The Six Most Common Construction Contracts

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Construction contracts set expectations and requirements to protect everyone involved and can be structured to meet the specific needs of a project, since details vary so greatly. There are several types of common construction contracts that contractors should be prepared to interact with on a consistent basis.

With so many contracts to keep track of, contract review software can help review and edit your contracts. The contract review process has long been mired with inefficiencies and cycle times that can seriously impact team output and slow down the speed of business. Contract review software fills a critical gap in improving the efficiencies of corporate legal teams, transforming this time-consuming, manual task.

While some common construction contracts are similar, they all have distinct differences. These differences can help the type of project and parties involved. Below is an overview of the six most common construction contract types.

Types of Construction Contracts

Lump Sum Contract

A lump sum contract, sometimes referred to as a fixed price contract, is the most basic form of agreement. In this contract, the contractor will agree to specified services for a set or fixed price. The final price of the job is given up front, and is given in a lump sum. There are no differentiators for the costs of various items, rather everything is included in one price. This does not mean that the contractor will get paid in one lump sum. The payment terms are still a separate part of the contract.

Design-build Contract

The design-build contract is a newer type of construction contract. It promotes collaboration between the builder and the project designer. This contract gives the owner one contract for designing and building a project, instead of hiring them separately. In some cases, this contract allows for construction to start without the final design being complete because of the continual collaboration between the designer and the contractor.

Cost-plus Contract

 A cost-plus contract pays the contractor for all expenses of the project, plus an additional profit. This profit can either be a fixed fee or a percentage of the contract’s total costs.  This contract is similar to the lump sum contract but allows for the contractor to know they will make a profit no matter what the final overhead costs add up to.

Guaranteed Maximum Price Contract

A guaranteed maximum price contract, as the name suggests, puts a limit on the maximum price of the job. This contract benefits the customer, because while there is a set price for the job, if the project comes in under budget, the full price does not have to be paid. Additionally, if the costs go beyond the maximum price agreed to, they will need to be covered by the contractor or subcontractor.

Unit Price Contract

In a unit price contract, the contractor prices each unit of work to estimate the projects total cost. If the scope of the project changes, it is easy to adjust a section as needed rather than having to redo the contract or make many changes to the final cost. This contract can be helpful when a project might have an incomplete scope of work or has many variables that are subject to a change in price.

Time and Materials Contract

In a time and materials contract, the contractor will provide a general scope of the job and give a fixed hourly wage plus the cost of materials. There is no fixed price for this type of contract, and it is often used when the full scope of the project is not known. Sometimes these contracts do come with a maximum price, but they are different from a guaranteed maximum price contract. Items that might be included in this contract are labor rates, maximum labor hours, and materials markup.

Contract Review Software

There are many different types of construction contracts, but these are the six most common construction contracts. These contracts can have many variations to fit the needs of the client and the contractor. Managing so many contracts can be a lot of work and time consuming. AI contract review software such as BlackBoiler can help review and spot errors in the contracts and can cut down on the amount of time spent on these detailed contracts.  

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