There are different types of construction contracts, and their comparison is presented in this article. A construction contract is an agreement between two or more parties to carry out the construction work under certain conditions. Whether it`s a house, apartment or condo, there`s a good chance the project will need to be approved by a local government or, for condos, the condominium community. Bring the final plans and submit a building permit that allows construction for a certain period of time, usually 6 to 24 months, depending on the construction. A general contractor must be registered with the state if they are to accept work for residential and commercial projects. Use the following links to check if the person is licensed to practice in the state: Construction of the project can be started before the designs are completed, so the total cost of the project in the early stages of the project is uncertain. In the case of cost-plus contracts, the majority of the risk is passed on to the owner. This is because the contractor is paid for all costs incurred during the project and all unforeseen expenses come out of the owner`s pocket. For this reason, cost-plus contracts are best suited for projects that require a lot of creative flexibility. As a result, lump sum contracts are best suited for small projects with predictable workloads. Unit price contracts divide the collective work required to carry out a project into separate units. They are also called measurement contracts, measurement and remuneration contracts or revaluation contracts.

The contractor must provide the owner with price estimates for each unit of work and not an estimate for the project as a whole. The terms of the contract are conditions that govern the relationship between the owner and the contractor, define the rights and obligations of each party, specify the method of payment and determine the necessary measures in the event of a dispute between the owner and the contractor. Guaranteed maximum prices are a common feature in construction contracts and are best suited for projects with few unknowns. For example, building a retail chain with plans that have been used over and over again. The target cost contract has the common characteristics of flat-rate and cost-plus contracts. The contractor will be paid on the basis of actual costs plus a specific fixed fee or as a percentage of the total cost, provided that the cost of the project does not exceed certain target costs specified by the owner. This contract is ideal if the scope of the project is well defined in the design phase, as the flexibility to modify the design during the construction period is limited. The type of contract must be consistent with the objectives of the project. This roadmap is intended for clients and contractors to determine the current status of the project and what points are outstanding for completion. While each project is unique, the following guide can be helpful when planning a construction project. The American Institute of Architects (AIA) and ConsensusDocs both create standardized contract documents in a variety of formats, including the types of contracts listed here.

If you are working with an existing professional contract template, you can be sure that many other parties to the construction use the same terms and conditions. At this point, it is best for the client and contractor to review the offer, complete the scope of work, and enter into a contract for construction. The client should hire a lawyer to ensure that all aspects of the work are protected in case they are not completed according to plan and budget. The contractor is paid on the basis of the actual cost of the project, including direct and indirect costs, plus a specific fee. This fee can be a flat fee or a percentage of the cost. The different types of documents in a construction contract are as follows: As you can see, lump sum contracts carry some risk for contractors because they do not take into account unforeseen costs or delays after the start of the project. Missteps mean you make less money or, even worse, lose money on a project. All risks are attributed to the contractor and there is no risk borne by the owner. The contractor has an incentive in this contract because he is rewarded for an early finish and there is a penalty for a late finish. The total price of the project in the unit price contract is based on the unit price of each item.

The contractor shall be paid in accordance with the rates of the items specified in the consignment note. Here is an overview of the pros and cons of time and material contracts: If the project is a new construction or if the project is substantial (more than 2-3 months), the contractor will require them to pay overtime or at certain “checkpoints”. .