What are the five types of contracts?


Editorial team Published on

Five common types of legal and business contracts include fixed-price, cost-plus, time and materials, unilateral, and bilateral agreements.

1. Fixed-Price (Lump Sum) Contracts

  • Definition: An agreement where a specific, total price is set for an entire project or product delivery.
  • Use Case: Construction projects or IT services where the scope is fully clear upfront.
  • Risk: The contractor takes on the financial risk of any cost overruns.

2. Cost-Plus Contracts

  • Definition: An arrangement where the customer pays the contractor for actual incurred costs plus an added fee or percentage for profit.
  • Use Case: Research and development or complex engineering where the final scope is uncertain.
  • Risk: The buyer assumes the risk of total costs rising higher than expected.

3. Time and Materials (T&M) Contracts

  • Definition: A structure where the client pays an hourly rate for labor and the actual direct cost for materials (plus a markup).
  • Use Case: Projects where the total amount of work cannot be accurately predicted at the start.
  • Risk: Can become expensive if the project timeline expands without strict management.

4. Unilateral Contracts

  • Definition: An agreement where one party makes a promise in exchange for a specific action performed by another party. Only one party is bound to the promise until the task is completed.
  • Use Case: Public rewards, insurance policies, or promotional contests.
  • Risk: Binding only upon complete performance of the requested act.

5. Bilateral Contracts

  • Definition: A mutual agreement where both parties make promises and take on legal obligations to each other.
  • Use Case: Standard employment agreements, leases, and product sales.
  • Risk: Both sides depend on the other to perform; a breach by one harms both.

You can read more about foundational legal categories through the Docusign Types of Contracts Guide.