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Contracts can be categorized into two general types: fixed-price contracts and negotiated contracts.
The most common in the public and private industry is fixed-cost contracts because they are based on a bidding process.
The negotiated contracts are subdivided into lump-sum, cost-plus-fee, and guaranteed-maximum-price.
Lump-sum contracts are based on quantity of work for a fixed amount of dollars.
Cos-plus-fee is an open contract in terms of cost and it’s used when the total cost of the project cannot be determined until its conclusion.
Guarantee Maximum Price (GMP) is based on the cost-plus contract but with a maximum ceiling cost of the project. The advantage of this type of contracts, is that the owner and the contractor become one team and both share the cost savings.