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Are there different types of construction contracts?

Construction contracts can be complex documents. However, they serve as the basis for a building project, so it’s important to ensure that all agreements are valid as well as legally binding. Whether you are a contractor or a client looking to have work done, TheBalance.com explains the different types of construction contracts and how they can meet your needs.

Lump Sum Contracts

If you’re clear on the scope and schedule of a project, a lump sum contract is often best. Also referred to as a fixed price contract, this document entails a pre-established price for all aspects of construction, from materials to labor. There is give and take with these kind of contracts, as many contractors are reluctance to assume all risk associated with a build. In this case, features of the contract will be designed offer a contractor some level of financial protection.

Time & Material Contracts

In cases there is no clearly defined scope for a project, a daily or hourly rate may be incurred, with other expenses being factored in depending on the needs of that construction site. Different expenses will receive different designations; for instance, there can be direct and indirect costs, as well as expenses related to markup and overhead. These contracts tend to work best for smaller projects where a reasonable estimate can be made in terms of scope.

Cost Plus Contracts

Clients can also choose to be charged for the actual costs related to a construction project. This is known as cost plus contract, which accounts for the ongoing expenses incurred during a job. Material and labor expenses are typically negotiated before work begins and in this case it’s best to include detailed information on pricing to be sure everyone is on the same page.

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