Knowing the four types of construction contracts is essential

On Behalf of | Feb 28, 2022 | Construction Contracts |

Spending a significant amount of money to complete a construction project in New Jersey requires you to develop a contract between you and the individual or company doing the work. This action helps ensure both parties are satisfied when the transaction has been completed. Understanding the four different types of construction contracts is essential when choosing the appropriate one for your specific project.

Unit pricing

Choosing this type of construction contract should be done when you want to break down the costs of your project into measurable units. Utilizing a unit pricing construction contract is typically done by the materials needed and the scope of the work. An example would be paying for fill dirt by the load. Instead of choosing an overall price initially, which may not be correct, the fill dirt would be paid for as needed, making the result more accurate.

Time and materials

Using a time and materials construction contract sets a daily or hourly rate on the project. The client will agree to pay for additional costs related to indirect, direct, markup or overhead expenses.


A cost-plus contract collects all the costs required for a project to be completed. This includes materials and labor as well. An additional fee or percentage of total project costs will also be paid to cover overhead and profit.

Lump sum or fixed price

Rolling the costs of the entire construction project into a lump sum creates a fixed price for this type of project. The client’s responsibility will only be to pay the fixed price outlined in the contract. A penalty payment and incentives can also be included alongside this type of contract.

Understanding the nuances of each construction contract is essential to help ensure you choose the appropriate one for your next project. Doing so can make it easier and more efficient to complete your project quickly and correctly.

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