Month: June 2021

Types of Construction Contracts

Owners of construction companies know just how vital construction contracts really are. They protect both the homeowner and the contractor in the case of unforeseen events occurring during a project. These contracts should be able to stand up in a court of law since that is exactly what they're intended for. This means that a company should bring on a construction lawyer to at least oversee the creation of their contracts. According to our New York construction lawyer, many construction company owners make the mistake of thinking contracts are simple and straightforward, but there are actually several types of construction contracts that they may need to use in their day-to-day work activities. Lump Sum Contracts A lump sum contract is typically beneficial for a homeowner.

The contractor agrees to a lump sum that will be paid for the completion of the project. This usually means that a company can charge a bit more for their work in order to cover any unforeseen events that frequently seem to arise during these projects. Lump sum contracts put risk upon the contractor performing the work. If they happen to spend more time or money than they initially expected, they will likely lose profit on the job. On the other hand, if they finish before schedule or under cost, they will earn a profit greater than usual. It's important to be careful, however, since higher quotes could mean a homeowner chooses a lower bidder for their project. Cost Plus Contracts Cost plus contracts entitle contractors to do projects at their direct cost while also receiving additional payment for the work they are doing. Guaranteed Maximum Price Contracts Guaranteed maximum price contracts are a bit complex. The contract sets forth a maximum price that will be paid by the homeowner, and the contractor is set to receive a fixed fee for their work. If the direct costs of the job go over what is expected, then the contractor only receives their full fixed fee if the remaining funding for the maximum price is sufficient.

If it isn't, they end up losing money from their profits. This contract also differs from a lump sum contract in the fact that money left over from an under cost project goes back to the homeowner. Construction contracts are a vital tool for construction companies and contractors. They ensure that all of the ground rules are laid out before work begins on a project. As mentioned earlier, it is imperative to have a construction lawyer draft these contracts to ensure that they're airtight if the need for litigation ever arises. These attorneys can ensure that construction companies receive all of the money that they're due if a homeowner tries to backtrack on the preset contract.