What are the two main types of construction contracts used in highway projects?

The distinction between lump-sum contracts and unit price contracts is fundamental in highway construction projects.

Lump-sum contracts are characterized by a single fixed price that encompasses all the work to be performed. This type of contract is advantageous for both parties when the project scope is well-defined. The contractor assumes the risk of cost overruns, while the project owner benefits from the predictability of costs. For highway projects, where specific project requirements and expected quantities of work can often be clearly established, lump-sum contracts streamline the bidding process and facilitate simplified budget management.

On the other hand, unit price contracts are used when the precise quantities of work cannot be accurately determined at the contract's inception. In this structure, the contractor is paid a predetermined amount for each unit of work completed, such as per cubic yard of earth moved or per ton of asphalt laid. This method is particularly effective for highway projects involving variable conditions or quantities, allowing for adjustments to be made in the final contract price as the actual work progresses.

Both lump-sum and unit price contracts provide flexibility and appropriateness in different circumstances within highway construction, addressing the unique needs of the project and its stakeholders. This makes them the primary types of contracts utilized for such projects.