Construction is a huge industry in New Jersey and across the country. When any type of construction work needs to be done, a construction contract needs to be in place and signed. There are four different types of construction contracts that can be used.
Lump-sum contract
One of the most common types of construction agreements is the lump sum contract. This type sets one specific price for all the work performed in a project. There may be incentives included in these contacts if the work is completed earlier than the scheduled completion date. Often, there may also be a liquidated damages clause in case the job is finished later than the set completion date. When builders sign these contracts, they take a risk as they don’t get more money than what was agreed on.
Unit price contract
A unit price contract focuses on the specific tasks being performed as well as the materials used on them. The contractor can more accurately charge for everything included in the work. However, these construction contracts aren’t appropriate for large projects. Usually, they are used for smaller repair or maintenance jobs.
Cost-plus contract
The owner is required to pay for all the expenses related to the project with a cost-plus contract. The owner and builder also agree on a percentage to cover any overhead costs and profits as well. The owner assumes more risk than the contractor with this type of contract.
Time and materials contract
Time and materials contracts are common types of construction agreements that state a set hourly or daily fee that the builder is to be paid. The owner also pays overhead costs and additional fees toward the project. This information is included in the contract. There may also be a cap for the length of time the project should last to reduce the risk to the owner.
When there’s a construction project at hand, it’s important to ensure that you sign the right type of construction contract. This protects all parties in making sure the work is completed as promised and paid fairly.
