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Types of Contracts
Commonly used engineering and construction contracts
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Some common types of contracts are used in the engineering and construction industry:
A Fixed Fee or Lump Sum Contract is suitable if the scope and schedule of the project are sufficiently
defined to allow the consulting engineer to estimate project costs.
In general this contract is only suitable for construction and supplier projects where the different types of
items, but not their numbers, can be accurately identified in the contract documents.
It is not unusual to combine a Unit Price Contract for parts of the project with a Lump Sum Contract or other
types of contracts.
This types of contracts are favored where the scope of the work is indeterminate or highly uncertain and the
kinds of labor, material and equipment needed are also uncertain. Under this arrangement complete records
of all time and materials spent by the contractor on the work must be maintained.
Cost + Fixed Fee with Guaranteed Maximum Price and Bonus Contract
Compensation is based on a fixed sum of money. The total project cost will not exceed an agreed upper limit
and a bonus is given if the project is finished below budget, ahead of schedule etc.
Cost + Fixed Fee with Agreement for Sharing Any Cost Savings Contract
Compensation is based on a fixed sum of money. Any cost savings are shared with the buyer and the
contractor.
Incentive Contracts
Compensation is based on the engineering and/or contracting performance according to an agreed target -
budget, schedule and/or quality.
Fixed Price Incentive Contracts are preferred when contract costs and performance requirements are
reasonably certain.
Cost Reimbursement Contract provides the initially negotiated fee to be adjusted later by a formula based
on the relationship of total allowable costs to total target costs. This type of contract specifies a target cost, a
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target fee, minimum and maximum fees, and a fee adjustment formula. After project performance, the fee
payable to the contractor is determined in accordance with the formula.
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Related Topics
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standards and more
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Bid - Work Flow Template - A bid work flow template - Online with Google Docs
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Inflation Rate - Inflation and future value
Interest Rate - Interest is the cost of money
Internal Rate of Return - IRR - Internal Rate of Return - IRR - the break-even interest rate
Markup and Gross Profit - Profit versus markup
Net Present Worth - NPW - of a Stream of Payments - Net Present Worth - NPW - or Value of a
stream of payments
P&ID - Piping and Instrumentation Diagram - P&ID is a schematic illustration of a functional
relationship between piping, instrumentation and system components
Percentage - Working with percentages - parts of a whole
Uniformat - The ASTM E1557 UNIFORMAT II Standard
Value Engineering - Enhancing function and improving value
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