Types of Construction Contract and How to Choose One

Every building project rests on an agreement about who does what, for how much, and who carries the risk when things change. The construction contract is that agreement. Choosing its type is one of the earliest and most consequential decisions an owner makes, because it shapes how the price is fixed, how design responsibility is allocated and how disputes are likely to unfold.

This article explains the main families of contract, how they distribute risk, which standard forms are used in Singapore, and how to think about choosing between them. It describes general principles only and is not legal advice; any actual contract should be reviewed by a suitably qualified professional.

Two questions behind every contract type

Most contract types can be understood by asking two questions. First, how is the price determined: fixed in advance, measured as the work proceeds, or reimbursed at cost? Second, who is responsible for design: the owner’s consultants, the contractor, or a mix of both? The answers determine where risk lies.

A useful rule of thumb is that risk tends to follow control. A contractor asked to carry design risk will want control over design decisions; an owner who wants control over design will usually keep the risk of design errors. Contracts that ignore this principle tend to produce friction, claims and, eventually, disputes.

Pricing models

Lump sum

Under a lump sum contract the contractor agrees to complete defined work for a fixed price, subject to adjustment for variations and other events the contract allows. It gives the owner cost certainty at the outset, provided the design is well developed when tenders are called. Where the design is incomplete, the apparent certainty is often eroded by a stream of variation orders.

Lump sum contracts are sometimes let with a bill of quantities forming part of the contract, in which case errors in the quantities are usually the owner’s risk, or without one, in which case the contractor takes the risk of measuring the drawings correctly.

Measurement or remeasurement

In a remeasurement contract the contractor tenders rates against approximate quantities, and the final price is calculated by measuring the work actually done. This suits work whose extent cannot be known in advance, such as piling, earthworks or civil infrastructure. The owner gains flexibility but loses certainty of final cost.

Cost reimbursable and target cost

Under cost-plus arrangements the owner pays the contractor’s actual costs plus a fee, either fixed or a percentage. This is useful for urgent or highly uncertain work, but places most cost risk on the owner and demands rigorous auditing. Target cost contracts refine the idea: an agreed target is set, and any saving or overrun is shared between the parties according to a formula, which aligns incentives. A guaranteed maximum price adds a ceiling above which the contractor bears the cost.

Procurement routes and design responsibility

Design-bid-build

The traditional route. The owner’s architect and engineers complete the design, the work is tendered, and the contractor builds what is drawn. Design responsibility stays with the consultants, and the owner retains close control over quality and appearance. The trade-off is time, since construction cannot start until design is substantially complete, and the owner carries the risk of design errors and omissions.

Design and build

In design and build, a single contractor takes responsibility for both design and construction, usually against the owner’s requirements and sometimes a preliminary design. It offers a single point of responsibility and can shorten the programme by overlapping design and construction. The owner gives up some control over detailed design decisions, so the employer’s requirements must be written carefully. Turnkey and engineer-procure-construct arrangements push this further, with the contractor delivering a completed, operational facility.

Management contracting and construction management

On large or complex projects, owners sometimes appoint a management contractor or construction manager to package and coordinate trade contracts. The work can be let progressively as design develops, which saves time, but cost certainty arrives late and the owner carries more of the coordination risk.

Standard construction contract forms in Singapore

Most projects in Singapore use one of a small number of standard forms, amended to suit. Using a recognised form is generally wiser than drafting a contract from scratch, because the clauses have been tested in practice and, in many cases, interpreted by the courts.

PSSCOC — the Public Sector Standard Conditions of Contract, published by the Building and Construction Authority for public sector projects, with separate forms for construction works and design and build. See our guide to PSSCOC.
SIA Building Contract — published by the Singapore Institute of Architects and widely used on private sector building projects administered by an architect.
REDAS Design and Build Conditions — published by the Real Estate Developers’ Association of Singapore for private design and build work.
International forms such as FIDIC are sometimes used on infrastructure or internationally financed projects.

Whichever form is used, Singapore’s Building and Construction Industry Security of Payment Act applies to most construction contracts and supply contracts, giving parties a statutory right to progress payments and a fast adjudication process for payment disputes.

Clauses that matter regardless of type

Whatever the pricing model, certain provisions do most of the work when a project runs into difficulty. Owners and contractors should read them carefully before signing:

Scope and specification, including what is excluded.
Variations — who may instruct them and how they are valued.
Time — completion dates, extensions of time and liquidated damages.
Payment — progress claims, certification, retention and final account.
Security — performance bonds and insurance, including contractor all risk insurance.
Defects — the defects liability period and the procedure for rectification.
Termination and disputes — grounds, notices, and the route to adjudication, mediation, arbitration or court.

Choosing the right contract type

There is no universally best form. The right choice depends on how complete the design is, how important cost certainty is relative to speed, how much control the owner wants over design, and how much capacity the owner has to administer the contract. A small residential project with a complete design often suits a lump sum contract on a standard form. A project with significant ground uncertainty may benefit from remeasurement for the substructure. A developer prioritising speed and single-point responsibility may prefer design and build.

The structural engineer’s role in this decision is often underestimated. The maturity of the structural design, the level of site investigation done and the clarity of performance requirements all determine how much risk a contractor can reasonably price. Early engineering input, combined with value engineering at the right stage, usually produces tenders that are more comparable and contracts that are more stable. If you are weighing options, our consultancy can advise on the technical side.

Frequently asked questions

Which construction contract type gives the most cost certainty?

A lump sum contract based on a complete design usually gives the greatest certainty at award, although the final cost can still move through variations, provisional sums and claims permitted by the contract.

Is design and build cheaper than the traditional route?

Not necessarily. It can save time and reduce coordination risk, but the contractor prices design risk into the tender, and the owner has less control over detailed design decisions.

Do I need a standard form for a small project?

It is not mandatory, but a recognised standard form, suitably amended, is usually clearer and safer than a bespoke document drafted without legal and technical input.

Does the Security of Payment Act apply to my contract?

It applies to most written and oral construction and supply contracts in Singapore, with exceptions set out in the Act. A notable one covers construction work on residential property that does not require plan approval under the Building Control Act, such as simple renovations without structural works. Specific cases should be checked with a lawyer.

Is this article legal advice?

No. It is a general explanation of common contract structures. Contract terms vary and should be reviewed by a qualified legal professional before signing.

Need technical input on contract scope, design responsibility or tender documents? Talk to our consultancy or get in touch.