Types of contracts

A construction contract decides who does what, who carries which risks and how payment is made. The main payment types differ in where the quantity and price risk sits.

In an item-rate or admeasurement contract, common in Indian public works, the contractor quotes a rate for each item in the bill of quantities; payment is the measured quantity times the rate, so the owner carries the quantity risk. In a lump-sum contract, the contractor agrees a fixed price for a defined scope; the contractor carries more risk and changes must go through variations. Cost-plus contracts reimburse actual cost plus a fee, useful when scope cannot be defined, but they need tight control. Target-cost contracts share savings and overruns.

Delivery models differ too. Design-bid-build separates design from construction. Design-build and EPC (engineering, procurement and construction) put both with the contractor. Public-private partnerships add finance and long-term operation.

Standard forms such as FIDIC, NEC4, AS 4000, CCDC 2 and the German VOB set out these rules; we describe them in our own words and do not rank them.

Whatever the type, the contract must be read as a whole: clauses on payment, variations, time and disputes work together.