Construction Contract Types Explained: A Complete Guide for Contractors and QS Professionals

A project manager on a government infrastructure project once told me something that has stayed with me ever since. His team had just come through a painful eighteen-month dispute with their main contractor — multiple adjudications, a significant legal bill, and a working relationship that never recovered. When I asked what he would do differently, he did not mention the contractor's performance or the design team's drawings or the client's requirements. He said: 'I would have spent more time on the contract before we signed it.'

The contract had been chosen quickly, under tender programme pressure, using a template that had worked on a previous project with a completely different risk profile. Nobody had sat down and asked whether this particular contract type was right for this particular project. By the time that question was answered — in an adjudicator's decision — it had cost both parties considerably more than the answer was worth.

Construction contract types are not interchangeable. Each one reflects a specific set of assumptions about what is known at tender, who can best manage which risks, and how the financial relationship between client and contractor should be structured. Understanding those assumptions — and matching them to the reality of each project — is one of the most valuable skills a contractor, QS, or project manager can develop.

This guide covers the five contract types used most widely across the construction industry, explaining what each one does, what conditions it requires to work well, and what happens when it is applied in the wrong situation.

Why Contract Type Is a Risk Decision, Not an Administrative One

Before looking at the individual contract types, it helps to understand what a contract is actually doing from a commercial perspective. A construction contract does several things at once — it defines the scope of work, it establishes the payment terms, it sets out the programme obligations, and it allocates risk between the parties.

That last function — risk allocation — is the one that determines which contract type is appropriate for a given project. Every construction project carries uncertainty. Ground conditions may differ from what was expected. Design details may change after work starts. Material prices may move. The programme may be affected by events outside anyone's control. A construction contract cannot eliminate these uncertainties — but it determines which party is responsible for managing and absorbing each one.

When the risk allocation in a contract matches the actual distribution of knowledge and control on the project — when the party best placed to manage a risk is the party who carries it — the contract supports smooth delivery. When it does not match — when a contractor is asked to carry a risk they cannot price or manage — the contract becomes a source of pressure that eventually surfaces as a claim, a dispute, or a relationship that breaks down somewhere between practical completion and final account.

Lump Sum Contract — Certainty in Exchange for Risk

The lump sum contract is the most familiar procurement model in building construction. The contractor reviews the complete document set — drawings, specifications, BOQ, schedules — assesses every element of the work, and submits a single fixed price. That price, once accepted, does not change unless the agreed scope changes.

For the client, this is an attractive arrangement. Before a single brick is laid, they have a number they can take to their board, their bank, or their funder with confidence. The project has a cost. Budget approval can be granted. Financial planning can proceed. That certainty has genuine value — particularly on projects where cost overruns would create serious problems for the client organisation.

The certainty is not free. The contractor who carries quantity and cost risk under a lump sum will price that risk into their tender. The more uncertain the design, the more contingency they add. On a well-designed, well-documented project going to tender at RIBA Stage 4, that contingency is modest — the contractor can see exactly what they are pricing and can estimate it accurately. On a project going to tender with incomplete drawings and unresolved coordination issues, the contingency can be substantial — because the contractor is pricing not just the known work, but the unknown work they expect to discover during construction.

Lump sum contracts perform well when:

•       Drawings are fully coordinated and at construction issue: The contractor can measure every element of the scope from the documents provided — there are no gaps that require assumptions

•       The specification is confirmed: Material standards, system performance requirements, and finish quality are defined — changes after award become formal variations with cost and programme consequences

•       The client's brief is stable: The project is not expected to evolve significantly during construction — the scope agreed at tender is the scope that will be delivered

•       Site conditions are reasonably understood: Ground investigation has been carried out and shared with tenderers — the contractor is not pricing blind on groundworks and foundations

For a detailed analysis of how lump sum and unit rate contracts compare across every commercial dimension — risk, remeasurement, variation handling, and final account — see our article on Lump Sum Contract vs Unit Rate Contract: What Every Contractor and QS Must Understand.

Unit Rate Contract — Accuracy Over Certainty

The unit rate contract — also called a remeasurement contract — takes a different approach to the relationship between design and price. Rather than asking the contractor to commit to a total cost before work starts, it asks them to commit to a rate for each item of work. The total cost is determined at completion by measuring what was actually built against those agreed rates.

This matters most when quantities cannot be reliably established at tender. A road project crossing variable ground will produce earthworks quantities that differ from any desktop estimate — the only way to know what was actually moved is to measure it on site after it has been done. A drainage network laid through unpredictable subsoil will require lengths and depths that the design team estimated but could not fix with certainty. A unit rate contract accommodates this reality — the contractor is paid for what they build, not what was estimated.

The trade-off is that the client cannot know the final project cost with precision until the work is measured at completion. The approximate contract sum at tender — calculated by applying the contractor's rates to the engineer's estimated quantities — is a planning figure, not a commitment. The final account can be higher or lower depending on actual site conditions and the quantities they produce.

Unit rate contracts are the standard model for:

•       Civil engineering and infrastructure works: Roads, bridges, drainage, pipelines, and earthworks where quantities depend on site conditions that cannot be fully predicted from desk study

•       Projects with early contractor involvement: Where the contractor is appointed before design is complete — rates can be agreed while detailed design continues, avoiding premature commitment to a lump sum

•       Works with repetitive measurable units: Paving, kerbing, fencing, and similar activities where the rate per unit is straightforward to agree and the quantity is the main variable

•       Phased developments: Where the client anticipates scope additions during the contract period — additional phases can be instructed at the agreed rates without renegotiation

Cost Plus Contract — Flexibility When the Scope Cannot Be Fixed

A cost plus contract does not ask the contractor to price the work at all — at least not in the conventional sense. Instead, the client agrees to reimburse the contractor's actual costs and pay an additional fee — either a fixed sum or a percentage of costs — as the contractor's overhead and profit.

This arrangement exists because there are genuine situations where no contractor can responsibly commit to a fixed price. Emergency works following a flood, fire, or structural failure cannot wait for a full tender process and a priced document set — work needs to start immediately and the scope will be defined as the situation develops. Fast-track government projects where the programme cannot accommodate the time a proper tender would require face the same challenge. Early enabling works on complex redevelopment projects, begun before the main design is complete, are another common use case.

The transparency requirement in a cost plus arrangement is significant. The client is reimbursing actual costs — they need to be able to verify that those costs are genuine, reasonable, and directly related to the project. Without a robust cost management system, open book accounting, and an engaged client-side QS reviewing every cost submission, cost plus arrangements can drift significantly from initial estimates. The flexibility that makes them useful also makes them vulnerable to poor cost control if the commercial disciplines are not in place from day one.

Cost plus contracts are appropriate when:

•       Work must start before the scope can be defined: Emergency situations, fast-track programmes, or investigative works where the extent of the task is unknown until work is underway

•       The design is still evolving: Complex specialist installations or research facilities where the client's requirements continue to develop during construction

•       A trusted contractor relationship exists: Cost plus requires a level of transparency and collaborative working that is most effective when the parties have an established relationship and mutual confidence

Design and Build Contract — One Party, One Responsibility

In a traditional construction contract, the design is the responsibility of the client's consultants and the construction is the responsibility of the contractor. When something goes wrong at the interface — a design detail that cannot be built as drawn, a specification that the contractor interprets differently from the architect's intent — there is an immediate question about whose problem it is.

A design and build contract removes that interface by making one party responsible for both. The client issues an Employer's Requirements document defining what the building needs to achieve — performance standards, spatial requirements, aesthetic intent. The contractor takes those requirements, develops the design to meet them, and constructs the building. Design and construction sit within one contract, under one organisation's control.

The coordination benefit is real. When the same team that designs a building is also responsible for building it, the practical construction implications of design decisions get considered earlier. Details that a separate design team might specify without thinking about buildability get reviewed against the construction programme before they are committed to. Interface problems between structural, architectural, and MEP elements get resolved within one organisation rather than between separate professional teams with separate PI policies.

Design and build works best when:

•       Speed is a priority: Design and construction can overlap — the contractor can start enabling works and substructure while superstructure design continues, shortening the overall programme

•       The Employer's Requirements are clearly written: The client must define what they need precisely — vague performance requirements create disputes about whether the delivered building meets the brief

•       The client can accept reduced control over design detail: Once the contract is signed, detailed design decisions rest with the contractor — clients who want to remain closely involved in design choices may find this arrangement frustrating

EPC Contract — Full Responsibility, Full Risk

An EPC contract — Engineering, Procurement and Construction — takes the design and build model to its furthest extent. The contractor is not just responsible for designing and building the facility. They are responsible for engineering it from first principles, procuring all equipment and materials, constructing it, commissioning it, and handing it over to the client in a fully operational state.

This model is standard in the power, oil and gas, and process industries — sectors where the client needs a complete facility that works, and is less concerned with how it is designed and built than with whether it performs to specification. A power company commissioning a new gas turbine plant does not want to manage a design team, a main contractor, and a series of specialist suppliers as separate parties. They want one organisation to take the whole thing and deliver a plant that generates electricity to the specified output at the specified efficiency. The EPC contractor takes everything.

The risk level in an EPC contract is correspondingly high. Design errors, procurement failures, construction defects, commissioning problems, and performance shortfalls all sit with the EPC contractor. This is reflected in the contract price — EPC contractors price their risk carefully and the contingency they carry is substantial. Clients who choose EPC because it appears to give them the greatest certainty need to understand that certainty comes at a cost, and that the contractor's ability to deliver on an EPC commitment depends entirely on the completeness and accuracy of the performance specification the client issues.

EPC contracts are appropriate for:

•       Process and industrial facilities: Power plants, refineries, chemical processing facilities, and data centres where the client needs a complete operational facility rather than a building

•       Projects with a clear performance specification: The client can define exactly what the facility needs to do — output, efficiency, availability — and the contractor engineers a solution to meet those requirements

•       Clients who want a single point of responsibility: No managing of separate design consultants, contractors, and suppliers — one organisation is accountable for the complete delivery

Quick Reference — Choosing the Right Contract Type

How Contract Type Affects the QS Role

The choice of contract type directly shapes what the quantity surveyor does on the project — and how demanding that work becomes. Under a lump sum, the QS's primary commercial role during construction is managing variations — identifying instructed changes, valuing them against the contract rates, and maintaining the running account of the contract sum. The measurement work was done at tender. The challenge during construction is keeping the variation account clean and current.

Under a unit rate contract, the QS's role expands significantly. Remeasurement is an ongoing activity — quantities are measured progressively as work is completed, interim valuations are based on measured quantities rather than progress assessments, and the final account requires a complete remeasure of every section of the BOQ. The QS who manages a remeasurement contract well is one who maintains the measurement record continuously rather than attempting to reconstruct it at the end.

Under a cost plus contract, the QS's most important function is cost verification — reviewing the contractor's cost submissions, confirming that claimed costs are genuine and project-related, and maintaining the cost to complete forecast against the client's budget. Without this function operating rigorously, the cost plus arrangement loses the transparency that justifies it.

Whichever contract type is used, the QS needs accurate quantity data, a clean variation register, and a document record that supports the commercial position when it is challenged. For a detailed guide to the document control disciplines that underpin good commercial management on any contract type, see our article on Construction Document Control: The Basics Every QS Should Know.