The unit-price contract is employed by engineers who use large amounts of items for the construction of a particular thing. This type of contract is based on estimation of prices and quantities of items to be used throughout the entire project. A unit-price contract is used only for items identified in the document. For undocumented items, this type of contract is used in conjunction with another type, known as a lump-sum contract.
A lump-sum contract is offered to engineers who are hired to perform a specified task for an agreed-upon fee. In this type of contract, all the risks involved are the responsibility of the contractor. The lump-sum contract is used in small-scale projects that undergo minimal or no changes once they are underway.
In incentive contracts, the engineer is paid on the basis of performance, capital spent, quality and time. There are two major categories of incentive contracts: fixed-price and cost-reimbursement. Under a fixed-price incentive contract, the total costs and other requirements are fixed and must be met. Under a cost-reimbursement incentive contract, payment can be adjusted based on total and target costs. Once the scheme is complete, the engineer is paid in accordance to the stipulated formula.
A cost-plus contract is used when a buyer of a certain project agrees to pay for labor and materials involved. Once the project is completed, the contractor receives compensation equivalent to the total expenses incurred plus the profit. This type of contract is offered mainly when the span of the project is intermediate in terms of time and capital spent.