Budgeting and Contract Type

The importance of budgeting depends on the project’s contract type.

• Fixed-Fee Contract — Budgeting is very important because cost overruns cannot be recovered. Examples include contracts based on a lump sum or a percentage of construction cost.

• Hourly Contract with Maximum — Budgeting is important because you will benefit if the final cost falls short of the maximum. Examples include contracts based on a multiple of direct personnel expense.

• Hourly Contract without Maximum — Budgeting is less important because you have no ceiling on costs. Nevertheless, the client will expect you to control costs to the best of your ability.