Contract and Commercial Management
Contract type is a risk-transfer decision
Lump sum (fixed price) transfers quantity and productivity risk to the contractor and fits well-defined scope. Unit price suits uncertain quantities with firm unit rates. Cost-plus arrangements, with or without a guaranteed maximum price, leave cost risk with the owner but enable fast-track work; a GMP shifts to shared savings and requires open-book accounting. Time and materials fits small or undefined work.
The commercial machinery
Know payment terms (progress payments, retention), and the difference between pay-when-paid and pay-if-paid. Distinguish bonds from insurance: performance, payment, and bid bonds guarantee an obligation, while general liability, builder's risk, and professional liability insurance indemnify loss; insurance is never a performance guarantee. Liquidated damages must be a genuine pre-estimate of loss, not a penalty. Indemnity clauses allocate third-party claims. Change orders, differing site conditions, suspension, and termination each carry procedural requirements.
Traps candidates fall for
- Missing a notice deadline (often 7–14 days) waives an otherwise valid claim.
- Believing a GMP caps all cost: owner-directed changes and qualifying cost increases still pass through.
- Acting on a verbal directive from the owner's representative; a change is not a change until documented in writing.
- Assuming flow-down clauses bind subcontractors automatically; they bind only when actually incorporated.
- Confusing a lien waiver with final payment or with release of all claims.
Rule of thumb
Read the notice and documentation clause before the pricing clause. Most failed claims are procedural, not substantive: entitlement without timely notice and records often yields nothing.