Types of Construction Contract
Construction contracts differ in how they allocate risk: lump sum, remeasured, cost plus, design and build, or EPC turnkey.
Lump sum
A fixed total price against a defined scope. It suits projects with a complete design and transfers quantity risk to the contractor. Its success depends on the drawings and specifications being genuinely mature — otherwise every gap in them turns into a variation or a dispute.
Remeasured
Unit rates are agreed and payment follows the quantities actually executed. It suits earthworks, infrastructure and anything whose quantities are hard to fix in advance. It requires discipline in joint measurement and records, or the final account becomes a long argument.
Cost plus
The contractor is paid documented actual cost plus a percentage or a fixed fee. It suits urgent work or an open-ended scope, such as reinstatement after a fire. The risk sits with the owner, so it is normally capped by a guaranteed maximum price and a strict invoice audit mechanism.
Design and build, and EPC
Under design and build the contractor carries design responsibility alongside construction, which reduces the owner’s interfaces and speeds procurement. An EPC contract extends that to engineering, procurement and construction through to commissioning, and is the norm on industrial projects, power plants and water schemes.
Worked example
An owner wanting a warehouse on his own land with finished drawings chose a lump-sum contract at SAR 4.2 million. His neighbour, extending an existing factory with an unclear scope below ground, chose remeasured rates for the excavation and foundation items and lump sum for the steel frame — a common and practical hybrid.
FAQ
Which type produces the fewest disputes?
No type is immune, but the least contentious is the one that matches the maturity of the design: lump sum with a complete design, remeasured with an uncertain scope. Most disputes come from choosing the wrong form, not from the form itself.
Can two types be combined in one contract?
Yes, and it is common: lump-sum items for the clear work and remeasured items for the variable work, with provisional sums for scopes that are not yet mature. What matters is that the preambles state clearly which item falls under which mechanism.
How does the contract type affect cash flow?
Considerably: remeasured contracts tie payment to a joint measurement that may be delayed, and cost-plus contracts require supporting documents for every invoice. Work out the effect on your collection cycle before signing, not after.
Put this to work with Contract Management
Watertight contracting agreements: drafting, signing, variations and documents in one record
Explore Contract Management