Skip Ribbon Commands
Skip to main content

Contract Types

Every construction project has its own set of circumstances that can involve timing, legal obligations, ownership configuration, cost limitations, financing objectives, owner in-house resources, and more. PCL is a construction company that offers a variety of contract types to suit your needs.

construction_contract_types_sm.jpg
The following is a list of the basics of the various contractual arrangements available in order to assist in your decision-making process.

GUARANTEED MAXIMUM PRICE

A guaranteed maximum price (GMP) contract is a cost-type contract, in which the construction contractor is compensated for actual costs incurred, plus a fixed fee subject to a ceiling price. The contractor is responsible for cost overruns, unless the GMP has been increased via formal change order as a result of additional scope from the client. Savings resulting from cost underruns are returned to the client.

LUMP SUM

The contractor agrees to build a project with a specific scope for a fixed price. A lump-sum contract is suitable if the scope and schedule of the project are sufficiently defined to allow the contractor to fully estimate project costs.

UNIT PRICE

This kind of contract is based on estimated quantities of items included in the project and their unit prices. The final price of the project is dependent on the quantities needed to carry out the work. In general, this contract is only suitable for projects in which the scope is reasonably well established, and the different types of items (but not their numbers) can be accurately identified in the contract documents. 

COST PLUS

Cost plus is a contract agreement wherein the purchaser agrees to pay the cost of the work, including all trade contractor work, labor, materials, and equipment, plus an amount for contractor overhead and profit. These types of contracts are favored where the scope of work is indeterminate or highly uncertain, and the kinds of labor, material, and equipment needed are also uncertain.

COST-REIMBURSABLE ALTERNATIVE

With cost-reimbursable alternative contracts, contractors are paid for the work with a mix of reimbursable and fixed or incentive costs. Cost-reimbursable alternative contracts are effective when the general scope of work and schedule are defined, but there is uncertainty in quantities or execution. Under cost-reimbursable alternative contracts, uncertainty in project scope is borne by the client. Cost-reimbursable alternative contracts offer significant flexibility for responding to conditions that are uncertain. There are different variations of basic cost-reimbursable alternative contracts, including cost-reimbursable plus fixed fee, cost-reimbursable plus performance-based incentives, direct cost-reimbursable plus fixed construction management costs, and others.

INTEGRATED PROJECT DELIVERY/ALLIANCE

Integrated Project Delivery (IPD) contracts, or “Alliance” contracts, represent the latest trend towards a more collaborative approach to delivering construction projects. IPD contracts are unique in that they require the involvement of owners, designers, builders, and key stakeholders on a project as early as possible— sometimes even at the conceptual stage. This contract type results in more transparency among all the parties involved on a construction project. Additionally, both risk and reward are shared by the parties who enter into the IPD contract, resulting in greater integration of resources, processes, and expertise than would be possible under more traditional contract arrangements.

 

 Related Links