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Glossary

Contract Amount

Contract Amount refers to the total agreed-upon sum payable under the terms of a construction contract and is usually broken down with a Schedule of Values.

Topic: 
Project Cost Management
Date posted: 
July 26, 2023
Date updated: 
May 23, 2025

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What is a contract amount?

The Contract Amount in the context of construction and project management refers to the total agreed-upon sum payable under the terms of a construction contract and is usually broken down into clearly defined line items with a Schedule of Values.

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The Contract Amount represents the financial compensation that the contractor will receive from the project owner for completing the specified work according to the project plans, specifications, and conditions stipulated in the contract. The contract amount is a fundamental component of any construction agreement, providing a baseline for budgeting, financial planning, and payment schedules throughout the project lifecycle.

Key Aspects of a Contract Amount

Key aspects and implications of the Contract Amount include:

  • Basis of Agreement: The contract amount is typically determined through the bidding process or through negotiations between the project owner and the contractor before the contract is finalized. It is based on the contractor’s proposal, which includes detailed estimates of labor, materials, equipment, overheads, and profit margins.
  • Schedule of Values: The total contract amount may be broken dow into clearly defined line items in a Schedule of Values. This may include various components such as base cost, allowances for unspecified work, contingency amounts for unforeseen expenses, and provisional sums for specific tasks or materials.

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A General Contractor contract with a contract amount broken down into a schedule of values in Mastt.
  • Fixed vs. Variable: In a fixed-price contract, the contract amount is set and does not change unless modifications are made through formal change orders or amendments. In cost-plus contracts, the final contract amount may vary depending on the actual costs incurred during project execution.
  • Payment Terms: The contract amount is subject to the payment terms agreed upon in the contract, which outline how the payments will be disbursed over the course of the project. This is often linked to progress payments based on milestones or schedules of values that reflect the percentage of work completed.
  • Adjustments: The contract amount may be adjusted during the project due to approved change orders, variations in scope, or escalation clauses that account for changes in material costs or other economic factors.
  • Legal and Financial Documentation: The contract amount is documented in the contract and is a legally binding figure that forms the basis for financial accounting, budget monitoring, and audit processes during and after the completion of the project.
  • Dispute Resolution: Disagreements over changes to the contract amount, payment disputes, or claims related to the scope of work can lead to negotiations or legal proceedings. Clear documentation and mutual agreement on how such disputes are handled are crucial to maintaining contractual relations.

The Contract Amount is critical for ensuring that all parties have a clear understanding of the financial expectations associated with a project. It provides a benchmark for measuring financial performance, managing cash flow, and ensuring that the project is completed within the financial constraints set at its outset. Accurate estimation and clear documentation of the contract amount are essential for the successful financial management of any construction project.

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