When you are working in a huge industry like construction, you should get yourself proper protection in the form of a construction contract. It does not matter what you do, and whether you are a contractor or a business owner, you should have a construction contract that lists the rights and duties of both parties involved. These contracts serve as a way to ensure that the contractor is properly licensed, and they provide an assurance that the owner will pay the other party what they are owed. It helps to have a construction contract that clearly states the expectations and responsibilities of both parties so that there are no surprises later.
Types of Construction Contracts
All construction contracts are not the same. In fact, there are four different formats of construction contracts. You can choose the appropriate format for your business depending on the type of construction work that needs to be carried out.
Lump-Sum or Fixed Price Contracts
These are the types of contracts that provide a fixed price for the complete job. You can include clauses in this type of contract for liquidated damages or penalties. These can be imposed if the contractor does not deliver within the scheduled timeline.
Cost-Plus Contracts
These types of contracts include material and labor costs. The plus is essentially a cap on the project fee in the form of a fixed fee or percentage. A cost-plus contract helps in protecting the contractor if they are working on a project that deals with some uncertainty. Sometimes, owners omit details that only become apparent after work starts. Therefore, a cost-plus contract can protect the contractor in a situation such as that.
Time and Material Contracts
Just as cost-plus contracts are good for projects that deal with a degree of uncertainty, these contracts are also good for such projects. In these types of contracts, the owner pays on an hourly or daily basis without the “plus.” That means that there is no fixed fee or percentage as a cap.
Unit-Pricing Contracts
These types of contracts are used mostly when contractors are bidding on federal projects. Through a unit-pricing contract, owners know that the contractor is charging a standard amount. There are no mark-ups for any particular units.
Once you know the type of project that you will be working on, you will have an easier time determining the construction contract that will be appropriate for the job. Make sure that your construction contract is solid and contains all the fundamental provisions. If you are not sure what to include in the contract, you can also hire a legal professional to prepare it for you. Having proper documents and records is just as important when you are buying services as it is when you are buying construction equipment for sale. Make sure to figure out what type of construction contracts would best serve your business before you start making any decisions. Choosing the right type of contract can protect your business from incurring any loss.