Cost-plus and Lump Sum are the most common type of contracts applied in construction. Cost-plus is the more favored contract providing lower risk for both parties even in a volatile world economy. Lump sum is the choice if the scope of work is completely detailed in the contract ensuring very mininmal changes during the contract execution. The main disadvantage of lump sum is project variations due to missed out scope or vague scope of work. This may skyrocket the total project cost that may ultimately lead to legal battles between parties in the contract.
Cost-plus is also the contract of choice in Engineering and Design. Properly managed, this contract will provide the best cost of money for the client. Even big EPCM companies favor this contract. Big clients are also currently favoring this type of contract as they are getting piles of project variation notices in their lump sum contracts.