12/04/2026
Projects lose millions — not because of bad engineering, but because of the wrong contract type.
Most engineers pick contracts by habit. Senior ones pick them by logic.
Here are all 9 contract types, explained simply — with real on-site construction examples — so you never pick the wrong one again. Save this post. You will need it.
Fixed Price Contracts — use when your scope is clear and locked
1. Firm Fixed Price (FFP) One lump sum. The contractor owns every cost overrun — no matter what happens on-site. → Example: Building a 5,000 m² warehouse. Drawings approved, BOQ finalised. Contractor bids PKR 120M — that is the final number.
2. Fixed Price Incentive Fee (FPIF) Fixed price plus a bonus for finishing early or under budget. Contractor motivation finally aligns with your goals. → Example: A flyover must open before Eid. Contractor earns PKR 500K for every week saved — so they push hard.
3. Fixed Price Economic Price Adjustment (FPEPA) Fixed price with escalation clauses for steel, fuel, or inflation. Both parties protected over a long duration. → Example: A 3-year highway. Steel price rises 30% — the FPEPA clause adjusts the rate automatically. No disputes, no claims.
Cost Reimbursable Contracts — use when scope is still forming
4. Cost Reimbursable (CR) Owner pays actual costs plus a fee. Maximum flexibility, maximum owner risk. Needs daily cost monitoring. → Example: Emergency flood repairs on a highway. No time to price it. Owner pays what it costs plus a 10% management fee.
5. Cost Plus Incentive Fee (CPIF) Costs reimbursed plus shared savings if the contractor beats the target. Efficiency is genuinely rewarded. → Example: Piling works, target PKR 80M. Contractor finishes at PKR 72M. They share PKR 4M of the saving with the owner.
6. Cost Plus Award Fee (CPAF) Costs reimbursed plus a discretionary bonus the client awards based on quality and satisfaction — not just numbers. → Example: Hospital interior fit-out. Client awards PKR 2M because workmanship and site coordination were exceptional.
Flexible Contract Types — use when quantities are moving
7. Time and Material (T&M) Charged at agreed daily rates plus actual materials. No cost ceiling — supervision is non-negotiable. → Example: A burst water main under a road. You cannot price it until you dig. Contractor charges day rate plus material receipts.
8. Unit Price Contract Fixed rate per unit. Final cost is confirmed by actual quantities. The backbone of infrastructure work. → Example: Road paving at PKR 4,500 per metre. Estimated 10 km — actual 10.6 km. Payment adjusts automatically.
9. Admeasurement Contract Payment based on quantities physically measured on-site against a Bill of Quantities. The public sector standard. → Example: Earthmoving contract. Every cubic metre measured as the truck leaves site. Certified before payment is released.
The contract you choose on day one determines contractor behaviour for the entire project.
Match the contract to your scope reality — not to whatever was used on the last job.
Planning and contracts engineers — which contract type saved you on a project, and which one created your biggest claim headache?
