Traditional Construction Contracts Services Agreements
Lump Sum Contract
The lump sum or fixed price contracts are traditionally the most commonly accepted construction contract method by owners. These contract agreements are commonly preferred when a clear and well defined scope of work is provided. They should include detailed specifications and stamped engineering documents as part of the design documents.
The lump sum contracts are effective in transferring the construction cost risk to the builder. Careful attention should be used in analyzing the allowance schedule for comparable values. This contract method are paid on progress milestones and create difficulty for the owner when they request credit for scope of work changes.
Cost Plus Contract
Cost plus contracts reflect the actual cost associated with a project, plus the associated fees usually expressed in the form of a percentage or fixed fee amounts to be paid. The actual invoices are presented for payment by the owner monthly. The general contractors fees consist of overhead and profit and paid on an agreed upon interval method.
The cost plus contract are commonly used when the scope of work cannot be clearly defined or the design of the project will be changing during the progression of the project. The risk of the project cost will remain with the owner. This construction contract method requires the owner to carefully define for the general contractor acceptable price ranges and variances to be authorized without the owners direct approval.
Unit Price Contract
Unit price contracts are not commonly used in residential or light commercial construction. They are based on price units of measurement, such as dollars per square foot, or dollars per cubic yard. This construction contract method allows the owner a very easy method of quantifying payment and progress associated with a project.
Time and Material Contract
Time and material contracts are also commonly used when the scope of work or design for a project cannot be well defined or definitively developed. This contracting method is paid on the basis of recorded hourly dollar amounts and the actual cost of the materials to construct the job. The general contractor would bill these cost with a specified fee amount for each billing cycle for approval by the owner.