What is the most common form of reimbursement in construction contracts?

The most common form of reimbursement in construction contracts is the lump sum method. This approach involves a single, fixed price for all work to be completed by the contractor. The contractor is responsible for delivering the entire project at that agreed-upon price, regardless of the actual costs incurred during construction.

Lump sum contracts are advantageous in that they provide certainty for both the contractor and the client regarding the total project cost. The client knows exactly what they will pay, which aids in budgeting and financial planning. Additionally, this type of contract incentivizes the contractor to manage resources effectively and complete the project within the estimated budget, as any cost overruns would be absorbed by them rather than passed on to the client.

While other reimbursement methods like time and materials, cost-plus, and unit price have their own uses and benefits in specific scenarios, the lump sum method is favored for its simplicity and clarity in terms of financial expectations, making it the most common choice in the construction industry.