Contract Types

Common types of contracts used in the engineering and construction industry:

Main Contract Types

1. Lump Sum Contract - Fixed price for a described and specified project. Also called "Fixed Fee Contract". Suitable when scope and schedule are well-defined.

2. Unit Price Contract - Based on estimated quantities and unit prices. Final price depends on actual quantities needed. Common for construction and supplier projects.

3. Cost Plus Contract - Purchaser pays all labor and material costs plus contractor overhead and profit (usually as a percentage).

   • Cost + Fixed Percentage Contract
   • Cost + Fixed Fee Contract
   • Cost + Fixed Fee with Guaranteed Maximum Price Contract
   • Cost + Fixed Fee with Bonus Contract
   • Cost + Fixed Fee with Guaranteed Maximum Price and Bonus Contract
   • Cost + Fixed Fee with Agreement for Sharing Any Cost Savings Contract

4. Incentive Contracts - Compensation based on engineering/contracting performance against agreed targets (budget, schedule, quality).

   • Fixed Price Incentive Contracts
   • Cost Reimbursement Incentive Contracts

5. Percentage of Construction Fee Contracts - Common for engineering contracts. Compensation based on percentage of construction costs.

When to Use Each Type

• Lump Sum: When scope and schedule are sufficiently defined
• Unit Price: For construction where items are known but quantities vary
• Cost Plus: When scope is indeterminate or highly uncertain
• Incentive: When performance targets are critical
• Percentage of Fee: Standard for engineering contracts