15 Contract Types: Definition, Use Cases, and Real-Life Examples
Every business runs on contracts. Whether you're hiring a freelancer, closing a deal, or buying supplies, the type of contract you use matters. It can affect your costs, timelines, and how much risk you're taking on.
But not all contracts work the same way. Some are flexible, others are fixed. Some are mutual, while others depend on a single action. Knowing which one to use—and when—can make your work smoother and protect your business.
In this guide, we’ll walk through 15 common contract types, explaining what they mean, where they fit best, and how they play out in real-world situations.
Let’s get started with an overview of different types of contracts:
| Contract Type | Definition | Examples |
|---|---|---|
| Fixed-Price Contracts | A set price is agreed upon for the entire project, regardless of actual costs. |
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| Cost-Plus Contracts | Reimburses actual costs plus a profit margin or fee. |
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| Time and Materials Contracts | Payment is based on actual time worked and materials used. |
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| Cost-Reimbursement Contracts | Covers all approved project expenses plus an additional fee. |
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| Unit Pricing Contracts | Sets a fixed price per unit of product or service delivered. |
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| Unilateral Contracts | One party promises something in return for a specific act by another party. |
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| Bilateral Contracts | Both parties agree to exchange mutual obligations. |
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| Simple Contracts | Legally binding contracts without a seal; can be written, verbal, or implied. |
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| Implied Contracts | Formed through actions or behavior, not written or spoken words. |
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| Express Contracts | All terms are clearly stated, either in writing or spoken. |
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| Unconscionable Contracts | Extremely one-sided and unfair agreements that may be unenforceable. |
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| Sales Agreements | Defines the terms under which goods or services are sold. |
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| Non-Disclosure Agreements | Prevents sharing of confidential or sensitive information. |
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| Adhesion Contracts | Pre-set agreements offered by one party with no negotiation. |
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| Aleatory Contracts | Performance depends on the occurrence of an uncertain event. |
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1. Fixed-Price Contracts
What Is a Fixed-Price Contract?
A fixed-price contract sets a pre-agreed amount for a project or service, regardless of the actual time, effort, or resources required to complete it. This type of contract is typically used when the scope of work is clearly defined, allowing both parties to understand the expectations and costs upfront.
Fixed price contracts reduce financial uncertainty for the buyer and place the risk of overruns on the seller.
Use Cases of Fixed-Price Contracts
- Construction projects with clearly defined blueprints and timelines
- Software development with fixed features and deadlines
- Manufacturing a specific number of units for a set price
- Marketing campaigns with set deliverables and goals
Example of Fixed-Price Contracts In Action
A retail company hires a web agency to design a new eCommerce platform for $25,000, with a defined list of features, delivery timeline, and scope. Even if the agency ends up spending more time than expected, the payment remains fixed. This gives the buyer cost certainty and encourages the vendor to stay efficient.
2. Cost-Plus Contracts
What Is a Cost-Plus Contract?
In a cost-plus contract, the buyer agrees to reimburse the seller for all allowable project costs and also pays an additional fee or percentage for profit. This model is useful when it’s difficult to estimate project costs in advance, such as in research, development, or complex service work.
While it gives the contractor flexibility, it also requires strong cost tracking and transparency to avoid disputes.
Use Cases of Cost-Plus Contracts
- Research and development projects where costs are unpredictable
- Creative projects like film production or advertising campaigns
- Government-funded construction or infrastructure projects
- New product development with iterative prototyping
Example of Cost-Plus Contracts In Action
A tech startup wants to create a prototype of a wearable fitness device but doesn’t know how complex the development will get. They hire a hardware design firm on a cost-plus basis—reimbursing all expenses plus 12% profit. This gives the vendor room to explore solutions while ensuring fair compensation.
3. Time and Materials Contracts
What Is a Time and Materials Contract?
This contract type compensates the seller based on the actual time spent and materials used in delivering the service or product. It’s well-suited for projects where requirements may evolve over time or are not clearly defined at the outset. These contracts typically include agreed hourly or daily rates and may have not-to-exceed limits to manage costs.
Use Cases of Time and Materials Contracts
- IT services and software maintenance agreements
- Freelance design, development, or consulting services
- Home or office renovations with uncertain timelines
- Projects with evolving or unclear requirements
Example of Time and Materials Contracts In Action
An enterprise software company brings in a freelance developer to work on ongoing product updates. Since requirements may shift, they agree to pay the developer $80/hour plus the cost of any tools or plugins used. The flexibility allows the client to scale work as needed.
4. Cost-Reimbursement Contracts
What Is a Cost-Reimbursement Contract?
A cost-reimbursement contract allows the contractor to recover all legitimate project-related expenses and may include an additional fee for profit or performance incentives. These contracts are often used in public sector or large enterprise projects where cost flexibility is needed and strict documentation of expenses is essential.
Cost-reimbursement contracts provide a safety net for sellers while holding them accountable for responsible spending.
Use Cases of Cost-Reimbursement Contracts
- Government defense and aerospace contracts
- Public sector research initiatives
- Large-scale engineering projects where cost cannot be predetermined
- Projects involving innovation, exploration, or testing
Example of Cost-Reimbursement Contracts In Action
A government agency commissions a research firm to study the environmental impact of a new urban development project. Since actual costs are unpredictable, the firm is reimbursed for all documented expenses and receives a fixed management fee. This approach supports accuracy and compliance in public spending.
5. Unit Pricing Contracts
What Is a Unit Pricing Contract?
Unit pricing contracts define a fixed price per unit of goods or services, with the total contract value determined by actual quantities delivered or consumed. This type of contract is practical for projects with recurring or scalable needs, such as utilities, manufacturing supplies, or construction components. It simplifies invoicing and budgeting while giving buyers flexibility in order volume.
Use Cases of Unit Pricing Contracts
- Supply of consumables like office supplies, medical items, or groceries
- Facility management services billed per unit area cleaned or serviced
- Roadwork or infrastructure jobs priced per meter or per unit laid
- Subscription models based on usage, like cloud storage or data processing
Example of Unit Pricing Contracts In Action
A hospital signs a contract with a supplier to provide disposable gloves at $0.10 per pair. Instead of estimating volume upfront, the hospital only pays for the number of gloves it uses each month. This keeps the agreement flexible and cost-efficient.
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6. Unilateral Contracts
What Is a Unilateral Contract?
A unilateral contract involves a promise made by one party, which becomes legally binding only when the other party performs a specific action. These contracts are often used in offers of rewards or bonuses, where no formal acceptance is required in advance. Once the action is completed, the promising party is obligated to fulfill their end of the deal.
Use Cases of Unilateral Contracts
- Employee referral or customer loyalty reward programs
- Public reward offers (e.g., “$1,000 for information leading to a recovery”)
- Online cashback or promotional programs
- Incentives for completing surveys or actions without prior obligation
Example of Unilateral Contracts In Action
A SaaS company launches an employee referral program: “Refer a full-time developer and receive a $1,000 bonus.” No employee is obligated to participate, but once someone refers a successful candidate, the company is legally bound to pay the promised reward.
7. Bilateral Contracts
What Is a Bilateral Contract?
This is the most common type of contract in business. In a bilateral contract, both parties exchange mutual promises, and each party’s obligation depends on the other fulfilling their part. Whether for selling goods, providing services, or hiring employees, bilateral contracts form the foundation of most business agreements and transactions.
Want to see how bilateral contracts compare with unilateral ones? Read our blog on the difference between unilateral vs bilateral contracts.
Use Cases of Bilateral Contracts
- Employment contracts where both employee and employer commit to terms
- Vendor-supplier agreements with mutual obligations
- Service level agreements (SLAs) for software or IT providers
- Commercial leases or equipment rental agreements
Example of Bilateral Contracts In Action
A logistics company signs a contract with a food delivery app. The app promises to pay a monthly retainer, while the logistics company agrees to maintain service-level standards. Both parties are mutually obligated and benefit from a clear exchange of value.
8. Simple Contracts
What Is a Simple Contract?
A simple contract is any legally binding agreement that does not require a formal seal or notarization. It can be written, verbal, or implied through actions. These contracts are valid as long as there is mutual agreement, intent, and consideration (something of value exchanged). Simple contracts are commonly used for everyday business transactions where formal documentation isn’t necessary.
Use Cases of Simple Contracts
- Verbal agreements for small purchases or one-time services
- Informal email or message-based agreements in small businesses
- Handshake deals between long-standing business partners
- Everyday transactions like freelance gigs or catering services
Example of Simple Contracts In Action
A local café orders 200 printed loyalty cards from a neighborhood print shop via email. They agree on a price, timeline, and design informally. Though there’s no formal document, this is a legally valid simple contract.
9. Implied Contracts
What Is an Implied Contract?
Implied contracts are not written or spoken but are formed through the actions, conduct, or circumstances of the parties involved. When the behavior of both sides indicates an understanding and mutual intention to form a contract, the law may recognize the agreement as valid. These contracts often arise in ongoing professional relationships or situations involving repeated business practices.
Use Cases of Implied Contracts
- Returning customers receiving regular goods or services without renegotiation
- A patron dining in a restaurant assumes a contract to pay for the meal
- A doctor treating a patient without a signed agreement
- Regular maintenance by a vendor that’s never formalized in writing
Example of Implied Contracts In Action
A business has been getting weekly water cooler deliveries from the same supplier for over a year, always paying on invoice. No one has signed a formal contract, but the consistent behavior and payment establish an implied agreement.
10. Express Contracts
What Is an Express Contract?
An express contract is one in which all terms and conditions are clearly stated, either in writing or verbally. The obligations of each party are explicitly defined, leaving little room for misinterpretation. Express contracts are preferred in formal business transactions where clarity, documentation, and legal enforceability are priorities.
Use Cases of Express Contracts
- Detailed employment agreements outlining responsibilities and benefits
- Vendor contracts with clearly written scope, pricing, and payment terms
- Software development contracts with milestone-based deliverables
- Partnership agreements specifying revenue share and duties
Example of Express Contracts In Action
A marketing agency signs a contract with a fintech company to deliver 5 video ads within 6 weeks for $15,000. The document outlines timelines, creative direction, payment terms, and revision rounds—making the agreement clear and enforceable.
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11. Unconscionable Contracts
What Is an Unconscionable Contract?
An unconscionable contract is one that is so one-sided or unfair that it may be deemed unenforceable by a court. These contracts often arise when one party has significantly more power or information than the other and uses that advantage to impose harsh terms. Courts typically look for signs of coercion, deception, or exploitation when evaluating unconscionable contracts.
Use Cases of Unconscionable Contracts
- Exploitative payday loans or credit agreements with excessive interest
- Contracts with hidden fees and penalties targeting uninformed consumers
- Vendor contracts with unfair liability clauses against small businesses
- Employment contracts with restrictive, non-compete clauses in low-wage roles
Example of Unconscionable Contracts In Action
A small vendor signs a lease agreement with a mall operator that includes a 200% penalty for missing rent by even one day. The vendor later challenges the clause in court, which rules the penalty unenforceable due to its unfair and excessive nature.
12. Sales Agreements
What Is a Sales Agreement?
A sales agreement is a formal contract between a buyer and seller that outlines the terms and conditions of a transaction involving goods or services. It typically includes pricing, delivery timelines, payment terms, warranties, and return policies. These agreements are essential for clarifying expectations and protecting both parties in commercial sales.
Use Cases of Sales Agreements
- Wholesale purchase agreements between manufacturers and distributors
- Retailer agreements with suppliers for ongoing product delivery
- eCommerce transactions with terms for delivery, return, and warranty
- B2B contracts for equipment, software, or hardware procurement
Example of Sales Agreements In Action
A wholesaler agrees to supply 5,000 phone accessories per quarter to a national electronics retailer. The sales agreement includes payment terms, delivery dates, quality requirements, and a return policy to protect both parties.
13. Non-Disclosure Agreements (NDAs)
What Is a Non-Disclosure Agreement?
An NDA is a legal contract used to protect sensitive or confidential information from being shared with unauthorized parties. It’s often signed before entering into business discussions, partnerships, or employment arrangements. NDAs help businesses safeguard trade secrets, product plans, financial data, and intellectual property from misuse or disclosure.
Use Cases of NDAs
- Pitching a startup idea to potential investors or partners
- Hiring freelancers or contractors to work on confidential projects
- Mergers and acquisitions where sensitive company data is shared
- Joint ventures between companies sharing proprietary information
Example of Non-Disclosure Agreements In Action
A startup shares its business plan with a potential investor and asks them to sign an NDA before the meeting. This legally prevents the investor from sharing or using any confidential details outside the pitch discussion.
14. Adhesion Contracts
What Is an Adhesion Contract?
Adhesion contracts are standardized agreements created by one party, typically with greater bargaining power, and offered to the other party on a "take it or leave it" basis. These contracts are not open to negotiation and are commonly used in software licenses, insurance policies, and consumer agreements. While efficient, they may be scrutinized if found to be excessively unfair or unbalanced.
Use Cases of Adhesion Contracts
- Software license agreements for SaaS products or mobile apps
- Online terms and conditions accepted during account creation
- Rental car agreements with pre-set insurance and liability terms
- Utility service agreements or telecom provider subscriptions
Example of Adhesion Contracts In Action
A customer downloads a mobile banking app and must accept the “Terms of Use” before accessing the service. The terms are pre-set by the company and not open to negotiation. This standard agreement is an adhesion contract.
15. Aleatory Contracts
What Is an Aleatory Contract?
Aleatory contracts are agreements in which the obligations of one or both parties depend on the occurrence of an uncertain future event. These contracts are built around risk and chance, and are most commonly found in insurance and financial services. They create conditional responsibilities, where benefits or payments only arise if specific events happen.
Use Cases of Aleatory Contracts
- Insurance policies for life, property, or health
- Financial derivatives or investment options based on market conditions
- Service contracts with payouts based on disaster or event occurrence
- Lottery-related agreements
Example of Aleatory Contracts In Action
A homeowner buys fire insurance for their property. If no fire occurs, the insurer keeps the premium. But if a fire causes damage, the insurer must cover the repair costs as per the contract. The obligation depends on an unpredictable event.
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Managing contracts sounds simple—until you're juggling fixed-price agreements, NDAs, time and materials contracts, and more—all at once. Each type comes with its own:
Approval workflows
Risk levels and compliance checks
Unique clauses and timelines
Version control challenges across teams
Without a streamlined system, it’s easy to miss deadlines, lose visibility, or spend weeks on tasks that should take hours.
Aavenir Contractflow is a smart contract management software that solves this challenge by automating mundane contract tasks with AI. With Aavenir Contractflow, you can improve contract visibility by 5X and speed cycle times by 80%—enabling contract management efficiency.
Whether you’re closing a sales deal, onboarding a vendor, or securing a new partnership, Aavenir helps you handle it all—without the chaos. Book a demo with Aavenir today to know more.
