By Published On: 30 November 2020Categories: Articles2.1 min read

In a construction project, there is various project contract types used in the process of procuring goods/services. Such as lump sum contracts, unit price contracts, combined contracts of lump sum and unit price contracts, percentage contracts, and accept-finished contracts.

The contractor and project owner must choose the right project contract types according to the type of activity or work to be carried out. The reason is, if you make a mistake in determining the appropriate type of contract, then it could cause problems while the project is running. For example, regarding the method of payment, determining the winner of the auction, and the flexibility of changing the agreement in the contract if at any time the conditions or elements in the project change significantly.

So, let’s consider these 4 project contract types of a construction projects that you should know below!

  1. Unit Price Contract

Unit Price Contract is a contract that agrees that the volume or quantity of work with certain technical specifications is still approximate. The budget payment system is based on the results of joint measurements of the work the contractor has actually done. Therefore, this contract system allows for the addition or reduction of jobs. This is based on the results of joint measurements of the work that is needed in the field.

  1. Lump Sum Contract

Lump-sum is a fixed agreement on the total value of the contract to be paid by the employer to the employer or contractor.

In a lump sum contract, all work risks that occur during the project are considered the responsibility of the contractor. Including if during the project price adjustments for raw materials and other resources occur, it will be the responsibility of the contractor.

  1. Combined Lump Sum and Unit Price Contract

As the name suggests, this type of contract combines the characteristics of a lump sum contract and unit price. Where the points agreed in the contract are made based on mutual agreement between the project owner and the contractor.

  1. Percentage Rate Contract

A percentage contract is a contract that agrees that the project owner will pay the contractor according to its expenses for the completed project. This payment includes additional costs (overhead). Overhead costs are the percentage of the value of a particular job.

  1. Turnkey Contract

The characteristics of a turnkey contract are actually the same as a lump sum contract. The difference is that this contract applies a payment term only once, that is when the project is 100% complete.

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