Construction projects live and die by what’s written in the contract.
For subcontractors, who are closest to the work but often working within terms set by others, understanding the types of construction contracts is the key to protecting your margins and staying in control
Every jobsite has different needs. Some owners want guaranteed prices; others are fine with flexible, open-ended agreements. But no matter the contract, there’s one constant: you must deliver work efficiently, stay compliant, and track every dollar and hour. That’s why choosing the right contract structure and backing it up with the right labor tools is critical.
This article breaks down the most common construction contract types, how they work, and what subcontractors should look out for.
Why Your Contract Type Matters More Than You Think
Every subcontractor has dealt with construction mistakes and issues like scope creep, delayed payments, surprise change orders, or a general contractor that’s suddenly “not sure” what was agreed on. Most of the time, the root cause is the same. A vague or mismatched contract.
That’s why it’s important for all stakeholders to understand what they are agreeing on and ensure that they are all on the same page from day one to avoid major conflicts.
The right type of construction contract can help you with that by:
- Setting clear expectations with GCs or owners before work begins
- Avoiding misunderstandings around scope or deliverables
- Protecting your margins from labor overages or delays
- Helping you get paid faster by aligning on billing structure and documentation
- Resolving disputes faster and with less friction
The wrong type of construction contract, on the other hand, can leave you:
- On the hook for project delays that weren’t your fault
- Responsible for absorbing material or labor costs that exceed budget
- Struggling to justify time-and-materials charges without strong documentation
- Exposed to legal or compliance risks due to vague responsibilities
With so many GCs expecting digital documentation of labor, timelines, and reduced cost overheads, contracts are way past being just formalities. Knowing the differences between construction contract types and how they impact fieldwork helps you plan smarter, manage crews better, and protect your business from the unexpected.
Take Back Control of Your Time Keeping
The 6 Types of Construction Contracts You Should Know About
When choosing the type of construction contract, you need to remember that there is no one-size-fits-all approach. Each agreement comes with its own risks, responsibilities, and rewards. The right choice depends on the nature of the job, the level of scope and clarity, and how much flexibility you need.
Here’s a breakdown of the six most common types of construction contracts, how they work, and what subcontractors should look out for.
1. Fixed Price (Lump Sum) Contracts
A fixed price contract sets a predetermined price for the entire scope of work. It’s one of the most commonly used agreements in private and public construction projects, particularly when plans, quantities, and materials are clearly defined at the start.
Let’s say you’re a drywall subcontractor hired to complete interior partitions for a new commercial building. The GC provides a full drawing set, specs, and a timeline. You agree to complete the entire job for $90,000, regardless of what labor or materials cost you.
This works great if everything goes as planned. But if labor takes longer than expected or material prices spike mid-project, you’re eating the extra costs.
When to Use:
- Projects with a well-defined scope
- Minimal expected changes
What Subcontractors Should Know:
- Profit depends on efficiency—any labor overages come out of your pocket
- Change orders must be documented and approved before additional work begins
Pro Tip: Use precise manpower tracking tools like SmartBarrel to ensure you stay under the estimated hours and avoid margin erosion.
2. Time and Materials (T&M) Contracts
T&M contracts are used when it’s difficult to estimate how long a job will take or how much it will cost. The contractor is paid for actual hours worked and materials used, plus a fixed markup for overhead and profit.
Consider a scenario where you are a mechanical subcontractor brought in to fix unforeseen piping issues discovered during demolition. There’s no clear estimate of the total labor required, so the GC agrees to pay $65/hour per worker plus the cost of parts and a 15% markup.
This gives you flexibility but also puts the onus on you to provide accurate records of time and materials for invoicing.
When to Use:
- Projects with uncertain scope or timeline
- Emergency or service-based jobs
What Subcontractors Should Know:
- Transparency is everything. Every hour worked must be verified and accounted for
- Without proper timekeeping, disputes over charges can arise
3. Cost Plus Contracts
With this type of construction contract, you are reimbursed for the actual costs incurred and can charge an additional fee or percentage for profit. Like T&M agreements, cost plus contracts offer flexibility but demand more rigorous documentation.
Consider a situation where you’re handling solar panel installation on a large business premises. The project is still in design development, but you’re asked to begin early site prep and electrical rough-ins. Since there’s no fixed scope, the contract reimburses you for your labor and materials, plus 10% markup on actual costs.
This allows early mobilization for your clients but means you’ll be under scrutiny and will need to justify every expense if costs escalate.
Cost plus contracts have two variants:
- Cost-plus-fixed-fee (CPFF): Set fee regardless of final cost
- Cost-plus-percentage-of-cost (CPPC): Fee varies based on total expenses
What Subcontractors Should Know:
- Requires documentation of every expense, including labor hours
- May include a “not-to-exceed” clause, similar to a GMP contract
Pro Tip: SmartBarrel’s seamless integrations with payroll and ERP platforms make it easier to export reports and stay compliant with recordkeeping requirements.
4. Unit Price Contracts
In a unit price contract, work is broken into components (units), each with a predetermined price. Payment is based on the actual quantities used.
The example, in this case, can be a concrete subcontractor tasked with pouring curbs and gutters across a municipal road project. If the agreement states that payment shall be $45 per foot and the project scales up from 3,000 to 4,500 feet, the final payment would adjust accordingly.
While this type of construction contract offers great flexibility, it requires consistent measurement and approval of completed units, which might be a problem in some cases.
When to Use:
- Infrastructure or civil projects with repeatable tasks (e.g., per foot, per cubic yard)
What Subcontractors Should Know:
- Accurate tracking of units completed and associated labor is critical
- May lead to disputes if quantities aren’t measured consistently
5. Guaranteed Maximum Price (GMP) Contracts
GMP contracts cap the total cost of the project. The contractor is reimbursed for costs plus a fee, but only up to an agreed ceiling. Costs above that must be absorbed unless the owner approves an increase.
Imagine you are part of a design-assist team working on a hospital expansion. The owner agrees to a GMP of $12 million for the entire MEP scope. You submit your costs monthly, but your labor overruns push the actual cost to $12.3 M. Unless the owner approves a change order, that $300K becomes your problem.
When to Use:
- Budget-sensitive projects that still require some flexibility
- Owners who want construction site transparency but not open-ended budgets
What Subcontractors Should Know:
- Going over budget? You’ll be absorbing the loss unless the owner approves additional funds
- Improper labor utilization can quickly push the project over budget
6. Design-Build Contracts
Design-build contracts consolidate design and construction into a single agreement. The contractor is responsible for both, which creates a more integrated workflow.
The best example can be a renovation project for a store or hotel where both aesthetics and utility need to blend seamlessly. In such cases, businesses opt to have the architects, GC, MEP trades, and others under the same design-build umbrella to facilitate design changes that might happen on the fly. Most of the time, the field team for design-build contracts begins their work before all final specs are approved so that they can save time and cost.
There is no doubt that this approach is extremely fast and collaborative. However, it demands proactiveness from all parties, extreme flexibility, and impeccable communication between the jobsite and the planning office.
When to Use:
- Projects that benefit from fast-tracked timelines
- Owners who want a single point of accountability
What Subcontractors Should Know:
- More coordination, faster timelines
- Flexibility in scope requires real-time labor visibility
Pro Tip: SmartBarrel ensures field teams and back-office staff stay in sync, even when project phases overlap.
Comparing the 6 Types of Construction Contracts
Here’s a side-by-side look at common construction contract types and what they mean for subcontractors:
Contract Type | Risk Level (For Subcontractor) | Flexibility | Best For |
Fixed Price | High | Low | Simple, clearly scoped jobs |
Time and Material | Low | High | Uncertain or service-based projects |
Cost Plus | Medium | Medium | Collaborative builds with shared risk |
Unit Price | Medium | Low – Medium | Repetitive work (infrastructure, civil) |
GMP | High | Medium | Budget-sensitive projects with some unknowns |
Design-Build | Medium | High | Fast-tracked or integrated project delivery |
Take Back Control of Your Time Keeping
How the Type of Construction Contract Impacts Labor and Costs
No matter what kind of project you’re working on, one thing never changes: time is money. However, how you track that time and what you do with the data depends heavily on the type of construction contract in play.
If you’re working under a lump sum agreement, you’re incentivized to complete the job quickly and efficiently. Labor overruns directly eat into your profit, so real-time tracking is critical. You need to know, down to the hour, how your team is performing against estimated timelines.
Under a T&M or cost-plus model, the focus shifts. You’re billing for every hour worked, so documentation must be airtight. Owners and GCs will expect precise labor logs that can be matched to materials used, change orders, or even delays. If your hours aren’t tracked clearly and consistently, you risk nonpayment or, in some cases, legal troubles.
With unit price or GMP contracts, the math gets trickier. Your profit depends on staying under a cap or aligning labor with specific production milestones. Inaccurate time tracking doesn’t just cause invoicing headaches, it can break the job’s budget entirely.
Most subcontractors work under multiple contract types across different jobsites. That’s why having a centralized, reliable labor tracking system isn’t just helpful. It’s essential for long-term profitability and compliance. Powerful options like SmartBarrel’s biometric and geofenced platforms with features for both specialty and general contractors can help your business stay in control at all times.
How SmartBarrel Supports Contract-Based Workflows
SmartBarrel isn’t just a time clock. It’s a comprehensive labor tracking and compliance solution built specifically for the realities subcontractors face on the jobsite. Whether you’re managing one project or ten across different contract models, SmartBarrel gives you the visibility, accountability, and automation you need to stay compliant and profitable.
Here’s how it supports different contract types:
- Lump Sum: Prevent time overruns and track actual hours against estimates in real time, which protects your margins from silent drain.
- T&M & Cost Plus: Generate verifiable, timestamped records that eliminate disputes and ensure every billed hour is backed by proof.
- Unit Price & GMP: Link labor hours to units completed or budget milestones to keep your project under cost caps.
- Design-Build: Sync field and office teams with real-time labor visibility so your crew can move with the project, not trail behind it.
With facial verification, geo-fencing, mobile accessibility, and seamless ERP integrations, SmartBarrel gives subcontractors more than just time data. It gives them the confidence and data-driven insights to make the right decision at the right time.
Take Back Control of Your Time Keeping
Choose the Right Contract—And Back It with the Right Tools
Not all types of construction contracts are created equal. As a subcontractor, your workflow, risk exposure, and profit potential all depend on the fine print. Whether you’re pricing a simple drywall job or navigating a multi-phase design-build, knowing how contract types impact labor and cost is essential.
But understanding the contract is only half the equation. Controlling what happens on the jobsite, from time tracking to productivity, is what sets you apart.
That’s why SmartBarrel was built. To give subcontractors the tools to stay on time, on budget, and in control, no matter the contract model.
Ready to build smarter? Request a demo and see how SmartBarrel supports your contract needs from day 1 of planning to the final closeout.
