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Choosing the right construction contract: 4 options

| Apr 4, 2018 | Contract Disputes |

There are a few kinds of construction contracts to know about if you want to have work done on your home. They include fixed-price contracts, cost plus contracts, unit pricing contracts and time and material contracts. Each has its own benefits and downsides.

Fixed-price contracts

Fixed-price contracts are contracts in which there is a single price paid for all construction-related actions. Usually, there is a defined schedule and penalties for work that takes too long. The contractor usually has a good idea about how much a project will cost when he or she takes it on, but if the work costs more than the client is paying, the contractor usually has to eat the cost.

Cost-plus contracts

Cost-plus contracts cover the actual costs of a project plus other expenses created by the construction. For example, you may pre-negotiate a cost of $50,000 for renovations and also agree to pay costs related to direct costs over that amount.

Unit-pricing contracts

Unit pricing is like it sounds. Contractors charge a single price per unit, whether it’s a structure or service. Then, the homeowner, government or other entity purchases units they want. Unit prices can be altered and adjusted for scope changes.

Time and material contracts

Finally, there are time and material contracts. In these contracts, you pay for the contractors’ time and the materials they use. It’s a good idea to establish a cap for a project to prevent a contractor from taking advantage of your budget.

These are the four kinds of contracts you may run into. Make sure you review them and choose what works best for your budget and situation.

Source: The Balance, “4 Common Types of Construction Contracts,” Juan Rodriguez, accessed April 04, 2018

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