--- title: "Types of contract" subject: "Construction Management" chapter: 5 key: "semester_8/construction_management:types-of-contract" source: https://www.bctengineer.com/q/semester_8/construction_management/types-of-contract site: BCT Engineering --- # Types of contract Construction Management · Chapter 5: Contract Management - Asked in: 2078 Chaitra, 5 marks; 2075 Bhadra, 3 marks; 2074 Bhadra; 2073 Magh; 2073 Bhadra, 4 marks; 2070 Bhadra, 4 marks (asked 6 times) - Video: [Types of Contracts in Construction | Contract Management](https://www.youtube.com/watch?v=W7UAg75RpEQ) — Project-O-Metric - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_8/construction_management/types-of-contract - Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-5 ## Question Name and explain the different types of contract (including reimbursable contracts) used in construction, and those practicable in our context. ## 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. ## Answer 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: 1. **Cost plus percentage fee:** fee = a percentage of cost (the contractor has little incentive to save). 2. **Cost plus fixed fee:** the fee is fixed regardless of cost. 3. **Cost plus incentive fee:** the saving or overrun is shared. 4. **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. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. In an item-rate contract, how is payment made? A. Cost plus fee B. Percentage of profit C. Measured quantity x quoted rate D. Single lump Answer: C. Payment is by measured quantity times rate. (Key point: Item rate) 2. Who bears the risk in lump sum? A. Nobody B. The contractor C. The client D. The engineer Answer: B. Price is fixed so risk is on the contractor. (Key point: Lump sum risk) 3. Weakness of cost plus percentage fee? A. Contractor has little incentive to save B. Contractor loses C. No audit D. Fixed fee Answer: A. Fee rises with cost, so no incentive to save. (Key point: Cost plus percentage) 4. Commonest contract in Nepal public works? A. Cost plus B. BOOT C. Turnkey D. Item-rate Answer: D. Item rate is commonest under PPA. (Key point: Nepal practice) ## Related in Construction Management - [Contract types in civil engineering; govt works](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Acontract-types-government) — Construction Management, chapter 5 - [Equipment used in hydropower construction](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Ahydropower-equipment) — Construction Management, chapter 4 - [Contracts by payment: lump sum and cost plus](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Alump-sum-cost-plus) — Construction Management, chapter 5 - [BOOT contract and its importance in Nepal](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aboot-contract-nepal) — Construction Management, chapter 5, asked 4× - [Item rate contract](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aitem-rate-contract) — Construction Management, chapter 5 - [Short note: Unit price contract and disadvantages](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aunit-price-contract) — Construction Management, chapter 5 ## Related in other subjects - [Terminology used in stair construction](https://www.bctengineer.com/question.md?key=semester_6%2Fbuilding_technology%3Astair-terminology) — Building Technology, chapter 5 - [RA: employee-projects with no part used](https://www.bctengineer.com/question.md?key=semester_6%2Fdatabase_management_system%3Ara-emp-project-no-part) — Database Management System, chapter 3 - [RA: projects where all used bolts size 6](https://www.bctengineer.com/question.md?key=semester_6%2Fdatabase_management_system%3Ara-projects-all-used-bolts) — Database Management System, chapter 3 - [RA: parts used in DBMS and MIS](https://www.bctengineer.com/question.md?key=semester_6%2Fdatabase_management_system%3Ara-parts-both-dbms-mis) — Database Management System, chapter 3