There are a few kinds of construction contracts that you should get to know if you want to have a positive experience with a contractor. Each different kind of contract has its own benefits.
The four kinds of contracts include cost-plus contracts, time and materials contracts, unit-pricing contracts and lump-sum contracts. Each of these contracts has its own benefits and downsides.
Lump-sum contracts
Lump-sum contracts are designed to designate a single price for all construction activities. It can include incentives to finish early or penalties for finishing late.
Cost-plus contracts
These contracts involve paying for the actual costs of goods or expenses related to construction activity. The contract will have to have information on covering the construction team’s overhead as well as profits.
Time and materials contracts
Time and materials contracts are good if there is no clear project scope or designated time for completion. There are hourly rates or daily rates in these contracts, as well as allowances for extra expenses that arise in the process of building.
Unit-pricing contracts
Unit-pricing contracts are used by federal agencies and often used by builders. They are set during bidding processes, allowing owners to specify quantities of structures needed as well as pricing for items. This can be a good way for the person looking for a construction team to get bids from multiple firms and choose one that is willing to work for less than the others or at a fairer rate.
These are four contracts to know if you are planning on having construction work done. These are legally binding agreements, so make sure you understand them before signing.