Note. This is a general explainer, not legal advice. Contracts vary, and particular conditions can change the standard position. Read the actual contract.
What are the main types of construction contract?
Contracts differ in how the price is set and who carries the risk of quantity, design and cost changes. Four terms come up most.
| Type | How the price works | Who carries quantity risk | Typical fit |
|---|---|---|---|
| Lump sum | Fixed price for a defined scope | Mostly the contractor | Well-defined scope and complete design |
| Remeasurement (measure and value) | Quantities measured as built, paid at agreed rates | Mostly the employer | Scope or quantities not fully known at award |
| Cost-plus | Reimbursed cost plus a fee or percentage | Mostly the employer | Unclear scope, urgent or exploratory work |
| Design and build | Contractor designs and builds, often for a lump sum | Contractor for design and often for quantities | Employer wants a single point of responsibility |
How does a lump sum contract work?
The contractor commits to a price for the scope described. Changes to scope are priced as variations. The BOQ in a lump sum contract is often used for valuing variations and for breaking the sum into payment stages rather than for remeasurement. Define scope carefully, because any ambiguity is where disputes start.
How does a remeasurement contract work?
The employer provides a BOQ, the contractor prices each item, and payment follows measured quantities. The BOQ is therefore central: it drives the tender price, interim valuations and the final account. Unbalanced pricing and poor measurement records are the main risks. Our BOQ management guide and BOQ vs cost plan vs estimate explain how to keep the BOQ usable. In Arkan, the BOQ module imports and validates BOQ files so that progress and payment requests link to the same items.
What is a cost-plus contract?
The contractor is paid for defined costs plus a fee, which may be a fixed amount or a percentage. Because the employer carries cost risk, the contract usually specifies which costs are reimbursable, how they are evidenced and what audit rights apply. Daily records, timesheets and invoices become the payment evidence, so record keeping matters more here than anywhere.
Where does design and build fit?
Design and build describes who is responsible for design, not how the price is set. The contractor takes design responsibility along with construction, which usually means a single point of responsibility for the employer. Review the employer's requirements carefully because the contractor inherits any gaps in them.
What are the FIDIC books?
FIDIC publishes standard forms of contract used widely in the Gulf, often with amended particular conditions. The three most commonly met are:
- Red Book: construction where the employer provides the design.
- Yellow Book: plant and design-build, where the contractor designs.
- Silver Book: turnkey or EPC-style projects with more risk on the contractor.
Each has editions, so check which one your contract uses. For a closer look, read FIDIC Red Book vs Yellow Book for contractors.
How does the contract type change daily practice?
It changes what you must measure and record. Under remeasurement, accurate quantities are money. Under lump sum, change control is money. Under cost-plus, cost evidence is money. Whatever the basis, variation orders and the payment certificate process need disciplined records. Arkan's Finance module builds payment requests from BOQ items with retention, advance recovery and VAT.