Hiring a construction contractor and working with them is a big task. You must ensure that everything works the way it should and that they deliver quality services up to your expectations. Since no two construction projects are similar, it is better to understand the different types of construction contracts out there that will satisfy your project’s outcomes and all the parties involved with it.
Understanding these different types of construction projects is essential to carrying out different types of construction projects successfully. Moreover, a written contract with the necessary information will ensure that all the objectives are officially defined.
A written contract avoids potential headaches caused by miscommunication and other unexpected issues. Therefore, you must get familiar with the different types of construction contracts before proceeding further with a construction project. After all, a contract is a contract, right? This blog post mentions the different types of construction contracts that are used in the construction industry.
A lump-sum contract, also known as a fixed-price contract, is the most basic type of construction contract used in numerous projects. It outlines a price for all the work done and is extremely common in construction. It means that the contractor has to deliver the project at a preset price agreed by all the parties involved in a particular project.
Lump-sum contracts are popular because they are straightforward and easily meet cash flow estimates. Moreover, they are also easy to plan and allow flexibility to the contractor so he can focus on the material’s quality and output. However, such contracts might not be a good fit for more complicated projects.
Cost Plus Contract
Such types of contracts require the owner to pay for all the project’s expenses, including the cost of materials, labor, or any other project costs and unforeseen expenses. Such contracts will also cover the builder’s overhead costs and the profit that the owner pays. There are different types of cost plus contracts, such as cost + fixed percentage, cost + fixed fee, and cost + guaranteed maximum price contract.
Unit Price Contract
This type of contract includes the details of prices per unit, including the price per unit of the materials, labor overhead supplies, and profit. Such contracts work well with projects that are divided into units. Therefore, if your project depends on the unit price and usually involves repetitive tasks, this type of contract might be a good choice. However, it might not always be a good fit for complex projects requiring complicated tasks and different types of materials.
Time And Materials Contract
This one is a simpler contract and defines builders’ hourly or daily rates. The owners agree to pay this rate along with any related project costs, which might be noted in the contract as direct indirect markup or overhead costs.
In this type of contract, the builders are not completely limited by the budget, and it’s easy to use for smaller projects. However, the project can go over its scope, and in the end, it might be difficult to estimate the final cost. But like the lump sum contract, this agreement is also simple and straightforward. It also allows flexibility in the cost of materials and accounts for labor rates.
Integrated Project Delivery Contract
It is a delivery model used to deliver the construction project with a single contract for design and construction. It is integrated which means that it is a multi-party agreement between the design firm, the builder, and the owner. The integrated project delivery contract generally includes information about the design construction cost and shared contingency. It promotes a sense of ownership and work as all parties have to work together to achieve the final result.
About Taurus Projects
Taurus Projects offers site construction services, mine site construction services, material management services, commercial fleet management services, commercial renovation services, earthworks construction services, commercial electrical services, and civil construction services. We offer straightforward solutions for your construction contracts.
The four divisions of Taurus complement and support each other perfectly, enabling us to offer a full range of products and services. Our staff, from head office to the field, have what it takes to ensure jobs are completed on time, according to schedule, and are within budget. We look forward to working with you. Contact us for more information.