If your organization only focuses on public tenders, you can’t afford to overlook contract classifications. Make no mistake, this is not a bureaucratic formality, it is a strategic lever. Misconstruing the type of contract can derail compliance, significantly inflate risks, and render even the most substantial bid pointless. 

Having a strong understanding of these contract categories allows companies to align their proposals with regulatory frameworks, anticipate the evaluation criteria, and build a competitive advantage. This is precisely what this article aims to explore. We’ll take a closer look at works, goods, and services contracts and provide a variety of actionable insights to help to navigate these more effectively. 

Why procurement contract classification matters

Ambiguity in tenders is something any business should learn to sniff out as quickly as possible. Failing to do so will [Mircea Ch1] only obscure objectives and invite chaos. To cut through all the noise, take time to define the deliverables with surgical precision. 

Imagine two firms bidding on the same tender for the construction of a school building:

  • One treats this as a ‘goods contract’ whereby the bid focuses on pricing steel beams, concrete, windows, and roofing.
  • The other bidder classifies this as a ‘works’ contract with the emphasis on design and safety protocols during construction, environmental and regulatory permits, as well as undertaking the actual construction.

Guess who wins?

Obviously, it’s the company that looks at the picture through the lens of this being a complex project that requires a step-by-step execution of milestones rather than simply pricing the construction materials. 

Getting the classification wrong is pretty much like playing tennis on a basketball court. Works contracts demand environmental impact studies, goods contracts focus predominantly on bulk pricing, and services revolve around expertise. Failing to understand this would quickly disqualify a bidder, wasting their company’s time and money. 

The core public procurement contract types are:

  • Works
  • Goods
  • Services
  • Construction
  • Consultancy services
  • Combined
  • Others. 

Here's a breakdown of the differences between these contract types:

  • Works – Contracts that involve construction, renovation, repair, or maintenance of infrastructure, buildings, or other physical structures. This includes major public works like roads, bridges, and buildings.
  • Goods – Contracts for the supply of physical products, materials, or equipment. These can range from office supplies and medical devices to vehicles and machinery.
  • Services – Contracts for the provision of non-physical, professional, or operational services. This can include IT support, cleaning, security, legal assistance, and logistics.
  • Construction – A subset of Works, specifically referring to contracts related to building and engineering projects, including large-scale infrastructure and structural developments.
  • Consultancy Services – A specialized subset of Services focusing on expert advice, analysis, or project management in areas such as engineering, finance, law, or IT strategy.
  • Combined – Contracts that include elements of multiple categories (e.g., a contract that involves both the supply of equipment and maintenance services for it).
  • Others – A category used for contracts that do not neatly fit into any of the predefined types.

The primary distinction between "Works" and "Construction" lies in their scope:

"Works" serves as an overarching term encompassing both construction-related activities (e.g., building, infrastructure development) and non-construction tasks such as maintenance, repairs, or installations.

"Construction", by contrast, refers exclusively to the physical execution of building or structural projects.

Similarly, "Services" represents a broad category covering diverse professional offerings, while "Consultancy Services" specifically denotes advisory roles involving expertise, analysis, and strategic guidance.

"Combined" applies to contracts integrating elements from multiple categories (e.g., "Works", "Services", or "Consultancy Services") to address complex or multifaceted project requirements.

What are works contracts?

When we think of works contracts, we typically think of tangible infrastructure - roads, bridges, buildings, and so forth. But what exactly defines a works contract?

At its core, a works contract involves the execution or design of physical construction projects and often encompasses activities such as building, renovation, or civil engineering. 

Take, for instance, a government tender for the construction of a public school. The contract would typically specify requirements such as design plans, timelines for completion, and safety standards.

Legal frameworks like the EU Public Contracts Regulations or similar national laws govern works contracts to ensure transparency and fairness while outlining the obligations of both parties. 

It’s important to underline that works contracts are not typically sprints. It’s best to think of them as marathons featuring many checkpoints. Think about it this way - if a contract is worth US$50M, it’s best to break it down into clear, easily digestible phases.

This isn’t just about cash flow; it’s about helping the client to contain risks. Every milestone is an opportunity to sign off on quality checks, make amendments, improvements, and so forth. 

However, it’s also important to highlight that when applying for works contracts, risk should not be perceived as an enemy but as a differentiator.

Remember, every project is subject to weather delays, supply chain disruptions, and other unpredictable factors, but instead of using such issues as excuses, demonstrate foresight by including them within your bid. We strongly recommend being thorough when it comes to contingency plans.

Hint. Consider including force majeure clauses to account for unforeseen delays. Not only does this safeguard you from reputational and financial damage, it also shows that you are a proactive and dependable company. 

When it comes to compliance, it’s best to go beyond simply ticking boxes and instead communicate how your approach will lead to better long-term outcomes for the client such as improved operational efficiency, optimized environmental impact, etc. 

What are goods contracts?

Goods contracts revolve around the supply of physical products. Whether it’s office furniture, medical equipment, or IT hardware, these contracts prioritize clear specifications and quality assurance. 

For example, imagine a tender seeking the supply of laptops for a government agency. The contract would detail requirements such as the number of units needed, the technical specifications (e.g., processor speed), and the delivery timeframe.

Goods contracts are typically governed by laws such as the Sale of Goods Act (UK) or Article 2 of the Uniform Commercial Code (UCC) in the U.S. 

It’s important to mention that there’s hidden complexity when it comes to goods contracts. There are many scenarios when they might migrate into a works contract (e.g., when installation is involved, etc.), which could trigger more stringent regulations. 

Goods contracts are often cost-centric, meaning that pricing will be the most important evaluation criteria, which is why optimizing costs as much as possible when submitting a bid is vital.  

It’s also important that bids emphasize aspects such as supply chain efficiency and reliability in order to stand out. Similarly, it’s important to demonstrate added value, for instance, extended warranties or even expedited delivery if this is something you can provide.

Pricing transparency is also very much appreciated by clients because it typically allows businesses to build a more trusting relationship with their clients and ensure alignment with their expectations. 

As with works contracts, risk mitigation is key. We strongly recommend including clear terms for handling defects, warranty claims, and return policies. Similarly, it’s prudent to consider having access to multiple suppliers as being dependent on a single source could expose you to supply chain risks and delays. 

What are services contracts?

Services contracts shift the focus from physical deliverables (laptops, buildings) to intangible outcomes such as consulting expertise, IT support, or cleaning services. These agreements are inherently more fluid than goods or works contracts because they revolve around performance rather than tangible outputs. 

For example, consider a tender to outsource IT support for a government agency’s operations. The contract would outline service-level agreements such as response times for technical issues or uptime guarantees for essential systems. 

Success in winning services contracts often hinges on trust and transparency. Unlike goods or works, services rely heavily on client collaboration and iterative feedback. For example, a cybersecurity services tender may require real-time threat monitoring, which necessitates clear communication channels and regular reporting.

Services contracts should also address intellectual property rights - does the client own custom-developed tools, or is usage licensed? Always clarify scope creep: undefined "additional duties" can erode profitability. 

Conclusion

Procurement contract classification isn’t just about compliance - it’s about strategy. Misconstruing whether a contract involves works, goods, or services risks financial penalties, reputational harm, and bid rejection. By mastering the definition of these categories, businesses can align proposals with the evaluators’ priorities, mitigate risks, and unlock competitive edges. In Part 2 of the ‘Understanding core procurement contract types’ series, we’ll tackle hybrid contracts and the growing role of sustainability.