A commercial contract is an agreement that contains all the work that should be performed for the construction of a commercial or non-residential building. A cleverly constructed commercial contract can protect the interests of both parties, minimize risk and increase the profitability of the contractor. If one of the parties to the agreement violates the contract or if part of the contract fails, the engineering contract should describe how to deal with such an event. Termination clauses are a common feature of standard engineering contracts. They indicate the reasons why the client or contractor can terminate the contract. The termination may be motivated by convenience or circumstances that are not controlled by one of the parties and prevent the task from being completed; Natural disasters are an example of an event that could lead to the termination of the contract. The contact also provides a framework for the procedure to be followed if one of the parties is late in payment or violates certain contractual conditions. The lump sum contract is also often ideal when an owner has very narrow budget constraints or has no experience in the construction industry. A lump-sum contract requires a contractor to agree to provide certain services or works for a fixed amount or an agreed price. In the lump sum contract, the owner essentially transferred the entire risk to the contractor, who can be expected to impose a higher mark-up to avoid any unforeseen contingencies. A contractor mandated under a lump-sum agreement is responsible for the proper execution of the contract and provides its own means and methods to carry out the work. The Lump Sum contract is generally developed by estimating labour costs, material costs and adding a certain amount to overhead and profit margin. The amount of overheads calculated under a lump sum contract will depend on the contractors, but they will be based on their risk assessment study and their work expertise.
The type of cost-fee contract can be defined as: fixed fee (CPFF); Incentive costs (CPIF); Plus Premium Costs (CPAF); costs plus percentage of costs; plus costs with guaranteed maximum price (GMP); Cost Plus with guaranteed maximum price and incentive; and costs plus fixed fees with agreement for the common use of cost-saving contracts. Lump-sum contracts have a fixed price for the work promised and this price can only change as part of a series of modifications. In order for an amendment order to be executed, the contractor and contractor must determine additional work and require additional payment or remove some of the work originally agreed upon and agree on a lower payment. If the client and the contractor have agreed on a clear vision and a timetable for the project, a lump sum contract will likely work well for their agreement. In costs plus percentage, the owner pays more than 100 percent of the documented costs, which usually requires a detailed billing of costs.  In this type of contract, the actual costs of labour are paid to the contractor, plus a certain percentage as a profit.