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Types of contract
Short answer
Contract types include lump sum, item rate, percentage rate, cost plus (reimbursable), turnkey/EPC, BOT/BOOT, labour, management, joint venture and subcontract. Reimbursable contracts pay actual cost plus a fee, used when scope is uncertain. In Nepal, item-rate contracts are commonest, lump sum for small defined works, and EPC/BOOT for hydropower.
Name and explain the different types of contract (including reimbursable contracts) used in construction, and those practicable in our context.
A contract is a legally enforceable agreement between the client and the contractor to carry out work for a price. Contracts are classified by the method of payment:
| Type | Description |
|---|---|
| Lump sum (fixed price) | Fixed total price for the full defined work; payment as per milestones; risk is on the contractor |
| Item rate (unit rate / BOQ) | The contractor quotes a rate for each item; payment by measured quantity x rate; common for public works in Nepal |
| Percentage rate | The contractor quotes a percentage above or below the engineer's estimate |
| Cost plus (reimbursable) | The client reimburses actual cost plus a fee |
| Turnkey / EPC / Design-build | One contractor designs, procures and constructs; the client gets the ready facility |
| BOT / BOOT / BOO / BTO | The contractor finances, builds and operates (and may own) for a period |
| Labour contract | Only labour is supplied by the contractor |
| Management contract / construction management | The management contractor manages the trade contractors for a fee |
| Joint venture / subcontract | Several firms combine, or part of the work is let to others |
Reimbursable (cost-plus) contracts
The client pays the actual cost of labour, materials and equipment plus a fee. Variants:
- Cost plus percentage fee: fee = a percentage of cost (the contractor has little incentive to save).
- Cost plus fixed fee: the fee is fixed regardless of cost.
- Cost plus incentive fee: the saving or overrun is shared.
- Cost plus guaranteed maximum price (GMP). Used where the scope is uncertain, urgent, or complex (emergency repair, research facilities). Needs strong audit.
Practicable in Nepal
The item-rate (unit price) contract is the commonest for building, road and irrigation works under the Public Procurement Act and Regulation. Lump sum is used for small and clearly defined works; design-and-build and EPC are used in hydropower; BOOT/BOT for large hydropower under independent power producer (IPP) arrangements; and percentage-rate contracts are used by local bodies for small works.
✓ Answer checked by Claude Opus 5.5 (high effort)
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