders are the standard mechanism for handling scope changes after a fixed-price contract is signed.