There are different types of construction contracts. These are legal documents meant to protect the interests of both builders and customers. Construction contracts are legal agreements that cover a lot of things about construction works to make the job easy and transparent for both parties. These agreements include the duration of construction projects, materials, quality, and specifications. Construction contracts help customers to know what they should expect from a project. Though many builders and customers know the process, a contract can be helpful to have an accurate idea about different aspects of projects. A contract can be effective for commercial projects to avoid any confusion about the deadline and expenses. There are different types of contracts. Each contract has some specific benefits and can be customized to satisfy both parties.
Different Types of Construction Contracts
Some popular types of construction contracts are unit pricing contracts, fixed-price contracts, cost plus contracts, and time and material contracts. From the name itself, it is evident that all these contracts are designed to meet some specific aspects. In this article, we will discuss three types of construction contracts.
Time and Material Contracts
There are now apps that help you keep your tickets organized. With time and material contracts, the flexibility enables you to order materials and labor as needed. This is done instead of paying for a specific time frame and hoping the labor is completed in the time frame.
Unit Pricing Contracts
This type of contract is used by federal agencies and builders. This can be helpful for all those construction projects where everything is not certain, such as the rate per unit work, labor, material, and other expenses. With this contract, they can start the project without finalizing all the specifics.
In this type, the overhead and profit of the contractor will be added to the rate. This type of contract helps buyers to make sure that the charges for services or goods are un-inflated. Also, it enables both parties to make changes and adjust downs and ups.
Fixed Price or Lump Sum Contract
From the name itself, it is clear that it agrees on a total fixed price for all the construction works included in the project. These are some of the most common types of construction contracts. In this type, the scope of confusion is minimal. The price will be decided upfront. Also, the schedule and scope will be decided. This type of legal documents will transfer the risk to the builders especially when owners or buyers do not agree upon a change.
This type of construction contract can also have penalties. The penalties are known as the liquidated damage for completing the project late. Also, it can be made as incentives for early completion. As the risk is upon the builders, it includes a percentage of the cost within that fixed lump sum. Also, the contract focuses on the builder’s stake throughout the process.
These some of the different types of construction contracts. Builders and customers can also consider other contracts depending on the specific requirements of the project. Before deciding on any of these, it is important to understand the project first and then only, they can decide on the most suitable one. Understand the price structure to avoid any confusion. If they are more specific about the material, they can choose the one that is material-oriented.