Key Takeaways

  • Civil contracts are legally binding agreements that define scope, costs, timelines, and responsibilities in construction projects.
  • Beyond lump sum agreements, there are multiple contract structures such as cost-plus, unit price, time and material, turnkey, and remeasurement.
  • Each contract type allocates risks differently between owners and contractors, influencing pricing flexibility, accountability, and dispute handling.
  • Well-drafted civil contracts should include scope of work, payment terms, quality standards, dispute resolution mechanisms, and force majeure provisions.
  • Choosing the right contract type depends on project clarity, budget predictability, and the owner’s risk tolerance.

A civil construction contract is a legally-binding document that serves as an agreement between both the builder and the owner. Essentially, the contract serves as either an oral or written agreement as to the timeline of the construction, the payment to be made, and other terms and conditions that are agreed upon by all parties involved. By having a contract in place, it provides assurances to all parties that everyone is on the same page regarding expectations, while also offering clarity as to how to best address issues that may arise affecting the terms and conditions of the contract. For example, inclement weather may impact the deadline as to when the builder is able to complete certain milestones.

Types of Construction Contracts

As with most types of business, there are a variety of contracts that may be used in the world of construction. Generally, how the disbursements are made ends up determining the type of contract that is to be used. The different types of construction contracts include:

  • Lump sum or fixed price contracts. As the name implies, this type of construction contract provides a fixed price for all of the activities related to the construction that is taking place.
  • Cost Plus Contracts. With this type of construction contract, it is expected that the builder will be paid for any materials or equipment purchased, rented, leased, or any other costs associated with them fulfilling their end of the contract.
  • Time and Material Contracts. If the overall scope of the construction project is not being well-defined, or is otherwise unclear, a time and material contract will often be used.
  • Unit pricing contracts. This type of contract is often used by government entities, in addition to builders.
  • Measurement contracts. These types of contracts are also referred to as either, “re-measurement contracts”, or, “measure and value contracts”, and are typically used in circumstances under which the final or overall cost of the project cannot be defined in advance, but the scope of the project (such as size, design, etc.) can be.
  • Turnkey contract. This type of contract states that the project will be delivered in its final, completed state, rather than in segments or by meeting certain milestones.
  • Design and procurement build. Working on an agreed-upon lump sum price, this type of contract assumes that the builder is to be responsible for both the design and the construction of the project.
  • Item rate contract. This type of project essentially breaks the pricing down into various parts or milestones.
  • Percentage rate contract. With this type of the contract, the client (or, owner) is responsible for providing pricing and a breakdown of quantities, etc., along with the timeline for various milestones.
  • Labor contract. Much as the name implies, the type of contract requires the builder to provide a quote or cost estimate to the client that is specific to the labor or, “man power” involved, and does not include the cost of materials or equipment.
  • Piece work agreement. This type of construction contract applies to circumstances in which there is not a specific timeframe or size agreed upon, but simply a price to be paid.
  • Target contract. A target contract is used when the builder is being paid for the cost of the project, along with a percentage of those costs.

Key Risk Considerations in Civil Contracts

When selecting among different civil contracts, owners and contractors must assess how risks are distributed. For example:

  • Cost Overruns: Lump sum contracts place more risk on the contractor, while cost-plus shifts it back to the owner.
  • Schedule Delays: Fixed-price contracts may include liquidated damages if deadlines are missed, whereas time-and-material contracts give more flexibility but less cost predictability.
  • Scope Changes: Unit price and measurement contracts handle changes more smoothly since costs scale with actual quantities measured.

Identifying these risks early helps prevent disputes and ensures both parties are aligned on expectations.

Essential Clauses in Civil Contracts

Every civil construction contract should include clear clauses to protect both parties:

  • Scope of Work: Defines project boundaries, deliverables, and responsibilities.
  • Payment Terms: Outlines whether payments are milestone-based, periodic, or upon completion.
  • Change Orders: Specifies procedures for modifying project scope or pricing.
  • Quality Standards: Establishes benchmarks for workmanship, safety, and materials.
  • Dispute Resolution: Provides methods such as arbitration or mediation before litigation.
  • Force Majeure: Accounts for unexpected events like extreme weather or supply chain disruptions.

Including these terms reduces uncertainty and strengthens enforceability in court.

More on Lump Sum Contracts

As lump sum or fixed price contracts are quite common, there is more to know and consider, if entering into this type of construction contract. Generally, this is the preferred type of contract to be used when the scope of the project and various timelines are clearly defined and agreed upon by all parties involved. For example, the contract may provide incentives for certain details such as early completion of the project or for the completion of certain milestones.

Just as a lump sum contract can provide certain incentives, it may also include penalties for times in which certain tasks are not completed by the agreed upon target date. These penalties may include payment being held until such time as the task is completed, or a certain amount or percentage being deducted from the overall payment.

It is worth noting that with a lump sum contract, the builder will need to know upon determining their pricing structure, any additional costs that may be associated with their ability to complete the project, such as rentals, purchasing materials, etc., as those costs will need to be included in the overall bid made to the client in the terms and conditions.

Advantages and Disadvantages of Civil Contracts

Each type of civil contract offers benefits and drawbacks:

  • Lump Sum: Predictable cost but risky for contractors if estimates are off.
  • Cost-Plus: Flexible for changes, but can lead to disputes over reimbursable costs.
  • Unit Price: Works well for public projects with variable quantities but may cause budget overruns.
  • Time & Materials: Transparent and flexible, but owners carry the risk of inefficiency.
  • Turnkey: Owner benefits from a completed facility with less involvement but often at higher upfront costs.

Understanding these pros and cons helps parties select the best fit for their project.

Frequently Asked Questions

  1. What are civil contracts in construction?
    Civil contracts are legally binding agreements between owners and contractors outlining project scope, costs, timelines, and obligations.
  2. Which civil contract is most common?
    Lump sum (fixed-price) contracts are the most common, especially when the project scope and schedule are clearly defined.
  3. How do civil contracts handle delays?
    Contracts often include penalty clauses for late delivery (liquidated damages) or extensions for events beyond contractor control, like extreme weather.
  4. Can civil contracts be modified once signed?
    Yes, but modifications usually require formal change orders agreed to by both parties, often adjusting price or timeline.
  5. Who bears the most risk in civil contracts?
    It depends on the contract type: contractors carry more risk in lump sum contracts, while owners carry more in cost-plus or time-and-material contracts.

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