Construction contracts state the rights and responsibilities of the contractor and the project owner. There are a variety of construction contracts, and depending on the type, one party can benefit more than the other party. Each contract carries advantages and disadvantages that can benefit the contractor or the owner.
A lump-sum contract is a lump sum agreement. The contractor agrees to complete the work for a fixed price and the project owner agrees to pay the contractor the overall price. The price reflects the cost of the realization, the purchase of materials and the marking by the general expenses and benefits. Its advantages are that the owner carries minimal risk, the cost is anticipated and the contractor can get more benefits if he needs less labor and materials to complete the project. The disadvantage is that the contractor carries the risk if he underestimates the cost of the project. In addition, changes in the scope of a project can be costly, and the contractor could use poor quality materials to save costs and increase profits.
Time and materials
A contract for time and materials is an agreement where the owner agrees to pay the contractor per hour, in addition to the materials. The advantage to the contractor is that he does not have to anticipate the cost of completion of the works as in a lump sum contract, and the advantage for the owner is that he will pay for the actual time worked. The downside is that the contractor can run slowly because they pay you for their time.
In a design and construction contract, a contractor is in charge of designing and building the structure. The advantages are that the owner can save money by having a part that implements two phases of the project, and the builder will understand the project from the implementation of the design phase to the construction phase. The disadvantage is that the project owner must provide substantial details in the bidding stage since the entrepreneur must determine the cost of the realization.
A unit price contract obliges the contractor to set a price for each unit of work, which is therefore divided into parts. The advantages of this type of contract include the flexibility to adjust the scope and the fact that it is not necessary to know the complete design. Disadvantages include the cost to complete the entire project and the potentially inaccurate determination by the contractor of the necessary quantities.