The next step is to agree on a structure for a contract. The two most common forms of contract are bid – where the scope and costs are defined precisely in a bottom line figure – and cost plus – where the costs incurred by the contractor are passed directly on to the client. Again, the bid process allows for greater certainty regarding price, as long as there is sufficient information on which to bid. Cost-plus allows construction to begin right away, but has the downside of passing all of the financial risk onto the client. It does avoid pricing aimed at protecting contractors from losing money, and so might in the end cost less, but in our opinion the benefits of avoiding the risk often outweigh any potential savings.

Most projects end up starting before they are completely designed, so in our experience, the best approach is a hybrid: a bid on all known aspects of the work, containing allowances on specific line items which will be reconciled in a cost-plus fashion as information becomes available.