Three risks that every type of contract allocates
Before comparing types of contract, it is worth separating the risks at stake. There are essentially three: the quantity risk (the quantity executed differs from the quantity assumed), the description risk (the agreed works are not enough for the intended result) and the interface risk (the works of different contractors do not fit together or delay one another). On top of these comes the change risk, which the client triggers and which no type of contract removes.
| Type of contract | Quantity risk | Description risk | Interface risk | What the budget must contain |
|---|---|---|---|---|
| Einheitspreisvertrag (unit price contract), separate trades | With the client, under the rules of the contract | With the client, insofar as the client described the works | With the client | Quantity reserve per trade, coordination effort |
| Pauschalvertrag (lump sum contract), separate trades | Largely with the contractor, within the scope described | With the client for gaps in the client's description | With the client | Reserve for gaps in the description, coordination effort |
| Generalunternehmer (general contractor), lump sum price | Largely with the contractor | With the client for gaps in the client's description | Mainly with the general contractor | Reserve for gaps in the description and for changes |
| General contractor with design | Largely with the contractor | Partly with the contractor, who also designs | With the contractor | Reserve for the client's own change requests |
The table describes typical allocations, not legal consequences. What applies in the individual case is decided by the contract, and above all by the quality of the documents to which it refers.
The unit price contract: the client bears the quantity
Under a unit price contract, the client pays for the quantity executed at the agreed unit price. The tender total is therefore only a projection based on the quantities put out to tender. If the quantities differ, the final sum changes, even without a single change by the client.
If the VOB/B (the standard conditions for construction contracts, Part B) has been agreed, section 2(3) limits the effect on price. Where the quantity estimate deviates "by not more than 10 per cent" (unofficial translation, as are all quotations in this article), the contract unit price applies (no. 1). For the overrun beyond that, "a new price is to be agreed on request, taking account of the additional or reduced costs" (no. 2); where the quantity falls short by more than 10 per cent, the unit price for the quantity actually executed is increased on request, unless compensation is made through other items (no. 3). How this affects the cost forecast is shown in the article What quantity variances do to the final cost.
The protection offered by a unit price contract lies in transparency. Every item has a price, every change in quantity can be traced, every variance can be attributed to a cause. That requires a good Leistungsverzeichnis (bill of quantities) with realistic quantities; how one is put together is covered in the article on building a bill of quantities.
Budget rule: anyone concluding a unit price contract plans a quantity reserve per trade and tracks it with every interim invoice. Items with uncertain quantities, for example in existing buildings or in the ground, deserve a line of their own.
The lump sum contract: as safe as the description
A lump sum price protects the client against quantity variances, but only within what the specification covers. A lump sum for an incomplete description does not shift the risk, it only postpones the dispute: whatever has not been described becomes a Nachtrag (variation claim). The earlier in the design process the price is fixed as a lump sum, the greater this risk.
Two forms need to be distinguished. In a lump sum contract based on a detailed bill of quantities, the scope is described as precisely as in a unit price contract; only the quantity is fixed as a lump sum. In a lump sum contract based on a Leistungsprogramm (performance specification), the contractor takes on part of the design and thus part of the description risk; in return, the client has less influence over details and qualities. Functional tendering is covered in the article on the performance specification.
How the VOB/B treats the lump sum when quantities vary and changes are made is set out in the article on the construction contract under VOB/B. For the budget it is enough to note that a lump sum price also changes if the client changes the works or requires additional works.
Budget rule: before agreeing a lump sum, the client checks the description for gaps, not the price. Every open decision on materials, fittings or quality that has not been taken when the contract is signed belongs in the contract as an item of its own or as a priced option, not in the hope of a generous contractor.
Changes: the risk that no type of contract removes
The client's right to order changes applies regardless of the pricing form. Under section 650b(1) of the BGB (Bürgerliches Gesetzbuch, the German Civil Code), the Besteller (the client, in the wording of the BGB) may request "a change to the agreed result of the work" (no. 1) or "a change that is necessary to achieve the agreed result of the work" (no. 2). If the parties do not reach agreement within 30 days, the client may order the change in text form (subsection 2). Remuneration is then governed by section 650c BGB. The procedure and its effect on the budget are covered in the article on the right to order changes under section 650b BGB in this guide.
The type of contract does, however, decide how expensive a change becomes. Where a unit price contract with a complete bill of quantities has been agreed, a change can be measured against existing items. Under a lump sum contract based on a thin description, that basis is missing, and the discussion starts with what was included in the lump sum in the first place.
Who bears the design is particularly important for the budget. If the client has taken on the design, the contractor only has to submit an offer for the additional or reduced remuneration once the client has provided the necessary design (section 650b(1) BGB). Conversely, if the contractor also bears the design, there is no entitlement to additional remuneration for a necessary change under section 650b(1) no. 2 (section 650c(1) BGB). That is a real budget advantage of a contract that combines design and construction, but it presupposes that the agreed result is clearly described.
If the VOB/B has been agreed, it contains its own rules on changes to the construction design and on additional works (section 1(3) and (4), section 2(5) and (6) VOB/B). How these rules relate to sections 650b and 650c BGB has not been conclusively settled; the client should not leave the question open when drafting the contract.
General contractor or separate trade contracts
Separate award by trade leaves the interfaces with the client. The client concludes several contracts, and every delay or gap between two trades is initially the client's problem. If one contractor is late, that can trigger knock-on costs in other trades; if a piece of work falls between two bills of quantities, the client orders it in addition. In return, the client keeps direct access to every price and often competition for each trade.
The general contractor takes over coordination and with it a large part of the interface risk. This advantage has a price that is included in the tender, even if it does not appear as an item. It also reduces transparency: the client does not see the subcontractors' prices and can follow quantities and items less well.
A mixed form is common. The client awards the shell and the building services separately and the fit-out as a package, or bundles a few large lots. What counts for the budget is then to name the remaining interfaces expressly and to provide a reserve for them.
| Question about your own project | Points more towards separate trades | Points more towards a general contractor |
|---|---|---|
| How robust is the design at contract award? | Complete, with bills of quantities for each trade | Still evolving, result clearly described |
| Who coordinates on the client's side? | Experienced project management and site supervision available | Little in-house capacity |
| How important is price transparency? | High, for example for grant funding or internal audit | Secondary to certainty of time and cost |
| How many changes are to be expected? | Many, with a need for individual prices | Few, programme settled |
The consumer: the building specification as part of the contract
For the client building as a consumer, the law strengthens the protection of the description. Under a Verbraucherbauvertrag (consumer construction contract), the information in the pre-contractual Baubeschreibung (building specification) on how the work is to be carried out becomes part of the contract, unless something else has been expressly agreed (section 650k BGB). If the building specification is incomplete or unclear, it is interpreted taking all circumstances into account, in particular the standard of comfort and quality of the rest of the specification; doubts are resolved against the contractor. The contract must also contain binding information on the completion date or the duration of the works.
For the budget, this means: with a lump sum offer for a single-family house, the building specification is the real pricing document. Reading it item by item before signing and clearing up open points protects the budget more effectively than any price negotiation. What else the law gives the consumer client is set out in The private client: consumer construction contract, developer contract and budget.
The decision in five questions
The choice of contract type comes down to five questions, which the client should answer in writing before tendering: How complete is the design? Who bears the quantity risk, and how large is it? Where are the interfaces, and who coordinates them? How many changes are to be expected? What reserve covers the risk that stays with the client? The answers belong in the award decision described in the parent article Tendering without losing the budget.
This article reflects the state of the rules and of published case law on the date of checking and is intended for professional guidance. It does not replace legal advice or an examination of the individual case.