ContractsCounsel Logo
Home Blog Types of Contracts: Learn About 3 Main Types

Types of Contracts: Learn About 3 Main Types

Jump to Section

What Is a Contract?

A contract is a legally binding agreement between two or more parties who agree to buy or sell goods and services from one another. There are many different types of contracts. The three most common contract types include:

  • Fixed-price contracts
  • Cost-plus contracts
  • Time and materials contracts

A contract provides legal protection for all parties involved in the transaction. It outlines the rights and responsibilities of all parties and helps reduce the risk of any party forfeiting their duties per the agreement. Contracts typically include details related to the scope of work of the project, quality control, legal jurisdiction, project schedules, and payment terms.

A contract is fundamental to any business transaction that involves an exchange of value. It documents the terms of the agreement in a way that is enforceable in a court of law if any party does not hold up their end of the exchange.

Understanding Different Types of Contracts

Before taking on a project, vendors, contractors, and other types of sellers gather certain details about the project to create an estimate for the labor and materials required to complete the project. In some cases, buyers give a very detailed description of their needs. However, buyers sometimes do not know exactly what they want or need. Different situations require different types of contracts.

Since contracts come in many forms, each with its own purpose and use, it is important for business owners to understand the different types of contracts and select the best one for each transaction.

Fixed-Price Contracts

Fixed-price contracts are also known as lump-sum contracts. This type of contract is ideal in situations where there is a clearly defined scope of work. In such cases, the buyer provides a detailed description of the final outcome, including product dimensions, expected timeframes, material specifications, and more. Here is an article about how to write a scope of work .

Using the information provided by the buyer, the seller creates a formal statement of work that outlines the total project cost, including all labor and materials, along with billing milestones based on a detailed project schedule. If the buyer makes any changes to the scope of work or timeline, it can mean additional charges from the seller.

With fixed-price contracts, buyers know the exact cost of the project from the start, which many people see as a big benefit. Fixed price contracts result in a minimal risk for buyers. While buyers sometimes make a lump-sum payment at the start of the project, the seller takes on the majority of the risk since the buyer often only pays for work once it's completed.

If the project takes place over a longer timeframe, buyers usually make smaller lump-sum payments at specific project milestones. For example, construction crews typically charge a fixed price for all materials, labor, and equipment. They receive payment upon completion of each stage of the construction project.

With fixed-price contracts, sellers cannot go back to the buyer to ask for more money if they go over budget. As a result, sellers take on the majority of the risk, so they sometimes pad the price to make sure they cover any potential risks.

If something goes wrong and sellers underbid the original contract price, they risk eating into their profit and must find ways to cut corners and decrease costs. Project quality and schedules can suffer as a result. Also, if buyers pay any money at the start of the project and the work remains incomplete, getting the money back is sometimes a challenge.

Get Free Bids to Compare

Leverage our network of lawyers, request free bids, and find the right lawyer for the job.

Get Bids Now

Cost-Plus Contracts

With a cost-plus contract, also known as a cost-reimbursable contract, buyers pay for the cost of the work plus a fixed percentage charged by the seller for providing the goods and services. Sellers charge the buyers for the actual cost of any materials, equipment, labor, and overhead involved in running the project. To make a profit, sellers tack on an extra fee based on the terms of the contract. Some sellers prefer an incentive payment option over a fixed percentage. Here is an article about how to structure an incentive contract .

A cost-plus contract defines all rates and percentages, as well as all allowable expenses and incurred costs. The contract often also includes a maximum amount sellers can spend. Any spending over that amount requires the buyer's approval.

With a cost-plus contract, neither the rates for materials and labor nor the quantity of time needed to complete the project is fixed. As such, costs may fluctuate throughout the life of the project. On top of that, buyers do not know the full cost of the project before it begins. Also, it is often difficult to track the actual effort and materials used for the project. Despite the uncertainties and risks to buyers, many prefer this option. In the end, they only pay for what they get, which many buyers view as an advantage.

Meet some lawyers on our platform

Forest H.

221 projects on CC
CC verified
View Profile

Linda W.

10 projects on CC
CC verified
View Profile

Valerie L.

77 projects on CC
CC verified
View Profile

Danny J.

11 projects on CC
CC verified
View Profile

Time and Materials Contracts

A time and materials contract is great for buyers who don't necessarily know what they want when they begin their project. Sellers use time and materials contracts when it's difficult to determine the amount of time they need to spend on the project and the types of materials required to complete the project.

With this type of contract, sellers charge for the cost of any materials they end up using plus an hourly or daily wage. All rates, including any markup charges on materials and wages, are included in the terms of the contract. Once the contract is finalized and accepted, these rates stay in place for the duration of the contract.

For example, a time and materials contract works well for software developers hired to create an app for a company that is unsure about what the app needs to do. The developers charge for any time spent programming, designing, and testing the app, as well as any additional iterations required to finalize the product. They submit their receipts and records of working hours at fixed intervals as outlined in the contract to receive payment.

When sellers charge buyers based on time and materials, they typically keep a record of the time spent working on a certain project, as well as proof of any work they did during this time. This provides buyers peace of mind that their money is well spent. In some cases, sellers work directly as an extension of the buyer's team. This gives buyers considerable control over how sellers spend their time and the types of work they do.

Time and materials contracts work well for budget-conscious buyers. If they keep a close eye on the project costs, this type of contract provides an excellent way for buyers to enhance the skills on their team. However, a time and materials project poses a risk of blowing estimated costs if the project is not well managed.

Combining Different Types of Contracts

Sellers may combine different types of contracts to create one that hits all the high notes of their business exchange. Some business exchanges include a range of products and services, such as labor and equipment. In such cases, the contract needs to outline any applicable terms and agreements from more than one type of contract to cover all parts of the transaction, such as a fixed-price contract for the labor and a cost-plus contract for the equipment.

Understanding the different types of contracts and selecting the right one for the project is an important part of business transactions. It's often a good idea to work with a contract lawyer to make sure the contract holds up in court. As a rule of thumb, fixed-price contracts present less risk to buyers, while cost-plus contracts pose more risk to buyers. Meanwhile, time and materials contracts offer a more balanced risk for both buyers and sellers.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Susan T. on ContractsCounsel
View Susan
5.0 (2)
Member Since:
February 22, 2024

Susan T.

Free Consultation
Baltimore, md
19 Yrs Experience
Licensed in MD
University of baltimore

General practitioner since 2005, general practice; civil disputes, torts.... logo Call us: (410) 878-7006 Menu Services Maryland Mobile Last Will & Testament Services All Maryland Legal Services Susan C. Trimble Attorney at Law WHAT WE ARE ABOUT Susan C. Trimble, is an established attorney in the Maryland area. Her work is infused with commitment to her community and family. is tailored to your wants and needs. Here you will find an approachable, personable and conscientious advocate. EDUCATION: Juris Doctorate (JD). University of Baltimore School of Law, Baltimore, Maryland, USA. 2006. Bachelor of Science (BS), English Literature. Towson University, 1989. Associate in Claims, (AIC) certification. Fraud Claims Law Associate, (FCLS) certification.

Leonid G. on ContractsCounsel
View Leonid
5.0 (4)
Member Since:
February 22, 2024

Leonid G.

Free Consultation
Baton Rouge, LA
6 Yrs Experience
Licensed in LA, MA, NY
New York University School of Law

I have been practicing law since 2018. I used to be a litigator at a nationwide practice before going in-house at a fintech company. I have experience drafting NDAs, SaaS contracts, service agreements, and stock purchase agreements.

Jared F. on ContractsCounsel
View Jared
4.9 (5)
Member Since:
March 4, 2024

Jared F.

Managing Attorney
Free Consultation
Salt Lake City, UT
20 Yrs Experience
Licensed in NV, UT
Harvard Law School

Jared Fields is an experienced business lawyer and litigator with experience in diverse industries and practice areas. Prior to launching his own practice, he served as the chief legal officer for a group of privately-owned companies, including a real estate development group, construction companies, multiple franchisees, and a professional soccer team. As a result, he is experienced in real estate transactions, commercial agreements of varying degrees of sophistication, employment matters, and litigation, as well as general business legal advice. He was also an in-house attorney for a renewable energy company, where he was responsible for litigation, investigations, enforcement actions, and related securities filing disclosures. Mr. Fields also spent many years as a litigator in private practice, representing clients in matters ranging from securities litigation, to breach of contract, to cases involving real estate and financial services. Mr. Fields has particular experience in legal matters that may involve complex financial, accounting, valuation, and other quantitative issues.

Ann D. on ContractsCounsel
View Ann
Member Since:
February 10, 2024

Ann D.

Free Consultation
greater Philadelphia area
32 Yrs Experience
Licensed in NJ, PA

Ann R. Dougherty, Esquire practices in both Pennsylvania and New Jersey with over 25 years of experience and has taught legal writing at the Delaware Law School of Widener University. Ann’s experience includes general liability, commercial property and bad faith insurance coverage litigation. Ann has successfully represented corporations in declaratory judgment matters concerning environmental and asbestos exposure, handled excess recoveries, comprehensive claim reviews and negotiated cost sharing agreements. She has also represented religious organizations including risk management strategies. In addition to practicing law, Ann also teaches introductory Philosophy and Ethics courses. Ann is a member of the Philanthropic Educational Organization for Women and the Daughters of the American Revolution. She has served on the Boards of the American Lung Association of the Mid-Atlantic for Delaware and the Wilmington Ballet Academy.

Deborah S. on ContractsCounsel
View Deborah
Member Since:
February 23, 2024

Deborah S.

Free Consultation
Pittsburgh, PA, United States
16 Yrs Experience
Licensed in PA
Duquesne University

My name is Deborah Schwab, and I am an experienced attorney with a background in real estate, contract negotiation, and corporate governance. Currently, I am a transactional counsel with Priscott Legal, LLC, the partner law firm of In this remote role, I represent private equity and VC firms and negotiate a high volume of non-disclosure agreements, joinders, and other legal contracts. Prior to this, I served as legal counsel for PennTex Ventures, LLC, where I was responsible for negotiating, drafting, and reviewing contracts and agreements for sales and acquisition of real estate, lease negotiation, and resolving issues involving ancillary transactions. As the first in-house counsel for PTV, I was responsible for all legal and compliance matters and managed outside legal counsel. Before joining PennTex Ventures, I worked as real estate counsel for 84 Lumber & Nemacolin Woodlands, Inc., where I acquired eleven properties with a portfolio value in excess of $15 million. Prior to this, I spent several years as an attorney and supervisor at CNX/Consol Energy, where I worked as a title attorney, trained and managed a team of title attorneys/analysts, conducted due diligence for large land transactions, and identified business/legal risk exposure for multi-state projects. I received my Juris Doctor from Duquesne University and hold a Post Baccalaureate Paralegal Certificate from the same institution. Additionally, I earned a Bachelor of Arts from the University of Pittsburgh. I am also a court-appointed special advocate working as a volunteer with children who are in the foster care system. Thank you for taking the time to view my profile. I am always open to new opportunities and would be happy to connect with you.

John V. on ContractsCounsel
View John
Member Since:
February 20, 2024

John V.

Free Consultation
Veach Law PLLC
41 Yrs Experience
Licensed in NC, TN, TX
Georgetown Law School

Education: Georgetown Law (83), Yale (75- BA in Economics), Hotchkiss School (1970). Practice areas have included commercial litigation, individual litigation, and securities litigation and arbitration.

V. Yvette S. on ContractsCounsel
View V. Yvette
Member Since:
February 27, 2024

V. Yvette S.

Managing Attorney
Free Consultation
New York, NY
22 Yrs Experience
Licensed in NC, NY
Duke University School of Law

I am a highly skilled attorney, fluent in English and Spanish with 20 years of legal experience and 8 additional years of real estate, project finance, banking, financial, securities, and start-up company experience. I worked 6 years with 2 international law firms and handled extremely complex work for all types of clients, 3 years with a Federal Government Regulator, and 5 years in various compliance management positions at national and international financial institutions. I am licensed in New York and North Carolina. I will handle federal litigation on a non-contingency basis. I also practice Appellate Advocacy for constitutional, employment, consumer, and corporate laws. I am skilled in many different NY and NC laws. I have successfully represented clients with state and federal regulatory investigations. I can help you with the FDA, SEC, OCC, CFPB, FDIC, FR and certain state regulators.

Samuel S. on ContractsCounsel
View Samuel
Member Since:
March 6, 2024

Samuel S.

Free Consultation
21 Yrs Experience
Licensed in OH
Cleveland Marshall College of Law

Born in Cleveland, Ohio - 9/15/1974 Lived in Cleveland all my life went to college at Ohio Wesleyan University - graduated in 1996 went to law school at Cleveland Marshall College of Law - graduated in 2001 passed the OH bar exam in 2003 worked at the OH Atty General's office, at cuyahoga county prosecutor office and as a solo practitioner

Davy K. on ContractsCounsel
View Davy
Member Since:
March 14, 2024

Davy K.

Founding Attorney
Free Consultation
3 Yrs Experience
Licensed in FL
Nova Southeastern University

I am a Swiss-American lawyer based in Florida and specialize in business, investments, and other civil matters. I have won many cases in both state and federal litigation, and arbitration. Before litigation or arbitration, however, I like to prevent these legal disputes by ensuring my clients base their business on strong concrete contracts that will protect them even decades down the road. My clients are my top priority, which is why they get my personal cell and can reach me anytime. My firm is also established on the extremely high standards of professionalism, transparent itemized billing, fast turnaround times and more. For more information, visit:

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a legal contract?

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

See All Contracts Lawyers

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

View Trustpilot Review

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

View Trustpilot Review

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

View Trustpilot Review

How It Works

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city